Buying a Car

How to buy a new or used car in the US

Most cars are cheaper in the US than in other countries and hardly anyone pays the list price. Car dealers are usually willing to negotiate and prices may vary considerably from dealer to dealer.

Buying a Car

Generally, there aren’t long waiting lists for new cars, although in recent years some new sports and luxury models have been in short supply, in which case instead of obtaining a discount you’re likely to be charged a premium.

Dealerships are usually grouped in one part of a town, which makes comparing cars and prices relatively easy. There are taxes on new and used cars; these vary from state to state and include a sales or use tax. Sales tax is levied on the proceeds of retail sales of tangible personal property, including cars. All but five states have a sales tax which applies to new and second-hand cars (states without sales tax may levy a special car tax).

Some states levy a lower or higher sales tax on cars than on other goods. In most states, sales tax is payable on the balance of a sale after the value of any trade-in has been deducted. A city or county sales tax may be payable in addition to state sales tax. Sales tax on a used car may be levied only if it wasn’t previously registered in the state. Any vehicle sold by a person other than a licensed dealer, manufacturer or dismantler may be subject to a ‘use tax’, which is comparable to the sales tax collected by licensed dealers. Any sales or use tax due must be paid at the time of registration.

All states have ‘lemon’ laws covering new and used cars, which protect buyers from buying a clunker, i.e. a vehicle with major defects.

New Cars

Although comparisons between new car prices in different countries are often difficult to make because of fluctuating exchange rates and the different levels of standard equipment, most new cars are much cheaper in the US than in most other countries. American consumers have a huge choice of cars and, in addition to a wide range of US models, most European and Japanese cars are available. Ever since the introduction of the sports utility vehicle (SUV), the average size of American cars has been increasing, which isn’t surprising, given that SUVs are a sort of small truck (often with comparable handling and road-holding abilities).

SUVs now make up a good half of the personal passenger cars on the road. They’ve completely replaced estate cars (station wagons) as the family vehicle of choice, and some Americans are now lusting after a Hummer, derived from the military armoured vehicle, the Humvee. ‘Compact’ (or ‘economy’ or ‘mid-size’) models are around the same size as larger European cars, such as a Jaguar or Mercedes.

‘Sub-compact’ is the name given to small family cars such as the European Ford Focus or VW Golf, open sports cars are called roadsters or convertibles. Traditionally, American cars have had prodigious thirsts, and the current fad for SUVs has certainly brought the US back to those cherished traditions. In the view of many (and not just foreigners), American cars still handle poorly, are too big for many people and consume too much petrol, which is why over 30 per cent of Americans buy imported cars. Petrol consumption is measured as miles per gallon rather than by consumption per a set distance.

American cars

Many American cars (or cars made for the US market) are liberally adorned with ‘idiot’ gadgets and buzzers, for example those informing you that your seat belt isn’t fastened, your lights are on or your keys are in the ignition. Some American cars have combination locks on the doors that can be used to lock or open them when you’ve locked your keys inside the car (provided you haven’t forgotten the combination). Cruise control is fairly common and highly desirable when you’re driving hundreds of miles on a dead-straight road at 55mph or 65mph; it decreases your fuel consumption, helps prevent speeding and is less tiring.

Air-conditioning is standard on most cars and certainly isn’t a luxury in the hotter states (or during the height of summer in New York City), although it decreases power and increases petrol consumption. Some 90 per cent of American cars are fitted with automatic transmission and most have power steering, both of which increase petrol consumption. Air bags have become standard on all cars and trucks because of federal safety requirements, but may be disabled by an authorised dealer.

The basic price of a car without options, but including warranty and freight, is usually called the base sticker price; this is shown on a label in the car window. In addition to the base price, the sticker shows the manufacturer’s installed options with the manufacturer’s transportation charge and the fuel economy (miles per gallon). The sticker may only be removed by the purchaser. The dealer sticker price, usually shown on the same sticker, is the base price plus the suggested retail price of dealer-installed options, and additional dealer mark-up (ADM) or additional dealer profit (ADP), dealer preparation and undercoating.

The dealer mark-up on new cars is much lower than in most other countries and most of a dealer’s profit is made on options and on finance and insurance packages. Many ‘options’ may be already fitted to a showroom model and you must pay for them whether you want them or not (or look elsewhere). These may include electric windows and mirrors, central locking, sun roof, alloy wheels, stereo radio/cassette/compact disc (CD), power steering, anti-lock brakes (ABS), air bags, automatic transmission, leather or power seats, cruise control, headlamp cleaning, trip computer, split/fold rear seats and air-conditioning.

Some manufacturers (particularly Japanese) include many of these items as standard equipment (termed ‘fully loaded’), while others (particularly German) make you pay heavily for them and usually have a list of options as long as your arm. Sticker prices don’t include local taxes, licence plates and registration. Many car dealers also include a high charge, for the paperwork associated with buying a car (haggling may get it reduced or cancelled).

Before you enter a showroom to buy a car, decide on the make and model you want and check its price, and repair and safety records, with a reliable guide. You should know in advance how much you’re willing to spend. Once you’re in the showroom they start adding options that drive up the cost. (‘High-balling’ is offering an unrealistically high trade-in price, which later drops dramatically if you don’t have it in writing.) You can drive a hard bargain when a dealer’s expecting a shipment of new cars and wants to get rid of his ‘old’ models. When the price isn’t right, show that you’re prepared to walk away from the deal and the price is usually reduced.

US  car industry

The US car industry has been stuck in a period of flat or falling sales for the last couple of years, and most car dealers are offering rebates, low or even zero-rate financing for terms up to five years (most banks only lend you a maximum of 80 per cent of the cost of a new car over 36 to 60 months) and other incentives to try and boost lagging sales. Dealers may also offer incentives such as free AAA membership, service discounts, options or special equipment, and a free loan car for up to five days when a repair or service is required. Many manufacturers offer optional extended warranties, which are good value if you do high mileage or intend to keep a car for a long time.

Most dealers offer personal contract purchase (PCP) or lease deals, usually with a 30 per cent down payment, a contract term of 25 or 36 months and an annual mileage allowance of 12,000, 24,000 or 36,000, above which you must pay up to 35 cents for every mile covered. All leasing offers stipulate ‘qualified buyers only’, which means that unless you have an excellent credit rating you won’t be eligible for a lease. Leased vehicles have a guaranteed buy-back value, known as the ‘minimum guaranteed future value’ (MGFV), and at the end of the contract you can buy the car outright by paying the MGFV, return it to the dealer, or trade the car’s MGFV against a replacement vehicle.

If you return a car, it is inspected for damage and you can be faced with a large repair bill. Shop around and compare a number of leasing deals, as some deals are deliberately confusing and offer poor value. Although leasing gets you behind the wheel of a car you otherwise couldn’t afford, there’s a hefty price to pay to satisfy your ego.

There are numerous consumer magazines and guide books for car buyers, with which you can make comparisons until your head spins. These include the Standard Guide to Cars & Prices (Krause Publications) and Consumer Reports magazine’s annual Car Buying Guide. The AAA and Money magazine (1-800-633-9970 or 407-444-7000) also provide car price guides. Car magazines regularly show ‘list’ and ‘best’ (offer) prices, and also list dealer margins, so you know exactly how much profit a dealer is making.

One of the best guides is The Car Book, a free guide to new cars, safety, fuel economy, maintenance, warranties, insurance, tyres, used cars and consumer complaints, published by the Center for Auto Safety, 1825 Connecticut Avenue NW, #330, Washington, DC 20009-5725 (202-328-7700, www.autosafety.org ), which also publishes other information for motorists.

Used Cars

Used cars are excellent value, particularly low mileage cars less than a year old, where the savings on the new price can be as much as 25 per cent. The minute a new car leaves the showroom it’s usually worth at least 10 per cent less than the purchase price. Some models depreciate much faster than others and represent excellent second-hand buys.

If you want a car for a short period only, an older car reduces your losses if you sell it within a short period. Old V-8 gas-guzzlers can be an excellent buy, as the low-stressed motors last for ever (although the body and other parts rust and fail, as on any car). However, the often eccentric handling may frighten you to death. Fuel consumption is horrendously high and may vary from around 8mpg in town to 15mpg on a run. The use of air-conditioning in under-powered older cars increases petrol consumption, reduces engine power, and increases the possibility of overheating when in traffic jams or climbing long mountain passes.

If you don’t want a gas-guzzler, Japanese cars are generally among the cheapest and are usually reliable and economical. Old Volkswagens are also good value and it’s easy to get them repaired and find spare parts. Obtaining spares for some imported cars is difficult or even impossible. The number and location of dealers in imported cars varies considerably from state to state. In some states, you may find that the nearest dealer is hundreds of miles away. Older classic European sports models can be bought in the US for much less than in Europe, although their condition is often poor and finding spares and expert mechanics can be difficult.

When you’re buying a second-hand car in an area which has a lot of snow, you should check it carefully for rust, as a vast amount of corrosive salt is used on roads. The Sunbelt states are the best place to buy, as there’s usually no snow in winter. However, prices are generally higher on the west coast than the east (because of stricter emission regulations).

A car with high mileage can be a good buy, particularly cars sold by rental companies, although you should be careful when buying a car with average or high mileage that’s over four years old, as this is the time when it may need expensive repairs. Most Americans are reluctant to have their cars serviced and generally follow the old adage ‘If it ain’t broke, don’t fix it’.

This means that even simple preventive maintenance such as a change of oil, oil filter, plugs and belts may be done rarely, if at all, and a ‘tune-up’ may be done only when a car is running badly. Around one in five cars tested by the AAA fails maintenance tests and many people drive cars that are in a dangerous condition. Cars under four years old, therefore, usually represent the best value.

Tips for dealing

Buying a car privately may be cheaper than buying from a dealer, although you won’t get a warranty and must usually know what you’re doing. It’s important to have a car checked mechanically before buying it. Unless you’re an expert, take someone knowledgeable with you. Alternatively, most service stations and repair shops will check out a car on the spot and it’s usually inexpensive (although getting a dealer or private buyer to allow you to do this may be difficult). The price of a used car depends on its make and size, its age and condition, the time of year, and the area where it’s for sale.

You may get a better deal from a new car dealer who also sells used cars of the same make than from a used car dealer selling used cars only (usually of any make). However, if you’re looking for an inexpensive car, a used car dealer may be the better bet. Whenever possible, use a dealer who has been recommended. It’s often better to buy a car from a small town dealer than a dealer in a major city. In small towns, a dealer relies more on local business and is likely to be careful to maintain his good reputation. You can usually check whether there have been a large number of complaints against a dealer through a local consumer protection agency or Better Business Bureau.

A ‘buyer’s guide’ sticker must be displayed in the windscreen of all used cars sold by dealers. This includes information about who must pay for repairs after purchase, whether there’s a warranty and what it covers, whether a service contract is available, and general points to note when buying a used car. Dealers sell cars with no warranty (as seen or ‘as is’, although in some states your rights to redress in the case of serious problems are protected by law) or with a full or limited warranty.

When purchasing a car privately, obtain a bill of sale, the proper title and registration, and copies of all financial transactions. Be sure to obtain a title or (e.g. in New York State) a notarised bill of sale. Check the registration month and year on the rear registration plate, because if a vehicle is unregistered you could be held responsible for the past year’s registration fee. If you’re stopped by the police, you must show proof of ownership and in some states it’s illegal to drive without it.

One of the best places to buy second-hand cars (and to compare prices) is through local newspapers, e.g. the Sunday edition of the New York Times. Free car shopper magazines and newspapers are also published in all areas. You can get an idea of the value of second-hand cars from guides such as the National Automobile Dealers Association’s (NADA) Used Car Price Guide, Edmund’s Used Car Prices (www.edmunds.com ) and the Kelley Blue Book Auto Market Guide (available through several websites, including www.cars.com ). Consumer Reports magazine provides a telephone used car price service.

Do your own research in your local area by comparing prices at dealers, in local papers and in the national press. Many private sellers are willing to take a considerable drop and dealers also negotiate over prices. Cars with high mileage can usually be purchased for substantially less than the average price and may offer excellent value, provided they’ve been regularly serviced. Used cars are usually paid for in cash or with a certified cheque or a money order.

This article is an extract from Living and Working in America. Click here to get a copy now.

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