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Cars are a leading cause of wealth destruction; they are also a necessary evil in our society. The only way to win the “car” game is to prepare for battle with a fully loaded arsenal. Today I am going to show you how I buy cars for $4,000 or more under Blue Book.
Before we begin battle you need to understand my car habits. I drive 6,000 – 8,000 miles per year, mostly for business trips. I bike to work around 100 days per year and drive another 100 days. The round trip to work is 30.2 miles. I always buy a used vehicle. Once I claim ownership of said vehicle I drive it for 15-20 years. There are two cars in the garage. This means I buy a car every 7 to 10 years on average. I keep my cheapskate skills honed by helping clients and family members engage in the same mischievous auto savings activities.
The Opening Salvo
In the past I have purchased used vehicles from owners, but my favorite victim is the local bank or credit union. In my neck of the woods the credit unions handle the bulk of the auto lending. Some of these loans go bad and the credit union takes possession of the vehicle. I am not picky about what I drive. If it starts and gets me from Point A to Point B cheaply I am a happy man.
My preferred target is approximately 1-2 years old, gets good gas mileage, has low maintenance issues, and has not been abused. An internet search can reveal issues with a make and model. Minor issues don’t bother me; major issues like the transmission are a deal breaker. The local credit unions usually give the car a safety check prior to selling. I still take the vehicle to a trusted mechanic to give it the once over to verify the car has no major issues.
You need inside knowledge I will share with you for the next step. The financial institution needs to unload that vehicle fast. The regulators do not want a wasting asset sitting on the credit union’s books for any lengthy period of time. If they don’t find a buyer fast it goes to auction where only licensed dealers (in most states) can purchase it. A vehicle at auction goes for a lot less than the credit union wants. In other words, you have a motivated seller (my favorite kind).
There are a couple of ways for the financial institution to facilitate a sale. The two most common are:
- Make an offer. They will haggle just like an auto dealership.
- Make an offer in writing and we will get back with you. With this method, the bank takes in all the offers and makes a decision in a few days.
Most banks use method two now, so we will focus on cracking that nut. First, the offer is non-binding. If the bank insists it is binding I give them 12-24 hours to make up their mind. I prefer a non-binding offer since I can bid on several vehicles they have available; on the vehicles they respond to, I can choose the best offer. Regardless, never make an offer valid for more than 2-3 days. Don’t worry, if they are still interested in selling to you they will call even after the offer expires.
Before I make an offer on a vehicle I take it for a test drive. Each car I am interested in after the test drive gets looked over by me first and a mechanic second. You can have a trusted mechanic check the auto or if you are lucky like me, you have a neighbor who has a small auto shop in his garage.
Time for an Offer
The test drive is over, the mechanic found the car in good shape, and the credit union called to say they accepted my offer. At this point I know my offer was the best, but I don’t know by how much; my offer may also be the only one. I agree to meet with the banker. With a million dollar smile I tell my friendly banker I am no longer interested in the car. The reason: my research online indicated it is worth less than the offer. In half of the cases the bank only has one offer, yours. If I back out of the deal this thing is going to auction with a massive haircut.
Large purchases are more emotional head games than true purchases. The bank wants out bad and fast; I want a sweetheart of a deal or I keep driving the Junker I already own. I am always polite working with the bank officer. I am their friend. I also know the guy trying to unload the vehicle is frequently the guy who wrote the bad loan. People are unfairly motivated by the site of cash and I use that to my advantage.
To finish the process I will share my last auto purchase from a local credit union. I own a 2001 Honda Accord (purchased from an employee in 2003) and a 2007 Toyota Camry (purchased from the credit union in 2008). This is the story of how I became the owner of the Camry.
The offer was accepted after the offer expired. (Surprise! Surprise!) The Blue Book on the vehicle was $14,850 at the time; my offer was for $10,800. I smiled and told the banker I was no longer really interested in the car unless I could steal it. He said the offer was $10,800 and that was all he was authorized to accept. I said I will pay $9,500 or it is not worth putting another vehicle in the garage. He started chocking on his tongue. He also said the credit union was taking a loss on the vehicle as it was. I replied I was not in business to guarantee the profitability of every loan the credit union makes.
Here is where psychology takes over. I softened the poor guy up, now it was time to go for the jugular. I ask the banker if it would make a difference if I took a loan so the credit union could recoup some loss by collecting some interest. Only once in over 30 years did they say yes, take the loan. (I did take the loan and paid it off in full less than two weeks later. I did save another $800 in that instance.) With the loan issue out of the way I unleash an unfair mental manipulation: Cash. I bring cash with me to an auto purchase. The sight of cash creates all sorts of effects on the seller. Even bankers fall for it.
I dig into my bank bag and pull out $9,500 in hundred dollar bills and count it out on his desk. “This is all I have,” I say. “Take it or leave it.” By now the banker is as white as a ghost. He still claims there is no way to close the deal at $9,500. “Well, how much then?” The banker came down to $10,500. I explained to the banker that if I walked the car goes to auction where my offer will look like a King’s Ransom. I also explain that if by some miracle he sells the car before auction they will lose another month or more of time value. I make up some BS lost interest number at this point. The banker stuttered a bit more and said $9,800 was the best he could do.
His shoulders slumped. I knew I had the best offer. I pulled out my wallet and added $300 more to the $9,500 already on the table. I win.
It does not always go this well. My average auto purchase is around $4,000 under Blue Book. A decade ago I had an itch for some fast cash and bought a small number of vehicles, drove them for a few months and then sold them from my office parking lot for more than I paid for them. (Someday I’ll tell you the story of the cute little Z28 I drove for one summer.) Unfortunately, in Wisconsin, if you sell more than four cars a year you are a dealer and need to be licensed. Well, it was a good idea for a year! I went back to my old ways; buy’em and hold’em forever.
Once you own a vehicle it is time to make them last. In northeast Wisconsin we can have snow and ice six months of the year with a guaranteed four months of such weather. Salt and sodium chloride on the roads wreck havoc on cars. (I once had a car where I needed to replace the gas tank; it had rusted through.) Making a car last 15 or so years is a challenge. Your climate will require modest changes, but what I do has worked for me in a harsh winter climate.
Here is how I maintain my vehicles:
- In the summer I wash the car myself by hand; in the winter I also do it myself if a warm spell shows up. Otherwise, the car does not get washed much.
- I change the oil like a religion. I read the owner’s manual and follow the recommendations. Most cars can go 5,000 to 7,500 miles between oil changes now. I follow other maintenance requirements, as well. I change my own oil, but enlist my neighbor mechanic for issues like tire changes and brake jobs.
- I drive sensibly. I refuse to pound my car.
- That is it. Nothing special. Drive intelligently, change the oil, and give the girl a bath every so often.
Buying a car is not that bad. You can get a reliable vehicle at a cheapskate price if you know how. Cars today last a long time if you change the oil. The cheapest car is the one you never buy, so maintaining your mode of transportation is vital.
Remember the two cars I own? The Honda is getting old. She runs like a charm, but the body is really getting bad. Salt will do that. Soon I will visit my friendly credit union. I know they will be prepared for me. It will make no difference. They are a motivated seller with nowhere to go and I am armed to the hilt when I come knocking for a deal.
Am I acting in an unfair manner? I guess that all depends on if you are in the market to buy a car or a bank with a repo on your parking lot.