Since I've worked in the car business (accounting - I'm no salesman) for well over 10 years - I figured it was time for me to write a post regarding the crazy subject of buying a car. I have to admit, even with working in the industry so long, even I am still a little intimidated when I visit some dealerships. The reason you ask? Well, we as buyers aren't on our home turf, and there are so many angles and variables to purchasing a car. Cars.com had a great commercial during the Super Bowl about this very topic. Watch it here and you'll see what I mean.
So, what do I think you need to know?
Well, first and foremost, figure your budget for a new or used car purchase. Yeah, we all have the perfect car in mind but it most likely isn't perfect for our budget. So, before you even start looking, sit down and realistically determine how much you can really afford to spend each month for a car (unless you are loaded with cash - we'll talk about cash purchases later in this post). Don't forget, not only do you have the car payment to consider, but you'll also need to figure out insurance costs, maintenance costs (oil changes and other maintenance), and the costs of your annual renewal for your tags and taxes (commonly called ad valorem taxes).
Once you have your budget figured, then it is time to start shopping. There are a lot of things to consider. Resale value, gas mileage, import versus domestic - you get the picture. Most manufacturers offer at least one model that should fit what you are looking for. It seems that older generations tend to base their purchases on brand loyalty and 'Buy American', while younger generations go for "what's hot". So there you have it, your first decision - import or domestic. Imports generally hold their values better than domestic vehicles. Why? It is all based on supply and demand. For years, the domestic manufacturers have flooded the market with their cars and the days supply is bloated. Use the Internet to compare cars. Edmunds.com and Kelley Blue Book are two great sites to use to research your next vehicle purchase.
So, you decided on the car you want. It fits within your budget and it is practical. By practical I mean that a family of 6 doesn't NEED a 2-seater BMW. But, do you buy a brand New vehicle or go for Used/Pre-owned/whatever the dealer wants to call them vehicle? In my humble opinion, buyers get the better value from a quality pre-owned vehicle (I drive one). With new cars, there is an immediate depreciation just after the purchase. What I mean by this is that if I buy a new car for $25,000.00 today, and decide to sell it next week, no one is going to pay me $25,000.00 for a now 'used' vehicle when they can go buy a new one for $25,000.00 themselves. You'd be lucky to get 90% of what you paid. However, with a used car, that initial depreciation is already accounted for in it's selling price. I know - most people just love that new car smell.
Use the internet to shop. There are so many sites to use on the internet to purchase a vehicle. Pick your favorite as most dealers list their cars on ALL of the sites so you probably won't find a dealer's vehicle on one site and not another. You can visit Automotive.com, cars.com, autotrader.com - the list goes on and on.
So, you've researched your next vehicle (and know the true value) and you found your next vehicle using one of the shopping sites I just mentioned. Now, take a quick look at the dealer's own website and see what the offered price is - if it is the same then great - otherwise, go with the best listing. Print out whatever you see to take with you. Also on the dealer's site, there may be a coupon that you can print and use to save $100 - $500. Follow the instructions on the coupon, fill it out, print it out, and take it with you. That is just more cash you are saving.
There are THREE distinct transactions within the entire purchase process. If you don't think of it this way, the dealer may get the best of you. Each transaction is negotiable - and unless you can agree to terms on ALL three, then you do NOT have a deal. Consider walking away. The three transactions are: 1) the vehicle's purchase PRICE, 2) the TRADE-IN value for your trade (if you have one), and 3) the financing of the purchase.
1. The price of your new or used vehicle
Don't be afraid to negotiate. Negotiate with the mindset that you are paying cash for this vehicle. This is a standard part of the purchase process. You know the car's value, you know your budget, USE this to your advantage. Worst case? You walk. But, most dealers are more than willing to negotiate, especially considering this economic climate. Do NOT pay more than you can afford. Be careful here. If you tell the dealer how much you have budgeted for your payments each month WITHOUT stating the length of the loan that you are willing to accept, they will make the 'deal' fit your payment - by extending the term of any loan. Keep the price negotiation on just that - the price - not the term and/or monthly payments. If you do slip or they pry that information from you, try your best to avoid a 72 or even an 84 monthly repayment term. Yes, 84 months does exist.
Let's think of this transaction this way. If I am selling you my car for $25,000, I, as the seller, don't care about term or rate. I just want to sell my car for $25,000. However, if I am going to finance it for you, and you tell me that you want to keep your payments to $420 per month, then I have an advantage - albeit a psychological one. I could up the price of the vehicle to $30,000 and extend the TERM to 72 months giving you a payment of LESS than $420 per month. LESS than $420 per month sounds much better than $420 per month - even if there is an extra 12 months of payments built in. Do you see where I am going here?
Once the price of the vehicle you are buying is set, it is time to move to the second phase of the purchase process.
2. The value of your trade
Again, don't be afraid to negotiate. For this transaction, use the mindset that you are simply agreeing to a price that the dealer is going to buy your car from you. Hopefully you've done the research as before and know what your present vehicle is REALLY worth. We tend to attach an emotional value to our vehicles that artificially inflates the value in our minds. Be realistic. Kelley Blue Book is a great source of valuation information for trades. While I'm discussing your trade, let's talk about NEGATIVE equity - or simply put, you owe more for your trade than it is truly worth. If your trade is worth $10,000.00 but you owe $15,000.00 - the $5,000.00 in NEGATIVE equity will be 'rolled' into your total purchase. Depending on state regulations, this may increase the price of your new or used vehicle (#1 above) or it may have to be disclosed as a separate line item on your contract and/or bill of sale. Be aware. Unfortunately, this has become standard in the industry - customers buy more than they can afford and in the end it can get very ugly. But, no fear for you - you already prepared your budget, you've done all of the research, and have made up your mind that you will only pay what you can afford and what the car is truly worth.
In most cases, this is the most mind-numbing transaction in the purchase process. We've all heard the horror stories of being beaten into buying 'products' we didn't really need - just to get out of the finance office and home with our new vehicle. Unfortunately, for those ill-prepared, this happens more often than not. RESEARCH, and know what you want to buy before you get near the finance office. Dealers like to TO (or turn-over as it is referred to). This simply means that if you decide NOT to buy products, you will be turned-over to a manager to review your purchase in hopes that this manager will somehow convince you to buy something you don't really want. So with the process out of the way, here comes the details.
Again - negotiation is key. Unless you have a credit score of at least 680, be prepared to make a decent-sized down payment - or what I would call a reduction of principal. You may even have to find a co-signer (someone that the bank can turn to in the event you default on your payments). Even if you have excellent credit, it will benefit you in the long run to make a down payment and hopefully avoid the NEGATIVE equity cancer I discussed in #2. First will come the rate/term discussion. Yeah, the term will come up again. Don't budge. If you can pay the vehicle off in 60 months then stick with 60 months. The rate will obviously be driven by your credit score. The higher your score the lower your rate. Don't get too hung up on the rate. Yes, you want a good rate, certainly one that you deserve, but you are best served by sticking to the term. Next will come the barrage of 'products' to buy. Extended warranties, GAP coverage, credit life/disability, Etch, Lojack, Tire Pressure monitors, chemical treatments - the list goes on and on. But, you already know which products you are interested in and this will move the process must faster. Out of everything that is sold in the finance office, the only two I would even consider buying would be an extended warranty and GAP coverage. Let's talk about the two.
Extended warranties - these are cheapest on a new vehicle. These are sold and priced on a term/mileage basis as well as varying levels of coverage. Now, most manufacturers are providing warranties for their vehicles with a 36 month/36,000 miles bumper-to-bumper warranty - these will slowly get better as the manufacturers attempt to build product loyalty. Hyundai, for example, advertises a 10 year/100,000 warranty - though it is only for the power train (engine, transmission, etc). The "bumper-to-bumper" warranty is limited to 60 months/60,000 miles. Still not bad. You can WAIT to purchase this if your want to. It CAN BE purchased outside of the finance transaction. Keep in mind that if you are buying a car (new or used) that is STILL within factory warranty, you can purchase an extended warranty for a 'new' vehicle in most cases. Again, it is cheaper to get an extended warranty on a 'new' vehicle than for a used - and by 'new', I mean the vehicle is still within the manufacturer's warranty. So, what would I suggest? I WOULD purchase an extended warranty that would cover the vehicle for the same term that I am financing the vehicle. So, if I bought a car that still had 12 months/12,000 miles left on the factory warranty, I would opt for a 48 month/48,000 extended warranty that covered the power train and electrical components that ADDS to the remaining factory warranty if I was financing the car for 60 months. Again, be careful here and read your contract - look for the MILEAGE and DATE expiration boxes and check them. I would like to avoid 'major repair' costs while I'm paying for the vehicle. I want to keep my budget in tact.
GAP coverage - this optional product is designed to cover NEGATIVE equity that I discussed earlier. It must be purchased during your transaction at the dealership. Here is how it works. If I had a car that I bought 6 months ago that is currently only worth $10,000.00 but I owed $12,000.00 for, I would be covered for the NEGATIVE equity in the event my car is stolen or rendered a total loss in the case of an accident. GAP coverage can only be sold on vehicles that are financed. Obviously, cash purchases don't need GAP coverage. There are usually deadlines for filing your GAP claim in the event that it is to be used. Read you GAP coverage contract carefully. I WOULD purchase this coverage if I absolutely knew that I would be "upside" down on my vehicle for any given time during my loan. It is certainly worth spending $400 - $700 to cover my NEGATIVE equity. Just to note, Allstate Insurance offers this same product via their company's Gold and Platinum Protection packages. It is optional and is called 'New Car Expanded Protection'.
To keep things smooth in the finance office, know what you want when you go in. Stick to your term and keep the rate fair. DO NOT be afraid to say NO. Don't buy things you don't necessarily need. Please.
So, if you keep in mind that each of the three transactions mentioned are in fact, their own transaction, and that each SHOULD be negotiated individually, then you are well on your way to navigating the craziness of buying and financing a new or used vehicle. Keep in mind that what I've discussed are general items and that each situation is unique. If you have any questions, I'll be happy to answer them to the best of my ability. Until next time.
Monday, February 09, 2009 | 0 Comments
Well now that the Super Bowl is over and the Pittsburgh Steelers have won a record 6th Super Bowl, it's time for us football fans to sit back and enjoy the time off. August will be here before we know it.
A site that I'm sure is quite popular today is hulu.com. There, 62 of the commercials are available to watch. There were more commercials, at least by my account - but some of those were probably 'local' commercials that don't count.
As I suspected, there were few automobile commercials (7 in fact) with the exception of non-domestic car makers. Toyota had 3 ads, Acura had 1, Hyundai had 2, and Audi had 1 as well. No Ford, GM, or Chrysler ads. Hulu.com shows 5 of the 7.
As far as my personal awards go:
Most annoying - Careerbuilder.com - See it here.
Dumbest - Pepsi - See it here.
The best - Coke - See it here.
Check them out today if you have time and let me know your thoughts. Until next time.
Monday, February 02, 2009 | 1 Comments
It is being reported that 30 second ad spots sold for $3 MILLION!! In this economy? It was reported by CNBC that NBC sold 69 ad spots for a total of $206 MILLION! I believe that I heard this was a record. I wouldn't have thought they would have been able to sell all of those spots - at least at full price. Could this be a sign that the economy is beginning to recover? Let's hope so! It will be interesting to see 'who' is advertising and to see the quality of the commercials. I'll recap some of those tomorrow.
I don't think we'll see many automotive ads considering their economic woes. But I'm sure Budweiser will fare well and will softdrink companies. Banks? Probably not so much! Read CNBC's pregame economic article here.
Oh, one last note - it seems resale ticket prices benefited the consumers this year. It is also reported by CNBC that ticket prices for resell tickets were at a lower price than in previous years - only a paltry $2,700.00.
Who is going to win? I'm pulling for the Cardinals. Come on - they've never won a Super Bowl! Until next time.
Sunday, February 01, 2009 | 0 Comments
Exxon Mobil (XOM, NYSE) has been setting records for quarterly profit quarter after quarter. This time, they have the dubious honor of setting the annual profit record with an astonishing $45.2 BILLION in net profit!!
That, my friends, is ridiculous. I am a true capitalist and really believe in the capital markets, but Exxon is a perfect example of how large companies can take advantage of consumers. And I know that they will say they had nothing to do with the cost of crude oil setting records earlier this year, but they sure as heck benefited nicely from it.
So in short, they only had $7.8 BILLION in profit for the fourth quarter of 2008 - compared to $11.6 BILLION for the fourth quarter of 2007 - a decline of about 33% in profit. Awe.
Speaking of crude oil prices, they began 2008 at roughly $100 a barrel, and they sharply rose to around $150 per barrel by July. But lately, prices have fallen about 70 percent since people aren't driving as much and taking staycations rather than vacations.
I can only say wow. Until next time.
Friday, January 30, 2009 | 1 Comments
With the not so great news that keeps rolling our way, how secure do you currently feel with your continued employment?
Please take a second and answer the poll "Is Your Job Secure" to the right.
The Labor Department released new numbers today regarding people remaining on the 'benefits roll' after drawing an initial week of unemployment benefits - also known as continued claims. The unemployment number ROSE (again) by 159,000 to reach over 4,776,000 as of January 17th. The expected number was thought to be 4,650,000 - so yes, more people were unemployed than the "experts" had thought would be. The Labor Department began keeping these records in 1967, and this latest data is the highest number on record.
To quickly review the latest job cut news, Boeing has increased the number of people they will lay off to 10,000 or 6% of its total work force. Starbucks (which was already overly saturated) is planning to close 900 locations and in the process terminate 6,700 employees. Target has cut 400 'open' positions and slashed another 600 currently employed workers. AOL (owned by Time Warner) is cutting its workforce by 10% meaning that 700 workers will be looking for work elsewhere. These are just a few of the MILLIONS of people that are already laid off or will be laid off in the very near future. If this is you, get busy with updating your resume and job hunting on sites like theladders.com, monster.com, careerbuilder.com, and craigslist.com.
What does this mean for us?
Hopefully you are prepared for a worst case scenario. You've already saved enough in your "Emergency Fund", aka -liquid assets, that you can survive for AT LEAST 6 months of unemployment. You'll qualify for unemployment benefits but the benefit will be based on your earnings record and usually maxes out at around a few hundred dollars per week (the maximum in Georgia is $295 per week). Not only will you receive less than you are accustomed to, you'll also be responsible for your own health coverage - whether it be a temporary policy you purchase or through COBRA. If your former company completely closes its doors and terminates the group health plan, COBRA will NOT be available in most cases. So be prepared. I highly recommend eHealthInsurance.com. I've personally used them to purchase coverage for my small business and it was quick and painless.
No matter the situation you are going to have to plan for cuts - or trimming the fat - as I like to say. Go ahead and start thinking of the things you can live without - cable, dining out, gym memberships - whatever you don't NEED may have to go.
If, however, you don't have much of an "Emergency Fund" or have none at all, then start trimming the fat now and prepare for the worst. For homeowners with a mortgage, this will be especially tough, but you can make it. Hopefully you didn't buy a home that costs more than you can really afford. If you did, then it will be even more painful. Most lenders are willing to work with their borrowers considering they really would prefer you not to go into foreclosure since they already have enough foreclosures on their books. If you are a renter, you seriously need to consider downgrading as soon as possible if you can't or won't be able to afford your rent.
Make a painfully difficult budget and do your best to stick with it. At the very least, work your way towards it. It most certainly won't be easy, but armed with the knowledge and confidence that you CAN successfully get through this, you will. Until next time.
Thursday, January 29, 2009 | 0 Comments
Given the current state of the econonmy and the terrible interest rates that are paid to those who save, there are options. I spend a considerable amount of time regularly scouring for higher interest rates wherever I can find them - savings accounts, money market accounts, CD's - the banking options are limited and great rates are disappearing.
For SAVINGS accounts, today's best rate is offered by Bank of Internet USA (not very familiar to me) at 3.51% with a $100.00 minimum. The second best rate is offered by Dollar Savings Direct (I have this account and it has been great so far) at 3.50% with a $1000.00 minimum.
For Money Market Accounts (MMA), today's best rate is offered by Flagstar Bank at 3.00% with a $1.00 minimum. The second best rate is offered by Investar Bank at 3.00% with a $2500.00 minimum.
All of these rates were courtesy of bankrate.com. I visited each of these banks websites to verify the rates and all were good with the exception of Investar Bank. The rates quoted via bankrate.com did not match their website. In fact, the rates on their website had not been updated since 7/3/08 - so beware!
To offer another option to traditional savings accounts, MMAs, and CDs, there are now forms of Person-to-Person lending which can earn you substantially higher rates, with the trade-off being more risk - such as the borrower defaulting. There are several companies that match lenders with borroweres, but this post will focus on the Lending Club. These companies make their revenue from origination fees from the borrowers and a service fee from the lenders. We'll focus on the lender aspect.
The current stated rates to borrowers are between 7.37% and 20.11% depending on the borrowers credit rating. The service fee to lenders is 1% of the payment made to the lender each month. The great thing about Lending Club is that no one particular lender has to lend to one particular borrower. In fact, you can fund small portions of many loans - thus spreading the risk across many borrowers.
Their current portfolio, according to Lending Club, includes a total of 2,608 issued loans totaling $21,868,425. Of these loans, 101 or 3.22% or $705,164 are considered late. Also of these loans, 53 or 2.16% or $471,681 are in default. Those truely aren't bad numbers. Feel free to visit Lending Club, click on Statistics on the navigation bar and view the data for yourself.
Sites like Lending Club are becoming more and more popular - especially in light of lenders refusing to lend money even after the fantastically structured stimulus package. Rates are usually better than banks and credit unions. Lenders (you) don't have to deal with any paperwork or collection activities if it comes to that. Lending Club handles it all. One interesting aspect of Lending Club is that they also offer a trading platform, where you can buy/sell current loans. So if you need to recoup your cash quickly, the option to sell your loan before maturity does exist.
A quick note about the risk involved, directly from Lending Club's website:
Risks & Returns
Investing in Lending Club Notes involves certain risks,
including the risk of our bankruptcy and the risk of a borrower not repaying a
Lending Club only accepts borrower members who are U.S. residents and
whose FICO score is at least 660. Borrower members must also meet additional
- a debt-to-income ratio (excluding mortgage) below 25%, as
calculated by Lending Club based on (i) the borrower member's debt reported by a consumer reporting agency and (ii) the income reported by the borrower member, which is not verified unless we display an icon in the loan listing indicating otherwise;
- a credit report without any current delinquencies, recent bankruptcy,
collections or open tax liens;
- at least four accounts in the credit report, of which at least three are
- no more than 10 credit inquiries in the past six months;
- utilization of credit limit not exceeding 100%; and
- a minimum credit history of 12 months.
Pretty tough standards by any account. And you can fund ANY amount you feel comfortable with. There are 119 notes out for purchase, with interest rates ranging from 7.68% to 20.11% and with amounts left to fund from $75.00 to $24,850.00. Feel free to check it out and let me know your thoughts. Certainly interesting stuff. Until next time.
Wednesday, January 28, 2009 | 2 Comments
Important 2009 Upcoming Tax Dates
February 2, 2009
You should have received all of your W-2, 1098 and 1099 forms. These forms are required to be postmarked by February 2, 2009. If you have employees, be sure you meet the deadline.
February 15, 2009
If you were exempt from federal tax withholding in 2008, be sure to update your W-4 to continue the exemption through the 2009 tax year. If you had any changes to your life (married, divorced, had a child, etc.) make sure to update your W-4 as well.
March 16, 2009
Corporations - File a 2008 tax return (Form 1120) and pay any tax due. If you want an automatic 6 month extension, file Form 7004 and pay your estimated tax due.
S Corporations - File a 2008 tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Shareholder's Share of Income, Deductions, Credits, etc). If you want an automatic 6 month extension, file Form 7004 and pay your estimated tax due.
April 15, 2009
Make sure you've completed and filed your 2008 tax return (Form 1040, 1040A or 1040EZ) and pay any tax due. If you need more time to file your return, file Form 4868 or you can get an extension via phone or the internet at www.irs.gov. If you do file for an extension, be sure you complete your return by October 15, 2009.
- If you are required to file a state tax return, it is more than likely due by April 15, 2009.
- If you paid cash wages of $1600 or more in 2008 to a household employee, you must file Schedule H with your income tax return and report any employment taxes by April 15, 2009.
- LLC and Partnerships - File a 2008 tax return (Form 1065) and forward Schedule K-1's to all members/partners.
- Individual Tax Returns Due for Tax Year 2008 - If you haven't applied for an extension, e-file or postmark your individual tax returns by midnight April 15, 2009.
- Individual Tax Return Extension Form Due for Tax Year 2008 - Need more time to prepare your tax return? File your request for an extension by April 15 to push your deadline back to October 15, 2009.
- 1st Quarter 2009 Estimated Tax Payment Due - If you are self-employed or have other first-quarter income that requires you to pay quarterly estimated taxes, get your Form 1040-ES postmarked by April 15, 2009.
- Last Day to make a 2008 IRA Contribution - If you haven't already funded your retirement account for 2008, do so by April 15, 2009. That's the deadline for a contribution to a traditional IRA, deductible or not, and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2009, you can wait until then to put 2008 money into those accounts.
If you have any questions regarding these dates, please refer to IRS Publication 509. If you do your own taxes, I highly recommend using TaxCut. I've used the program for the past 3 years and I love it. The IRS has also expanded their FreeFile program this year. Read more about it here to see if you may qualify. Until next time.
Tuesday, January 27, 2009 | 0 Comments