How does a value investor go about buying a automobile?

[StubbleJumper]

This is a tough question.  In value investing, the principle is that, "price is what you pay, value is what you get."  When you do your due diligence, you spend most of your time trying to figure out what range of value you should assign to the asset (ie, you want to buy a dollar for fifty cents, but the hard part is to figure out whether the asset is worth a dollar in the first place).  Since both price and value are denominated in dollars, you can make a quick assessment of whether you got a bargain or not.

 

The problem with a car is that value is not usually denominated in dollars.  Rather it can be denominated in quantitative factors of total cost per year (or per kilometer) and qualitative factors such as:

 

-does it provide the capacity or comfort that I require?

-does it start in the winter?

-how often will I have to take it to the shop?

-are the safety characteristics aligned with my risk preferences?

-is it easy to park?

-etc

 

The quantitative part of the problem is relatively easy if you spend a bit of time with Microsoft Excel.  But in my experience, the qualitative aspects of value are *more* important and are much more difficult to assess.

 

 

SJ

[CorpRaider]

Buffett gets a personal pitch from the GM CEO, then sends his daughter to grab a new caddy.  Just saying...

[Guest longinvestor]

Buffett gets a personal pitch from the GM CEO, then sends his daughter to grab a new caddy.  Just saying...

 

...and then buys up 5th largest auto dealership in the nation. Like cherry cokes, get a lifetime delivery of Cadillacs?

[boilermaker75]

If you want to avoid the haggling and probably getting a better price than you would get by haggling, go to

 

https://www.truecar.com/#/

[KinAlberta]

In an interview a year or so ago, Buffett's daughter said that Buffett finally got another car, but he got a deal on it because it had hail damage.

[CorpRaider]

Buffett gets a personal pitch from the GM CEO, then sends his daughter to grab a new caddy.  Just saying...

 

...and then buys up 5th largest auto dealership in the nation. Like cherry cokes, get a lifetime delivery of Cadillacs?

 

Haha.  Yeah he kept right on buying, didn't he?

[merkhet]

Has anyone ever used Costco to buy their car?

[PLynchJr]

I've used it to get pricing but each time I've been able to get a better deal by negotiating with dealers myself.  With that said the price through them is pretty good for someone who doesn't want to deal with the hassle of doing it yourself.

[muscleman]

New cars: Wait until 2 weeks before the next model year come out to buy. At this point, if the new Chevy 2015 is coming out, who would buy the 2014 model? So even though it is a new car, no one would buy. Dealers are getting desparate and would love to sell it to you 4000 below invoice.

Used cars: Shop around winter time. Less buyers. Easier to bargain.

[rkbabang]

The way I do it is buy a cheap car and drive it for a long time.  My current cars are: a 2007 Hyundai Elantra, purchased new in 2007 for about $15K, it now has about 150K miles and I plan on driving it at least another 5 years.  And a 2006 Toyota Sequoia Limited, purchased used in 2011 for $24K.  I've only put less than 20K miles on this in almost 4 years of ownership and I plan on keeping it for a long time (10years+).  My last Toyota that this one replaced was a 1996 4Runner that I bought in 2000 and drove until 2011.

 

[eggbriar]

Has anyone ever used Costco to buy their car?

 

I used Costco a few years ago.  The process was incredibly quick and easy and I

felt like I got a very reasonable price.  A friend also used Costco and said he had

no complaints.

[ccap]

 

I spent a decade running an option market maker.  Being a market maker gives you a lot of perspective on all kinds of markets.  As a result, it gives you advantages when buying a car.

 

If you walk into the dealer to buy a car, the dealer has one item (the car you are looking at) and many potential buyers.  As a result, the dealer can sell it to you at whatever price they want.  There is no competition.  The trick is to flip things around in your favor.  Here is how you do it:

 

1) Find the exact make, model, and features you want.

2) Go home.

3) Wait until there are 2 weeks before the end of the month.

4) Call all of the dealerships within a few hundred miles and talk to the sales manager.  Ask the manager to give you their best possible price with all applicable fees in writing (a fax).  If you don't do this step, you will be screwed.  Also mention that you want to get the deal closed before the end of the month to help with their quotas and manufacturer incentives.

5) Wait 2 days.

6) Collect all of the bids (faxes) you have to find the best.

7) Repeat steps 4-6 letting the dealers know what your best bid is and how uncompetitive they are.  Repeat this step about 3 times.

 

This process turns the normal procedure on its head.  You have now created an auction between the dealers to get the car you want.  You aren't waiting in the dealership while they "talk to the sales manager" or write the price in big marker.  In doing this process a few times, I've found that you typically get a 10% spread between the high and low bid.  The high bids are ALWAYS the no haggle dealers.  They screw their customers because the customers don't want to negotiate. 

 

When I bought my wife's CX-9, we bought from the next state over, and they delivered it to our door without us ever entering the dealer.  It is hard to beat that.

 

I was also able to use this tactic on a used car.  I was in the market for a Crossfire SRT-6.  These were given to the Chrysler execs.  A bunch of these cars hit the market with 8k miles.  At that point, they were a commodity if you approached the process right.

 

[FFHWatcher]

What I have learned with investing and spending $$ : If you find a way to make a good/great return on your savings/capital until you have a reasonable amount of capital, what you spend is mostly irrelevant.  I have many successful friends who can be considered very 'cheap', myself included.  Almost all of them believe that being cheap and not spending money on stuff they want is why they have so much money.  The reality is, all of them made gobs of money being business owners, eventually selling the business getting a good capital base and now they are making a reasonable return on their capital.  Whether they spend $100,000/yr or $150,000/yr or $200,000/yr is irrelevant for a person who is worth $10M or more. 

To answer your question, How does a value investor go about buying an automobile?  It doesn't really matter because what we spend is mostly irrelevant (within reason) if we are really good investors and have a good capital base.  Minimize your time buying a car and maximize your time educating yourself to become a great value investor.

[oddballstocks]

What I have learned with investing and spending $$ : If you find a way to make a good/great return on your savings/capital until you have a reasonable amount of capital, what you spend is mostly irrelevant.  I have many successful friends who can be considered very 'cheap', myself included.  Almost all of them believe that being cheap and not spending money on stuff they want is why they have so much money.  The reality is, all of them made gobs of money being business owners, eventually selling the business getting a good capital base and now they are making a reasonable return on their capital.  Whether they spend $100,000/yr or $150,000/yr or $200,000/yr is irrelevant for a person who is worth $10M or more. 

To answer your question, How does a value investor go about buying an automobile?  It doesn't really matter because what we spend is mostly irrelevant (within reason) if we are really good investors and have a good capital base.  Minimize your time buying a car and maximize your time educating yourself to become a great value investor.

 

I could agree with this for older wealthy members of the board.  But consider someone who's younger, and it seems there is a lot of youth on the board these days.

 

Say a car costs $20k, that's about 40% of the median American household income.  Maybe this board is better off and makes double, so a car purchase is equal to 20% of a person's pay.  I'd say purchasing anything that's 20% of your salary should be thought over and considered and is not irrelevant.  Saving a few grand is a lot for most on here.  Sure, if you have $10m then it doesn't matter, but according to most of those polls that's not the case.

 

 

[CorpRaider]

 

I spent a decade running an option market maker.  Being a market maker gives you a lot of perspective on all kinds of markets.  As a result, it gives you advantages when buying a car.

 

If you walk into the dealer to buy a car, the dealer has one item (the car you are looking at) and many potential buyers.  As a result, the dealer can sell it to you at whatever price they want.  There is no competition.  The trick is to flip things around in your favor.  Here is how you do it:

 

1) Find the exact make, model, and features you want.

2) Go home.

3) Wait until there are 2 weeks before the end of the month.

4) Call all of the dealerships within a few hundred miles and talk to the sales manager.  Ask the manager to give you their best possible price with all applicable fees in writing (a fax).  If you don't do this step, you will be screwed.  Also mention that you want to get the deal closed before the end of the month to help with their quotas and manufacturer incentives.

5) Wait 2 days.

6) Collect all of the bids (faxes) you have to find the best.

7) Repeat steps 4-6 letting the dealers know what your best bid is and how uncompetitive they are.  Repeat this step about 3 times.

 

This process turns the normal procedure on its head.  You have now created an auction between the dealers to get the car you want.  You aren't waiting in the dealership while they "talk to the sales manager" or write the price in big marker.  In doing this process a few times, I've found that you typically get a 10% spread between the high and low bid.  The high bids are ALWAYS the no haggle dealers.  They screw their customers because the customers don't want to negotiate. 

 

When I bought my wife's CX-9, we bought from the next state over, and they delivered it to our door without us ever entering the dealer.  It is hard to beat that.

 

I was also able to use this tactic on a used car.  I was in the market for a Crossfire SRT-6.  These were given to the Chrysler execs.  A bunch of these cars hit the market with 8k miles.  At that point, they were a commodity if you approached the process right.

 

I've done that with new cars as well.  It works really nicely.  I imagine it is harder to do it with used cars, but probably doable especially if you're looking at a common model.  I've tried to use the power of competition in hiring home contractors, but have had much less success. 

[zarley]

Go through Costco and get a no-haggle fleet price from a local dealer.  My last purchase was for a couple hundred $$ over invoice.  On a car with an MSRP of $36,000 I paid something like $32,000 and was out the door with tax and title around $35,000.

 

Perhaps not the best deal in the world, but it took virtually no time, didn't need to deal with a salesman, and I know I didn't get totally ripped off.

[ccap]

 

Because of the dealer incentive structure, it is possible to buy under invoice.  The dealers get kickbacks from the manufacturers for volume.  If your car pushes them over the threshold, they may make more by locking in the volume and selling you the car at a "loss".

[Alekbaylee]

Go on kijiji. Find a seller who put a (fairly high) down payment on his lease but needs to get rid of his car. Take back the lease - you end up with low monthly payments.

That's what I did a few years ago: took back the 48 months lease of a Golf that had still 2,5 years to go, for $220/month. The guy had made a $3000ish down payment to keep his payments low but needed to sell.

[Cageyone]

Kind of interesting that no one other than "compounding" has suggested that a Value Investor might consider a vintage/collectable (in his case a Ferrari) as an appropriate investment!  In my case about 3 years ago I got a Jaguar XK8 Convertible privately at a good price and it continues to hold its value -- and it's incredibly fun to drive and is absolutely drop-dead gorgeous!  But on a more practical note on the past 3 new vehicles I have purchased I've gone to several dealers with the Car Cost Canada dealer cost sheet and told them they would get exactly $1,000 over wholesale cost net of any manufacturer incentives.  So then the only debate is how much they will give me for my trade and the dealer with the highest trade-in offer wins the deal!

[CONeal]

I'll admit that I buy new.  This way I can get the vehicle I want and most importantly I am in control of the maintenance from the very beginning.  In the past, I have bought used and spent more money on repairs then expected bc of issues that wasn't caught when taking it to an independent service center before the purchase.  If I get a bad one right off the gate then I have some avenues of recourse.  I buy new and drive it till the tires fall off.  Also, I have tell tell myself you only live once so you mine as well have a few splurges in life.

[Steve]

 

http://www.wsj.com/articles/resale-prices-tumble-on-electric-cars-1424977378

 

Incredible values on electric cars... and fascinating article!

[oddballstocks]

I'll admit that I buy new.  This way I can get the vehicle I want and most importantly I am in control of the maintenance from the very beginning.  In the past, I have bought used and spent more money on repairs then expected bc of issues that wasn't caught when taking it to an independent service center before the purchase.  If I get a bad one right off the gate then I have some avenues of recourse.  I buy new and drive it till the tires fall off.  Also, I have tell tell myself you only live once so you mine as well have a few splurges in life.

 

CONeal,

 

I'm sorry to inform you that you're going to have to turn in your value investor badge.  You know the one, the badge that was printed on a dot matrix printer (to save money of course) and laminated by hand.  While you're turning in your badge you might consider giving up some of your corduroy blazers as well as any plaid sport coats with elbow badges.  Supply is limited, they just don't make clothes like that anymore.  There are hoards of value investors waiting to pay cash for those items.  I heard a few might even consider trading in their penny loafers (penny included) in gently used condition.

 

I realize this is a sad day and it's probably a shock.  But we just can't pollute the value investor pool with those who *gasp* pay for new things.  Best of luck in your new ventures buying high tech stocks and trading options....it's been fun

 

 

 

 

[CONeal]

That's was great.  :D

[AzCactus]

Buy a car used and spend no more than 4 months net pay. 

[Parsad]

I agree with FFHWatcher in terms of logic on how you spend on a car...whether you have a large capital base/income or small capital base/income.  In other words, even if you are younger and have a small capital base/income, then you would allocate a more modest amount into a vehicle than someone with a larger capital base/income.  FFHWatcher may buy a $50-60K car.  Someone younger with a smaller capital base should probably allocate around $15-20K.

 

I have no hard and fast rules.  I liked the new Jeep Cherokee, so I bought one new, but not without haggling at a number of dealers and then having the winner throw in a couple of things free like a flat screen tv and unlimited car washes. 

 

The other car I bought, a Mercedes B200 Turbo, I simply kept going to a couple of dealerships on a Saturday for a couple of months...just watching what they had in inventory.  Of the cars I liked, the one that kept sitting out there each week...the dealer kept dropping the price because it wouldn't sell...that's the one I went and bargained hard for after about 2 months.  I got it for a song and it runs beautifully!

 

The bottom line though is I cannot buy anything without haggling a bit, or looking for a discount or coupon...I don't like paying retail.  So, I would say there are no hard and fast rules about buying a car, but the biggest would be that you are buying something you can comfortably afford.  If you don't know anything about cars, then I would recommend CONeal suggests...buy new, but what you can afford, and then drive it until the wheels fall off and the body rusts.  Cheers!