Buying a Car, a Classic Example of "How NOT to!"

My previous post illustrated how you can purchase an automobile as a rational decision and end up with a decent looking car that provides you with reliable service at a minimal cost.

At the other end of the spectrum, well, you can throw thousands of dollars down the hole with cars. Consider this (bad) example:

Frank saw a Jaguar parked on the side of the road on his way to work every day. It was a green sedan, and Frank remembered how when he grew up, that Jaguars were considered "cool" cars. He idly thought about how nice it would be to have one, and fantasized about owning that Jag. Every day he drove by it, he'd think about that car.

He didn't need a new car, or another used one. Frankly, he need a Jaguar like he needed a hole in his head. Cash was tight and he was barely making his monthly bills. But he had just got a tax refund check, so he had a few grand in the bank this month.

So one day, after work, Frank stops to look at the Jaguar. It had been sitting for a month, and the lawn had grown up around it. Grass clippings were stuck to the tires and wheels. The owner came out and showed him the car. The driver's door opened with a creak and they tried to start it. No luck. The battery was dead.

The owner got out a battery charger and an extension cord, and while it charged up, the owner showed him the rest of the car. The once proud Jag had fallen on hard times. One panel had a dent in it ("you can take that out, easy" the owner said) and small amounts of rust were creeping around the wheel wells. The driver's seat was slashed to ribbons - so much for Connolly leather. Some of the electrical "toys" like the power windows and locks no longer worked. The A/C was busted, too, but Frank figured that in rural New Hampshire, where he lived, it was not all that necessary.

They finally got the car started and it roared to life as the owner held down the throttle. Wow! What a motor! Only later would Frank discover that the loudness of the engine was due in part to the rusted exhaust. They got in the car and drove it around. It seemed to handle a but quirky, but wow! Driving a Jaguar! This was what he had dreamed of since he was a kid.

Frank had no idea what he was buying. He never researched the car or figured out what a good "book" value for the car would be. Since he lived out in the country, there were not a lot of places where you could get a Jaguar fixed - and not a lot were for sale locally.

The owner said he wanted $5600 for it, which seemed like a steal for this "luxury" car. Frank tried to talk him down a bit, but the owner held firm. Frank easily paid $2000 too much for this nightmare.

Frank brought the car home, thinking his wife would be pleased by this luxury car. She wasn't, and a fight ensued. "What the heck do we need with a hoary old Jaguar?" she said. And she had a point.

Frank put tags on the car and drove it to work the next day. Of course, the battery was dead by the end of the day, and he had to jump-start the car. "Oh well, a new battery isn't too bad".

But when Frank went to the local gas station to get the car inspected, he discovered, to his horror, that he had bought what is known in the used car world as a "fright pig". Nearly everything on this car was broken, rusted, or just plain worn out. What little was left working was well on its way to breaking soon.

The car needed a total brake overhaul, including pads, discs, parking brake cable, new hoses and lines, and even a master cylinder, which was leaking. The total bill would be easily over $2500, and it would take a week to get the parts.

What's more, the tires were nearly shot, having little tread left and being dry-rotted. The suspension was also shot. In addition to new shocks, the front end was worn out, needing new ball joints and tie rods. This would run an additional $1500, if he skimped and used cheap tires.

The car needed a new muffler - and resonator for another $800. And it was burning oil, which could not be fixed unless he had the engine rebuilt.

The worst news was the rust. The rule of thumb with rust is this: If you see a "little" rust as Frank did, multiply it by 10 or even 100 to get an idea of the total rust involved. The rear shock towers were rusted out and the shocks were ready to poke through into the trunk. The mechanic didn't even want to touch this last part, as welding so near the gas tank was suicidal. Removing and re-installing the gas tank would add $500 to the repairs.

The mechanic "knew a guy" who could weld the shock towers for cheap. Hank had that done and had the brakes overhauled and new tires put on, and charged it all to his credit card. On the way home, he stopped at Wal Mart and bought a seat cover for the torn front seat. It had a picture of "tweety bird" on it.

Frank didn't mention the cost of repairs to his wife. When he got the car home, he put it in the garage and started looking at the rust on the wheel wells and the dent in the rear quarter. Poking with a screwdriver, he knocked off some of the rust. He kept poking and poking and pretty soon, he had gouged out nearly the entire wheel arch. It turns out the paint was barely hanging onto all that rust. Ouch.

On the way home from work the next day, he stopped at the NAPA store and bought a gallon of BONDO and some sand paper. That night, after supper, he gouged out more rust and sanded it back almost to bare metal and applied layer upon layer of bondo into the holes. He found an old door screen in the garage and cut that to wedge in the holes, so the bondo would have something to stick to. Even with that technique, one wheel well swallowed up a whole gallon can of the stuff.

The car looked pretty sickly now, with the garish red bondo, grey primer, and faded "British Racing Green" paint, along with the ill-fitting "tweety bird" seat cover. But Frank was not about to give up! Every evening, he'd bondo and sand and bondo and sand. His wife was glad to have him out of the house, but worried about how much money he was spending on the car.

Eventually, the rear fenders started to fill in and look sort of Jaguar-ish, or more like a Jaguar that someone made of plasticine clay. The bondo lumped and bumped and no matter how much he sanded, never went flat and smooth. Grey primer started to cover larger and larger sections of the car, and overspray dotted the windows and tires.

Frank stopped by a body shop one day on the way home from work to get a quote on repainting the car, now that the body work was "done". The body shop owner shook his head, but politely wrote up a price quote for $3000, knowing full well that Frank would never have the money to pay for such a job (and the body shop owner didn't want Frank's rusty hulk dirtying up his bays anyway). Frank thought about the local "speedy paint king" place, that offered to paint "any car for $299!" but even that seemed excessive. The cars in the lot there all had paint on the trim, windows, and masking marks around the door handles and side moldings. On the way home, Frank bought several "foo-foo" cans of "matching" Jaguar green paint.

Frank had, by this point, over $10,000 invested in this car, and it was still a fright pig. A fright pig with a new battery and some very cheap tires, but nevertheless a fright pig. It would never be a collectible with all the rust on it (the floor pans were ready to poke through at any minute) and the engine was burning a quart with nearly every tankful. Frankly, even pristine examples of old Jag sedans like this were never likely to become very collectable. The car looked funny with its bondo'ed panels and orange peel paint job. Within a month, Frank noticed that his bondo job was starting to bubble up again.

On the way to work a month later, the car died in the middle of the road and refused to budge. Towed to the garage, Frank got the bad news. The broken kitty needed a new transmission. His mechanic could find a rebuilt one for $3500, but it would cost another $1500 to install it.

By this time, Frank's wife saw the credit card bills and caught wind of what Frank was up to, and put her foot down. Frank argued that they had $10,000 "invested" in the car already, so putting $5000 into a "new" transmission made sense. His wife argued that the car was a bottomless pit of money and that they should cut their losses now and get rid of the car.

Frank sighed and agreed and put the car out at the end of their driveway with a sign saying "For Sale, $5000". Needless to say, the car still sits there today. An old, broken-down rusted-out Jaguar that won't even run under its own power is worth about what the scrap man will give you for it.

So what did Frank do Wrong? About everything. Here's a list of what I can spot:

1. NEVER buy a car because you drive by it every day. If you decide you need a car, research the makes and models and make a rational buying decision. Deciding you want to buy a car, boat, or RV merely because it is a familiar sight almost always ends up being a bad decision.

2. RESEARCH a car before buying. What is a reasonable asking price? What defects or wear points should you be looking for? Never close a deal without knowing what the book value of the car is. If Frank did even modest research (checked the Kelly Blue Book at his local credit union) he would have realized that the car was radically overpriced.

3. WALK AWAY from UNREASONABLE SELLERS: Frank got taken by a seller who was "firm" on his price, even though it was far above market value. Such dreamers are plentiful and they do waste your time. You cannot "negotiate" with such folks, as they believe they have a rare collectible and not a junk heap. Just walk away and don't waste your time.

4. Buy the BEST EXAMPLE you can find: Repairs are expensive, so there is no point in buying a "junker" and trying to "fix it up". Even if you can do the labor yourself, as I can, you'll end up spending thousands and thousands of dollars on parts and hours of your time. You can buy a better car with all that work done already for less time, money, and hassle.

5. INSPECT before you BUY: Most mechanics, for a small fee, will put your prospective purchase up on the rack and give you a list of what needs to be fixed and an estimate of repairs. If Frank had done that, his mechanic would have given him the bad news ahead of time - and told him to walk away from the deal.

6. WALK AWAY from even a LITTLE RUST: Rust is nearly always impossible to repair. It creeps like a cancer and is nearly impossible to remove. The only proper repair for rust is to cut away ALL of the affected areas, back to solid metal in every direction, and WELD IN new factory panels. It is an expensive and time-consuming process. Again, you can find a rust-free car for less money, even if it means driving or flying to Arizona or California.

7. Know When to Quit: Throwing good money after bad is never a good idea. When Frank discovered that he paid more than book value for the car and it still needed thousands of dollars in repairs, he should have sold the car or donated it to a charity and cut his losses right then. As it was, he spent nearly ten grand for only a few months worth of transportation. For that much money, he could have bought a rust-free Jaguar in fairly decent shape.

Cars like Frank's Jaguar are everywhere, it seems. And people buy them, too. I see them all the time and wonder what possesses people to even bother to refuel such heaps. With the price of scrap metal being what it is, the economic model for driving a "junker" makes little or no sense anymore. Once a car is worth less than a grand or two, it is no longer worth repairing, unless repairs can be done for free or at low cost.

And yes, over the years, I've talked myself into buying a "fright pig" or two, only to later regret such a decision (and later on dumping the car for pennies on the dollar). I've learned the hard way that it pays for "fish a little further upstream" and find newer examples of a vehicle, or one in much better shape.

Fishing that far down the food chain makes little or no sense. And yet folks do it every day, just as they run up credit card debt and buy lottery tickets. Just because folks do it, doesn't mean it makes sense.

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Buying a Basic Car, a Classic Example of "How To"

In the United States, it is pretty much required to have a car just to get around. Owning a car is a necessity for many. There are more cars than people in this country.

Yet so many pay far too much for this basic need.

The following example of "How To" buy a car is based on the real-life experiences of a friend of mine, who is "frugal" and willing to do the legwork and research to get more out of life on a given income. My hat is off to her.

Shelia needed a car. She had just returned from a trip around the world, and had sold her old car before leaving. She asked me what kind did I think she should buy. Being more of a car fanatic than a pragmatic car owner, my answer was twofold: "Do the research" and "Japanese, probably".

The former is most important. Take your time and figure out what you need, not what you want, and decide on a make and model and age range, and then research all the aspect of that vehicle. Shop for the same make and model car, rather than comparing different cars, and you can find the real "bargains".


1. Foreign or Domestic? Japanese!

If you are looking for basic, reliable, secondhand transportation, a used Japanese car is usually the best bet at the present time, as they are reliable, hold their resale value well, and are readily available and thus easy to get serviced.

If you are on a budget, esoteric cars like BMWs or Jaguars are out of the picture. In addition to being expensive to buy and own, parts and service are not readily obtainable. Plus, they are expensive to insure. If you are not a "car nut" shy away from such cars.

American cars can be bought cheaply, but they depreciate at an alarming rate and have a poor record of reliability, and generally use more gas. Yea, sure the UAW says that Americans cars can stack up to any car made in the world. But we are talking reality here, not faith-based economics. So let's leave the rhetoric right out of it. American cars by and large suck, period. And so do French cars.

Other foreign makes, such as VW have a so-so record of quality. I would approach with caution.

Among the Japanese makes, Toyota and Honda are the best of the lot. Nissans are not as reliable and Mitsubishis - well, you might as well buy an American car if you are going to get a Mitsu. Oddball brands like Suzuki, Isuzu, and Dhaihatsu are probably not worth considering.

The Koreans are worth considering. Once considered the king of the scrap heap, their quality has come a long way, and some Korean cars could be a bargain.


2. What Kind of Car do You NEED?

Again, we are talking basic transportation, here. A reliable ride for minimal money. We are not talking about some unpresentable junker, here, but a decent rust-free car with no dents, and all the body panels the same color. It is possible to find such cars, even on a budget.

Convertibles, pickup trucks, coupes, SUVs, Jeeps and the like are right out of the picture. Those sorts are cars are for stylin' mostly, and not very practical for daily use. Remember, we are talking basic transportation needs at a minimal cost.

Note also that more esoteric cars, like a BMW convertible, really should be garaged and babied. Shelia lives in an apartment complex. A BMW convertible, left outdoors, would quickly deteriorate, and probably be broken into (usually by slashing the top).

Shelia decided correctly that a small, fuel-efficient sedan was the answer. She needed something that was easy to park and drive in city traffic, got good mileage, could carry passengers on occasion, and not be so flashy as to attract thieves or break-ins.


3. PICK ONE Make or Model

One mistake many car shoppers make is to try to cross-shop different brands and makes. Comparing a Chevrolet to a Honda to a Dodge to a Toyota is frustrating and inefficient. Each is a different type of car, with different features, different sales price, and different resale value. Comparing one deal to another is impossible, as the numbers don't equate between the different makes and models. If you shop for a Chevy after looking at Toyotas, you'll probably over-pay for the Chevy, as Toyotas are more expensive cars, and you'll think an overpriced Chevy is a "bargain" in comparison.

So after doing your research, narrow your focus to ONE make and model car, in a limited rage of model years (3 or less). Then you can compare apples to apples.


4. Don't be a Badge Snob

Many cars are sold under different models and makes. GM sells the same car as a Chevy and a Pontiac and a Buick and a Saturn. Some Saab models are based on Chevys, Subarus, or even the same platform as a Malibu. There is no difference between a Ford and a Mercury except for some chrome trim and the price. And Japanese cars are sold in this country in their base form (Toyota, Honda) and as an upscale version (Lexus, Acura) even through there may be little difference between the two. There is little point, particularly when buying a used car, in paying extra for "badge engineering" as it is known in Detroit. Outside of the showroom, the name on the car makes little difference - so pick the cheaper model.

Shelia had a brilliant idea that I didn't even think of. "What about a Geo Prizm?" she said. Brilliant! The Geo Prizm was made at the New United Motors plant in Fremont, California, a joint venture between Toyota and General Motors. Back then, nearly every Corolla sold in the US was made in that plant, and went down the same Assembly line as the Geo Prizm. The only difference between the two cars is in trim - the Corolla has retractable mirrors and a slightly nicer interior than the Geo. Other than that, the two cars are mechanically the same and even look the same. But in terms of resale value, the Toyota version sells for $500 to $1000 more.

By the way, Toyota and GM still run this plant along with one in Ontario Canada. Today they makes the Toyota Matrix and Pontiac Vibe automobiles. albeit in separate plants. The sheetmetal is slightly different, but the underpinnings of both cars are the same.


5. Pick a Price Range

These steps are not necessarily in order, of course. Price range is key in determining what car to pick, and vice-versa. There is no point in picking a Rolls Royce, and then deciding your price range is $1000. It just isn't going to work.

When selecting a price range, you have to be somewhat realistic. There are cars that are worth little more than their scrap value, which today, is nearly $250 for a good sized car. "Fishing too far down stream" is never worthwhile, as you'll end up with an unreliable car that will need constant repair. So if all you can afford is $500 to $1000 for a car, perhaps you should think about riding the bus for a while, until you can save up enough money for a decent car.

Shelia decided she wanted to spend around $3000 or so for a used Geo Prizm, about 5-7 years old, with no more than 80,000 miles on it. Now, this was several years ago, so such a car no longer exists and probably such prices are not realistic, today. But after researching the vehicle, she decided this was a realistic price for a car of reasonable vintage at that time.


6. Do the Research:

Again, these items are not in order and may be performed concurrently. Shelia checked http://www.nadaguides.com/, http://www.kbb.com/ and http://www.edmunds.com/ for pricing data on the car she was looking at. She also checked the local paper (not much there but dealers) for comparable prices, as well as the local autotrader and autotrader online. She tracked down a "chat board" for owners of the car and the related Corolla and posted a message asking owners what sort of things she should be looking for. She read CONSUMER REPORTS which she checked out of the library. Your local library, by the way, has lots of books on how to evaluate used cars and to help you learn about cars in general. The more you know, the more informed a decision you can make.

With all this data, she was able to pick the make and model car she waned (5-7 year old Geo Prizm) determine what a reasonable price would be for a car in her price range condition, mileage, and age (around $3000). Since she was shopping only ONE BRAND AND MODEL, it was possible to assemble this data easily.


7. Take Your Time

The worst thing you can do when buying a car is to be in a hurry. Going into a car dealer and saying "I need a new car TODAY" is the worst way possible to buy a car. Shelia was content to take the bus to work and wait weeks, if necessary, to find the right car. You cannot rush the process.


8. Start Looking

Shelia asked me to come along and look at cars with her. She felt that I might know something about cars, and that also having a man with her might help her bargaining position (we live in sexist times, still, and women are looked upon as unsophisticated by car sellers). It was also helpful to have a disinterested third party to bounce things off of.

We looked at six cars. I can't remember them all, but I remember a few.

We looked at one Toyota Corolla, just for comparison to its Geo cousin. It was $500 more than the other cars and not in as good condition. This confirmed to her that paying more for the "Man in the Sombrero" logo on the front grill was not worthwhile.

We looked at one Geo at a dealer, but they wanted nearly $1000 more than the other cars. No sale, but the salesman had a snappy plaid suit.

One car for sale by owner was filthy, with coffee stains in the interior, dirt on the engine, scratches on the bumpers and doors, and the ABS light on the dashboard. The owner said "you can fix that for like $500, I just never got around to it". This car had "neglect" written all over it. Oddly enough, of the private sale Geos, it had the highest price and the owner refused to budge.

Another car was clean inside and out, but the engine was dirty, and it had four mis-matched tires and needed a new battery. The price was about middling.

The best of the lot was clean inside and out, and even the engine was detailed. It had four matching tires that were reasonably new, and a new battery. The mileage was in the mid-range and the price was not a steal, but smack in the middle of where her research told her it should be. The interior was clean with no funky smells. Although none of the cars had a complete service record from new (desirable) this car had all the records from when the present owner had it.

I did some simple tests on the car for her - checking the condition and levels of the fluids, doing the "dollar bill" test on the exhaust (if a dollar bill, placed next to the running exhaust, gets sucked back into the tailpipe, count on more dollar bills being sucking into the car, as one or more valves are burnt or sticking. The exhaust should be a steady outward flow of air). The last car passed all test with flying colors.

What was interesting in looking at the same car in six different iterations, was that you tended to see wear and tear in the same places, and comparing prices on the cars was a lot easier, as we were comparing the same model and make. If we had cross-shopped different makes and models, the worn-out car with the broken ABS might have seemed like a "deal". But after looking at other identical cars, we realized it was not.

8A. Get it INSPECTED: If you are not clever with cars, you should consider taking the car to your local mechanic for an overall pre-purchase inspection first. Most mechanics can do this for a flat fee of $100 or so. They can tell you whether the car need brakes, tires, front end work, transmission work, or major engine work. No inspection is a guarantee, of course, but it can point out some hidden defects in a car.


9. Look for a VALUE not a BARGAIN

Many people make the mistake in buying a car of trying to find some incredible "bargain". While you can find a dress in a dress shop marked down to 75% off, you'll never find such a deal in the automotive world. If you do, WATCH OUT! There is something wrong with such a car.

Shelia decided that the nicest car we looked at was an acceptable value. It was clean, well-maintained, and offered at a reasonable price. That is the best any of us should hope for. Trying to find a car at a "steal" is unrealistic and immature.


10. Pay CASH

Shelia had cash to buy this car, and that is the best way to buy them. Most folks don't have cash to buy a car, and that limits the resale possibilities and market, and hence used cars sell much more cheaply between private parties than from dealers who can provide financing.

If you really don't have cash, talk to your credit union about financing. It is harder to do, as you have to find the car, line up the financing, and then make the deal, and in the interim, the cash buyer may have bought the car out from under you.

Note that most banks will not lend on cars over 5 years old, which is one reason cars over that age sell for a lot less.

Paying cash puts you in the driver's seat, literally. Pulling out a wad of 100 dollar bills and saying "well, how much will you take for it?" puts the seller on the spot, as he knows you are serious, and wants to sell the car. You can haggle paying cash. When you say "hold the car for me for several days while I line up a loan," well, you just don't have the leverage.

Note also that when you get a car LOAN, you have to get COLLISION INSURANCE. For young people, this can easily cost more than the car payments, which is idiotic. Young men (boys)buying sports cars often pay twice in insurance than they do for the car. At 48, I can afford the insurance on an M Roadster. At 25, you can't.

So if you pay CASH you can forgo collision insurance altogether, or, if the car is worthwhile, get coverage with a higher ($1000) deductible and save a lot of money. Banks usually require a $500 deductible for cars with liens.

Shelia called the owner of the car she liked and offered him 10% less than asking price. He came back at 5% and they closed the deal for a little over $3000. She negotiated a REASONABLE price, but did not expect a STEAL. Trying to STEAL the car at a low ball price just wastes everyone's time, so forget about it!

Shelia drove that car for nearly four years, putting 30,000 miles on it in the process. She later sold it for $1500, which works out to a nickel a mile in depreciation. Her only repair expense was for a new alternator ($400) and for regular oil changes. All in all, the car cost her less than $2000, not including gas an insurance - which is a heck of bargain that puts bus fare to shame.

It was a good looking car, too, with no rust or dents. Most folks thought it was a much newer car than it was, and assumed she had paid far more than she did for it. So yes, you can even have status on a budget, if you shop smartly.

The steps Shelia took in researching, identifying, selecting and buying a car are a perfect model of "how to" make a reasonable and well-informed retail purchase decision. Buying a more expensive or even brand new car (not advised) can follow the same or similar steps. Pick a make or model, research it to death, and then shop several identical cars from individual sellers. Find the nicest example of the marque, negotiate a fair price, and pay cash. These are the best deals going.

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