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Over the past few months, my wife and I have been in the market for a new car to replace our 2004 Honda Odyssey which now has a little over 140k miles. To make a long story short, we ended up with a shiny, new 2012 Odyssey and are now looking to sell our old one.
I’ve detailed in the past our strategy for buying a new car, so I won’t go into that in too much detail here. But I do want to make a few observations about the process.
In general terms, we solicited bids from afar (this time around, we used the Costco price as a starting point) and then wound up making a deal with our local dealer. Throughout the process, I was struck by the tactics used to make a deal look better than it really is.
Perhaps the biggest tool that dealers will use in their attempt to win your business while padding their bottom line is the so-called “doc” (documentation) fee. This is typically presented separate from the “base” price, down near the tax, title, and license fees.
Note: For the purposes of this post, I’m ignoring the games that can be played with financing and extended warranties because we paid cash and ignored their advances on the warranty.
The danger of the doc fee is that it sounds official enough that you might not realize that it’s really just another piece of the price. A hefty doc fee can allow a dealer to offer you a price that is well below invoice while still making a healthy profit.
Look at it this way… Would you rather pay $300 below invoice, but with a $499 doc fee, or $100 over invoice with no doc fee? The latter is cheaper even though the price (without fees) is marginally higher.
There are, of course, other fees that come into play when buying a new car. Some of these are visible, like the “designation charge” you’ll often see on the window sticker. Others are invisible, like the “dealer holdback” that the manufacturer will pay to the dealer after the sale.
When comparing across dealers, you need to be sure you’re comparing apples-to-apples, so be sure to look at the entire price. What you’re looking for is either the total base price (itemized to include all dealers fees and add-ons, but ignoring tax, title, and license) or the “out-the-door” price, which includes the TTL (again, ask for an itemized list).
Armed with that information, you can make an informed comparison of what you’re really being offered, and re-shop the best price back to the other dealers to give them a chance to beat it before you pull the trigger.
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