How to Buy a Car
Frank Pagano is President of AutoWise auto buying service. He’s been buying cars for people for over 30 years, so he knows how to get a good deal. Here is our interview with him about what to keep in mind to get the most cost-effective contract on a new car.
You can find out more about Frank and AutoWise at https://www.autowiseusa.com/
Steve: So with us today is Frank Pagano, who's owner operator of AutoWise car buying service, to talk a little bit about one of the largest transactions that you likely do every couple of years, and that's buy a new car. So figuring out how to do that effectively can save you a whole bunch of money. So, Frank, thanks for joining me here.
Frank: Thank you, Steve. It's a pleasure to be here.
Steve: So I've known Frank for a long time. We were just joking about the first time I interviewed him, which was a longer ago than either of us would want to admit on a radio show he used to do. And so I've just, full disclosure, I've bought about five or six cars through Frank. So he's the guru when I want to find out about how to do it better. So, Frank, let's just start off with a quick, top five list. What tips would you give people? What things should they keep in mind to make sure that when they buy a car, they're doing it right and getting a good deal.
Frank: Well, Steve, I would start off with know your credit score. Knowledge is power and the higher, the credit score, the lower the interest rate you may obtain on a loan or a lease.
Frank: Number two, be prepared. My dad always had a saying, act in haste, repent in leisure.
Frank: By being prepared, I mean do all of your online research, do your homework. Find out what the MSRP and dealers invoices and what incentives are associated with that particular make and model, it'll reward you in the end. The other recommendation is, and this is something that they would probably get from their financial advisor, and that is have a budget in mind and stick to it. And that's very helpful because it's easy to be seduced by that beautiful blue iridescence sports sedan with the moon roof and the 20 inch wheels. But is it in your realm of your budget?
So I recommend that. I recommend that you narrow the field to three, and if you absolutely have to, four cars and then test drive them consecutively. And by doing that, it's going to help you to compare and contrast and actually come with a shorter list. Perhaps down to two, the absolute car that really is exciting to you and then a very good backup. That will be helpful in your negotiations. And then I would say negotiate with confidence because you really are in the driver's seat, armed yourself with all of the information and you're confident on what the incentives are and what you're entitled to. And then just go for it.
Frank: Don't be afraid to ask for a better deal.
Steve: Okay. Well, those are great tips. And one of the things you, you touched on this and two of your tips, and that is to know what you're looking for in buying. So it sounds like going into a dealership, not really having a clear idea of what you want, it sounds like that could lead you to either a frustrating, overwhelming or otherwise negative experience.
Frank: Absolutely, Steve. Yes.
Steve: And so how do you narrow that down a little bit?
Frank: Well, I think as I said, the test drives are very telling.
Frank: It's going to help you to determine how the car drives, how it handles, what the features are, are the controls convenient. And most people do that in the course of test driving. To do it consecutively, as I said, will help you remember what each feature was on cars.
Frank: And also the research will help you to narrow the field.
Frank: You're going to find cars that are very interesting to you and others that don't seem to fit the bill.
Steve: So two questions we financial advisors get a lot and so I'd be interested in your perspective on it. First one is buy versus lease. What are the pros and cons?
Frank: Well, obviously if you finance or pay cash for a car, it's your car, you have equity. It's not one of the best investments in the world because it's a slowly declining value in the car. In fact, when a car is brand new right off the lot, it depreciates a good percentage. If you go back to the dealership and say, oh, I want something else, what are you going to give me for this car? It's not going to be what you paid for it.
Frank: So that's something to consider. And that would be, obviously, the con that it does depreciate over time. As it gets older, it requires more maintenance and possibly repairs eventually.
Frank: If you're going to buy a car and maintain it and drive it until there's no service left in it, then you should purchase a car. If you're going to lease, or if you like to trade in your cars every three years or more, than leasing should be the consideration. Because with leasing, you will be able to project your cost of quote unquote ownership over those three years of the lease.
Frank: You're going to know that X amount is covered under the warranty so you probably won't be spending for any repairs if something goes wrong. If you rotate your tires diligently, you could probably turn it back in and not be surcharged for wear and tear. I mean, there's going to be wear and tear, but they allow you five thirty-seconds of tread depth when you turn in a car. If it's lower than that, you'll be dinged. And if we have time, I can elaborate how you can avoid that.
Steve: Sure. Let's do it. So tell us how we can-
Frank: There are companies that sell used tires with at least five thirty-seconds or more a tread left.
Steve: How interesting.
Frank: And they have a big supply and you could actually get the exact size and maybe even the same make that came with the tire.
Frank: And avoid that surcharge and they charge a higher high retail amount for the tire.
Steve: Oh, okay. Yeah, that would be my question is, is it better to get dinged or to buy the replacement tires? But it sounds like they would ding you pretty hard so you're better off-
Frank: They ding you pretty hard.
Frank: You would have to do something and buying a used one makes the most sense.
Steve: Okay. So it used to be last time, it's been a long time since I've negotiated for the purchase of a car, since I started using you. But I think it used to be that you could go into a dealership and save a fair amount of money by negotiating. What's changed over the past few years? Is that still the case?
Frank: What's changed, Steve, is the fact that the dealer's margin or markup has eroded over time. When I first started this business, 32 years ago, the average markup in a car was 25%. So if I got the car at 20 or 22% off of MSRP, I was a hero to my clients. But that has really narrowed to, it's less than 10% markup.
Frank: So it doesn't leave the dealer all that much wiggle room. However, there's still ways to save and that is the customer rebates that are usually available. You're going to get that no matter what deal you strike with the dealer. But there's also another type of incentive and that is dealer cash. Dealer cash is money that the manufacturers allow the dealer to sweeten the deal and move a model that is in surplus. They have plenty of them and they want to get rid of them.
And that can help you sweeten the deal beyond invoice or a little below invoice.
Frank: Even further. Now you can look up on various price guides, what the incentives are, the customer rebates. But they don't always disclose the dealer cash. So I would recommend to your clients who want to go out there and do the negotiating, is to just ask the same question I asked the dealers, it's kind of an assumptive question. How much dealer cash do you have?
Frank: And that will send a signal to the sales rep or the manager that you're looking for a sweeter deal.
Frank: And if they have it, usually they'll give up a good portion of it.
Frank: If not all, if not all.
Steve: That's a great tip. What tips do you have about getting the best deal on a car loan? How can people make the best use of their money depending on how they finance it?
Frank: Well, typically, the longer the term the higher the rate might be. And then the other consideration is what I brought up at the beginning. And that is your credit score will dictate what rate you're going to get. So again, if you know what that score is, you can have the confidence to ask for a better deal if you don't like the rate you're getting from the dealer.
Steve: Okay. Do you have a feel for getting financing through the dealership versus getting it through a bank?
Frank: You almost have to shop both places, your credit union and then what is the manufacturer offering?
Frank: Manufacturers like Honda right now have 1.9% for up to 60 months, that's a good deal.
Frank: That's almost no cost of money for 60 months.
Frank: I was going to say some offer even longer terms at a lower rate.
Steve: What are your thoughts about how long a car loan should be? Do you do tend to recommend to people they they get longer or shorter loans?
Frank: My recommendation, Steve, is to get the shortest loan that you can afford and feel comfortable with on a monthly basis.
Steve: Okay, great. So last question, we talked about what you do and what your service does. Tell us, what is a car buying service and what are the benefits of using one?
Frank: Well, if you may, I'd like to explain what isn't a car buying service.
Frank: Because there's a lot of imposters out there.
Steve: Okay, great.
Frank: And they build themselves as car buying services, but really all they are, are a dealer paid referral services. In other words, the dealer is paying this company for your contact information and for an appointment at their dealership for a quote unquote preferred price. And the common sense will tell you that the dealer's going to want to make that money back.
Frank: So they may not be that motivated to go really deep and give you that home run deal that you're looking for.
Steve: Well, how do you tell an imposter from a legitimate car buying service?
Frank: Well, a true car buying service is an agent advocate service. They charge a modest fee for their time and their commitment is to you and only you.
Frank: And they do all of the searching, the haggling, the paper shuffle between you and your credit union or a bank, your auto insurance agent and the delivering dealer themselves. And then they coordinate a convenient delivery that provides you with a seamless buying experience.
Steve: So then if I'm hearing you, if I can read between the lines, it sounds like the imposter firms don't ask for a fee from you, is that how they market themselves?
Frank: Right? You basically sign on with them. They show you what particular model that's available at a dealer in your area and they don't always have a dealer for every make in your area.
Frank: So they may be sending you far and wide.
Frank: But yes, their money is coming from the dealer.
Steve: And since you've been good enough to share some of your expertise, why don't you tell our viewers here how they can find you if they wanted to deal with a car buying service and find more about AutoWise?
Frank: Well, I would invite them to visit our website AutoWiseUSA.com. And I think that it really covers all the bases in a very efficient way in that right up front on the homepage, it gives a synopsis of the service. The About Us page talks about the formation of the company and how long we've been doing this and how we work. And then the page that seems to get the most views is our client gallery pictures of actual customers by their cars, where they're from, what they bought. And then of course the FAQs, there's only 11 FAQs but if you read them all, it tells the whole story in a very succinct way.
Steve: That's great. Well, Frank, thanks for joining us and thanks for your expertise.
Frank: You're very welcome, Steve. Thank you for having me on your show.