Budgeting

Like any complex undertaking, a winning deal on a luxury car requires technique, timing and a fair slice of luck.

Background information is essential too. Many people who think they’ve done the deal of the year might have done even better if they’d approached it differently.

They may not have exploited the “PMA”, for example. We’ll come to that shortly.

Nothing beats new

Buying new gives the seductive new car smell, and the opportunity to tailor colours, trim and equipment levels exactly.

It also makes available the latest safety, comfort and convenience equipment. This is no small matter: for perhaps the first time ever, cars are changing more quickly on the inside than the outside.

Potential life-savers, including radar-guided anti-collision technology, and useful communication advances such as Bluetooth audio streaming, will be found in few cars even two or three years old.

Buying new may also allow more financing options.

Although unpopular or old-stock prestige models may occasionally be sold at cost – or even below – current cars from respected makers will never be marked down like Persian carpets.

“People make ridiculous offers,” says our Prestige Insider (PI), an experienced salesman with an upmarket German brand. “I’ll have a brand new car sitting there for $100,000 and someone will offer me $60,000.”

“They’ll say, ‘I’m paying cash!’, as if that makes a difference. The sale still needs to be paid for in some form, and the title made clear. And real folding stuff is horrendous. No one wants to count it.”

A matter of margins

So what are the real margins? Most luxury dealerships mark up 8 to 12 per cent between invoice and list price (ex-goods and services tax and on-road costs). Some have even less to play with, and margins can vary from model to model within a brand.

The same margins apply to factory options (sunroofs, bigger engines etc), although dealer-fitted accessories and services, such as window tinting, can carry more cream. The dealer can also sell finance and secure car company bonuses for meeting targets that include sales and other parameters.

Some buyers negotiate aggressively – either verbally or tactically – and it may work, or not. That’s one place luck and perhaps astute emotional intelligence may be the decider.

STOP SHOUTING

Our PI says that aggressive posturing gets his back up. In extreme cases, negotiations have been stopped and a shouting buyer asked to leave.

“Even when that doesn’t happen, people who behave like that tend not to get the best deal. A dealership is more likely to help out someone if there seems to be fairness on both sides.”

So what works?

“Well for me, complete transparency. Where everything is out in the open on both sides, that’s the best way to reach a deal.

“People will negotiate long and hard and then, right at the last minute, introduce a trade-in. It will annoy most salespeople, and it’s not in the buyer’s best interests, because if those facts were introduced a holistic view could have been taken.”

Obviously, the only price that matters for comparison purposes is the drive-away price or, if a trade-in is involved, the change-over.

Creative financing

Depending on how you are financing things, though, it can be advantageous to take any discounting as an inflated value for the trade rather than a reduction in the new car price. Or vice-versa.

A good salesman can help you work through that one.

There are times of the year when discounting is widespread. End of financial year is the most obvious, with factory bonuses and dealerships needing to quit stock, but it’s almost always limited to cars already within the system.

The same is true of end-of-the-month factory rebates given to dealerships for meeting volume targets. The car must be “deliverable” immediately and not a special order, or on a boat somewhere. Also worth noting: the official end of the month tends to be the last business day, not a Saturday or Sunday.

What about hanging around for a quiet time?

“The margins don’t change,” says our PI, “so people who wait, say, for January, hoping to do better, won’t really succeed unless there are factory bonuses.”

Tempted by a ‘demo’

The bridge between the new and used car is the “demo”. In theory this is an already-registered, fully loaded car in a fashionable hue, designed to show off the model to potential buyers. When it reaches a certain mileage, it is sold – almost always at a favourable price considering its high level of specifications and options.

In reality, the demo is often used as a subtle form of discounting or sales boosting (cars are counted in official sales figures once registered). Many so-called demos are backed by factory/importer incentives and have been scarcely driven let alone “demo-ed”.

If you want a near new, and often heavily specified car, a demo can be a tempting option, though the equipment and colours will reflect someone else’s tastes, and the warranty will already be ticking.

Unlike unregistered cars, a demo tends to belong to a specific dealership. This is important in relation to the next point.

The ins and outs of PMAs

To protect a dealer’s patch, car companies generally set up what are called prime market areas. They pay a dealership a rebate if it secures a sale within its own “PMA”.

This might be 1 to 3 per cent, a significant dollar amount on a mid to high-range prestige vehicle (though the dealer may have to meet other targets as well).

The secret to any deal is to shop around, starting with the internet (which has a range of tools to compare specifications, prices and options, and even to value your trade). A handy way to harness the PMA advantage is to visit a couple of dealerships away from your home (or your work, if it’s a company registration), establish your preferred model specifications, and set a benchmark price.

When you make it to your local dealer, he should have slightly more margin to play with. If he can’t do better, though, you know exactly where to go.

On the move

Unregistered cars anywhere in the country can usually be moved from dealer to dealer at no extra cost to the buyer. However, it’s not entirely unknown for a salesperson to secure a deposit against a promise that a certain trim and colour combo is available when, in fact, no such car is yet on the ground.

No matter how much you’ve fallen in love with that svelte bodywork, it’s important to treat this exchange like any other big-dollar deal (obvious, yes, but we’ve all met otherwise smart and cautious people who behave impulsively when buying cars).

If you can’t see and touch the machine you’ll be buying, request an “out clause” if exactly the right car can’t be delivered in the promised time.

The right car should also have the accessories and options you want – no fewer and no more – and be the right age. In the rush and excitement (or frustration) of buying, it’s easy to overlook that a car has two important date stampings. The first states when the car was built, the second the date of compliance (that is, when taken out of bond and approved for sale in Australia).

Cars lie about their age too

Officially, the age of a car is the date of first registration but, when buying or selling, the build date is far more significant. It’s the car’s true age, after all.

It’s not inconceivable that a car first registered in early 2012 might have a compliance plate from 2011 and a build plate from December 2010. It may look and smell new but, in a resale sense, it’s already two years old.

Such a car may suit, as long as the discount reflects that build date. After all, it will have the same warranty and if you are leasing over five years, the difference in dates will be much less significant at the end.

Our Other Prestige Insider, or OPI, says: “If it’s just about the best price, walk around the yard, and see which car has been in stock the longest. You can tell pretty readily by looking at the compliance plates. That’s the car they’ll be the keenest to bend on.”

Plenty of fat in delivery fees

Although a dealer might only be working with, say, 9 per cent of the list price, there’s the “dealer delivery”. This fee, to fuel, register and prepare the car for use, can be $2500, and $7000 at the upper end.

Our OPI estimates the real cost of providing “dealer delivery” is $600 to $1000 on most prestige models. So there’s another potential margin to negotiate.

An extended warranty also has plenty of fat in it – and is worth bargaining into the deal, providing it’s comprehensive and, ideally, factory-backed. The stratospheric cost of fixing a computer-controlled transmission means it’s good to be covered throughout the entire expected ownership of the car.

Buying a car cheaply is risk versus reward. The biggest discounts will be found on second-hand cars, either at auction or in the private market. Both expose you to more variables, and to do justice to the vagaries of each would require as a long a discussion as this one.

A compromise with fewer hassles is a manufacturer-approved (and warranted) used car. Most of these are highly optioned ex-fleet or company vehicles. They are often the current model but considerably cheaper than a new alternative.

How you best finance your new car depends on your income, work situation and more.

But consider all options – a good package can save a great deal of money, or deliver a better car for the same amount.

And remember: unless you’re happy to wear the severe depreciation that happens in the first few months of new car ownership, you have to live with the consequences of your decision for years. It’s worth taking the time to ensure you have secured not just the right price, but the right car.

Tony Davis writes on cars for Life & Leisure.