Edmunds.com'sâ Frequently Asked Questions

1. How do I figure a fair deal?
2. Why won't the dealer accept my offer of 3 percent over dealer cost?
3. How can a dealer sell a new car for less than the invoice price Edmunds.com publishes?
4. How can I find out what customer rebates or dealer incentives are currently available?
5. Why do some dealer incentives on specific models have a range of values?
6. What is a carryover allowance?
7. I want to pay cash for my new car. Do I have an advantage?
8. Do factory orders cost more than buying from dealer stock?
9. Can I order a car directly from the factory?
10. Why are destination charges the same for every dealer around the country?
11. Can I avoid paying the destination charge by picking up a car at the factory?
12. Why should I pay advertising fees?
13. Can I negotiate price on a Saturn, Daewoo or at a no-haggle dealership?
14. Why won't the dealer give me wholesale value for my trade-in?
15. Should I buy rustproofing, fabric protection packages, paint sealant, and other dealer-installed items?
16. How much does an extended warranty cost the warranty company?
17. Who sets the residual value for a lease?
18. When I use Edmunds.com's formula to calculate a lease, I get a payment that is substantially higher than what the dealer quoted me. Why is this?
19. When is the best time to purchase a car from a dealer?
20. How soon after a price increase does Edmunds.com modify its data?
21. Why is the car I'm looking at on the West Coast or in the Southern tier of states priced differently than what's listed in this guide?
22. Why doesn't Edmunds.com list option prices for some makes and models?
23. When should a car be considered used?
24. What's the difference between a demo car and a program car?
25. Is it fair for a dealer to ask if my trade has ever been wrecked, or damaged in any way?
26. How do I determine a fair price for a used car?
27. How can I determine what a dealer paid for a used car at auction or in trade?
28. Do you have pricing for used cars more than a decade old?
29. Why does Edmunds.com's used-car pricing differ from other price guides?
30. How often is Edmunds.com's used-car pricing updated?
31. The new model year rollout is occurring. How will this affect used-car values?
32. How do manufacturer-certified used-car programs affect used car values?
33. Why don't you have a listing for the late-model used car I want to buy or sell?
34. Why did the used car I'm considering take a nasty drop in the ratings recently?
35. What is a secret warranty, and how can I find out if any exist for my car?

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1. How do I figure a fair deal?

Use this formula: Dealer Invoice of car and options + 3 percent Fair Profit + Destination Charge + Advertising Fees + Tax - Incentives and/or Rebates = Fair Deal

2. Why won't the dealer accept my offer of 3 percent over dealer cost?

The dealer doesn't have to sell you a car. If demand for the model is high, if supplies are short, or if the dealer enjoys making a healthy profit, you won't be able to buy the car for a fair price. Don't argue the point, just find another dealer. If all the dealers you contact refuse to sell the car at this price, then your offer is too low, and you must start over at a higher value.

3. How can a dealer sell a new car for less than the invoice price Edmunds.com publishes?

Auto manufacturers will often subsidize volume-sellers to keep sales and production up by offering car dealers hefty cash rewards for meeting monthly or quarterly sales goals. In other words, the dealer will take a slight loss on the car in anticipation of larger cash rewards if sales goals are met. It has been our experience that when a dealer sells a vehicle for less than invoice, the manufacturer is in one form or another always subsidizing the deal. In print ads, always look for phrases such as "all incentives and/or rebates assigned to dealer."

Also, since profit can be made on other parts of the deal, a dealer may be willing to take a loss on the price of the car in exchange for profit gleaned from a low-ball trade-in value, high-interest financing, rustproofing, an extended warranty, and aftermarket or dealer-installed accessories. We once met a Plymouth salesman who bragged that he sold a Neon for invoice, but with the undervalued trade-in, high-interest financing and dealer-installed items factored into the deal, the buyer actually paid more than $20,000 for the car. Keep in mind that there is more to a good deal than a low price.

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4. How can I find out what customer rebates or dealer incentives are currently available?

Rebates to customers are clearly announced in advertising. Incentives to dealers, commonly known as "back-end monies," are not. Edmunds.com publishes current national and large regional rebate and incentive programs online at http://www.edmunds.com. Local rebate and incentive programs also exist on occasion, but Edmunds.com doesn't have access to this information. Ask your dealer if the local automobile dealer association or advertising association is sponsoring any rebates or incentives in your area. They might actually share this information with you, and it never hurts to ask.

5. Why do some dealer incentives on specific models have a range of values?

Sometimes, the manufacturer will tell the dealer that he must sell a certain number of cars to qualify for an incentive. For example, let's say Nissan offered dealers an incentive of $100-1,000 on the Altima. This is a quota-based incentive. It means that to get the $100 per car, the dealer might have to sell 10 cars before a certain date. To get $500 per car, the dealer might have to sell 50 cars before a certain date. To get $1,000 per car, the dealer might have to sell 100 cars before a certain date. The more cars the dealer sells, the more money he makes, because quota-based rebates are retroactive.

With these types of quota-based incentives, you have leverage. With your sale, the dealer is one car closer to clearing the next hurdle and making more money. We recommend that you request half of the maximum quota-based incentive while negotiating your deal, unless the dealer or salesperson bungles and admits that your sale will put them into the next tier of incentive qualification. In this case, demand the maximum incentive.

6. What is a carryover allowance?

At the beginning of a new model year, some manufacturers provide dealers with a carryover allowance in addition to the dealer holdback. The carryover allowance is applied to cars from the previous model year, and is designed to assist dealers in lowering prices and clearing out old stock. Currently, the only domestic automaker that gives its dealers a carryover allowance is Ford Motor Company. The amounts can vary, but they average 5 percent of the MSRP. General Motors and Chrysler target slow sellers with heavy incentives and rebates. Most import manufacturers subscribe to the incentive and rebate philosophy as well.

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7. I want to pay cash for my new car. Do I have an advantage?

Not necessarily. You must remember that no matter how you pay for your car, it's all cash to the dealer. In the old days when dealers carried your note, you could save money by paying cash because there was no risk to the dealer. Today, dealerships finance through one of several lending institutions (banks, credit unions, or the automaker's captive financing division) that pay them cash when the contract is presented. In fact, if dealerships do the financing on your behalf, they tend to make more money on your contract in the form of a reserve; anywhere from a one-half to a one point spread on the interest. For example, if the published rate is 8.75 percent, the lender to dealer rate may be discounted to 8 percent; the .75 percent is the reserve held by the dealer as additional profit. This may not sound like much, but it adds up to hundreds of thousands of dollars a year at larger dealerships. This is the reason you should always arrange financing before going to the dealership, and then ask the dealer if they can beat your pre-approved rate. In most cases, they cannot, because of the reserve.

Paying cash is an advantage if you suffer from poor credit or bankruptcy, because it allows you to avoid the higher interest rates charged on loans to people with past credit problems. The bottom line is that if you think you can invest your money at a higher return than the interest rate of the car loan, you could actually save money by not paying cash.

8. Do factory orders cost more than buying from dealer stock?

All things considered equal, ordered vehicles cost no more than vehicles in dealer stock and, in some cases, may actually cost less. When you buy from dealer stock, you may have to settle for a vehicle with either more or less equipment or your second or third color choice. Moreover, the dealership pays interest on stocked vehicles at a predetermined monthly rate to the manufacturer. This interest is called floor plan, and is subsidized by the dealer holdback. When you factory order, you get exactly what you want, in the color you want, and the dealer should eliminate the floor plan cost. In most cases, the dealer passes the savings on to the customer, and the savings could amount to several hundred dollars.

The downside to ordering is that incentives and rebates are good only on the day of delivery, unless stated otherwise (in writing) by the dealer. If an incentive or rebate plan was in effect when the vehicle was ordered, but not in effect the day of delivery, the customer is usually not eligible for the incentive or rebate. If you order a vehicle, and the delivery date is very close to the expiration date of a rebate or incentive program, beware that the dealer may try to delay delivery until after the rebate or incentive has expired.

From a negotiation standpoint, dealers may be more likely to offer a better price on a vehicle in stock, particularly if the monthly floor plan payments have exceeded the holdback amount and are now chewing into the dealer's profit.

9. Can I order a car directly from the factory?

No you cannot. Dealerships are franchisees of the factory, and are protected as such. However, a few manufacturers are buying large groups of dealerships in some areas to test the idea that a factory-owned store can serve the customer's needs better than individually owned and operated stores. Ford is testing this philosophy in several markets, and Daewoo originally intended to sell cars exclusively through factory owned stores until some states reminded the company that factory dealerships were verboten. Even stalwart General Motors is trying to consolidate dealerships in L.A.'s massive San Fernando Valley, but with little success. But signs exist that in the future, factory-owned stores may become commonplace.

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10. Why are destination charges the same for every dealer around the country?

Auto manufacturers will average the cost to ship a car from the factory to the furthest dealership with the cost to ship a car from the factory to the closest dealership. Some manufacturers do this for each model, others average costs across an entire make. Sometimes, shipping costs to Hawaii and Alaska may be higher than the averaged amount for the contiguous 48 states.

11. Can I avoid paying the destination charge by picking up a car at the factory?

Currently, the only North American factories that allow customers to take delivery the minute a car rolls off the assembly line are the Corvette plant in Bowling Green, Ky., the Dodge Viper plant in Detroit, and the BMW plant in Spartanburg, S.C. Buyers who opt to travel to pick up their new Corvette, Viper or M Roadster still pay the dealer they bought it from the destination charge.

12. Why should I pay advertising fees?

Most vehicles carry a legitimate advertising fee levied by either the manufacturer or by regional dealer groups. National or regional advertising fees, when charged, should not exceed 1.5 percent of the vehicle's MSRP. Because individual dealership advertising is a cost of doing business, you should never pay an advertising fee levied by the dealer rather than a regional dealer association or the manufacturer.

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13. Can I negotiate price on a Saturn, Daewoo or at a no-haggle dealership?

You cannot negotiate price on a Saturn, but you can haggle over your trade-in and shop aggressively for the lowest-rate financing to keep costs down. Daewoo dealers also use a one-price philosophy, but the company wants to expand quickly and sell lots of cars, and there are often incentives and rebates available on these models, so the climate is favorable for negotiation.

No-haggle dealerships might wiggle a little on price, but if they're smart, they'll tell you to get lost. If you want to duke it out over $100, why would you shop at a no-haggle dealership wasting their time and yours? Think about this. If the no-haggle dealer caves and drops the price to sell you the car, you're gonna tell your buddies, and they're gonna tell their buddies, and pretty soon the whole town will be haggling over cars with the no-haggle dealer, and the no-haggle dealer isn't a no-haggle dealer anymore. Get it?

14. Why won't the dealer give me wholesale value for my trade-in?

When a dealership takes a car in on trade, it is responsible for the car. Before the trade-in can be sold, it must be inspected and often repaired. Sometimes, emissions work is necessary. All this inspection and repair work costs the dealership money. If the trade is in good condition and has low miles, the dealer will put the car on the used-car lot for retail price. When the car sells, it is rarely for retail price, so the profit margin is shaved. The less you accept for the trade-in, the more room the dealer has to make a deal with a prospective buyer, and the more money the dealer will make thanks to increased profit margins.

If the car doesn't sell, if it has high miles, or it is in poor condition, the dealer will have to wholesale it. The dealer will likely sell the car for below wholesale value at the auction, and expects to recoup some of the money spent reconditioning and inspecting the car. If the dealer offered you wholesale price when you traded in the car, he wouldn't make the money back in the event that the trade-in went to auction.

Regardless of the condition of your car, the dealer will anticipate taking the car to auction, and will leave room to make money in that event. Your best bet is to sell your car on your own to a private party, and forget about trading in.

15. Should I buy rustproofing, fabric protection packages, paint sealant, and other dealer-installed items?

Of course not. Most new cars are covered against rust perforation for several years and up to 100,000 miles. Want to protect your fabric? Go to an auto parts store and buy a can or two of Scotchgard. New cars have clearcoat paint, which offers protection from the elements. A little elbow grease and a jar of carnauba wax will keep the finish protected and looking great. By investing a little time and effort into your automobile, you can save hundreds on these highly profitable dealer protection packages.

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16. How much does an extended warranty cost the warranty company?

The cost of an extended warranty is based upon the degree of probability that any given vehicle will require repairs during the extended warranty period. Reliability records and repair cost information for a vehicle are evaluated to forecast potential future repair costs, and the extended warranty company will then charge a premium adequate enough to cover the potential cost of repairing the vehicle during the warranty period, while still making a profit. It is important to note that the cost of an extended warranty includes administrative costs for handling paperwork and claims, and insurance to guarantee that claims will be paid.

Extended warranty costs are based on averages, so the cost of applying an extended warranty to any given make and model of car can vary from consumer to consumer. Let's say you bought a $1,000 extended warranty for two identical Brand X vehicles: Car A and Car B. During the extended warranty period, Car A never breaks, so the extended warranty is never used. At the same time, Car B suffers bills amounting to $1,200 for transmission and valve problems. Profit on the warranty sold for Car A will counterbalance the loss suffered on Car B. Extended warranty companies sell thousands of warranties annually, and are able to make a profit when the actual loss experience is lower than the forecast potential for future repair. In other words, when sales exceed overhead the company makes money.

17. Who sets the residual value for a lease?

The financing institution that is handling the lease for the dealership sets the residual value, which can be affected by market forces and vehicle popularity. When shopping leases, it is important to shop different financing institutions for the highest residual value and the lowest interest rate.

18. When I use Edmunds.com's formula to calculate a lease, I get a payment that is substantially higher than what the dealer quoted me. Why is this?

The manufacturer subsidizes most nationally advertised leases. This means that the manufacturer gives the dealer incentive money to lower the capitalized cost (selling price) listed on the lease, or that the financing institution owned by the manufacturer has artificially inflated the residual value to lower the monthly payment, or both. Dealers may not inform you of these adjustments in the numbers.

Another problem with advertised lease payments seen in newspapers and on television is that consumers don't read the terms of the lease carefully. Sometimes, a substantial capitalized cost reduction (down payment) is required. Sometimes hefty deposits and other drive-off fees are involved. Mileage limits may be ridiculously low. Payments may be required for 39, 48 or 60 months rather than the conventional 24- or 36-month term. Read the fine print carefully!

Also, keep in mind that there are more than 250 different lending institutions across the country, and each one sets its own residual values for lease contracts. Don't be surprised if you go to three different dealers and get three different lease payments for the same vehicle over the same term.

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19. When is the best time to purchase a car from a dealer?

There's as much advice about when to visit a dealer as there are days in a year. Some say that Mondays are good because business is slower on Monday than on the weekend. Some say holidays like Thanksgiving are good for the same reason: nobody else will be there, and the sales team will be hungry for a sale. Others advise to go when it's raining or snowing; after all, who wants to look at a car and get wet? Then there's the advice that the end of the month is the best time because the dealership needs to make its "quota" of car sales and will be more willing to cut a deal. Still others advise not to buy a car until the end of the model year, or in slow months like August or December when people are busy thinking about going back to school or shopping for Christmas gifts rather than buying a new car.

Our advice is don't buy a car until you're ready. That's usually the best time. By then you have saved enough for a substantial down payment, and you've had plenty of time to do your research for the lowest interest rate, and you know all the current incentives and rebates. There is no way to tell when is the best time to buy other than personal need.

If a dealer has already made his target sales for the month, you're not going to have any advantage by showing up on the 31st of the month. While there may be something to say for going to a dealership on a weekday near the end of the month on Thanksgiving at five o'clock during a raging blizzard, your best bet is to track incentives and rebates, don't buy hot new models, and do your research first.

20. How soon after a price increase does Edmunds.com modify its data?

This depends on how soon our sources are notified. Sometimes, it's a matter of days; other times, it can take longer. Rest assured that we painstakingly attempt to maintain the most up-to-date pricing. If a dealer disputes the accuracy of our pricing, ask them to prove it by showing you the invoice so you can compare. If prices have indeed increased, the amount will not be substantial: the new figures should easily be within a few percentage points of those on this Web site.

21. Why is the car I'm looking at on the West Coast or in the Southern tier of states priced differently than what's listed on this Web site?

California, Oregon, Washington and Idaho are the testing grounds for different pricing and option schemes. Because of the popularity of imported makes in this market, domestic manufacturers will often slash dealer profit margins and offer better-equipped cars at lower prices than those available in other parts of the country. This is why some dealer incentives and customer rebates do not apply on the West Coast, and why some option packages available in those states may not be listed on this Web site.

In the Southeast, large distributors control Toyota pricing, and take advantage of this monopoly by charging more money for destination and advertising fees. They also front-load many cars with worthless packages of cosmetic items that you don't need. Similarly, in the Northeast, a single distributor, who may charge differently for fees and options than dealers in the rest of the United States, handles Subaru products.

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22. Why doesn't Edmunds.com list option prices for some makes and models?

Almost all Acura, Honda, and Suzuki options are dealer-installed. Some manufacturers, like Nissan, Subaru, Toyota and Volvo, will offer both factory- and dealer-installed options. Pricing for these items can vary depending on region and dealer. Therefore, it is impossible for Edmunds.com to list an accurate price for these items. Our experience shows that these items often carry a 100-percent markup in dealer profit. We recommend that you avoid buying dealer-installed options if you can help it.

23. When should a car be considered used?

Technically, a vehicle is considered used if it has been titled. However, some dealers can rack up hundreds or thousands of miles on a new car without titling it. In these cases, the ethical definition of a used car should include any car used for extensive demonstration or personal use by dealership staff members. The only miles a new car should have on the odometer when purchased are those put on during previous test drives by prospective buyers (at dealerships where demonstrators are not used), and any miles driven during a dealer trade, within a reasonable limit. If the new car you're considering has more than 300 miles on the odometer, you should question how the car accumulated so many miles, and request a discount for the excessive mileage. We think a discount amounting to a dime a mile is a fair charge for wear and tear inflicted by the dealership.

A car should not be considered used if it is a brand-new leftover from a previous model year. However, it should be discounted, because many manufacturers offer dealers incentives designed to help the dealer lower prices and clear out old stock.

24. What's the difference between a demo car and a program car?

A demo car is one used by the dealership as a demonstrator to potential buyers. Often, dealership personnel will use the car as personal transportation. A program car is a former rental car, purchased at auction by the dealership. Either type of car is more likely to have been abused than a brand-new car or a used car offered for sale by a private owner.

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25. Is it fair for a dealer to ask if my trade has ever been wrecked, or damaged in any way?

Certainly. If you were buying a car from a used-car dealer, you'd want to know the same thing, wouldn't you?

26. How do I determine a fair price for a used car?

Edmunds.com publishes a Market Value, which is based on average asking and transaction prices by dealers and private owners nationwide. As a buyer or seller, you'll want to get as close to Market Value as possible.

27. How can I determine what a dealer paid for a used car at auction or in trade?

Unless the dealer honestly discloses this amount, you can't determine an exact "invoice" price. However, by pushing for the best deal you will find the point where the dealer firms up on price. When this happens, you've gotten about as low as you can go; any lower and the dealer figures it would be better to just hang on to the car.

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28. Do you have pricing for used cars more than a decade old?

No, we do not. After a decade on the road, most cars have depreciated to the point where fluctuations in values are slight and do not have much impact on the transaction price. Older models will sell easily and for top-dollar is they are in excellent condition. Specialty models are covered by a variety of guides that you can buy in your local bookstore, or you can consult the classifieds in such publications as AutoWeek, Hemmings Motor News, and The DuPont Registry. Online used-car classifieds include classifieds2000.com and traderonline.com.

29. Why does Edmunds.com's used-car pricing differ from other price guides?

Each guide uses different sources to determine pricing. You must keep in mind that these publications, and Edmunds.com, are to be considered guides. The values contained within are not absolute; they are intended to give the user a range of values to consider when determining a fair price. Used-car values depend on mileage, vehicle condition, geographic location, model popularity, seasonal demand, and even color.

Keep in mind that the dealer will use whatever pricing guide works to their advantage in the deal. By providing pricing that favors the dealer, other guides make big bucks on subscriptions to industry personnel. Some even publish two different pricing guides; one for consumers, and one for dealers. Rarely do dealers use values found at Edmunds.com. We believe that speaks volumes about the fairness of our published pricing to the consumer.

The most important thing to remember about buying, selling, or trading a used car is this: a used car is only worth as much as somebody is willing to pay for it.

30. How often is Edmunds.com's used-car pricing updated?

We update our used-car pricing quarterly.

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31. The new model year rollout is occurring. How will this affect used-car values?

When you buy a new car, and it doesn't matter if it's an Acura or a Chevy, it depreciates the second it is titled in your name. Why? It has become a used car. Used cars age and accumulate mileage, and as they age and accumulate mileage they lose value. This is a constant process. Almost all used cars lose their value at a relatively steady rate, it's just that some makes, like Acura, lose value at a slower rate then other makes, like Chevy.

Just because our value guides are published quarterly doesn't mean that a car isn't losing value during that quarter. Used-car prices are never static. That's why we tell people that used car values supplied by ANY publication are to be used simply as a guide to help you determine a fair price.

Because used-car prices are not static the introduction of a new model year doesn't alter them much, if at all. Depreciation of used cars is almost always a steady, predictable process. Factor in climate, geographic region, supply and demand, etc., and that's where you get most of the fluctuation. Other factors, such as the release of a redesigned, and less expensive, new model and the whole Acura SLX/Isuzu Trooper rollover scare from a few years ago, can further alter valuations. And what would happen to Expedition/Suburban values if gas prices ever doubled? They'd drop in the toilet.

The bottom line is that the introduction of new model year vehicles generally doesn't alter used-vehicle pricing much, if at all.

32. How do manufacturer-certified used-car programs affect used car values?

Remember that our data samples include several sources, including advertised and selling prices from dealers who sell manufacturer-certified used cars. However, our data is also representative of a given vehicle in average condition, and most manufacturer-certified used cars are in good to excellent condition. Furthermore, the dealership spends anywhere from $500 to $1,000 to certify a used car to manufacturer specification. If you are shopping for a manufacturer-certified used car, you will need to take vehicle condition and the costs associated with the certification process into account when trying to determine a fair price.

33. Why don't you have a listing for the late-model used car I want to buy or sell?

To generate an accurate value for any given used car, there must be enough used examples on the market to include in the sample. Most often, the reason we don't provide a listing is because there aren't enough examples to generate an accurate value. For special interest models, such as the Volkswagen Corrado, try consulting a specialty-car value guide at your local bookstore, or contact a dealer who specializes in these types of cars for information.

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34. Why did the used car I'm considering take a nasty drop in the ratings recently?

Edmunds.com updates used-car ratings annually, usually early in the summer. We also tend to fiddle with the formulas that create the ratings, in an effort to make the ratings more accurate. If you find that the rating has changed recently, it's only because fresh data is available and we've finished our annual update.

Keep in mind that pricing is different from ratings. Pricing is updated quarterly throughout the year; ratings are updated once per year.

35. What is a secret warranty, and how can I find out if any exist for my car?

A secret warranty, actually called a technical service bulletin (TSB), is a notice that dealer service departments receive from manufacturers regarding suggested repairs to solve common complaints. The dealer is instructed to replace or repair these parts free of charge while the vehicle is under warranty or if the customer complains about a problem while the car is under warranty, but the TSB repair is not available at the time of the complaint. By law, TSB repairs covering emissions equipment are free of charge to the customer for up to 100,000 miles. If a TSB has been issued for your vehicle, but your situation does not meet any of the three listed criteria, then you are responsible for the cost of the repairs. You can get a list of TSBs for your car by contacting the National Highway Traffic Safety Administration (NHTSA) at www.nhtsa.dot.gov and conducting a search for the information.

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