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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Buy a New Car from Dealer: Car Salesman's Daughter Tells How

Buy A New Car from Dealer? This video, tells you everything Bridget Sullivan Mermel learned from her Dad about the process of buying a new car from a dealership.

Buying a new car can be difficult. It's a large ticket item that you don't buy very often. The sales staff and dealer know a lot more about the transaction than you do. They do this all the time, while you do this every 3-20 years. This means you can be at a serious disadvantage when buying a car.

We talk about the major elements of the car buying process and what to be aware of at each stage. We talk about the invoice price, the manufacturer's suggested retail price (MSRP) and which you might pay attention to.

We talk about add-ons and what we recommend with dealer add-ons, as well as extended warranties (one vote for, one against!)

Bridget and John discuss the best way to secure the best deal on car financing. Make sure you look at all of the terms.

Finally, we talk about the current market for cars and what you might want to consider before deciding to buy.

Our friends at YAA have really helped us be current with this video. YAA is a website that uses an up-front model to help you get informed about cars before you purchase. Plus, they have a YouTube channel!

00:00 Welcome!

00:36 Bridget’s story

01:32 Wrong approach

03:12 Add-ons

04:42 Extended warranties

05:53 John on Extended Warranties

07:24 Trade-ins

10:09 What’s the invoice?

11:09 Current market

John's firm website:

For advisors around the US:

Thanks for watching and please subscribe!


Bridget: So, John, whom do you know wants to buy a car? In this episode of Friend Talk Financial Planning, we're going to be talking about the car buying process, how you can get the best deal possible when you're buying a car. I'm Bridget Sullivan Mermel. I have a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I have a fee-only financial planning practice in Middleton, Wisconsin. And before we start talking about buying a car, I want to remind everybody to hit the subscribe button. That helps other people find our YouTube channel and find this information. So hit subscribe, and then let's get on to talking about buying a car. I know this is a personal thing for you, right?

Bridget: Yeah. My dad worked for Heiser Ford in Milwaukee for years. He loved selling used cars, but then ended up moving up the food chain and became the sales manager, the guy in the back about whom salespeople say, “I got to go talk to my manager.” My dad was that guy. And I have to say I had mixed feelings about his checkered jackets.

John: Oh, really?

Bridget: Yeah, I had mixed feelings about his checkered sports jackets.

John: It was 1975. You got to take that into consideration.

Bridget: Anyway, I did learn a lot from my dad about buying cars, and he passed away about three years ago, so I thought it would be fun to do an episode about buying cars in honor of him.

John: Yeah, I love it.

Bridget: So when you buy a car, there's a bunch of factors in play, and sometimes you can be focused on what's the invoice? How much does it cost a dealer? I want to have that dealer not make any money on this price. And I think that's actually the wrong approach for a couple of reasons. The biggest one is that there're more factors than just the car and the dealers. Generally, they make a little bit of money on the car, but they don't make that much. And so, you've got more negotiating power elsewhere, and you can actually save more money on some of the other items that we're going to be talking about, not just the base price or how much over sticker, et cetera.

John: I'm so excited to hear about this because in general it's sort of a black box. You don't know. You hear stories and think, “What's the reality?” But then also, this is one of the biggest purchases. How many things do you buy during your lifetime that cost tens of thousands of dollars? And you don't buy that many of them.

Bridget: Right.

John: For most people we're not buying 50 or 100 cars. We’re going to buy a couple of houses in our lifetime and a handful of cars, and so it's not one of those things that people are used to. And so, I'm really interested to hear your advice about, “Hey, it's not just about sticker price or what the dollar price is.” What are the other factors that you think we should focus on?

Bridget: Well, you want to focus on the price, of course, but then you also want to think about what your trade in is worth and what the financing is like. Those are other profit centers for the dealer. Also, when you're talking about the price, you've got the base price, but then you've got add ons, and so you want to cast a skeptical eye on the add ons. The one that my dad used to talk about was rustproofing. He would laugh about rustproofing. So they'll say, “Oh, you need this little thing, you need that thing. Oh, you have to have a tire.

Oh, you have to do all these extras.” I'm not saying never get any of it. I'm just saying cast a skeptical eye on those items because that is a place where the dealer is making money.

The other thing is that there's a particular kind of bias, and maybe you'll remember the name of it, is that when you're buying something that costs tens of thousands of dollars, $1,000 seems small, and you're willing to pay that $1,000 versus if you're out at the grocery store. $1,000 is still $1,000, and it doesn't matter if you're at a car dealership or at the grocery store, but because of the context that you're buying it in, you're more likely to say, “Oh yeah, I can use rustproofing. Why not? I don't want rust. It’s $1,000. So what?” But that $1,000 is still a $1,000. Take it to the grocery store and think about all how many months’ worth of groceries you can buy with that. And think about that perspective when you're looking at those add on items. A separate item that I want to mention is extended warranties.

John: What're your thoughts on those?

Bridget: Well, it's interesting because they're not necessarily a rip off, but they are a major profit center for dealers and any industry that is finding my cell phone number, calling me and leaving messages, et cetera, I take a skeptical view of how this is really a good deal.

John: Right. Can we talk about what you do personally?

Bridget: I have a savings account. I certainly buy cars with decent warranties from the manufacturer, but I have an emergency fund.

John: Yeah.

Bridget: I got an emergency fund. That's what that's for. I have insurance. That's what that's for. And actually, on my insurance, I have a high deductible policy because that's what the best deal is on my auto insurance. But then I have a savings account, and that's my extended warranty, and it's cheaper. Actually, if I take $1,000 that the extended warranty would cost and put it in my savings account, I'm ahead.

John: It's interesting as we think about this, and there're the warranties you'd get from the manufacturer, and then there're those third-party warranties. And I think that this is one of those things that's a personal choice based on various factors. And it's sort of like risk tolerance for various other things, whether it's investments or insurance, how much do you want to insure, those sorts of things.

And some people say, “Golly, I want to make sure I protect myself against everything. And other people say, “Listen, let's keep the cost down and I'll deal with it on the other side.” And so, I explain it that way for people, asking, “Where do you fall on the spectrum?” And it's probably a better deal to not take the warranty and do the savings. I've sort of shifted as I've gotten older. I'll lean towards just the manufacturer side of things and not those third-party ones, but I sometimes even encourage people to pay a little extra. And for me, being a financial guy, I always ask, “What's the trade off? What's the profit?”

But there's some mental satisfaction or peace of mind that goes, “I just don't have to think about this. If something goes wrong, I don’t have to think about it.” And there was a point in my life where thinking about it was worth a lot of money or I was willing to make that trade off, and now I'm less that way and go, “You know what, I'd rather pay a little more and not have to think about it.” Financially speaking, you're probably losing money, but what am I getting for that? Being intentional about that decision I think is a really important thing.

Bridget: Yeah, sounds good. Okay, so let's talk about the other items, which is trade in. One thing I think people need to be aware of is if you're going to trade in a car, you're probably going to get a better deal if you do it yourself than what you get at a dealer.

John: Put it on Facebook Marketplace or one of the other sites.

Bridget: Right. That's one I specifically heard that people use right now. I don't have personal experience with it, but yeah, I've heard Facebook Marketplace works well.

John: Whatever today's classified ads are, right?

Bridget: Yeah, exactly. So that is one thing to point out. And then the last thing I wanted to talk about is financing, which is another profit center for the dealer. So what you want to do is go to your local credit union, if you're in the credit union, get preapproved for an auto loan and find out what their interest rate is. And you want to take that with you when you go in. And it's not like you're definitely going to use that, but that's a good negotiating tool.

John: Another tool in your toolbelt.

Bridget: Exactly. And it's funny, one time I went to a dealership—this was several years ago—and while we were negotiating the interest rate and suddenly the interest rate went down by a percent once I showed them the credit union rate so they could match it.

John: Interesting.

Bridget: We ended up, in that case, not using the credit union, but we used the credit union another time, so it just depends. That's another tip. Now let's talk about invoice on a car.

John: Can I stop there for just one second, Bridget? It seems like there're several separate transactions. I'm buying a car, but then it becomes like saying, “Well, listen, if I were refinancing my mortgage, the only thing I'm worried about is the terms and the closing costs and things.” And that's part of the car buying process or can be. And then I've got one of the add ons, one of the extra things, and that's a whole separate thing from the sticker price.

And I don't know if it's helpful, but it's really interesting to process this by sitting here and having this conversation.

Maybe it can be helpful to think of the different components, rather than lumping it all together, where you might say, “$1,000. Oh, sure, just add it on into this whole big deal.” But to think about some of the separate transactions is important. Should I trade my car in or sell it? That's one decision. Should I get financing from the dealership or from the credit union or not get financing? That's a separate decision. Then the add ons… There're all these things. And so maybe to be mentally prepared for not making one transaction when you buy a car by thinking, “I'm not making one transaction when I buy a car, I'm making multiple transactions.” And to think about those distinctly can help people be proactive.

Bridget: Absolutely. And so, another thing I just want to mention is the invoice which is kind of a red herring. Figuring out how much the dealer paid for a car is kind of crazy because they get all kinds of different deals from the manufacturer and from their banks. They basically take out loans to have their car lot to finance their inventory, and they'll have different promotions, et cetera, from the manufacturer.

What they pay for an individual car can vary a lot. And so, it's kind of a red herring. The manufacturer suggested retail price, however, is not. That is what the manufacturer suggests, so that's not a red herring. Make sure you're looking at all these different elements and not getting too dragged into things that don't matter. The last thing you want to do is talk about what the current market is and how you might be able to get a decent deal.

John: I like this one.

Bridget: It's tough. My biggest advice is wait if you can. We’re filming this in August of 2022. If you can wait to buy a car new or used, that is probably your best option just because the inventory is low and it's kind of widely fluctuating market. When you're buying a car, your timing is one issue—there are better times to buy a car than others—but then there's also how flexible you are on the model, on the color, on how far you'll go to buy it. All those types of things can influence if you can find a decent deal or not. And so, if you've got something specific in mind, it might be tough to find that right now. I heard Alfa Romeos might be good.

John: Is that right?

Bridget: They've got inventory. The supply and the demand with cars right now are just out of whack.

John: And I know that you're talking about traveling and different things and there are some online resources that you've been able to find that have some really good deals.

Bridget: Yeah, one that I've found that I like is YAA. They've got an online community, and they're kind of like a fee-only only model.

John: Interesting.

Bridget: You pay a membership and then they give you objective advice. And some of my information about what's current has come from them and they seem legit. I like it; I like their model.

John: Yeah. Interesting.

Bridget: And they've also got a YouTube channel and podcast, so it's a great way to find more information if you're interested.

John: Super. I think it's a great way maybe to wrap things up here. Thanks so much for sharing all this information on how to buy a car and how to think about it. We're always interested in hearing what our viewers are thinking about, what your experience has been. Drop a note in the comments, share your experience, maybe questions you have. We look forward to hearing from you on that. And to wrap things up, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. We both meet clients in our offices, but if you're interested in meeting a local planner in your area, you can check out We're both proud members of that organization, which is a group of likeminded advisors all over the country.

John: That's right. And don't forget to hit that subscribe button. Until next time.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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