Hard Times for the Auto Industry, Good Deals for You!

I was glancing through the the paper this weekend and noticed the excellent deals on cars and trucks. With spending down, consumers hurt by gas and housing, and inflation, auto manufactures are becoming desperate. Great rebates, low APR, and extended terms. If you have been holding off to buy a new car, this may be the time.

Some of the deals I saw:

Chevy - 0% for 72 months on most models
Dodge - Large rebates (Up to 8K on trucks)
BMW - 3.9% for 60-months on select models
Ford - 0% for 72-months.
and many more.

There are lots of great deals, but beware of the many deals mixed in that are horrible. When you see an add for a $15K car at $250 a month, you might think it is a good deal until you read that it is a 60-month closed end lease. Not a good deal.

If you are going car shopping and looking at the ads remember these key things:

- Don’t buy based on monthly payment. The teaser rates are not always the best deals. Creative financing can give the appearance of a good deal, but in the end you will pay more. Know what your payment should be based on the price of the car. There are several posts to tell you how to figure this out.

- Do not lease now! Why, because car values are horrible right now. In prior posts, I explain how lease payments are calculated in detail, but in short, your payment is largely dependent on how well the car holds its value. If the car is anticipated to lose value fast, your monthly payment will be higher. Since leasing is basically like renting, anything that gives you a higher payment makes a bad deal. To add to the problem, in the next few years you will see a host of manufactures coming out with more efficient models, the banks know this and as a result have assigned lower residual values to the cars. If you do have to lease, make sure you understand every point (residual, term, down payment, lease factor, mileage penalty, and rebates) so that you can compare a buy Vs. lease.

- Don’t trade in your car. I am always amazed on this one. People will spend hours negotiating a $500 option, but then have no problems losing several thousand on a trade. Dealers have always been bad, but in today’s market you car is almost worth nothing as a trade in. Be patient and sell it. If you get something in between the market price and what the dealer would offer you win.

- Take your time. The market is in your favor. If you have to leave, don’t think you will not ever get the deal you have been offered. More often than not, the sales person will call back with a better offer.

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It is a sunny day, the windows rolled down, and no one on the highway. You can’t help but step on the gas cruise a little faster, or perhaps your a few minutes late and want to make up some speed, whatever the reason many Americans find themselves speeding on the highways.

It is no surprise that speeding does consume more gas and in return increases your fuel consumption sending you to the pump more often, but how fast is to fast? What is the optimal speed? How can you go further on the same tank of gas? And, most importantly, how much does your speeding cost you?

What is the optimal speed?

I found a study called the Transportation Energy Data Book that has some very useful information regarding this topic. Unfortunately the data only goes through 2000, but nonetheless it still gives a good picture as to what an estimated optimal speed should be.

First of all, the optimal speed should be defined as the speed at which the least amount of fuel is used to achieve the greatest MPG. Since the engine burns some gas no matter what speed you drive, low speeds will not give you a good MPG. On the flip side, as you increase speed the momentum works to improve efficiency up to a certain point. At that point, the resistance and drag of the car start to work against you and require more and more fuel for just to maintain your speed.

In the study, they sampled 9-cars from 1997 and found that the optimal efficiency occurred at 55 MPH. This increased from an optimal speed of 40 Mph for cars between 1973-1984 (a 37% improvement from car design). It is probably safe to say that the optimal speed in today’s new car designs have inched up a bit. With that assumption the optimal speed of today’s cars probably lies somewhere between 55-65Mph.

So how much does my speeding cost?

In the cars tested, roughly you lose 3% in the first increase of 5mph, and then 7% for every 5 MPH thereafter.

55 = 0%
60 = -3%
65 = -7%
70 = -7%
75 = -7%

The difference between 55 MPH and 75 MPH is -24%. So, if your car gets 30 MPG, your MPG will be reduced to 22.8 MPG driving at 75 Vs. 55. Based on the current gas in my area ($4.79), if I drive 100 miles in a car that gets 30MPG here are the comparisons:

So you save 30-minutes in driving time for $5.03 in fuel cost.

One thing to keep in mind, these numbers are based on an average of several types of cars. Depending on your car, you may have to slide the scale left or right. A very aerodynamic car might have an optimal speed of 65 MPH, whereas your H2 Hummer might be 50 MPH. Unfortunately, I could not find any data on specific car models to send you to, but use common sense based on the size and shape of the car.

How can you make your tank go further?

Even if you still do speed, you can make a large difference in your overall MPG by knowing a few facts.

The more you stop the more fuel you burn. Obviously, when you are idling you are getting 0 MPG, but the larger problem comes when you start again. The initial fuel required to move your car is much higher than the fuel required to keep your car moving. Avoid frequent stops if you can.

Similarly, acceleration to quick de-acceleration reduces your MPG. When you are inconsistent with your speeds, your car becomes less efficient since efficiency is achieved when you hold a speed long enough to offset the acceleration.

Some tips:

-Accelerate slower in the city and try to maintain a consistent speed between signals. Speeding to the next light will cause your MPG to decrease.
-On the freeway, try to maintain a consistent speed.
-Avoid roads with lots of stops if possible.
-Don’t prove how fast your car can go from 0-60.
-Remove any objects on your roof.

With any luck, you can achieve 3-15% improvement in your MPG without slowing down.

 (photo from Chevrolet.com)

So you want to buy an SUV.  Now is not the time.  I pulled some data from KBB.Com and Edmunds.com to show just how crazy the numbers are.  The chart below shows three cars, a Jeep Cherokee, Chevy Tahoe, and Honda Accord (for the non-suv comparison).  For each car you can see the 2008 MSRP, then three years of blue book value with a very low 12K miles a year put on the vehicles.  The Value lost is how much the car has decreased in value after the end of each year in that year.  The final column, is what your monthly loss is per month based on one, two, or three years of keeping the car.

 

It is shocking to see that a Jeep Cherokee will lose 40% of its value in the first year with a small amount of miles.  The Tahoe, a very popular SUV, will lose 44% in two years. 

I believe what we are seeing is an over reaction to high gas prices.  I value the data from KBB, but it can not always account for irrational behavior and as such you should avoid buying any new SUV unless you are the type that does not care about losing 10K or 20K.  If you need the space, buy a wagon or other vehicle that is perceived to get better gas mileage as it will hold it value better.  If you have to get that SUV, then buy used from a private party if anyone is stupid enough to sell at the super low prices.  Retail rates on any of these cars at the dealers will be inflated by at least 2-4K above private party, so don’t think buying a used SUV at the dealer is a good idea either.

Basically, until the market settles, don’t even consider buying a new SUV.  If you are selling one, keep in mind the very low KBB values and take the time to do the math.  Is the extra loss in the value of your car a fair exchange for the more fuel efficient car now?  It is simple math, don’t get caught in the hype as you will be burned.

Good Friday!

As we go into this Easter Weekend I was driving home and noticed all the road rage out there. If you are traveling anywhere this weekend I am sure you will see what I mean.

With that said, I thought up a little quiz so that you can check for yourself if you are a causing heart burn and turmoil to your fellow drivers!

Here you go:

A. When driving in the left lane of the freeway you are:

1. Passing other drivers.
2. Staying away from everyone merging onto the freeway in the right lane.
3. Driving the exact same speed as the person one lane over so that you can admire there beautiful car detailing.

B. When one lane of the freeway is going away by merging into the other lanes and you are driving in that lane you:

1. Plan ahead and get over at the speed of the new lane when there is sufficient space before cars before the end of the lane.
2. Plan ahead and get over to the next lane driving 20MPH less than all traffic.
3. Smile at all the fools in the other lane as you increase speed to double the moving traffic and merge into the next lane only after you have reached the final two feet of the lane of which you are traveling.

C. You are leaving the office early but have to finish up a call, so you:

1. Use your blue tooth device with your mobile phone and finish your call.
2. Use you mobile phone with one hand and use the other to drive.
3. User one hand for your mobile phone with your laptop on your lap and checking your files with the other hand all while steering with your left knee.

D. You are approaching an accident on one of the lanes on the freeway you:

1. Slow down to a safe speed and pass the accident.
2. Slow down to a safe speed and make sure to slow down even more so that you can get a good look at the crushed cars.
3. Completely stop when you reach the accident, roll down the window, pull out your mobile phone and take a picture to send to your friends.

E. A cop is approaching from behind you:

1. Stop speeding but maintain the speed limit.
2. Slow down below the speed limit in case the officers radar is not reading correctly.
3. Slam on your brakes, drop your speed to at least 15mph below the speed limit, and move into the fast lane.

That’s it, for each answer you selected, simply add the number next to the response.

5 points you cause no road rage.
5-10 points, ok not perfect maybe some one called you name in the next car over.
10-14 points, you got some angry folks after you.
15 points, you cause 90% of all the road rage in the US. I would advise you not to leave your car with out protection.

Happy Easter Weekend. Lots of traffic out there, be patient and allow for extra time and most importantly, don’t let the road rage get the best of you!

If you have searched the internet for auto sales and car buying tips, you no doubt have seen the hundreds of sites dedicated to help consumers buy and lease automobiles. On one side you have a vast majority of people thinking that every car dealer and salesman is out to rip them off, on the other side, you have a large group that claims consumers are unfair and hold the auto industry to a higher standard then any other product they buy.

I think both sides are correct, but in ways you might not expect. Lets take the argument that all car salesman and auto dealers are liars and thieves.

This perception could easily be justified given the following:

-You can go to 10 different auto dealers and get 10 different offers for the same car.
-The car buying process is complex.
-Car leasing has many moving factors that can work to the dealers advantage.
-Car prices are not consistent.

With a complex process and moving prices, it is no wonder the perception is rarely a positive one. However, it is important to understand why this exists.

Given today’s research tools, it seems odd that the auto industry in large continues these practices. If the consumer truly wanted an easy, no haggle, no fuss process, wouldn’t one exist? The truth is that consumers don’t really want that. A car is usually the first or second most expensive purchase an average consumer will make. On a purchase of this size, consumers want something to negotiate. If you don’t think this is the case, take a look at GM’s attempt to sell Saturn’s under a different philosophy. GM’s attempt failed horribly and today Saturn’s follow the same process as any other GM car.

We as consumer’s want to feel like we got the best price and as a result, we keep the complicated process alive.

The upside to this is that we can argue better deals, the downside is, uniformed buyers will pay more and the door is wide open for lies from a small percentage of dirty car salesman.

Lets look at the second argument: Consumers are unfair and hold the auto industry to a higher standard then any other product they buy.

Well this is true, and it should be. This is a large purchase with a lot of moving parts and one that has a direct impact on consumer’s pocket book if not done right. However, I don’t think that most consumers expect the auto dealers to make no money as they imply, they just want a fair deal that they understand. What really drives this negative perception about auto buyers is the un-informed buyers. See my post on how to be a bad customer. Many auto buyers come in to buy a car un-prepared and expect the best deal with un-reasonable terms. They forgot the rules of negotiation. Unfortunately, these buyers are often the ones that get the worse deals and create the strong negativity about auto buyers in general.

I think with some simple safeguards and some preparation, you can purchase your next car without the common hassles and turmoil.

What are your thoughts?