The Aleph Blog » Blog Archive » Ways to Buy Cars

Ways to Buy Cars

To start, I will extensively quote a prior article that I wrote on the topic:

When I buy a car, I analyze what car I would like to buy.  I look at reliability, repair costs, overall costs, and style.  I use Consumer Reports to help me analyze this.  Then I go to the website(s) of the manufacturer in question, and copy the data on all of the used models on offer at the dealerships within 30 miles of me.  With price as the dependent variable, I then run a regression with model year as dummy independent variables, and total miles as an independent variable.  After I run my regression, I look at the cars with the biggest price deviations, the predicted price is a lot higher than actual.  I then look at the features of the underpriced cars, and choose one where there are good features with a discounted price.

I go to that dealer, review the car, test drive it, and if it passes my tests, I haggle over the price, and buy it.   In my experience, this cuts thousands off the price of the car.  What a great reason to have studied econometrics.

But then there is another way to do it, and I have done it before with success, and you can review it here.  Decide what car you want to buy, and solicit offers from nearby dealerships, and buy the cheapest offer.   For used car, you will have to adjust for quality.

I will offer you one more tweak which stems from this article from my bond manager days.  Call up all of the dealers offering the car that you want and tell them that you will buy from the dealer that offers the best offer, but at the second place price.  You’ll have to explain it on average at least once more.  If you want bonus points, mention that this idea stems from the research of a Nobel Prize winning economist William Vickery.  In my experience Vickery auctions even the odds against the experts, because it takes them out of their comfort zones, and makes them bid.

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One final note: I have one idea that I think is a hole in the system — an area that I think harbors inexpensive cars relative to their value.  In applying the first method — gathering prices and mileages and running a regression, I found one class of vehicles to almost always trade cheaper than they should.  Cars with low mileage that are old tend to be underpriced.  There is a lot of variability here, but if you want to buy a car cheaply that is in good shape, it is a good initial screen to find some good vehicles because people prize younger cars overly, even if they have been driven heavily.

My idea here gives you a way of buying something of greater quality, though unusual, for a lower price.  There’s usually a story behind the vehicles, but it often involves vehicles that had owners that rarely drove them, then had an accident, and the insurance company bought the vehicle as part of a settlement, an a used car dealer rebuilds the car, buys it cheaply, and sells it for what is for him a large markup, but cheap compared to the mileage and condition of equivalent cars of later vintages.

There.  Some practical ways of saving some money for you.  Hope it works well for you.






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2 Responses to Ways to Buy Cars

  1. John says:

    Neat idea with the Vickrey technique. I hadn’t thought about that since grad school.

  2. Crocodile Chuck says:

    David

    Sorry, waaay off topic, but……

    what do you think of QBE’s stock? They’ve had a bad run since 2008, culiminating in a huge (and, embarassing) exposure to the Thailand floods of 2011, and Frank O’Hallorahan has been tapped on the shoulder to step down. Ten years of US acquisitions have moved against them with the US$:A$ exchange rate. Still attractive? Thanks in advance.

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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