Back to Basics: 7 Ways to Save on Your Next Car


Ford (Stock Quote: F) CEO Alan Mullaly reportedly believes the New Year will be financially worse for the auto industry, and expects it won’t turnaround until 2010. Ford posted a 34% drop in U.S. sales last month and General Motors (STOCK QUOTE: GM) CEO also warned of weak times ahead. But for consumers, plummeting sales can mean significant savings as car dealerships offer steep discounts to try and move inventory.

Run through this checklist before you hit the auto dealership. It could save you thousands.

1. 20% Rule. Want to finance a $65,000 Escalade on a $45,000 salary? Think again. Monthly car payments, including insurance, shouldn’t surpass 20% of your take-home pay.
2. Know What the Dealership Pays. Do your homework and visit the online auto advisor Finding out the so-called “invoice price” can be a great bargaining chip. Then ask the dealer to explain what the new marked-up price reflects and see him sweat.
3. Vote With Your Feet. If you feel you’re not being given proper attention, just leave the dealership or ask to speak with the sales manager. Seeing you about to walk out the door after working on the deal all morning can often force the sales person to meet your terms of sale. As a general rule, it’s smart to shop around anyway, so take the prices and information you got from that first dealership and compare it to a second dealership and a third. Also, print out and carry online quotes with you. When you pit the dealerships against each other, chances are, you’ll get them to drop their prices.
4. Go “On the Lot.” You can save at least 10% by selecting a car that’s sitting on the lot versus a car that has to be shipped in from the manufacturing plant.
5. Ask to See “The Demonstrator.” This is the car the dealer lets customers test-drive. These cars are usually sold when they are a few months old and have several thousand miles on the speedometer. The advantage: you should save a few thousand dollars off the price
6. You Don’t Have To Finance Then and There. Don’t be pressured into thinking the auto dealership must help you finance your car. Shop around for rates at You can often save by choosing a third-party lender, like a local bank or credit union.
7. Cash Rules. If you're paying for the car in cash, you could save money by taking advantage of special discounts and rebates. Tell the dealer upfront that you want to pay in cash. You’ll be able to reap significant discounts if you don’t require financing.

Catch more of Farnoosh’s advice on Real Simple. Real Life. on TLC, Friday nights at 8 p.m.

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