2.9: Deciding How Much to Pay for a Car

At this point I have covered the process of finding and preparing to purchase a collectable car so all that’s left is figuring out how much to pay for the car and, potentially, how to pay for it. If you were buying a normal car or truck this would be incredibly easy: the Internet is full of information about what other people are paying for cars, detailed to the level of trim, mileage, and market. You simply conduct your research, go into the dealership, and negotiate to a fair price.

Unfortunately with collectable cars it’s not always that easy.

The value of collectable cars can be very fluid to say the least, and depending on what you’re looking to buy, comp sales may be nearly impossible to come by. Values change so much that it’s common to find Internet ads for cars with prices that say “call to inquire” — a function of market conditions for cars and some states having laws that require a dealer to honor any published price for a vehicle. “Call to inquire” effectively allows sellers to continually update pricing for a vehicle in a fluctuating market which, for the most collectable cars, is the right thing for a seller to do. Take, for example, Hagerty market values for the 2007 Porsche Carrera GT, an iconic car and one often sought by collectors:

Hagerty value change over time for 2007 Porsche Carrera GT

Imagine if you were a seller and you advertised your “#1 Concours” condition, low mile Carrera GT for $650,000 USD in January 2015 and didn’t get any interest until September of that year when you completed the transaction as priced. Based on Hagerty data you would have just left $150,000 USD on the table — or gifted an immediate gain of $150,000 USD to your buyer. Not all collectable cars fluctuate this much in value, but enough do that it creates a challenge for buyers who not only have to figure out whether the asking price for a vehicle is fair but also whether they think the value will go up, down, or stay more or less the same. Not that I’m suggesting that you should be collecting cars for investment purposes — as we discussed in the chapter on “Because You Think Cars are a Great Investment” most cars really aren’t that great of an investment, despite what the Hagerty data on the Carrera GT suggests — but it still behooves a car collector to at least try and “buy low” so that they have the potential to “sell high” even if it doesn’t work that way for most people.

No problem, you may think, I’ll just go to Bring a Trailer, CARFAX, or AutoTrader as has been suggested elsewhere in The Car Collector’s Handbook and figure out what the car is being advertised for currently and go from there. It’s a great idea if you’re buying a relatively common collectable like a Ford Mustang or base spec Porsche 911, of which at any given time there are hundreds for sale across the country increasing your chances of finding a similar year, similar spec, similar mile example. Online data becomes less useful if you’re looking at a more rare car that is less likely to be advertised with similar miles and in similar condition, and at that point you’re going to be forced to make your best guess. If you end up in this position here is what I suggest you do:

1. Make a spreadsheet and gather the data you’re able to find. You’re going to want status (sold or for sale), year, miles, stated condition, color, price, location, days on market, seller type (dealer, auction, or private seller), and notes on the car as relevant to what you’re trying to buy. I try and stay as close to the actual car I’m trying to purchase as possible when I collect my data — a Porsche 911 and a Porsche 911 GT3 RS of the same year are very different cars, and for older, air cooled Porsche, a 911 and a 911 “S” will command dramatically different prices;
2. Order your spreadsheet in order of date of sale with the “for sale” and newest sold cars listed first. Values of cars change enough over time that you’re going to need to weigh current asking price and recent sales more heavily than, say, a sale that happened six months or a year ago. The older data is valuable to help you see trends, but you’re not likely to get a seller to entertain dated pricing unless they have been sitting on the car for awhile, at which point you should also be asking yourself “why is that?”
3. Calculate an “average asking” and “average sold” price and mileage for cars currently on the market and that have sold in the last six months, respectively. This takes a little knowledge of spreadsheets but isn’t that hard — you just want to have a mid-point on what sellers are asking and what similar cars have sold for and the mileage of that “average” car to get a quick determination of whether your seller is asking a fair price of if they are hitting the proverbial “crack pipe”;
4. Compare the data you have to Hagerty’s valuation data if your car is in their database. For $45 per year you can get full access to Hagerty’s database of used car values, which, for a collector poised to spend thousands on a car, is a pretty good deal. Ideally the trend data you have matches what Hagerty has, but your data should also be more current since Hagerty has a tendency to trail the market by several months and you need current data, and this comparison is just a check to ensure that you’ve collected data that matches what the “pros” are seeing;
5. Work backwards from the seller’s asking price with the data you have. Price drivers for cars vary but in general for collectables — assuming the same year, make, and model — they are mileage, condition, color, and care. For example, most collectors will pay more for a low mile, good condition, rare color, and well cared for example of any car, and will pay slightly less if that car has a spotty service history, evidence of mistreatment, a common color, or higher than expected miles. Armed with the “average asking” and “average sold” price for the car you’re looking at and related miles for each you have a pretty good starting point for your analysis and can layer in penalties or bonuses for the other dimensions;
6. Determine an offer that is a little under what you’d actually pay and determine your upper limit. Based on the data you collected you’ll probably have a pretty good idea of what the car is actually worth, regardless of the asking price. At that point you’re wise to also take a little off of that to give yourself some room to negotiate, and more importantly, figure out the point at which you’re going to walk away from any negotiations. The latter amount may not matter if you’d be willing to go as high as the asking price, but you’ll save everyone time if you know your upper limit, especially if it’s not the asking price but the seller declares that he or she is firm on pricing and not entertaining lower offers.

With all of that in mind you should be ready to make an offer on the car in question. The three major paths to purchase are dealer, private seller, and auction, and each of these paths have nuances worthy of consideration.

Buying from a Dealership

Dealers, in my experience, are typically the easiest to negotiate with. They have an asking price and, more importantly, a bottom line amount that they will sell the car for. They won’t tell you that price, and sometimes they will try and force you through the maddening process of having to go back and forth with a sales manager or some other hidden individuals that do little more than make the entire effort take way more time that it should … but there is a lowest amount they will take for the car that is not subject to emotion or other external influences. Especially if you’re buying a new collectable car, there may not be any room for negotiation at all and the advertised price is the price you’ll have to pay if you want that car. That makes the process really, really simple, and you’re left to decide whether you want the car badly enough to justify the price since in these cases, especially in this modern age of car collecting, the dealer knows they will sell the car to someone, even if it’s not you.

Assuming there is room to negotiate with the dealer, and assuming you have taken the car for a test drive and done all the other work I described previously, you will probably sit down at the salesperson’s desk and haggle a little. Start with the price you want to pay, again with a small buffer taken off just in case. Depending on the type of dealer they will either disappear to run that number by the sales manager or, hopefully, react and negotiate with you directly. Regardless of how the negotiation goes down here are three things I strongly recommend:

1. Have your homework handy. If you’re able to show recent comp sales for similar cars you will be better off than if you’re just spitballing looking for a lower price. Put another way, saying “I found that a dealer in town sold a car with higher miles for the price I am offering you just last month” or “the last five sales of similar cars with similar miles on Bring a Trailer all price within $5,000 of my offer” should resonate with the dealer if they really want to sell the car;
2. Be dispassionate. If you’re like me and you really like buying cars it’s hard to be calm during negotiation. You know you might be just about to get an amazing new car … and your body language will show that. Unfortunately the best dealer salespeople are almost always incredibly good at reading body language and emotion and will absolutely use that against you. To whatever extent you’ll want to be emotionless, almost robotic, and just give them numbers and react to their counter-offers. The more you smile or chat … the more likely they know they will close the deal in their favor;
3. Be ready to walk away. This is the best advice I can possibly give you if you’re trying to balance collecting cars with maintaining wealth: be ready to walk away from any negotiation. There is no harm in saying “I really do appreciate your willingness to work with me on this but I think I just can’t afford the car so thank you for your time. Please give me a call if you reconsider my offer.” Saying no and making for the exit gives the dealer two more chances to win your business: they can ask you to wait and run the offer by the sales manager one more time, and they can consider your offer in the coming days while the car sits on the showroom floor. Either way those two chances are two more chances for you to get that car for the price you think is reasonable.

You want to be ready to walk away because if you don’t you’re probably going to overpay. If you really want the car and have the money, okay, no big deal, but keep in mind that there will always be another car just like this one. Whether the car is for sale at a lower price, as is usually the case for new sports cars and non-hyper exotics, or whether it will cost more as was the case for the Porsche Carrera GT that I passed on at $350,000 years ago, that is the $64,000 question — but there will always be another example for sale, somewhere.

The Scourge of Additional Dealer Markup

One nasty thing you may run into when buying new collectable cars is something called “additional dealer markup” or “ADM.” ADM is exactly what it sounds like: dealers marking up the purchase price over-and-above MSRP because the car is going to be hard to get, at least initially. I am not sure if there is any particular basis for how ADM is set, but it is increasingly common for cars that have been hyped by the media, will be available in limited numbers, or are otherwise likely to be highly sought after when they hit the showroom floor.

My guidance on buying cars with dealer markup is very simple: don’t.

ADM is a scam. Adding costs to a car that is new to the market is only justified by outright greed on the part of the dealership. The manufacturer has already set their suggested retail price for the car and decided what they believe not only the car is worth but what dealers should be happy with in terms of profits when they sell the car. Any additional markup is just the dealer taking more profits because they can, which I am pretty sure is the technical definition of “greed”. What’s more, all of the cars that I can think of recently that had some type of ADM applied to them upon their release — the Ford Focus RS, the BMW i8, Dodge Charger Hellcats, Ford’s Raptors, GT350, and GT500 cars, the Porsche GT2 RS, even some Subaru believe it or not — all ended up depreciating somewhat normally over the subsequent twenty four months after release and so any ADM paid would just further extend the buyer’s loss on the deal.

The reason people pay ADM for cars is “because they have to have them and have them now” which is fine I suppose but ultimately it’s irrational. The car will still be for sale in twelve months, it will be the same car, and except in very, very rare cases, the car will be worth less than it was new because depreciation is a near universal truth when it comes to cars. The cars that don’t depreciate — limited edition hypercars and the such — aren’t being sold with ADM, they are being sold to specific and often hand-picked clientele for whom A) money is rarely a deciding factor in the purchase process and B) won’t be reading this book because they honestly don’t need it.

There are some examples of ADM cars that don’t depreciate normally and appear to hold their value — the Dodge Demon appears to be an example, with an MSRP in the $80s and ADM reported to be in the teens to twenties, at the time I was writing this there were examples for sale in the $120s and $130s which, if they are selling at that price do buck the trend. But the Demon also seems to be very much an exception to the rule with most cars with ADM added being available for normal prices after months if not years.

The counter argument for ADM is that it’s simply the law of supply and demand and that buyers aren’t forced to buy any car that is marked up if they don’t want to or can’t afford it. Okay, I can’t disagree, but on some level ADM is changing the nature of the sports, collectable, and exotic car market to be one that only the most wealthy can participate in, potentially leaving true enthusiasts, younger collectors, and fiscally conservative buyers behind. The good news is that, at least anecdotally in larger markets, some dealers do not charge ADM as a business practice, thusly identifying dealers who do as those you may not want to do business with while still providing you a dealer path-to-purchase, even if you need to be a little more patient.

Add-Ons You May Not Need

Speaking of dealer baloney, let’s talk about add on services you probably don’t need. If you’re buying a new car there is a 99% likelihood that after you agree to a purchase price you will sit down with someone in finance who will try and get you to add on a bunch of services and “insurances” that you probably don’t need and that just run up the total purchase price — and dealership profit margin. Dealer add ons like extended warranties, warranties for wheels and glass, paint and leather treatments, paint protection films, and the like are always marked up significantly and, more importantly, something you can purchase on your own direct from the same companies that provide these services to the dealers if you believe you need them and are willing to do a little homework. What’s more, your ability to use these warranties is always limited by the “fine print” which you won’t have a chance to read and digest at the dealership, and so the potential exists for you to buy said warranty, need it, but find out when you try and use it that your specific case is excluded and thereby not covered.

Lame, huh?

If you really want to buy a warranty as part of the entire cost of the vehicle here are my recommendations:

1. Ask the finance person to explain the warranties to you and provide pricing for each in writing. Here you are confirming the warranty provider and cost if purchased via the dealer so that you’re clear on costs. Ideally they can give you the actual warranty, in writing, for your review;
2. Ask the finance person if they can give you 48 hours to consider the warranties and, if you decide to take them, roll them into the purchase price of the car. According to the dealers I talked to during my research they should let you do this. Dealers are subject to laws regarding financing of vehicles and so don’t have unlimited time, but the dealers I talked with indicated that good dealerships will be willing to give you 24 to 48 hours to make a decision about these types of add ons. Obviously this can created challenges — for example, if you drive the car off and pick up chips or scratches those may not be correctable before paint protection film is applied, etc. — but for warranties, provided you’re careful it’s less likely that you would need to make a claim in the first few days of ownership;
3. Research the warranty you’re being offered with the folks who will need to use it. Most times you won’t be using the warranty yourself, a service advisor or mechanic will be on your behalf. Call the service department at another dealership and ask them about their experience with the specific warranty for service related issues. Let them know you’re thinking about buying the warranty for a year/make/model car and want to make sure that they have a good experience with that warranty provider. In my personal experience service managers don’t sugar coat warranties and will be honest with you regarding their value, especially in the context of issues they commonly see with the car you’re interested in;
4. Read the fine print yourself. The fine print in warranties is written by perhaps the worst kind of lawyers — the ones who want you to believe you’re buying something valuable but, in fact, are not. Automotive warranties are full of exceptions, negations, double-negations, and limitations that are, unsurprisingly, often spread out in the document forcing you to jump around on the page trying to make sense of things. The best way to think about this document is to assume something has gone wrong — for example, your powertrain has failed — and to determine with 100% certainty that the parts, repair, and if necessary a loaner vehicle will be covered by the warranty;
5. Make sure you understand what deductible you will be required to pay. Warranties are basically just insurance and insurance has deductibles in nearly all cases. It’s not that there is anything wrong with this, but it can be an unpleasant surprise if you are told “hey, great news this is covered by your warranty” and then when you go to pick up the vehicle are given a bill for a $1,000 USD deductible. What’s more, if you don’t know or forget to ask, at the point where you are being required to pay the deductible — it’s too late, the charge has been incurred. In theory your service advisor will explain this to you in advance, but that is not always the case and so the onus is on you to know what you’re getting into;
6. Look online for other vendors who can sell you the warranty including the warranty provider directly. Dealerships rarely provide extended or parts warranties themselves, they buy them from third-parties. With a little legwork it’s likely that you can do the same at a lower cost. When you have the warranty document simply look at the name of the provider and search for them online; again, it will take a little effort on your part but it will also give you an opportunity to ask pointed questions about the warranty from the company that backs them — rather than from a finance person who is just trying to pad the margins on the sale.
   
   This is especially a good idea when it comes to ceramic coatings, leather treatment, or paint protection films (PPF), which can always be had for a lower price if you do the work yourself. A friend of mine used to have an agreement to apply PPF for a high end car dealership in Oregon. The dealer would charge $3,000 USD to have the film applied to the front end, mirrors, and rocker panels on a new car; my friend charged the dealer a negotiated $1,200 USD for the work and if you went to him directly he would charge $1,500 USD. You can make the case that having the dealer coordinate the work was convenient, but is it worth 100% markup on the service?

Assuming the finance person will give you some time to do your research, and if the warranty still makes sense, you can simply call them back and roll the charges into the purchase or loan. But if not, and “not” is honestly the most common case when it comes to the question “is this warranty or add on worth the cost?” then you have saved yourself some money that can be put back into the bank to pay cash for whatever repair you might need down the road.

Add-Ons You May Actually Need

The caveat to everything I laid out in the previous section is mechanical warranties, especially on used collectable, sports, and exotic cars. Despite everything I laid out elsewhere in The Car Collector’s Handbook, when it comes to buying a used car you won’t be able to catch everything in a pre-purchase inspection and, even if you could, stuff goes wrong. Having a third-party warranty can protect you from the worst of that, assuming one is available for the car you’re collecting, and even though they can be expensive in raw dollars, you’re wise to think about this type of warranty in terms of what they can save you, not cost.

A handy example would be my 2013 McLaren MP4–12C that I owned for years. When I bought it the car came with some OEM warranty left on the car which was great and covered both the non-maintenance service and some of the transport to and from the dealership in San Francisco from my home near Portland, Oregon. Despite the car failing every possibly practicality test I loved it and so when the warranty was up, rather than selling the car I opted to add a third-party warranty through the dealership — ignoring my own advice from the last section, mind you. The warranty cost me about $4,500 USD per year, but at the point where one of the lights failed and then shortly after that the car had an issue with the throttle body, air conditioning, and sprung an oil leak, I likely saved myself tens of thousands of dollars in parts and repair charges.

Adding a third-party warranty likely has costs beyond the warranty — most will require a dealer inspection prior to being approved — but relative to the cost of the car or likely repairs it can be well worth the expense. What’s more, if you’re a particularly shrewd negotiator, you may be able to get the dealer to pay for the first year of your warranty as a gesture of their faith in the car and goodwill to you as the buyer. Given that they are going to mark the warranty up 50% to 100% they surely have the financial leverage with the warranty company to help; whether they will do so or not is a different question.

Again, third-party mechanical warranties won’t be available for all cars but it’s worth doing a little research. Companies like Classic Vehicle Protection and Endurance provide protection to older and classic cars, and if you are looking to warranty something less than ten years old you will have lots of options. The easiest way to find a good warranty is to leverage my advice from the previous section and call a dealer service advisor or mechanic that you’d likely be calling for repair work and to see who they recommend. Especially if they have a company they have worked with successfully in the past and know is easy to work with, that is likely your best bet.

Buying from a Private Party

Unlike dealers where you’re almost certainly going to be negotiating with a professional or team of professionals, when you buy from a private party you never really know what you’re in for until you start the process. Fortunately, when you’re looking for a collectable car you’re more likely than not to be negotiating with a knowledgable seller who, in theory, bought the car themselves and has been through the same process you’re about to undertake. While you’ll want to keep in mind the chapter on “Buying from a Private Party Locally” and the pros and cons of private sellers, the actual negotiation with a private seller is usually pretty simple and you can rely on the same recommendations I made regarding buying from a dealer. Have your homework ready, be dispassionate, and be ready to walk away from the deal if it doesn’t feel right to you. There will always be another car.

On this last point, keep in mind that unlike in a dealership or at an auction where you’re working with someone who is paid to do a job and who is subject to oversight and rules governing their behavior and interactions, with a private seller you’re on your own. It’s not to say that there are not shady, unethical dealers out there — obviously and unfortunately there are — but that you’re far more likely to run into shady characters when buying from a private party. You want to keep your wits about you when negotiating with a private seller, and perhaps bring a friend who can help you listen for inconsistencies or for other evidence that the seller may be trying to mislead you. Especially when you’re negotiating for a high dollar purchase, the caveat “buyer beware” is increasingly true so you’re wise to keep that in mind and walk away if there is any question about the sellers integrity or honesty.

That said, in my twenty years of buying collectable and sports cars from dealers and private sellers I can count on one hand the number of times I have had to walk away from a shady private seller. The reality is that, again depending on what type of collector car you’re trying to buy, most private sellers are enthusiasts who share your passion for cars and understand the negotiation process. In fact, perhaps my favorite car purchase was the 1965 A.C. Cobra replica that I purchased from a gentlemen named Gary that I described earlier in this book. Gary was a delight to work with: he kept meticulous records regarding the car, including photos of the build process and nearly all of the build and service records, he had a detailed knowledge of the car and the things I would need to do to maintain it, and most importantly he had done his homework regarding the value of the car in the current market so that when it came time to negotiate on price we were nearly fully aligned and the whole process took a few minutes.

I wish all sellers could be just like Gary. I try to be.

Since I feel obligated to provide some level of additional guidance regarding buying from a private party in this section of the book here are a few thoughts:

1. If possible, negotiate over a medium that lets you keep track of your conversation. Email is best, despite how dispassionate it can be, because if there is any question of who said what you can just refer back to the email. Email has an additional benefit of allowing you to pause, take a breath, and consider your counter-offer. If you can’t use email I strongly recommend sending a summary of your conversation to the seller that outlines your conversation and any agreement made and says “can you confirm that this is your understanding of our conversation?”;
2. If your seller is local and the deal is falling apart, don’t worry about it. I have an acquaintance who was buying a car from a collector who was pretty well known locally and during their negotiations it became clear that the car was not as advertised. My acquaintance worried that if he bailed on the car that the local collector would be pissed and badmouth him at local car events, etc., and so he bought the car. It turned out worse than he imagined, unfortunately, but he had no recourse after the transaction was complete.
   
   Don’t fall into this trap.
   
   Buying collectable cars is not like being in high school. If you care more about what people think about you personally than you care about getting a fair deal on an accurately represented automobile — car collecting is not for you. There are an awful lot of personalities in any local car community, not all of them good, and if you find yourself negotiating with one of the “bad guys” please take my advice and walk away quickly. An unethical seller is not going to make you their new buddy if you buy from them, you are just a transaction that they hope to get one over on;
3. Trust your instincts. If you are any kind of “people person” it’s likely that your instincts are spot on, especially when you’re talking about money. When someone is trying to get one over on you it’s usually apparent in some way or another. If you sense that and begin to worry about the purchase, listen to your instincts. You won’t always be right, but because as I have stated a few times, there will always be another car, and you’re far better off waiting for that car than you are finding yourself stuck in a bad situation or a bad transaction.

Paperwork and Private Sellers: Cross Your T’s and Dot Your I’s

Unlike at a dealership where you will be inundated with paperwork, with a private seller the onus is on you to make sure you have everything in order. While you should consult with your local department of motor vehicles to confirm what they will need to allow you to register the car, you will definitely need a bill of sale that includes specific information about the car, buyer, and seller. Fortunately the Internet is full of web sites that will, usually for a small fee, walk you through the entire process of creating a bill of sale specific to your state and county including eForms, TemplateLab, and others, but if you’re too frugal to pay for a template, here is the basic information you will need:

• Full name and addresses of the buyer and the seller
• Details of the vehicle, including make, model, year, and color
• The car’s Vehicle Identification Number (VIN)
• The milage on the odometer at the time of sale
• The date the sale agreement was executed
• The agreed purchase price of the vehicle
• Signatures of both the buyer and seller

Additionally, if the seller is providing any other parts or considerations for the car you should note them as part of the agreement. For example, if the seller is including extra wheels, original seats, a car cover, etc. you should note that on the agreement so that everyone is clear on what was purchased. Also, if the seller is doing anything else to the car before the transaction is complete — getting it detailed, doing any additional repairs, delivering the car to you — make sure to note that as well. It may seem pedantic but trust me, most of the problems that occur when buying a car of any kind are caused by miscommunication, not actual deception.

Buying via Auction

Deciding how much to pay for a car at an auction is really, really simple: using the tips I have already provided in this section of The Car Collector’s Handbook you simply figure out how much you’re willing to pay for the car based on your visual inspection and research and bid to that point and not beyond. Let me say that again: bid to the limit you are willing to pay and STOP BIDDING. Hopefully you will get lucky and the bidding will stop below your limit and you’ll be the winner — hurray! If not, and if you’re like me and get caught up in the excitement of bidding, fight the temptation to go above your limit with the very fiber of your being because, and I’m sure you’re saying it with me now, there will always be another car.

Also, don’t forget that auction houses come with buyer’s premium fees, the cost of transport away from the auction, and other fees that you reasonably need to bake into the price you’re paying for the car if you’re being honest with yourself. Put another way, if you determine that the fair price for a car you’re interested in based on your research is $80,000 USD, and if you’re bidding on Bring a Trailer where there is a $5,000 USD cap on buyer’s fees, your upper limit is $75,000 USD. Now, you may be willing to mentally partition the buyer’s premium into a separate bucket and not attribute it to the price you paid for the car, but if you’re being honest you’ll recognize that it is only that, mental gymnastics. I am tempted to do the same thing with sales tax when I buy a car, thinking to myself “well the agreed purchase price was only $45,000 USD never mind the additional $4,500 USD I had to pay Washington state in taxes and fees”, but at the end of the day the price you’re paying for the car should include buyer’s premium, sales tax, and any other fees that aren’t optional when you complete the transaction.

The final thing to keep in mind regarding buying at auction is that often if the car fails to meet reserve you may still have a chance. It’s certainly worth reaching out to the auction house or, in the case of online auctions, the buyer directly to see if you can come to an agreement. Keep in mind that you still want to stay at or below the price you determined to be fair and reasonable for the car, nothing obviates that, but maybe you’ll get lucky and find a seller who had second thoughts about their reserve and would rather take less money and be done with the car than have to keep trying to sell it. Selling a car, as we will discuss later in this book, can be quite a pain in the ass sometimes.

Ok, you have your price … now how are you going to pay for it?