"How much do you make on a new car?"
After expenses, almost nothing. Really. Here's how. Nationally, including all manufacturers, the average gross profit on a new car is a little over a $1,000 per car. We are about average. (Just a few manufacturers that closely manage supply, such as Lexus, have gross profit margins up to $4,000.) Note that gross profit is different than net profit. With that $1,000 per car, I have to pay the salesperson, utilities, advertising---the list goes on and on. Our total expenses per month are over $250,000. Our monthly rent alone is $30,000. Even if we sell a lot of cars, there's not much left over after paying all these expenses. New car sales are extremely competitive. The auto industry has a lot of extra production capacity and there isn't a shortage of most cars. So why do we bother to sell them at all? Our business withers without them. I need the new car sales to get good trades and to keep my shop busy. Also, I need Subarus getting in fender-benders to keep my parts department busy.

"How much do you make on a used car?"
After expenses, we net about $400 per car. Our average gross profit is $2,000, which is about average for franchised dealerships nationally. Where does the other $1,600 go? First, see the section above for a list of expenses associated with delivering a car. Further, with used cars, there are significant reconditioning costs. Many of our used cars get new tires, brakes, and other repairs and maintenance before they meet our exacting standards.

"Will kbb.com or Edmunds.com give me a reliable value on my trade?"
On our website, we actually have a link called "Ballpark Your Trade" and it connects directly to Kelly Blue Book. We chose the word "Ballpark" very intentionally, because these consumer sites don't even agree with each other. Further, you'll notice that none of the sites will buy your car for the number they spit out. Determining the current market value of a car is an art and a science. We pay little attention to the consumer websites. Instead, we subscribe to auction data services that show us the prices at which people are actually buying and selling vehicles. We also pick the brain of our buyer, who spends most of his days at the auction---buying, selling, and observing thousand of cars being bought and sold. And, we use our intuition. Ever try to sell a purple truck? Let's just say it's worth less than another color! (For more detail on this topic, visit our "Ballpark Your Trade link.)

"Are extended warranties on cars a good idea?"
It depends. I recently bought a $60 drill and declined the $15 extended warranty. 25% just intuitively seemed like an awfully large percentage of the purchase price. Plus, if the drill broke, it would hardly break the bank to go buy another one. Cars are a different matter. For 2%-6% of the price of a Subaru, you can cover a $30,000 car up to 7 years or 100,000 miles. The majority of our customers purchase one because they are such a good value. (Replacing a Subaru transmission, for instance, is a $5,000 repair. That would break the bank.) So on a new car, I think it's a good value to buy the manufacturer's warranty. Manufacturers often do not offer extended warranties on used cars, so you need to look at these much more carefully. Make sure you buy one of these from a reputable dealer to ensure you have some recourse if you encounter a problem with the company. And if you choose not to service with the dealership, make sure your mechanic will accept the warranty you buy.

"Are undercoating and rustproofing a good idea?"
Yes, but you don't need to pay for it. Cars now come from the factory with this stuff. Manufacturers know a lot more about preventing rust now. You may want to consider paying your dealership for a paint sealant if you buy a car with a darker color, however. Rain in the northeast is so acidic from all the pollution that the water will etch unsightly spots right into the clearcoat layer of your paint. These are especially conspicuous on darker colors.

"Is Life/Accident/Health insurance a good idea? What is it?"
Essentially, L/A/H insurance makes your car payments if you're disabled and pays off your car if you die. All things being equal, you typically get more coverage for less money with a term life insurance policy from an insurance agent. Problem is, most people have inadequate life insurance coverage. They just don't realize it's important or never get around to it. If you have a good life insurance policy, and have a rainy day fund big enough to make your car payments for a good while if you get disabled, don't buy L/A/H insurance. If you're one of those folks who lives paycheck-to-paycheck, and will never get around to getting life insurance (you know who you are) then you should look consider L/A/H. On a $20,000 car, it will cost you about $20 per month on a five-year loan.

"How about Gap Insurance? What is it?"
This protects your mall wardrobe from going out of style. No, actually Gap Insurance covers the "gap" if your car is totaled and you owe more on it than it is worth. Let's say your 2004 Outback Limited is stolen and is never recovered. Your insurance company will pay you what it's worth, say $20,000. But what if you owe the bank $23,000? (This is actually quite common. When newer, your car typically depreciates faster than you pay down the loan monthly. Unless you put money down, you typically owe more than it's worth for a couple years until the depreciation curve flattens out and you begin paying off the loan faster than it depreciates.) In this Outback example, without Gap Insurance, you have to pay the bank $3,000 just to pay off the loan. Gap insurance would pay your deductible and the $3,000, preserving your credit rating. Gap insurance is usually a few dollars a month on a five-year loan. It's a good idea for people who owe more on their cars than what they are worth. If you put several thousand dollars down when you buy your car, you probably don't need it. Most leases (such as Subaru's leases) include it at no extra charge.

"Should I get a Carfax before buying a used car?"
Carfax is a company that sells vehicle history reports to dealers and consumers. They claim to alert you of odometer tampering, accident damage, etc. It is a limited tool. Here are a few of the limitations we have encountered.

1. The Carfax records check is not comprehensive. We bought a 1999 Legacy at the auction with only 7,000 miles but became suspicious about the mileage when we noticed unusual wear on the tires and pedals. The Carfax was clean as a whistle, but our Subaru database revealed that the odometer had been replaced by another dealer. (The car in fact had 57,000 miles on it and we sent it back to the auction).

2. The records are not always accurate. Carfax doesn't verify the records, they only report them. We had a Saab that was safety inspected in Connecticut and the inspector keyed the mileage into the inspection machine as 63,000 miles instead of the 36,000 miles that it really had. The Carfax indicated some kind of odometer tampering but it was just a typo.

3. The reports are vague. Carfax lists some accident reports, but doesn't describe the severity. I see people get all spooked about an accident when there was no evidence of anything more serious than someone backing into another car. Other accidents don't show up at all, leaving you blind about whether or not a car has been in a serious accident.

"Should I take a used car to a technician before buying it?"
It's a good idea, especially if you're not buying a car from a franchised dealership. Keep your expectations reasonable, however. Modern cars and trucks are incredibly sophisticated and no technician can predict the future. You need to have reasonable expectations of the seller, too. If a car has 50% brake life remaining, for instance, you can't expect new brakes from the seller. You're getting a discount off of a new car price in part because the components of the car are not all brand new.

"Why are there so few women salespeople in the car business?"
Most women don't want to work in a typical dealership with locker-room humor, shady ethics, unbearably long hours, abusive managers, etc. Some are fearful of being associated with the polyester, pinky-ring-wearing stereotype of a typical car sales "guy." Some customers can be surprisingly rude and adversarial, and many women don't want to endure this conflict. We have worked very hard to attract women because they are consistently our top producers. We have found that women typically bring excellent social skills needed to help people through a big financial and emotional decision. Also, the majority of car purchases are influenced by women, and many like to work with other women. Currently, three of Planet Subaru's seven Purchase Partners are women.

"Should I buy or lease?"
Almost all of us at Planet Subaru lease our cars. Leasing is better for most people, but not everyone. (Full disclosure: all things being equal, we would rather see a customer lease because owner loyalty is higher---because lease customers pay less to drive a nicer, safer car that's under warranty, they're satisfaction is higher. The margins in auto retail are thin so we've built our business on the volume of repeat and referral business from happy lease customers.)

Examples of People Who Shouldn't Lease

If you plan to turn your car into a street racer, don't lease, because the leasing company will not like your coffee can sized exhaust and the huge wing that you weld on to the trunk.

If you buy your cars and keep them forever, don't lease. You have discovered the most economically advantageous way to buy a car. (Editorial aside: while this is a good financial decision, it's not a very good decision in terms of your safety because you're going to be spending a lot of time in a car that's obsolete in terms of safety technology. But it's up to you to weigh the cost/safety scales).

Leasing Benefits for Everybody Else:

• A lower monthly payment
• A safer, more reliable car all the time, and not just when the car is new
• A car under warranty with fewer repair bills
• Investing cash elsewhere instead of tying it up in a depreciating asset
• Sales tax only on the monthly payment instead of the whole car (may vary in other states)
• Owing nothing at lease end with the option to buy your car at a wholesale price
• Excess miles are cheap to buy on a lease (10 cents per mile up front) compared to the depreciation on your financed car (more like 25 cents per mile).
• Gap insurance is free (most manufacturers). If a leased car is totaled in a theft or accident, there's no risk of owing the bank more than the insurance proceeds.
• Great way to put an end to being upside down in the loan. Instead of rolling negative equity over into a new loan, nothing is owed at lease end.

Why don't more people lease?
The biggest objection most folks have to leasing is that they don't understand it. People tend to fear and avoid things they don't understand, especially when they are in an uncomfortable environment (such as a showroom). Here's a quick contrast between financing and leasing for a 60-month loan and a 36-month lease:



When you get a $20,000 loan, the bank pays us $20,000 for your car and keeps your title until you pay off the entire $20,000, plus interest. When you lease, the bank also pays us $20,000, and keeps the title. What's the difference? With a loan, the bank wants back 100% of the $20,000, plus interest. With a lease, the bank only wants you to pay back the difference between $20,000 and the residual. The residual is a forecast of the value of your car after the lease term, and the bank stands behind that forecast.

Common Concerns about Leasing

1. "With a lease, I don't own anything."
When you take out a loan, do you get the title? Not until you pay off the whole amount. So you don't really own it till it's paid off. A lease is the same way. The bank retains the title and if you want to own the car you just pay off the lease.

2. "With a loan, I own the car at the end."
True. But not much of a car! A five year old car with nearly 100k? If the lease saves you $120 a month for the term of a 60 month loan, that's $7,200! (And that's assuming you didn't make some interest on it by investing it or putting it in the bank.) What's a 100k car worth? Probably not $7,200! So you would have been better off saving money along the way instead of parking it in a depreciating asset.

3. "It's better to own than rent."
The reason you should buy a house instead of rent is because the house almost always appreciates. But cars depreciate.

4. "I can't trade the car in before lease end."
Actually, you can. After driving your car for 30 months, don't you think it's less expensive to get out of a 36 month lease that's almost up rather than a 60 month loan that's only half paid? Approximately 40% of people owe more on their loans than their cars are worth---not only do they not have equity, they are actually "upside down."

5. "I don't want a new car every few years."
I like to buy new, pay the car off, and then have the car without a payment. While you may not have a payment in those out years, there are still costs. You'll be spending more in repairs to keep an older car on the road, older cars use more gas and pollute the environment more, have fewer safety features than modern cars, and are more likely to break down and leave you in a dangerous situation.

6. "I drive too many miles."
Cars depreciate about 25 cents per mile. Yet with a lease, you can buy additional miles upfront for only 10 cents. At the end, if you go over, they're only 15 cents. People who put a lot of miles on financed cars usually end up owing more than they are worth---not only do you not own your car, it owns you!

7. "I had a bad experience with a lease because I drove over the miles and I had to write a big check at the end."
If you had financed the car, don't you think that piling on extra miles would have substantially reduced the value of the car at trade in time? Cars depreciate about 25 cents per mile but they only cost 15 cents on a lease if you go over. If you buy them up front, they're only 10 cents! So if you're concerned about driving a lot of miles, we'll build them into the lease for you. Either way, you're better off putting too many miles on somebody else's car!

8. "I had a bad experience with a lease because I had to pay for damage at the end."
People who trade in financed cars with damage have to pay too---because they get less on trade in. You don't get a bill in the mail for it, but you still pay it. Furthermore, our experience with lease returns is that the inspectors are pretty lenient about minor damage because they want you to get another lease!