A 2009 Mercedes Benz R350... The deal was simply too good to pass up.

Avid readers of my blog know that we had narrowed the car search down to three makes. A Toyota Highlander, a Volvo XC90, and a Mercedes Benz R350. In an earlier post, I admitted that I was a little discouraged that the marketplace had gotten so threadbare that it was hard to come by a configuration we wanted and could drive off the lot with.

But, this weekend, I called around and found a car that was worth looking at. A 2010 MB R350 Bluetec diesel. Problem was, when I showed the dealer my numbers (what I was willing to put down) I was told the numbers simply wouldn't fly.

The problem was that one of the reasons I had been pressing hard for an R-Class was that the information on Edmunds.com showed that there was currently (until 11/2/2009) a $10,000 marketing support incentive offered by Mercedes Benz. That meant that the dealership I was working with was essentially willing to knock $10,000 off the invoice, MSRP, whatever price you start at, off the price of the car, no hassles, no problem.

Except, this is where my naivité came in... Marketing incentives are those by the auto manufacturer to dealers to move old inventory. When I walked into negotiate $10K off a 2010, that wasn't going to fly.

Clearly, knocking $10,000 off the cost of a car is a huge incentive, so I asked if they had any cars to which the incentive did apply. And sure enough, they had one in the same dealer's other lot.

The base MSRP of the car we bought effectively dropped from $47K to $37K, making a lot of the competition not much of a... well, competition. The base MSRP of the Highlander, for example, was $35K. Would I be willing to pay $2K more to drive a Mercedes? Sure I would. Especially when, for example, after two years (at a 50% residual for easy math), I'm still $5K ahead on the $10K I just saved.

Of course, you can only take advantage of these kinds of deals when the automaker offers them, typically to move older inventory out in advance of new models coming down the line. And while they may not all be as good as $10K, they generally appear around this time of year.

Frankly, if the Mercedes lots had been devoid of 2009 R-Class vehicles, it's quite likely we'd still be looking, and probable that we could have ended up with a Highlander instead.

There are three things I regret about not being able to take advantage in this purchase, none of which rise to such a high level that it was worth walking away from the deal. First, I'd love to take advantage of European Delivery. This is the least painful as bringing Carson along on a transcontinental trip when he's 1 year old isn't that attractive right now. Second, I wish I could have found a Bluetec diesel instead of the gas one I bought. Of course, gas is the "conventional" answer, but I think I would have liked the torque of the diesel as well as the gas mileage. And third, it would have been nice to have found a car fully loaded (our car lacks the 3rd zone climate control that I liked in the Acura we test drove, and it lacks the rear entertainment system, something we can add later).

But, as I said, minor quibbles, all things considered.

We bought a car this weekend, but before I give you the details, I realized I should write this blog post first.

The first thing to know is that knowledge is power. There were many sources I relied upon, but a few key ones are worth mentioning. First, I relied on Consumer Reports to provide invoice and holdback costs. These are what the dealer was charged to take inventory of the car, and how much the automaker will compensate the dealership for selling it. The cost of each report is about $12-14 (depending on how many you buy) and they're fully worth it.

Consumer Reports lists each one of these details, which means you can walk into the dealership knowing exactly how much the dealer's cost is, and negotiate up from there, as opposed to negotiating down from the MSRP.

Second, I relied on the automakers' websites to familiarize myself with the models, packages, and options on the car. Consumer Reports provides this also, I suppose, but the "build your own" option on carmakers' sites helps with dependency and conflict resolution (not all options are available on all trims).

Third, I relied on cars.com, specifically, to get the residual values to determine just how quickly the amount paid on any particular car would depreciate.

Fourth, I relied on edmunds.com to get "true cost of ownership" values to determine what other costs are likely to rule the roost.

Since Christine and I could technically afford a much more expensive car, we were looking at a broad range of vehicles, from MSRPs as low as the 30's to cars whose MSRP is in the 60's. What was key was that we were buying safety, quality, and that the money we spent for that safety and quality didn't erode over time, so in that sense, we were value shoppers. And of course, the car simply had to "feel right" and so fit, finish, and comfort were also key factors. Outside of that, we looked at well over 50% of every brand and segment on the market.

Having done our finger-research (online) and butt-research (test drives) we narrowed the field down to a few, and pulled the CR new car reports which immediately gave us a sense for how much to negotiate. Once you find the car you think you want, make a note of all the options on the car (I called the dealership and asked for all the options of the car they had on the lot I was interested in-- it helped that there was just one-two cars on the lots I called).

Then, run a spreadsheet adding up the invoice prices, and subtracting away the holdbacks and marketing incentives. Add the transportation fee, marketing/advertising expenses, and various fees/expenses the dealer is likely to charge, and add a few hundred dollars of profit for the dealership, and you've got your offer price.

This will often be too low, and the dealer will try to talk you up. Listen to their rationale, and make your decision on whether or not the prices seem reasonable. I paid roughly $2K over my initial offer price, but $12.4K lower than MSRP. Another reason to bargain up from the invoice, holdbacks, and incentives rather than down from the MSRP!

Here's an example. These are actual numbers that I pulled, except I multiplied by a mystery factor and with a few numbers changed here and there, so as not to give away what I bought or to diminish the value of the CR data by publishing it. As I said, if you're buying a car, spend the $14 to get your own. It's totally worth it!

MSRP: $34xxx
Dest. Charge: $700

Marketing Support: ($x,000)
Dealer Holdback: ($1,144)

Luxury package: $3,980
Metallic Paint: $535
Premium Audio: $781
Wiring for Entertainment: $111
Heated Seats: $535

Subtotal: $42,096
Subtotal (minus incentives) $3x,952

Dealer profit: $500 (how generous are you feeling? What's a reasonable profit so the guys can be there when you need service?)

My Offer: $35,452


This price will need to come up, for various fees and costs, such as advertising support that regional dealerships pool to run the ads you see on TV, for their costs to prep and detail the cars, and the amount they pay to the bank to take inventory of the car (banks hold the ownership interest in the car, and the dealership pays the bank the monthly interest for each car in their inventory... So their inventory costs are just the interest on the car rather than the whole vehicle cost). Also, some dealerships, primarily the premium marquees, resist strongly to eat into the dealership holdback. They figure that a richer guy who cares less about the cents on the transaction will buy the same car you're negotiating for.

Finally, you need to take into account your trade. Before talking about the trade, make sure you finalize the offer on the car. When given an opportunity to tie the deal together, they'll find a way to inflate the price on the new car to compensate for your perceived value of the trade-in. Finalize the price on the car, then negotiate on the trade. If they won't go up any more on the trade, take the purchase without the trade, accept the offer, or walk away.

Of course, here again, knowledge is power. Do a search against sites like auctionpipeline.com, where auto wholesalers bid for these cars. Pull NADA values (or simply ask for it) and KBB figures, to figure out, what is the actual trade value? Our car was in excellent shape, so we got top dollar for our car. (It also didn't hurt that we knew exactly what was a reasonable price for the car since my brother-in-law got us the numbers-- he's a wholesaler who brokers cars for a living).

What you'll end up paying is, of course, higher than just the offer price minus the trade. First, you'll only pay sales tax on the difference between the offer and the trade. So it also helps, if you want to know, to the closest dollar, how much you're likely to pay, know the sales tax rate of the city you're buying in. You'll also have to pay title/registration. Armed with this information, you'll know exactly how much you'll need to pay down in cash, or finance.

Armed with this bevy of information, you'll be able to rest assured just how much the dealership is making, and frankly, how much you're saving or not saving on the deal. And, if the prices just aren't coming down far enough, you can just tell yourself, "well the price I'll likely be able to negotiate at Ford will be better than this based on my research, and while I like this Escalade more than the Explorer, I don't like it $10,000 more!" and begin to walk out. When you're prepared to walk out to get a better deal elsewhere (and know you can get it!) that's when the dealership has to bargain.

I'm half-considering abandoning our car shopping endeavor.

Am I bewildered by the bevy of cars and options and in over my head?

To the contrary, I'm motivated to finish my research and get a deal done, but I also want what I want.

Perhaps part of the problem is being spoiled by build-to-order options on the Internet, which makes the on-the-lot options which lack the packages and options I want, less appealing.

But I think the real culprit is a convergence of a few factors that have made car buying for the consumer a real pain, at least right now.

For one, the economy went south, and the car companies, apparently without exception, scaled back production substantially.

Second, the "cash for clunkers" program wiped out the inventory of lots of dealerships for certain car types, particularly those getting good gas mileage.

Consumers like me that want a specific configuration lose the negotiation ability since there isn't a car on the lot that I'm interested in buying. It's special order, and when the sales person knows you're looking for a special order, there's no incentive to negotiate.

With certain car makes (Volvo, Mercedes, etc.) there's the option for "European Delivery" which apparently saves the buyer a certain amount of cash (made up for with the expense of the vacation typically accompanying Euro delivery), and (at least it's my impression) puts the negotiation of the car price into a more narrow 'no haggling' arena.

So it seems my choices right now are to settle for some base configuration and find a way to add on the packages I want aftermarket, to order from the factory (and pay closer to MSRP), or to order European Delivery (so long as I don't decide to get a Toyota)...

This weekend we took some more test drives to include or exclude the cars we wanted to consider.

Last weekend, we had the field sorted in the following order: MB R350, Highlander, RX 350, MDX, Tribeca and XC90.

This weekend, we took the R-Class, Highlander Hybrid, RX 350, and the Tribeca for a spin.

The exercise allowed us to narrow in on specifically what were our priorities in the car. Briefly, we wanted a no-compromises solution, which meant the ability to seat 4 adults and a car seat comfortably. (Scenario: Christine, Carson and I go to the airport or train station to pick up two guests).

That meant the elimination of the Lexus, as it lacks a 3rd row seat, and seating for four adults with a car seat is not practical. This was tough because it was one of our favorites in terms of interior comfort and fit/finish. And the trailing candidate in fit/finish, the Tribeca was also eliminated, although it is definitely the class leader in its price class. If you want a mid-size SUV for less than $40K, you should take the Tribeca for a spin.

We also ended up eliminating the Acura MDX. The interior and technology package are quite nice, but the undoing of the Acura was its "truck-like" drive. Compared to the steering response from the R-Class, the Highlander and even the RX 350 and Tribeca, the Acura was dead last.

And we also ended up eliminating the Toyota Highlander Hybrid. Christine simply found that the non-linear braking and acceleration didn't inspire confidence, and the savings in gas mileage were offset by the fact that this car will be driven well under 10K miles/year, minimizing the fuel economy benefits of the Hybrid.

That means that the final list is starting to narrow to the R350, the Highlander (non-hybrid), and the XC90-- the latter two which still need a test drive. (While I test-drove the Highlander Limited several weeks ago, Christine hasn't and she'll be the primary driver)

P.S. Some readers might be curious as to why we didn't take any American cars out. First, I have yet to be impressed with anything the American car companies manufacture, simply from a "can I see myself driving this, can I see myself spending money on this" perspective. But prodded by my brother-in-law, who is a wholesale car dealer, we looked at a few American cars a couple months back when we first explored the option of a Honda Odyssey. That outing included the Escalade, the Envoy, the Navigator, the Yukon, and the Acadia. To the extent that the Mazda CX-9 is similar to (and likely superior to in some respects) a Ford, even Ford was represented. None of them made us take a second glance.

Rus asked if there was another little one on the way. Alas, no, this isn't the reason why we're thinking about buying a more family-friendly car. The implication is that, unless there's another one on the way, eventually, Carson will be forward facing, assuming we can tough it out until we can turn him around.

The problem is that while the American Association of Pediatrics recommends that kids stay rear-facing at least until age 1 and 20 lbs., they also recommend to keep babies rear facing until they reach the height or weight limit of the car seat.

(For details, see this, this, or this)

The seat we have will work rear facing until he's 49" tall, or 35 lbs. Clearly he'll hit the weight limit first before we need to turn the seat around. By my calculation at 95 %tile, that might be as late as 36 months. (Then he can use that seat until he's 49" tall, or 60 lbs., which appears to be around age six)

Today we stopped by the Mercedes Benz dealership. Last time we were at the Mercedes dealership, we sat inside the GLK and were not impressed. The M class was six feet away, but for some reason, it was locked on the showroom floor. Carson was getting grouchy, and so we were out the door without looking at it any closer.

With prodding from Rus, we decided we needed to take a closer look at the M class, particularly the ML-350 BlueTec diesel. I've been a fan of diesel engines for some time (post about diesels from 2005, and another post about diesels from 2007), and the latest ones from the collective efforts of Audi, BMW, Mercedes-Benz and Volkswagen are clean, fuel-efficient and possess none of the hassles (glow plugs, dirty exhaust) of the diesels of yesteryear.

These "clean-diesels" accomplish the task with urea-injection, which means approximately every 15,000 miles or so, you need to have the urea topped off. A hassle? Not much more than the hassle of having your spark plugs replaced in a non-diesel engine, I'd say.

Anyway, we got into the M class and while it was substantially better than the cheap interior of the GLK, the interior room wasn't impressive considering what we'd gotten used to with the other marquees we'd sat in. It wouldn't have been so bad except the configuration we're looking to get, with rear-seat DVD entertainment, places the DVD screen right behind the shoulder level of the front seat. Or, right at the touch point for where a rear-facing baby seat would go, cutting available seating room by at least 2-3 inches.

Disappointed, we began to depart, but the salesperson (I've grown to appreciate the difference in the salespeople at Audi, BMW, Mercedes and Volvo dealerships compared to Toyota, Lexus, and Acura) suggested we take a look at the R-class.

If you're not familiar with the R-class, it's a cross between an SUV, a minivan, and a sport wagon. We didn't have time to drive it, but it's based on a car body, has interior seating and room like a minivan, and four doors (no sliding doors) like a regular car.

Its seating room is comparable to the Honda Odyssey, but it doesn't look boxy and boring like a minivan. The used one they had on the lot (they were sold out) was a 2007 with captain's chairs, and that meant that with Christine in one seat, me in the other, with 4-5 inches of knee room from the front seats which were also moved far back, Carson was walking around between us on the floor. There is probably some apartment in Tokyo that has less room than the back of the R-Class.

Unlike the Tribeca, the 3rd row seats have plenty of knee room when the second row seats are copiously adjusted. Headroom is a different story, but the 3rd row seats are not ornamental in any way on the R-class.

If you drive by an R-class, take a glance at the length of the rear door. It is gargantuan in size, which means you need to be careful swinging it open in a parking lot, but also means placing a baby into a car seat is not an issue. And as a car-based platform, it's easy for younger kids to step up onto the car (no running boards required).

In short, the R-Class has climbed to the top of our list of what we like, followed by the Toyota Highlander, the Lexus RX 350, the Acura MDX and the Subaru Tribeca. Our original favorite, the Volvo XC90 now trails in fifth place.

That is to say, this is the rank of the cars as we sat in them, as we explored their features, fit, and finish, on the dealer's lot.

Two other rankings need to be taken into account. First, how do these cars drive? And second, what are they going to cost to own? I don't have a specific budget of how much to spend. A car is an expense, not an investment, so the critical factor in the financial dimension is not "invoice price", but the expense to own/drive it. The cost spreadsheet basically looks at "at given point X, how much did I spend on car Y, and how much more is that than the value of the car?"

Of course, the price you pay for a car is only one part of the total cost of ownership. MPG, service intervals/costs (outside of included service), insurance, warranty duration and coverage all come into play. My spreadsheet, which looks at the picture two years out, takes most of these into account, but will need updating as I negotiate the final prices on these cars (after the test drives, should that eliminate any cars based on driving them).

The preliminary numbers I've gathered for five of the cars (all well-equipped) puts the Highlander Hybrid in first place. After two years of ownership, including all of the above expenses taken into account, the expense of owning the car is about three pizzas short of $6K. The Toyota Highlander (non-hybrid) is $1670 behind the Hybrid, followed by the Lexus RX 350 ($3593), the Mercedes R350 ($4640), and finally the Acura ($9299).

I couldn't include the Volvo or the Subaru since they didn't offer finance calculators online that would have made a fair comparison possible, but assuming their finance incentives are as good as the competition, they are essentially a couple hundred dollars behind the Highlander Hybrid. (The Subaru is cheapest to insure; the Volvo is the cheapest to maintain with free service intervals for maintenance, but the Highlander Hybrid squeaks ahead on fuel costs)

Finally, Rus commented about residual values. The X5 xDrive35d does have excellent residual values (58% after two years), but Christine and I found the X5 to be a bit too small (note the scalloped front seatbacks that eat into the room for a rear-facing carseat's headrest here). Since residual values are dependent on the trim, news articles about residual value often don't contain enough detail. Of the cars in my spreadsheet, the Lexus RX 350 has the best (66%), followed by a three way tie with the Highlander Hybrid, the Acura MDX, and the Mercedes Benz R-class (52%). Fifth is a two way tie with the Toyota Highlander (50%) and XC90. Seventh place falls to the Tribeca (46%).

As Rus and Justin suggested, Christine and I checked out the BMW X5 and the Subaru Tribeca (still on our list, a stop to check out the Mercedes M class) this past weekend.

I wasn't particularly impressed with the BMW. The biggest downside was the molding of the rear of the front seatback. It's molded strategically to give about two inches of extra legroom, but the way the shoulder of the seat is molded, in a scalloped fashion, robs the rear of two inches of seat space. Meaning that when a rear-facing carseat is installed, it's as if there were no room there at all.

And, both Christine and I were expecting to find the Subaru to be cheap, plasticky, and quickly eliminate it like we did the Mazda CX-9. But we both found that Justin's description was spot-on. The second row seat is on rails that allows that row to push into 3rd row seat territory. This feature alone gives the car the same legroom (subjectively) as the Highlander, for substantially less, and in a smaller vehicle. Interior fit and finish had its quirks, but nothing objectionable that made us want to scratch it off the list.

It bears mentioning that we haven't driven any of the cars except the Highlander (it's the only venue where we had the time), and even then it was me doing the driving on the roads while Christine took it for a 5 minute spin in the parking lot.

So far all our research has been doing is including or excluding on tactile, instant gut reactions. The "can you see yourself in this car" sense, the "does it feel right" factor, and "are we physically comfortable/does it have enough space" concerns.

Next weekend we'll try to schedule some back-to-back test drives of the Highlander, RX 350, MDX, Tribeca and may even squeeze in the Cayenne and X5 (so far, lowest on the practicality equation, but highest in perceived sportiness).