1. These cars cost me less than you think.
As car dealers try to move inventory off their lots, consumers can exert more leverage in their buying power and try to negotiate the lowest price possible.
And, with online buying and selling, consumers can arm themselves with more research before making an offer: Car-buying sites like CarsDirect.com provide a car s invoice price and the manufacturer s retail suggested price (or MSRP), and consumer information hub Edmunds.com even lists cars invoice prices with various options.
What s more, holdback allows dealers to pay up to 3% below invoice for vehicles. Here s how it works: The dealer buys the car from the manufacturer at the invoice price. Then after the car is sold, the manufacturer reimburses the dealer for the cost of keeping it in inventory for 90 days. When a dealer sells the car faster than that, part of the holdback payment becomes pure profit, even if the car is sold at invoice price. You ll never get holdback money back from a dealer, says Burke Leon, owner of BL Auto Enterprises, a Fullerton, Calif.-based dealership that sells nearly-new off-lease cars, and author of The Insider s Guide to Buying a New or Used Car. But just knowing about it can help when a dealer whines that he can t meet your price.
2. Our lenders aren t as tough as I ll make them seem.
Some car dealers will try to pass the buck regarding pricing and sales tactics. One common trick: Blame everything on the lender. For example, some dealers who don t want to give you the price you re asking for may tell you that the leasing company requires all deals to be based on the sticker price, says Mark Eskeldson, founder of CarInfo.com, which provides consumer-protection advice to car buyers, and author of What Car Dealers Don t Want You to Know. That probably isn t the case, since lenders can t control a car s price.
Likewise, some dealers will try to sell you an extended warranty, claiming that the lender requires it. Don t be fooled. In its online Facts for Consumers report on auto-service contracts, the Federal Trade Commission tells car buyers to watch their backs: If you re told you must purchase an auto-service contract to qualify for financing, contact the lender yourself to find out if this is true. The FTC also says that some people have had a hard time trying to get out of a service contract they signed up for thinking it was a standard requirement for their car loan another good reason to ask questions before any papers have been signed.
3. You could probably get this car cheaper on eBay.
One of the biggest threats to bricks-and-mortar car dealerships today is direct sales over the Internet. Nearly one in four consumers looking to buy a late-model used vehicle went online to buy a car in 2007, a 44% increase from 2006, according to the most recent report by J.D. Power and Associates. EBay Motors alone has helped consumers sell more than 3.5 million cars on its website; That s not surprising since as of January 2010, 21% of all online automotive minutes are spent on eBay Motors, according to the Nielsen Company. What might come as a surprise is the fact that car shopping on the Internet is saving consumers money an average of $1,794 per purchase, according to J.D. Power.
Dealerships have been slow to catch on to the trend, but more are recognizing the value of promoting their brand online. FordDirect, for example, is a joint venture between Ford Motor and Ford dealers aimed at promoting Internet sales. Sales from FordDirect Internet referrals totaled more than 229,000 in 2009, a 7% increase over 2008 sales; this represents over 19.3% of total Ford retail sales, up from 15.5% in 2008.
4. The old bait-and-switch is alive and well.
It s a tried-and-true tactic: You walk onto the car lot, your heart set on a certain model, but immediately, the salesperson starts ticking off all the reasons why that model simply isn t good enough for you. Before you know it, you ve signed on for something bigger and better and, naturally, more expensive.
These tactics can result in drivers signing up for leases so that they can afford the monthly payments on an expensive car, says Eskeldson.
Another problem is that car buyers often think they re showing up at the lot with tons of information they found online that they can use to negotiate but often that information isn t helpful, says Phil Reed, an editor at Edmunds.com. Knowing the invoice price of a car, he says, isn t enough since it isn t in lockstep with the car s true market value. True market value pricing takes into account several factors, including a car s current inventory levels the higher they are, the more willing a dealer will be to negotiate the local market sale conditions, hidden pricing details (i.e., all those extra fees that get added on before you sign the contract) and available rebates and incentives.
5. I ll give you a great price and then lowball your trade-in . . .
If you re trading in an old car, Leon explains, the dealer s greatest potential for profit lies in giving you the lowest possible value on your trade-in. How come? Most people have no idea what their car is worth, and besides, you re less likely to play hardball on this point when that new car is much more interesting. They get you involved in loving the new car, Leon says. And your old car seems kind of punk in comparison, so they do you a favor and get it off your hands. For this reason, Leon recommends always settling on a trade-in price before considering a new or even a used car, despite the conventional wisdom of doing it the other way around.
Reed went undercover as a salesman in two Los Angeles-area dealerships and then wrote about it for Edmunds.com. During three months he saw firsthand how much money can be made in used car departments. One day, he says, he watched a man drive into the dealership s parking lot, scurry over to the used cars, and then rush back to his car. He said he had just traded in his Chevy Cavalier here, Reed says, and wanted to know what they were selling it for. The discouraging answer: While the customer had gotten $5,000 for the car, its asking price on the lot was $12,000.
6. . . . but you won t know it, since the Blue Book price favors me.
To help prevent a trade-in disaster, some consumers try to figure out their old car s worth beforehand by consulting the Kelley Blue Book, long held as the gold standard for used-car prices. But Leon warns that those numbers aren t gospel. Here s why: Kelley Blue Book publishes two different guides, one for dealers, which prints wholesale auction values, and one that contains private-party, trade-in, and used retail values for consumer based transactions (and therefore provides little help in determining what your car is worth to the dealer). The trade-in figures on Kelley s website can be below the dealer s lowest figure (the wholesale price). That means that when a dealer gives you his best offer, there s still a built-in profit for him, even if he turns around and sells the car for its wholesale price.
Kelley Blue Book is an industry publication, and its loyalties are less to consumers than to dealers, says Leon. According to a Kelley spokeswoman, valuation analysts at the company say that the spread between trade-in and wholesale values is accounted for by any expenses the dealer incurs in readying the car for sale.
Given all this, one of the best way to estimate your car s value remains looking classified ads in your local market and online to see what vehicles similar to yours are going for. Just remember, you won t get that full amount since it s retail.
7. The car you re buying was totaled last month.
We ve all heard horror stories of unknowing consumers buying a used car from an uncertified dealer only to find out afterwards that the vehicle had been patched up after being in a major collision that caused irreparable or highly-expensive damage.
Such problems are far from rare in the used-car market, says Rosemary Shahan, president of the advocacy group Consumers for Auto Reliability and Safety. The group estimates that about five million cars each year are totaled, rebuilt, and often sold as if free of damage. The best way to avoid being taken is to have any used car that you re considering buying inspected by an independent mechanic this typically costs about $100, she says. To find a trustworthy mechanic, consider searching this web site http://www.cartalk.com/content/mechx/find.html by your zip code.
Also, consumers in the market for a used car should try to stick to certified dealerships. All certified vehicles are inspected by a manufacturer-trained mechanic and come with warranties that are backed by the manufacturer. Many programs even throw in extra services that once were offered only with new vehicles, like free roadside assistance.
8. Your car loan puts cash in my pocket.
In some cases, dealers are keen on finding you an auto loan even after you say you can pay cash. That s because auto financing can be an extra source of profit for the car dealer. When dealers set up loans, they commonly take the rate offered by the lender, then tack up to two percentage points on top. All or part of that so-called dealer markup is given by the lender to the dealer as a kickback. And dealers aren t required by law to disclose the practice.
The National Automobile Dealers Association (NADA) says that dealers are entitled to a markup for arranging financing. In connection with vehicle financing, dealers receive compensation for the service they provide and other value they bring to the process, says a NADA spokesperson. The rates they get from lenders are wholesale rates that don t cover the cost of distribution. The problem isn t so much that the markup exists, says attorney Aurora Dawn Harris, but that is never disclosed. Dealers say, We ll get you the best deal we can, and pretend that they re providing you a free service, she says. And sometimes they re making most of their profit on it.
9. Our new and improved customer service is a farce.
After years of having a terrible reputation for consumer satisfaction, car dealers are now making a collective effort to clean up their act. According a J. D. Power and Associates 2007 survey, the most recent conducted, approximately 61% of customers described their sales experience as above expectations, compared with the 37% of customers who said it merely met their expectations.
That s a start, but auto dealers still have a long way to go toward achieving solid customer satisfaction. In 2008, for example, new-car dealers still ranked second among all businesses in overall complaints filed with the Better Business Bureau, behind the cell phone service and equipment industry.
Reed s advice: Before you visit a dealership, call ahead. Ask to speak with the sales manager or the Internet fleet manager (if one exists) who may discuss pricing on the phone. If they refuse to answer any questions about prices, urging you instead to come to the lot for a deal, move on. (Avoid speaking with a dealership salesman since most aren t trained to discuss prices on the phone, says Reed.)
10. Sure, leasing is a great deal for me.
You may have noticed that some dealers would rather you lease than buy. The reason is simple: Leases generally bring dealerships more profit than sales even for the exact same car. Why? Consumers tend to know less about leasing than buying, and lease customers tend to choose more expensive cars, says Eskeldson. With lease pitches, dealers emphasize the relatively-low monthly payments, but a crooked dealer can have the customer put a whole bunch of money upfront as a downpayment, and people think that it s to make monthly payments lower, he says. But they re supposed to be low without a downpayment. In addition, there s no law requiring dealers to disclose the annual percentage rate that they ll charge, he says.
So be extra wary if your dealer tries to hard-sell you into a lease. One common tactic, says Eskeldson, is to give customers an apples-to-oranges chart comparing payments on a lease versus a loan quoting a low-interest rate on the lease and a high one on the sale. If the consumer doesn t know how to calculate his own lease payment, Eskeldson says, he is ripe for a rip-off.