Love My Car!
Smart Strategies For Handling Slick Dealers And Shiny ShowroomsBy J.J. Montanaro
Fall 2008
The dealership is slick. Marble floors. High-end cars inside a shiny showroom. Fancy reception desk.
The salesman? Also slick, complete with his “I’m your new best friend” smile. He shakes my hand and asks me how he can help. I tell him I’m looking for a sport utility vehicle with a manual transmission.
“Nobody gets manual anymore,” he says. “You want automatic.” Actually, I don’t. But like the waiter who asks if you’d like sparkling water instead of tap, car dealers are apt to push expensive options. The automatic adds a thousand bucks, and I like driving a stick. I tell him so.
“Ahhhh… so you like to drive?” he says, leaning in and giving me a conspiratorial wink. “You’ll love the interactive adaptive variable suspension system. Smoother ride,” he whispers.
Since I end up spending the sunniest side of a Saturday in this place, I’ll spare you the details, but here’s the skinny: I call it, “Lessons Learned from the Car Lot, So You Don’t Have to Spend 10 Hours There Like I Did.”
Know Before You Go
When you walk into a dealership, everything – from how you’re greeted to where you sit – is designed to sell you a car and extract the maximum profit from you.
Fortunately, there are many resources for the buyer, so there’s no excuse not to do your homework. Read reviews in newspapers, auto magazines or Consumer Reports about the car or cars you’re interested in. Your most convenient tool? Auto-buying websites. Instead of spending that Saturday at the dealership, spend some time on the Internet.
Decide what extras you want before you go into a dealership, and stick to your plan. Many dealerships pad their profits by tacking on high-margin extras such as alarm systems, fabric protection, rustproofing, pinstriping and extended warranties. These are often installed in the car, and salespeople may say you have to pay for them because they are already on the vehicle. Not true. If the only model available at a dealership comes equipped with factory-installed extras you don’t need, make that a negotiating point. Don’t pay for what you don’t want.
And then there’s price. Don’t let dealers hide behind mysterious window stickers. Several websites, such as www.edmunds.com and www.kbb.com, offer detailed price information along with helpful reviews. Even the auto manufacturers’ websites let you configure your options by price so you know what to expect. These sites also clue you in to the rebates each manufacturer is offering.
Not only did I know the dealer’s exact price and markup, but just having these sheets in my hand makes the salesman know that I’m a serious, educated shopper, and there’s no point jerking me around.
Knowledge is your best weapon when fighting sales confusion. Arm yourself with information before heading to the dealership.
Hold Off On Your Trade
My salesman punches endlessly on a big calculator. It goes on so long, I lose track of time. Just when I forget what day it is, he casually asks if I’m going to be trading in a car. I haven’t decided yet and say it doesn’t matter since we’re only discussing the price of the new car. He says it does matter, because we will have to “work in my trade.”
“Working in your trade” is code for dealers offering a below-market price for your trade and using the difference of what you should have received as a discount on the price of the new car. If the dealer gives you $2,000 less than your trade-in is worth, it’s as if you handed them $2,000 cash. If the dealer takes that $2,000 off the price of the new car, you’re at break-even.
This doesn’t mean you should not trade in your car, since it can be more convenient than selling it yourself. But keep it out of the negotiation, focusing instead on the best possible price of the new car.
If you want to trade, bring it up after you’ve agreed on a price for the new car. The dealer probably will try to go low, but prepare by doing the same research for your trade as you did on the new car.
If the dealer’s offer is too low, call him on it. If he won’t budge, walk away from the new-car deal, in which he is already emotionally and financially invested.
No One Pays Sticker
That’s right, no one. When my sales guy realizes I’m not budging on my trade-in, he pushes an indecipherable sheet covered with numbers, more numbers and lots of crossed-out numbers across the desk.
“Show, don’t tell,” is a car-sales golden rule when it comes to pricing, and its corollary is “the more confusing, the better.” Knowing I can’t make sense of his figures, he smiles again and says, “I can take $1,000 off the sticker. OK?”
Except on the hottest and rarest models, you should be able to talk a dealer down in price. A thousand off on a car that costs upwards of $20,000 is a sucker test. Say yes and you fail. A friend of mine bought a Saab priced just under $30,000, and he got $7,000 off the sticker.
There are several ways to improve the price you’ll get. One is to get several dealer offers and play them off against each other. Another is to buy cars later in the model-year cycle. When next year’s cars first reach dealers in August and September, they tend to sell for closer-to-full price, and each month that passes, the prices go down.
You also can use car-buying websites to find out exactly what your model is selling for in your region. Don’t be afraid to say: “Most dealers around here are selling it for $2,000 below sticker.”
As my Saturday ordeal progresses, I tell my salesman: “No, it’s not OK. There’s more than $5,000 profit in that car. You’re going to have to do a lot better.” I can say that because, with my research, I know his exact markup.
Feigning exasperation, he tells me he has to go talk with his manager. “I doubt he’ll go lower,” he says, “but I’ll give it my best shot.”
That’s when I leave.
No Haggle, No Bargain
Unlike some people, I actually like to haggle, which is why I’m intrigued by the recent phenomenon of the no-haggle dealership. Instead of going through the “I go high, you go low, I have to talk to my manager” dance, this approach boasts that it takes the hassle out of car shopping.
Even no-haggle dealers are not going to sell a car without a certain profit margin. If that margin is too high, you may end up spending more than you should.
When I had tired of my first sales guy, I thought I would give the no-haggling service a try. Once again, I arrive with all my printouts and am directed to a salesman. Except he’s not a salesman, he’s a “Consumer Consultant.” He says he’s not there to sell, he’s there to help me buy.
Here’s what happened: I walk in and my new no-haggle guy says he’ll check to see if the car with the options I want is available. A few minutes later he comes back and tells me I’m in luck. A dealer in
“Gee, that seems a bit high,” I say, “considering your markup of $5,000.” He smiles. “We’re a no-haggle dealership,” he says proudly. “We always give you our best price right off the bat.”
To prove the price is too high, I show him a number, the “real” local selling price for my car, which is well below his best, no-haggle price. He smiles again. “But… we’re a no-haggle dealership!” he says. I leave. So much for progress.
You Can Phone It In
On the drive home, it occurs to me that with accurate price information so widely available, maybe I can forego the sales process altogether. I call a dealership two hours from my home.
“I am looking for an SUV with a manual transmission,” I say to the on-floor guy. “You have one on your lot. If we can reach a reasonable price, I’d be happy to drive there tomorrow and buy it from you.”
“What do you think is reasonable?” he asks.
“Look, I know exactly how much you guys paid for that car,” I say. “You don’t have to do any work; you don’t have to swap with another dealership. You don’t have to waste your time selling me or test-driving. But I know you need to make money, so I’ll give you $1,000 over your cost and all you have to do is fill out the paperwork. I think that’s fair.”
“Me, too,” he says, and I drive home.
When I show up the next morning, he doesn’t try to tack on any extras, because he knows I have done my research and he will make a profit- producing sale.
When, at last, we close the sale and all the papers are signed, I lean in, conspiratorially, and ask the sales guy one final thing: “Can you throw in the floor mats?”
“What color?” he says.
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Joseph "J.J." Montanaro is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Montanaro has served in the
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Armed And Dangerous
Being informed will help you get the best deal. Here’s where to go for info:
- cars.com: research new and used cars, plus up-to-date tracking of rebates and incentives
- edmunds.com: pricing and trade-in values, reviews, incentive information, buying tips
- kbb.com: from Kelley Blue Book, pricing and trade-in values, reviews, incentive info, and more
- consumerreports.org: pricing and trade-in values, reviews, current best deals, buying tips
- carfax.com: provides used car vehicle damage and ownership history
- carbuyingtips.com: includes links to online applications with reputable lenders
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TIP!
How much does a low credit score really hurt you? Check www.myfico.com, where you can learn about your FICO score, the credit scoring system used by most of the country’s largest banks.
Here’s an example using figures from June 12, 2008. Let’s say you’re ready to buy a car and take out a fixed-rate 36-month loan of $25,000. A “good” credit score (690-719) could qualify you for an interest rate of 7.24 percent. The monthly payment on the loan would equal $775.
But what if you had a “poor” credit score? Banks would see you as more of a credit risk and would balance that risk by offering you a higher interest rate. For someone with a credit score of 590-619, the average interest rate was 14.017 percent. The payment on the same $25,000 loan would equal $855 a month.
Bottom line: The lower credit score would cost you an extra $80 per month, $960 per year, and $2,880 over the life of the loan!
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TIP!
It’s easier to sell a car than to get out of a lease contract, experts say, so if you know you’ll be leaving the country or need a bigger car soon, buying is the choice for you. Note, however, that if you’re in the military and receive a permanent change of station or deployment orders, you are entitled to special lease termination rights under the federal Servicemembers Civil Relief Act. For details, contact your local installation legal office.