Status: Useful stuff to know if you're buying a car
Florida businessman Earl Stewart has started a blog,
Earl Stewart On Cars, that's full of useful insights about the auto industry. Some of his observations about auto dealer scams and deceptive sales tactics are particularly interesting. Here's a few of them:
• The “Big Sale Event”. If you look in today’s newspaper, you will find that most car dealers in your area are having a sale of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure... If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price the next day.
• “The Price I’m giving you is only good for today”. If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car.
• “Take the car home tonight and see how you like it”... there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop prices with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”.
• The “really big” discount”... Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.
In
Hippo Eats Dwarf I noted an outrageous example of misleading advertising used by one car dealership. They had a "half-price sale" during which "The price you see is half the price you pay." Think about it.
Carl Sifakis has also cataloged a number of auto dealer scams in his book
Hoaxes and Scams: A Compendium of Deceptions, Ruses and Swindles.
For instance, there's the practice (now illegal in many states) of
"bird dogging" in which car dealers pay people who refer customers to them. Obviously someone getting paid for a referral might not be objective. Plus, as Sifakis notes, "car salesmen aren't about to give a customer referred by a bird dog an extra good deal." He then relates this story:
New car salesmen tell the standard story of the sharpie to whom a potential buyer was referred. The salesman promptly took him for almost list price, despite the fact that the customer had a trade-in that also netted the hustler an extra commission. The salesman also took the shopper for financing and insurance at very favorable terms—that is, for the car dealer. The kicker to the story showed up on the paperwork when the salesman filled in his contact for the sale. In the space naming the source, he'd written "Mother."
Then there's the practices of
lowballing and
highballing. In lowballing the salesman offers to sell a car for a ridiculously low price, only to reveal later that the manager hadn't approved the price, and that the real price is much higher. Many people will then buy the car anyway, because they've already got their mind around to the idea of buying it. Highballing is the same thing, but switched around so that the dealer will offer to buy a trade-in for a ridiculously high price, only to reveal later that the manager hadn't approved that price.
Comments
Of course, there is the time I rolled into the dealer with my trade in smoking. Of course the deal had already been made. Scared the salesman a bit. Lucky for him, the source of the smoke was just a pinhole leak in a coolant hose.
Here are a few things to watch out for:
1) The "Back end". Most dealerships receive a "cut" from the bank or financier when you finance your car through the dealer. The financier gives a "buy rate" that the dealership is authorized to offer you (an interest rate on the loan) and the dealership then tries to get you to sign for a higher rate... and the dealer and financier split the difference. Often, the amount of this "back end" money exceeds the profit made on the vehicle purchase itself.
2) The "dealer invoice" is a load of crap. Buried in that ridiculous dealer "invoice" are usually items called "pack" and "holdback" (or other names depeding on the brand) but basically these are charges shown on the invoice that the dealer either never has to pay or is refunded by the manufacturer after the sale of the vehicle. The invoiced but unpaid items usually total between 5-9% of the "invoice".
3) The end of the month is absolutely the best time to buy a car- most salesmen and managers get paid two bonuses per month: One for net profit, and one for total sold units. Most car guys want to make their net early in the month so that they can "blow out units" to make "unit bonus" at the end of the month. Managers are usually on some form of this plan as well.
4) "Show for your trade" is crap. The "price" that dealers "show" you for your trade-in is never accurate, it always includes part of any discount they are giving you so that if you shop it around before buying, their offer for your trade sounds better than the blue or black book price as well as any off-the-cuff price a salesman at another dealership might quote you. If you want to know what your trade's worth for real, you have to see the "Black Book" price, which is an industry regional guide. Some dealers will let you see it, even though they're not supposed to.
5) "No Credit Application Will Be Refused." Don't fall for this. Of course your "application" for credit will not be refused. They might refuse to give you a loan, but they'll take your frickin' application. Also "No Credit? Bad Credit? We Finance Anyone!" is crap too. Yeah, they'll guarantee to finance you... but if your credit is horrible they'll want 50% down and charge you 29.95% interest. I actually had to deal with a customer once when my dealership ran one of these "We Finance Anyone" ads, and this guy had horrid credit and when the bank sent us the buy rate, they would only finance him if he put down 60% (SIXTY PERCENT!) of the purchase price.
Just watch out, it's all crap and no car dealer ads are real. They're all unbelievably misleading.
Moral... Pay your frickin' bills and you wont have to worry about putting alot of money down OR paying high interest.
I love these sites, I sell about 4-6 cars a week, that's more than you will buy in a lifetime. I can beat you at any game, I do this all day, everyday. You do this once every three years!
A credit score does not necessarily mean a person has a horrid track record of not paying bills. You can get a crappy credit score from one year without a job, and 6 years later the score will still be bad. It takes 7 years for old history to go away.
1. Get the true invoice cost of a car.
2. Visit carbuyingtips.com and read Jeff's instructions on negotiations.
3. Pat yourself on the back for being an educated consumer.
Stoneman
Some sales manager just target with their commission.
http://www.youtube.com/watch?v=kBUHRTqcjtc&fmt=22