Service Snitch: New Car Dealers: Driving Your Money Away

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New Car Dealers: Driving Your Money Away

Car salesmen, like politicians, have become accepted in our society as a necessary evil. Their duplicity is accepted by the general public with a yawn and a shrug of resignation. But unless you want to stroll down the freeway every morning, you will have to deal with them.

Given the prevalence of cars, it's easy to forget that, short of buying a home or getting married, the car purchase is the most expensive commitment you'll make in your lifetime. What's more, unlike buying a home or (one would hope) getting married, it's a ritual you'll have to repeat every few years almost by necessity. But even if you run into just one self-serving car salesman who fast-talks you into an expensive deal, it could have repercussions for years to come. You might miss a payment on an exorbitant monthly rate and damage your credit, hurting any chance you'll have at ever owning your own home. So how can you cut through all the flashy jewelry, minty-fresh breath, and rapid-fire sales pitches to get yourself an equitable deal?

What It Costs

Obviously, new car prices vary widely depending on the make and model of the vehicle. The average price of a new car sold in the United States is $28,400, according to the Federal Trade Commission. This figure, of course, does not reflect the cost of financing; you may give up a down payment that's just a fraction of that cost and drive off into the sunset, only to come slinking back into the daylight every month to drop off a few hundred dollars. Ultimately, you'll have paid more than the sale figure thanks to interest rates. Financing is optional, of course, but because of its clear advantages to them, many salesmen will try to pressure you into it.

Even the thriftiest cars on today's market cost at least $10,000. However, there are not too many for under $15,000, nor should you be much inclined to drive them. As the price drops, so do the standards of safety, comfort, and performance.

The Car Salesman Says

"My job is to find the right car for you. If you come to visit my dealership, I will discuss our inventory in depth and be more than happy to give you a closer look at any model you're interested in. If you want, you can take it for a test drive, too. Working together, we can find a model that fits both your demands and your budget. If you step into my office, I will offer you a top-dollar price for your trade-in and we will negotiate a sale value for your new car and any extras you need that is fair to the both of us. I always respect my customers and never put any undue pressure on them. I want nothing more than to help you drive off in the car of your dreams."

The Snitch Says

"The car salesman's job isn't to find the right car for you so much as to find the right car for him, though you'll still be picking up the bill, of course. The car salesman is under formidable pressure to sell you a car at the highest price he can possibly squeeze out of you. Car companies demand sales quotas from each of their dealerships, who in turn deflect the pressure onto their staff, demanding sales quotas from each of their salesmen. If they don't meet it, they will be fired, and since most car salesmen don't have any Harvard diplomas or connections in the corporate world, they won't really have any place to go. Of course, even worse than not selling a car is selling a car for too low a profit. A car salesman who does that might as well ask for a lift to the unemployment office in your new ride.

Car salesmen make most of their money on commission. Many, in fact, make all of their money on commission, with no hourly wage or yearly salary to speak of. If they don't sell any cars, they don't eat. And if they do sell cars, they don't want to make just enough to cover a few boxes of Saltines, either. The higher the sale price, the higher the commission. Some dealerships boast tiered commission structures: if a salesman gets you into a car for a price that meets a set threshold, he will not just make more money, he will make a higher percentage of the money.

So, under the auspices of their bosses, car salesmen will do almost anything to get a sale. The car salesman will try to panic you out of your senses and your wallet by telling you someone else is about to buy the car you've got your eye on. Another favorite trick is to falsely exaggerate the features of the vehicle, that is, instead of bringing the price down, talking the car up. These are among the most common tactics car salesmen use, and also among the most benign. Some car salesmen will tell you all about the extras they're throwing into the deal without mentioning they aren't free. Others will explicitly agree to complimentary extras only to charge for them later. Some will even put figures in the fine print of the contract other than those you agreed to.”

Protecting Yourself

As with any purchase you make, especially one that can cost almost a year's salary, you must shop around. Get multiple quotes and play dealers off one another. Don't negotiate at first; the salesman is a professional negotiator, and once you've sat down, it won't be easy to get back up again without the keys in your hand. Just ask for the lowest price he will possibly sell that particular model for, and then walk away. Mosey on over to the nearest competitor and ask again for the lowest price on that model, this time mentioning the price you got at the first. Repeat as necessary.

Before you even think about going to a dealership, however, you must do the research beforehand. If you wander onto a car lot with no clue what the merchandise is worth, the salesman has an overwhelming advantage over you. Decide what models to want to restrict your search to before you visit any dealerships. One figure you'll want to determine is the invoice price of the vehicle you're interested in buying. This is how much money a dealership actually paid for the car; their profit is the difference between the invoice price and the final sale price, plus a commission called the "dealer holdback", usually about 3% of the sticker price. The salesmen and the management brass alike absolutely hate it when you visit their dealership knowing how much money they paid for a car, because then you know everything they do. Even the most pliant salesman won't settle for the invoice price (i.e. no profit above holdback), but it's the number with which to begin your negotiations. However, even if you don't say as much, the salesman will know you've researched the invoice price, and may try to make up for it by ripping you off from other angles.

When researching a new car before you go to the dealership, check to see if any rebates are available on the vehicle. When you sit down to negotiate, however, do not mention the rebates until you've already secured the lowest price you possibly can for the vehicle. If you insist on including the rebates right off the bat, the salesman has the advantage, because the two of you will haggle down to the exact same price you would have otherwise, and now you don't have a chance to take it down even further.

Depending on how expensive the vehicle is, you should settle for no more than between $100 and $500 above the invoice price. The more expensive the car, the higher above invoice price you may have to go. For an average-priced model, $300 above invoice price—before any rebates and your trade-in—is equitable to both you and the dealer. If the car salesman tries to "bump" you even just a few hundred dollars higher, walk away. The salesman will probably reconsider before you even reach the door.

If you agree on a figure not far above the invoice price, be sure you are not being gouged on the interest rate and you are getting a fair value for your trade-in. As with rebates, do not mention the trade-in until after you've settled on the final sale price. If the dealer asks you during the negotiations whether you plan on trading in your old car, explicitly deny it. If you hesitate, the dealer will suspect you'll bring it up later, and will stop cold on prices a few thousand dollars too high. Dishonest or not, it's the only way to keep yourself from getting ripped off. After you've coaxed the car salesman down to bottom dollar, you can always have a change of heart. He will be furious, but he's not going to tear up the papers and stomp out of the room.

Too many buyers completely overlook the trade-in during the deal. This is understandable, since they plan on—and even hope to—abandon it out on the lot. You might have already forgotten the trade-in by the time you're in the salesman's office and, if his price on your dream car looks legitimate, you will be ready to accept anything he offers to take the old ball and chain off your hands. This is where car salesmen often make their strongest profits. Don't forget that your trade-in can cover as much as a quarter or more of the final sale price. Research the value of your old car beforehand and don't waver from it. The car salesman will lowball your trade-in figure by several thousand dollars to demoralize you from the outset, but stay firm. Don't be surprised if he treats you like you're crazy at first. Remember, salesmen are, above all else, actors.

When dealing with a car salesman, you must always be patient. If you're close to a deal, the salesman will want you to sign every form before the ink is dry. After all, why give you a chance to think about you're doing? If you reconsider, he could lose his deal and his commission. Ignore his nagging, take your time, read everything carefully, and make sure you understand everything you sign. Don't let him instill any false sense of urgency. If he's desperate enough to play the tired line that someone else is ready to buy immediately and could be coming down any second to snatch away the car of your dreams, pay no mind. Even in the improbable chance he's actually telling the truth, you will find countless other identical or nearly identical cars in your area should this deal fall through.

One slippery trick the car salesman will pull is to ask you for an acceptable price range for your down payment or your monthly installments, and then proceed to negotiate as if you'd only given him the upper bound. Be on your guard any time you are asked for a range, and insist on negotiating concrete figures rather than ranges.

Slimier depths than this, even, are what many car salesmen will happily traipse through if they think it will get them a commission, or perhaps more commission. A favorite tactic is to leave a couple who has just been taken on a test drive alone in a room to discuss the vehicle "privately" and listen in on their conversation over the telephone intercom. If you and your spouse find yourselves bundled into an office the moment you cross the threshold, you should either stay quiet or leave the room on your own accord. Tell the salesman you'll discuss it with your spouse outdoors. Again, they'll look at you like you're crazy. Again, they're actors. Above all, they won't want to lose a deal, so they won't refuse. Another classic ploy is to somehow "lose" your sales sheet if you leave the dealership and return later to sign the papers. They then might prepare a contract inflated hundreds or thousands of dollars above what you had agreed on. When you protest, they'll claim that since they can't locate the sales sheet, they can't remember exactly what the numbers were, but those are all reasonable figures. If this happens, leave the dealership altogether.

Just Because You Were Curious

Sales is 2% economics and 98% psychology. A canny salesman can convince the unsteady dupe to buy something so far out of his budget he'll regret it as soon as the money's left his hand. If you hope to come out of a car deal unscathed, you need to recognize the ways a car salesman gains a psychological edge over the customer. First, the most hallowed virtue of the car salesman is control. He has to be in control of the customer, or rather, he has to convince the customer that he is the one in control. One common tactic is to keep you waiting in his sales office just for the sake of keeping you waiting. Because you wait until he is ready, he establishes his dominance of the situation. You won't even think along these lines, of course. You'll just be wondering why he's keeping you waiting so long. Subconsciously, however, you may identify the salesman as someone who is obeyed and followed. To this end, the car salesman will convey authority in his dress, manner, and speech.

He won't want you think he is bullying you into a purchase, of course, so even as he tries to wrest control of your judgment, he'll act like he's your best buddy. He will crack lame jokes you've either heard a million times before or can predict word-for-word before he begins the delivery. He will smile incessantly. He will do anything he can to ease your defenses down, and then he charges in for the kill, contract and pen in hand. And, hey, if you sign within the next five minutes, he'll throw in the pen, free of charge!

Do not, under any circumstances, let the salesman intimidate you. He is just one of hundreds of car salesmen at dozens of dealerships in your area. He is far more desperate for you to buy the car than you are. Whenever you're dealing with car salesmen, always remember: you are the one in control.

Posted by admin on 07/07 at 10:22 AM

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Friday, July 07, 2006

New Car Dealers: Driving Your Money Away

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