After listing everything from the "Top 10 Summertime Toys" to "10 Cars that Could Get a Computer Geek Laid" (not really), Forbes gives us the "Top 10 Things To Never Say To A Dealer." At the risk of denying Forbes a couple of dozen unique visitors, the eds say these words should never pass through a car buyer's lips: I'm ready to buy (ka-ching!), I can afford this much (over twelve years then), Yes, I have a trade in (let the games begin!), I'm paying cash (we HATE you), I'm not sure what vehicle I want (we know EXACTLY what we want to sell), I've wanted on of these forever (SUCKER), I'll take the popular options (yum!), What's the lowest price? (and we can't go ANY lower), Sure I'll look at the numbers (step into my parlor said the spider to the fly), I think you can do better than that (**** you!). Forbes doesn't say what you should say to car dealer. We'll start the bidding with "Stiff me and I'll kill you."
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Every pundit on the planet has expressed an opinion regarding the automotive purchase experience / dealer experience.
Its always a scenario of “As the customer or potential customer if you are not informed and do not follow this advice you get #$%$#”
Its nice to see the Urban Legend endure.
There’s truth behind every one of these statements, but it’s not so much about what you say as it is about your delivery when it comes to buying a car. Attitude is everything.
Amen to AGR. Of course that absurd show about that “crazy” rapper-cum car dealer doesn’t help. If the old Hall-Dobbs Management methods were still employed you would be out of business in 18 mos. from lack of cash and astronomic flooring costs. Of course, there are exceptions to every rule, and that sensationalism is what drives “reporting” in this day.
Its nice to see the Urban Legend endure.
There’s no urban legend here at all. Consumers overpay all the time due to their lack of negotiation skills and failure to adequately research.
The Forbes article is pretty good. It’s essentially telling buyers that car dealers are not their friends and that laying all of one’s cards out on the table is a dumb idea if you’re trying to get the best price and terms. That’s sound advice for any purchase, but is particularly true when dealing with a class of merchants that has perfected the shell game into an art.
Pch101,
Its still an Urban Legend, after the customer/consumer engages in a session of “mortal combat” with a dealer to make sure he does not get taken. To buy a new vehicle at a subsidised rate, and trade a vehicle that is upside down by a few thousands.
Once this is all done in an acrimonious fashion, the same customer/consumer has to return to the dealer for service, and few warranty claims.
There is enough information for any consumer to quickly and easely empower himself, and just as quickly not get taken by anyone.
Wow – with that kind of valuable advice, I can’t see why I wouldn’t subscribe to Forbes right this second.
Its still an Urban Legend, after the customer/consumer engages in a session of “mortal combat” with a dealer to make sure he does not get taken.
The article specifically encourages buyers to avoid being antagonistic, which is also good advice (at least through most of the process) and in line with what you suggest.
There is a difference between being rude and in avoiding excessive disclosures. The basic rules of horse trading don’t jump out the window when it involves buying a car.
Most people have no idea they just got taken during there last car purchase. It funny how some people have these warm and fuzzies after there new purchase not knowing they just got robbed.
I give one personal example, my sister-in-law. She just bought a 2007 Toyota Solara(4 pot base model) with 25,000 miles for $17,500. Doesn’t sound like a bad deal when she tells everyone until you do the math. She had a down payment and a trade in they say they gave her $2000 for(what dealer on earth would give $2000 for a ’95 Ford Ranger in FAIR condition). And then when you do the math on her monthly payment, for some reason the initial purchase price comes out to be more by about $1000. And her interest rates nothing great. So as I told my wife she could have bought a brand new with zero miles Solara for what she paid for the junk she got and not given away her trade in a down payment.
The worst part about this is my wife will not let me tell her the truth because it might hurt her feelings and she will cry. How is she going to learn from her mistakes if she doesn’t even know she made them. I guess that’s what she gets for following the crowd and not learning to think for herself.
redbarchetta,
Could you follow through with your example, 17,500 minus 2,000 for the trade = 15,500 how much taxes, how much cash down, what amount was financed, how long a term to finance, what rate,what monthly payment.
The 95 Ranger you would have written a check for how much to buy it from your sister in law?
Car dealers are horrible. For the most part they wanna sell you services you dont need and then kill you on the things you do need. The F&I games, the back and forth to the “manager, withholding keys to vehicles, etc etc. EBAY amd CARSDIRECT.com have helped alot but for the most part its still Caveat emptor.
I just don’t understand why people are buying new anymore. Why not buy from some yokel who did, have them take the hit in depreciation and you drive away with 90% of car for 60-70% of cost.
We’ll start the bidding with “Stiff me and I’ll kill you.”
Maybe I’m too mellow, but I was thinking more like “Oh, I’m just picking up the car, it’s an Internet deal”.
I mean, dealers are the place where you test-drive the car and, after the online shopping is complete, you pick it up – not necessarily at the same establishment.
There is that quaint sales department, but I can’t say I’ve ever really used it; seems irrelevant to me.
Bought a new Honda Pilot in April. Did everything over the internet, only went to the dealer to sign the paper and hand ’em a check. Got a very good deal and no hassle.
“Financing?” Done.
“Extended Warranty?” Umm, No.
“OK, sign here, and here are your keys.”
Thanks, Buh-Bye.
I didn’t want to get into the details because I didn’t think anyone cared. This all came through my wife since me and the in-law barely speak, I tell her what I think and she doesn’t like hearing the truth. Oh she lifes with us, so you can see my homelife is a joy.
She said she purchased the car for $17,600, got $2000 trade in for the Ranger and had a down payment of $1500(not 100% on that, could be $1000). So I try not to count the down payment since it would be enough for tax and not much else. Her interest rate was 8.5% over 60 months and her payment is $360 a month. If you put those numbers in a loan calulator to find out the loan amount it almost the purchase price, so where did the trade in and down payment go.
I know the Ranger blue books for $2000, well she told me that, but a dealer is never going to give you blue book value, they would never make a dime. Personnally I hated that truck so I wouldn’t have given her that much, but there were family members in future need of a car that would have given her more than the $250 the dealer gave her for it.
Here is the best part of this. She just graduated college and bought the car 4 days after graduation. The only problem is SHE DIDN’T HAVE A JOB YET, AND OVER A MONTH LATER STILL NO JOB. Sorry but I couldn’t be the only person knowing how stupid that is, I had to share.
jkross22 :
September 18th, 2007 at 12:46 pm
I just don’t understand why people are buying new anymore.
Here’s one reason: desirable cars often have low depreciation. A new vehicle costs $30,000. A five year old example sells for $20,000. If you’re financing, the new car can be had for today’s fire sale rates of 0 to 2%. If you buy used, it’ll be 5-6%. That makes the $10,000 price difference shrink to $7,000 to $8,000. If you’ve got cash to burn, invest it conservatively at 5-6% and finance the new car at 1% and make money on their loan. Now your $8000 difference shrinks to $5000. A five year old car will eat up much of that $5000 before too long, so the real difference is maybe $3000.
I don’t know about you, but if the difference between a new car and a five year old car was only 10%, I’d pick new every time.
Now if you’re buying used GM fleet vehicles with 30K miles at 40% of their original cost, you might get a good deal.
If you say “if you have to finance it, you can’t afford it,” well, don’t forget that if you pay cash for that used vehicle, that’s money you’re no longer collecting interest on.
RedBarchetta:
I feel your pain. Your sister in law sounds smart, perhaps she needs a sticker or something. Sounds a lot like my mother in law, except she hasn’t had a job for about 15 years because she thinks she’s disabled. Luckily she doesn’t live with us – yet. Anyway, it sounds like she pretty much got what she deserved since she didn’t do any research, and I’m sure the dealership loves her. Irresponsible speculation says that she’ll even take it there for all the servicing since she got such a great deal during the purchase.
My next purchase will likely be a turbodiesel small SUV. Whoever brings one over that doesn’t suck and gives me a good deal via the Internet will win. I’m hoping it will be a Tiguan, but maybe it’ll be a CR-V or RAV4. I hate stealerships with a passion. Of course, watching King of Cars didn’t help my hatred.
Selling……….17,600
Trade………….2,000
Difference…….15,600
Taxes………….1,000
Total ………..16,600
Cash Down………1,000
Amt Financed…..15,600
15,600 financed over 5 years / 60 months at 14% (not 8.5%) fresh out of school no job this dealer did some creativity finance this sale.
15,600 at 14% is 359.82 / month
15,600 at 8.5% is 318.96 / month
Most finance institution will factor in a fee to acquire the “paper” and depending on the rate and the amount financed will pay the dealer a fee.
If a dealer has to start working to get the “paper” bought by a financial institution they will keep a larger fee for themselves.
If a customer has A credit the dealer doe not stand a chance to make money on the financing. As the credit rating of the customer deteriorates and gets into sub prime territory, a dealer will need to work to put these deals together.
# Redbarchetta :
Here is the best part of this. She just graduated college and bought the car 4 days after graduation. The only problem is SHE DIDN’T HAVE A JOB YET, AND OVER A MONTH LATER STILL NO JOB. Sorry but I couldn’t be the only person knowing how stupid that is, I had to share.
Marketing is amazing stuff, turning wants into entitlements. Give out a “recent grad special” at dealerships everywhere and then recent college grads believe they need a new car upon graduation.
redbarchetta,
Thanks for the information, for some reason my first reply seems to have evaporated never got posted.
17,600 for the car, minus 2,000 for the trade = 15,600 difference + taxes 1,000 = 16,600 minus a cash down of 1,000 = 15,600 due at delivery.
15,600 financed over 60 months at 8.5% = 318.96 per month – for someone that does not have a job, fresh out of school 8.5% for any dealer to sell that paper is a challenge.
15,600 at 14% = 359.82 per month which is closer to the rate that was used to put this deal together.
First blush the dealer made too much money / shortchanged the customer, or it cost the dealer more money / interest to have a financial institution buy the risk of this particular loan.
brettc Your sister in law sounds smart, perhaps she needs a sticker or something.
Actually she is smart, or could be very smart if she would actually start to think on her own. I see a tremendous amount of potential in her, but since she hasn’t had to work for one single thing in her life she just wastes it. She wants to be a Lemming like everyone else cause that’s what they tell her to be on TV.
bfg9k Actually to defend her a little here, she really did need some newer transportation. And she didn’t buy at one of those just graduated scame events. It’s just total stupidity to purchase a car before you even have a budget to determine your purchase price. She has really no idea how much she is going to make when she finally gets that job in a month or 2. She thinks she is going to be making a lot of money in her first job but reality is slowly setting in as she is still unemployeed. Her degree is worthless for the most part(read 2nd paragraph above) and her resume is as generic as her degree, but NOOO she wont listen to me on how to fix her resume, too much work I guess. She asked for help and then didn’t take any of it, sorry I’m bitter on that one.
Ok back to the actual topic. My last car purchase was great, in and out the door in 90 minutes, including my 30 minute test drive. No BS just a good deal on a Subaru Legacy GT, $23,500 for new 2005 demo with 5440 miles. I would love to get another one like that but I’m not impressed with Subaru’s future offerings and I have a real itch to go back to old Alfa’s as a daily driver.
Sorry her mom also co-signed and she does have a credit history just no auto purchases. I wasn’t complaining so much about the rate just all the numbers together.
And you more or less proved my point, whatever she was told by the dealer about the numbers, twas not true. But she still believes she got a good deal, and yes she has already taken the car back to the dealer to purchase nick knacks because they gave her the BEST deal.
And I’m not faulting the dealer if that is the best they could do, maybe it really was. The problem is she left thinking this is the way to buy a car. Her and her mom esentially drove up with a sign that said sucker on the roof, my mother-in-law is not a savvy shopper she gets taken buying an ice cream. Then she went along with what ever the salesmen said, she didn’t do her homework so how is she to know if it’s true or not.
The alternative would have been to go to the bank, and get their own money and pay the 15,600 due at delivery.
Was the 17,600 too much money for the car? You don’t seem to think so, the 2,000 for the Ranger you agree is a fair price.
If 17,600 is fair, and 2,000 is fair, what is not fair about this transaction?
The financing is a variable based on the credit of the purchaser. There are enough online loan calculators that its not rocket science to quickly calculate a loan.
Its also not rocket science to quickly calculate a lease.
In this case it would have been easy to say, “why are you overcharging by 40 per month on the loan payments?”
Perhaps the dealer was questioned, his reply “told you 8.5% but with your credit application and the parameters of this deal I can get you 14% not 8.5%” —“would you prefer to get your own money?”
Perhaps the actual cost of that loan was 12 to the dealer, he kept 2 points for himself selling it at 14.
What you need to say at the dealership:
“I don’t know”
Give them all the buying signals and commitment they want, but when the final deal gets put in front of you, just say, “I don’t know”.
You will save over one hundred dollars per hour for as long as you are willing to sit there making up your mind. If they leave you alone, get up to leave. If you can’t stand the silence, ask a question. If you feel like you have to say something, just say, “I don’t know.” If you need variation, just say, “Gee, I don’t know.” For advanced negotiators try: “Oh, I don’t know” or “I just don’t know”. If you really feel like taking chances, mix it up some more with “But, I just don’t know.”
Saturday is great for this strategy, especially if you have come on a couple week nights before to go through all the selections. If they are happy enough to let you leave, just come back again and start all over. End of the month is good too. If they are busy bargaining/pressuring/screaming at you then they are not selling to anyone else.
Eventually, they will take the deal at cost or throw you out.
This will not work on a good dealer, who will give you a fair price, and tell you it’s good as long as the car is still on the lot.
She said she purchased the car for $17,600, got $2000 trade in for the Ranger and had a down payment of $1500(not 100% on that, could be $1000). So I try not to count the down payment since it would be enough for tax and not much else. Her interest rate was 8.5% over 60 months and her payment is $360 a month. If you put those numbers in a loan calulator to find out the loan amount it almost the purchase price, so where did the trade in and down payment go.
If you make 60 payments of $360/mo at 8.5%, you’ve borrowed approximately $17,500. Your family member should have borrowed $14,100 ($17,600 purchase price – $2,000 trade-in – $1,500), plus the cost of the tax and registration, whatever that was.
Let’s suppose the tax and registration were an additional ten percent of the sales price, with no tax break based upon the trade-in value. (Some states allow this, others don’t.) The purchase should have looked something like this:
$17,600 purchase price
$1,760 tax/license/doc fee
Total: $19,360
With those parameters, this is what she should have borrowed:
$19,360 purchase price
Less: $2,000 trade-in
Less: $1,500 cash down
Required loan amount: $15,860
But instead, they loaned her about $1,700 more than they should have. In effect, they stole the entirety of her cash down payment, plus gave her about $1700 for her trade-in, while playing a shell game with all of the above.
Putting it another way, at those loan terms, she should have had payments of about $325 per month, but ended up with $360 per month. Over the life of the deal, that’s an extra $2,100 in payments. In a sense, this means that they stole her down payment, and gave her $1,400 for her trade.
Take this transaction, multiply it by millions, and now you see why this one of the most unsavory businesses operating today.
AGR I’m not sure what we are arguing over. I was told 8.5%, if she got 14% she’s lieing to the rest of us. This girl doesn’t lie about anything, misinformed yes, lies no.
And you did the math, she didn’t get a good deal according to what she thought.
It sounds like a good deal until you factor in her trade in and the fact that it is used. I really think with a bank check and some hard negotiating she could have gotten a brand spanking new one for what she paid for a used one and still had the Ranger to sell to her nephew.
Unfortunately she is never going to show me her paperwork so I will never know exactly how bad a deal she got, and my point of all this is that she doesn’t know either so she is going to turn around and do it again next time.
Thank you PHC, all these posts and you said it best.
bfg9k:
Marketing is amazing stuff, turning wants into entitlements. Give out a “recent grad special” at dealerships everywhere and then recent college grads believe they need a new car upon graduation.
Don’t worry, not all us new grads are like that. I just bought a new car, mostly because I needed one (mine had basically stopped running and was unreliable to get to work in), and seeing as I had some money saved up, decided to treat myself. Decided to pick up a nice Mazdaspeed3. they offered me $300 as a “recent grad” discount. I had talked them down about two grand from sticker, and told them to just hold on to it, I’d use it to pay for my oil changes.
We are not arguing at all, we are just playing monday morning quarterback on a deal. It could be anyone’s deal.
The dealer did not loan more money, its fraudulent to loan more than the amount owing on the sales contract. The dealer applied a higher rate than 8.5%.
Everyone is free to justify how this higher rate could have been spent, or credited. The loan amount was in the 15,600 range, the rate was not 8.5%
For whatever reason automotive transactions have a high degree of emotions attached to them, from the buyer, and seller. Playing monday morning quarterback is easy to do as a learning experience.
In this case if the buyer was specifically told 8.5% it was misrepresented.
In this case if the buyer was specifically told 8.5% it was misrepresented.
That’s a polite way of saying that she was ripped off. The math in my previous post helps to quantify the degree to which she was fleeced.
I’m just curious — if I stole $2,000 out of the safe at the dealership, could I chock it up to a simple misunderstanding, or would the sales manager phone up the police?
Pch101,
You make an interesting comment about multiplying a million times.
If a dealer is selling a 30,000 vehicle advertised at a 2.9% finance rate for 60 months. A potential customer with C credit comes in for this vehicle.
This customer has a trade with a Blue Book value of 15,000 the dealer allows 15,000 as a trade in, the payout is 17,500 and a 500 fee for early termination.
In this particualr location sales tax is 8% and the credit is applicable to the trade.
Is it possible to do a deal with this potential customer, and if so how would it get done, and with C credit what are the chances of applying the 2.9 rate? and if its not 2.9 what would it be.
To simplify this deal, if the 2.9% rate does not apply there is a 3,000 cash back.
No cash down from the customer.
Pch101,
In one of my previous posts I mentioned a 40 per month difference between 8.5 and 14 which is an addtional 2,400 during the course of the loan, and if the loan goes to term.
Companies with AAA borrow at prime, companies with AA borrow at prime+, companies with BB borrow at prime+++.
Did the company with a BB rating get ripped off?
I’m not sure how the hypothetical transaction above helps RedBarchetta’s relative.
Assuming that Red has the facts straight, it’s pretty straightforward — she got ripped off. She effectively paid more than she realized. She may as well have had a bonfire with the down payment, because she got nothing for it.
By the way, this doesn’t include all of the profit made on the car sale itself. Not sure what equipment this car had or what part of the country in which it was purchased, but based upon a California ZIP code, and a reasonable guesstimated equipment level, at $17,600, she paid roughly “private party” Blue Book for the car. Given that the dealer probably paid something well south of wholesale KBB for it, the gross margin on the Solara was perhaps $2,000-3,000. Take that margin, add to it the stolen down payment, and you have a nice profit on the transaction.
Or here’s another, better way to look at it. We’ve already established that $360/mo at 8.5% for 60 months that she borrowed a bit more than $17,500. She then handed over her vehicle, plus $1,500 in cash.
So in return for about $21,000 ($19,000 in cash and debt, plus her $2,000 truck), she ended up with what is perhaps a $16,000 car. If you are on the selling end of that deal, that sounds like a pretty good business to be in.
Wow you guys are quick to accuse the dealer of ripping her off, if you don’t know the correct figures how can you even figure the profit out? She sounds like she is reticent to give the real figures because people are going to judge her on the perceived deal. Everyone always knows a “guy I know” that can get a deal on a car,plasma tv,vacation etc. If she is happy with the car and can handle the costs leave her alone.
In one of my previous posts I mentioned a 40 per month difference between 8.5 and 14 which is an addtional 2,400 during the course of the loan, and if the loan goes to term.
Companies with AAA borrow at prime, companies with AA borrow at prime+, companies with BB borrow at prime+++.
Did the company with a BB rating get ripped off?
If you tell a borrower that you are going to give them an 8.5% rate, but deliver a 14% rate, then yes, you ripped them off. Promising A, but providing B, is a crime.
Let’s remember that the F&I department will make a loan fee for making that loan at whatever rate, so it’s not an act of charity to get the borrower financed. That loan adds additional profit for the transaction.
Pch101,
Make an attempt at that hypothetical transaction, and do a bit of role playing from both sides, you are trying to sell, and you are trying to buy.
Then play monday morning quarterback and see who got ripped off, how much the seller made, and how ggos if a deal the buyer received.
A possible explanation for the confusion as to whether the lady is paying 8.5% or 14% — back before the law demanded better disclosure of loan terms, it was common to talk of the “add on” rate. The interest was calculated by multiplying the principle times the “add on” rate. For example, a one-year $10,000 loan with 8.5% “add on” interest would carry an additional $850 to be paid back. However, because the loan would be amortized with each month’s payment, over the twelve months the average amount owed per month would be about half the original principle. Thus, the effective annual percentage rate (or APR as the ads now say) would be roughly twice the stated “add on” rate. Nowadays all lenders are supposed to disclose the APR, but I wouldn’t put it past an F&I sharpie at a dealership to slip back into the old, bad ways.
As Woody Guthrie sang, “Some people rob you with a six-gun; some with a fountain pen.”
Then play monday morning quarterback and see who got ripped off, how much the seller made, and how ggos if a deal the buyer received.
Are you implying that the dealership won’t know what it’s doing and get ripped off?
If the borrower is upside down on his trade-in, then it’s a fair guess that you’ll try find a way to inflate the trade, and get it back through the purchase price, which you push in the form of a higher loan amount. You will probably also try to get cash out of his pocket, and tack on some extras to find additional ways to pack the deal. If you can’t make it work to your satisfaction, then you’ll let him walk.
None of that changes RedBarchetta’s situation described above.
For a young girl with not much equity in the deal chances are the bank did give a high rate even with a cosigner. The dealer can be accused of overselling the deal to her, but without having the paperwork it is very hard to criticise the actual deal. Remember for a young person this is a huge purchase and if she feels she got ripped off this is going effect how she thinks of herself. If our lives are defined by our possessions then having only one and thinking you got taken is not going to make her feel good about her self-worth. That is why I say leave her alone and let her enjoy the car- much better than driving around in a 12 year old Ranger.
Pch101,
It does happen that the dealer does not know what its doing.
Lets do a bit of role playing here, I am the seller, and you are the buyer, I’ll start the numbers
Selling price 30,000 minus trade 15,000 = 15,000 plus taxes 8% 1,200 = 16,200 plus payout 17,500 = 33,700 plus early termination fee 500 = 34,200.
Are you agreable to these numbers?
If you want to role play —
-A car that the dealership is trying to sell for $30k should probably be had for $25k. (Goodbye ADM sticker, hello invoice, less incentives.)
-A trade for which the dealership is offering $15k may very well be worth $17k.
So that spread is $8k, plus tax, not $15k. If the dealer pays me the $17k for my trade, then I need an extra $1k for my bank. You’ll pump up the value of my trade and the new car purchase accordingly, and the credit union will approve the loan, which should still be based upon a purchase price well under MSRP.
If I can’t swing that, then I have no business buying a new car. If the car is worth $17k, how bad of a car could it be that I’d need to get rid of it when I can’t afford a new one?
The 30K vehicle costs the dealer 27K (10%) and he is getting 3K back without the 2.9% rate.
We would go 30 for the car – minus 18,000 for your trade = 12,000 plus taxes 8% 960 = 12,960 plus 18,000 pay out = 30,960
At this point the dealer is paying 15 for the trade and overallowing 3 to pay it out for a total of 18. The dealer is making 3 on the vehicle plus another 3 of cash back which has been applied to the trade.
This deal is at 30,960 and the dealer is making 3,000, with the trade at 15,000
How much should the dealer make? Is 15,000 all the money for the trade or is there a bit more.
At this point the dealer is paying 15 for the trade and overallowing 3 to pay it out for a total of 18.
But I won’t take less than $17k. I’ll go against Forbes advice at this point, and hint that you’ll “have to do better”!
I’m also not sure about how my $25k suddenly went back to $30k. At this point, I’m heading out of the showroom back to my perfectly nice $17k car.
Wow I go to a meeting for an hour and come back to this.
I think I stated I don’t know the exact numbers of the deal and never will. It’s just plane to see she didn’t get the good deal she thought she did. I have heard her say a few times after looking on the internet that she thinks she got a good deal(you have no idea how hard it is to keep my mouth shut), I have no idea where she is looking on the internet.
So in return for about $21,000 ($19,000 in cash and debt, plus her $2,000 truck), she ended up with what is perhaps a $16,000 car. If you are on the selling end of that deal, that sounds like a pretty good business to be in.
This is the exact reason I brought it up and why I really think she needs to know.
d996 if it was someone else I would just let it go but this girl has never learned from her mistakes because everyone sheilds her from the hard reality. If people don’t learn from their mistakes they are doomed to repeat them, as much as she drives me insane I don’t wish bad things to happen to her over and over in the future. And in a few months she may find out she really can’t afford that car if she hasn’t found a job and her little stash of cash runs out.
I really don’t believe in letting people get screwed just so you don’t hurt their feelings. Your really doing them a disservice by not informing them. That being said the reason this deal bugs me so much when I guess I shouldn’t care is the trade in. The Ranger was her father’s truck, who passed away in 2006. It had a lot of sentimental value to her and the family and she just gave it away or let it get stolen. I know if I told her that it would devistate her, especially coming from me who has very little tact.
On a 30K vehicle the profit margin is usually 10 point = 3,000 which is a cost of 27,000 not 25,000.
From your numbers you want to be at 25 minus 17 = 8 plus taxes 640 = 8,640 plus 18,000 pay out = 26,640 difference
The dealers’ numbers sell 28,500 minus trade 18,500 = 10,000 plus taxes 800 = 10,800 plus payout 18,000 = 28,800. difference
The dealer makes 1,500 on the new vehcile, is paying an addtional 500 for the trade.
As you are ready to walk out, your wife wispers in your hear “I would really like that new vehicle” —“It seems to be a fair price”
Now you wonder is there another 500 in this deal that I can negotiate, my 26,640 is too much in my favor.
Redbarchetta,
d996 is correct, from your perspective she was probably shortchanged and misrepresented, from her perspective she got out of a 12 year old pick that she probably hated, got into a car.Fresh out of college, without a job, without a verifiable income, but with mommy co signing managed to swing a loan for the car.
The dealer is a “good guy” from her perspective because he made it possible to get out of the Ranger and get a Solara, and a loan to make it possible.
Buy a bottle of bubbly and celebrate.
The bottom line here is that I assume that all of the dealer’s numbers are bogus, as I have here.
I won’t take for granted that a car offered at $30k is worth $30k, or that a trade-in valued at $15k is worth as little as $15k. That research will have been performed before ever walking into the dealership.
If I pay invoice for the car and am upside down $1k for the trade, you won’t have any problem financing me, because my purchase price is still under MSRP after the negative equity has been tacked onto the purchase price. I’ll give you $1k which you will use to pay off the remainder of my upside down loan, and you will turn around and sell my $17k trade for $19-20k, if not more.
And if I require financing, I will have my own funds arranged in advance, so that I get the best rate possible. A financial calculator will be in my pocket, so I can calculate the benefit of a subsidized loan if one is available.
As you are ready to walk out, your wife wispers in your hear “I would really like that new vehicle” —”It seems to be a fair price”
When it comes to car purchases, women tend to be more rational than are men. If that’s not the case in this instance, it’s time for dinner and a movie. I sure won’t be involving a car dealership in my personal life!
Pch101,
This is a cash deal, you are paying, the dealer is not financing this deal.
A 10 point spread between MSRP and cost is a good rule of thumb so the 30,000 minus 3,000 cost 27,000.
If Kelley says that the trade value is 15,000 it should be a good guideline for you. If the dealer pays 15,500 for your trade, absolutely he will ask for more money trying to sell it, and if it does not sell he might take a loss to move it along.
Back to the deal – you were at 26,640 difference, the dealer is at 28,800 to you try to get another 500 off and do a deal, or do you walk?
“I just don’t understand why people are buying new anymore.”
Because you can get exactly what you want in perfect condition with the peace of mind knowing that the previous owner didn’t do something unsavory to it. When you only buy manual transmission cars, it’s nice to know that some madman hasn’t torched the synchros and clutch on the poor thing. I guess it depends on where you live, but I can search autotrader for months and not find what I want. I just did a search for Mazda 3 with a manual transmission and I got 3 results within 100 miles. Try for Acura RSX and it drops to 2.
Red I can understand you trying to look out for her but most people don’t learn from their mistakes. It is frustrating to watch someone else do somethig that you know is not right for them. Sometimes people just like to stay comfortably numb all the time. My experience with young girls is that they will take any advice no matter how crazy it is as long as that advice validates their point of view. There is also a formula x/y=s where x=1-10 looks,y=years and s=stupidity. Anything over .30 indicates a tic tac toe game with a chicken could be lost.
A 10 point spread between MSRP and cost is a good rule of thumb so the 30,000 minus 3,000 cost 27,000.
Many a dealer tries to pad MSRP with ADM (additional dealer markup.) I assumed for this exercise that you’ve got some paint protection and a Lo Jack (which you haven’t installed, and won’t be installing) on the extra window sticker.
And “invoice” isn’t really cost, without factoring in the holdback and incentives. A lot of bread and butter cars on the market have at least some minor incentive. The holdback alone adds 2-3% margin, before factoring the leveraged return that comes from using the floor plan.
If Kelley says that the trade value is 15,000 it should be a good guideline for you.
The standard line in the business in respect to trade ins is that “Edmunds and Kelley don’t buy cars.” Chances are high that a dealer won’t offer $15k for a car with low book of $15k. If I’m being offered $15k, I wouldn’t be surprised if low book was something closer to $18k or $19k.
If people don’t learn from their mistakes they are doomed to repeat them, as much as she drives me insane I don’t wish bad things to happen to her over and over in the future. And in a few months she may find out she really can’t afford that car if she hasn’t found a job and her little stash of cash runs out.
That’s exactly right. You’ve done everyone a favor here by providing an example that others can use in their own future experience.
We all know the cliche that those who don’t learn from history are doomed to repeat it. Just as business school students read case studies of business mistakes and athletes watch tapes of their performances to see what they can improve, so it makes sense to tear peoples’ deals apart to see what could have been improved. You can bet that salespeople rely upon proven tactics and methods, so there’s no reason why buyers shouldn’t have the same benefit of experience.
Talk about shell games! Price up/down, trade-in up/down, loan rate up/down, monthly payment up/down, extras on/off and the poor customer’s head spinning round and round. No wonder most people hate bargaining with a car dealer.
Amen to d996; let her enjoy the car. Whatever that dealer may have overcharged her is a pittance compared to the crushing tuition that colleges shamelessly charge for bogus educations–and I say that as a former professor.
I can remember when I was in the market in ’92 and some salesman tried to sell me a Civic coupe with nothing special for 15Gs.
When my parents bought their first new car, a stripped down (no radio) ’57 Chevy 210 (the cheap model) wagon, supposedly the last last year’s wagon in Boston at the time, they paid just over 3,000$. My guess is the car should have cost around $2200. Heck, in 1970, they bought a brand new Valiant, quite decently equipped, for $2600. (That was a bit of a deal.)
After that, whenever they bought a new car, my mother would call a dealer to price a car, and then call another to see if they could beat the first price, and then go through several more like that.
An informed consumer/customer can quickly find the MSRP for any vehicle, they can configure the vehicle online.
Why would a dealer pad an MSRP? Install additional equipement on popular high demand vehicles – possible.
I used 10 point as a guideline holdback is usually 2 point(holdback calclations are usually on the base price only) and the spread between cost and MSRP is usually 8 points for a total of 10. Yes, it could go up by an additional 1 or 2 points depending on the manufacturer. Its easy to find costs and transaction prices.
Most manufacturers, if they give additional incentives make sure that they are directed to the customer, and at times there are dealer incentives, these pale in comparison to customer incentives.
The guidelines for used car values are exactly that guidelines to give an idea, none of these “guidelines” have ever written a check to buy a vehicle.
If any dealer pays “x” for a trade in he expects to either retail it and make money, or at least turn it into the amount he paid for it.
Most people want to negotiate, the negotiation process is an affirmation that all the variables of the transaction have been covered. Most negotiations last 2 to 3 rounds after that it gets unpleasant, and its best to stop. The marathon sessions are extremely unpleasant and have a tendency to turn acrimonious.
With the diminishing profitability of new vehicle sales, dealers resort to F&I to increase their profitability. The well informed consumer/customer should know exactly how to deal with the F&I step of the transaction.
That’s exactly right. You’ve done everyone a favor here by providing an example that others can use in their own future experience.
Glad I could help, wish it wasn’t at her expense, but that is her fault. I told her I would help shop for a good deal but she rarely excepts my help.
d996 x=8(she’s really cute) y=25 s=.32
but she is smart enough to beat a chicken, maybe even a monkey.
An informed consumer/customer can quickly find the MSRP for any vehicle, they can configure the vehicle online.
A truly informed customer will ignore the MSRP and ADM, which are generally entirely irrelevant, and focus on invoice, holdback and incentives. It’s the rare car that sells at MSRP to an informed customer, and those times that the market commands such high prices are generally transitory in nature.
Why would a dealer pad an MSRP?
Easy money. Sell $10 worth of Scotchgard for $300 as a “protection package” — what’s not to like?
Most manufacturers, if they give additional incentives make sure that they are directed to the customer, and at times there are dealer incentives, these pale in comparison to customer incentives.
If I am aware of a dealer incentive, I will take it for myself. An incentive is an incentive is an incentive, that’s factory money that is fungible and therefore up for grabs, regardless of whether that’s payable to the dealer or the customer.
With the diminishing profitability of new vehicle sales, dealers resort to F&I to increase their profitability.
Dealers have always resorted to the F&I department for profits. You’ll get a better deal from the F&I guy if you come in with your own financing.
If you ignore the MSRP as a consumer how will you get the invoice amount? Different vehicles, different options. How will a consumer know about the dealer incentive that was e-mailed to the dealer that afternoon as an example.
Most vehicles are sold with a discount, the dealer makes 6-7 points.
Its always interesting to see the “guerilla customer” that is well informed owns a business, his business is entitled to make a 10 point profit, the car dealer is not a business that is entitled to make 10 points. If someone would go to his business and start bullying him to make 3 points he would probably throw them out.
The intelligent dealer will politely walk the guerilla customer to the other dealer down the road.
The F&I department was originally intended to close deals, to facilitate the financing aspect of the transaction, also to do “spot deliveries”.
The extended warranties are a benefit that everyone offers, car dealers, electronic retailers, appliance retailers, its a money grab. Sadly consumers lap up these extended warranties, and demand them from everyone.
Consumers want extended warranties, walk away warranties, disability insurance, tire and wheel insurance, tracking devices, gap insurances. Its all piled up on the monthly payments. That’s what makes the “real money” in F&I not the financing or leasing.
If you ignore the MSRP as a consumer how will you get the invoice amount?
I hate to serve as the advertorial guy for KBB and Edmunds.. but I guess I just did. Invoice doesn’t vary from dealer to dealer.
Incentives information is less consistently available, but Edmunds and Automotive News both provide useful info. And if you see the slash-and-burn come on ads in your local paper, they often provide a hint of extra incentives.
If someone would go to his business and start bullying him to make 3 points he would probably throw them out.
If the dealer wants to give you the heave ho, he’s free to do so. The fact that he doesn’t should tell you something.
The secret of the car business is that it is highly leveraged. Profits for large dealerships are made more through quick inventory turnover and loading deals with extra profit than through margin over invoice. The longer that a car sits on the lot, the less profitable it becomes.
NOTE TO SELF- I won’t criticize members of my family (yes mine, since I am married-ya know 2 become 1) unless I want to feel the unfortunate wrath of my loving,ticked-off wife.
At the beginning of the September, we bought a new Toyota RAV4, to replace my wife’s 9 year old Chrysler T&C (which we sold to an employee to replace her 2000 Windstar, which had been totaled).
My wife drove the car in competition with others (Honda CRV, Accura RDX, Subaru Forester, Mazda 5) at local dealers. Once she made her decision, I did my research on the internet. Between the Toyota website and Edmunds, I was able to pin down the option packaging and the invoice price pretty well.
I solicited bids from the dealers and three of them responded with prices reasonably related to the invoice.
Then the fun began. I wanted to trade my 2003 Accord on the RAV4, so as to hold down the number of cars, we were making payments on, and to use my best trading value. I also own a 2002 Accord, which is paid off. The 2002, through no fault of its own, has been through a couple of unfortunate incidents that have left it a bit crooked. In some ways I like the 2002 better than the 2003. The layout, visibility and ergonomics of the 2002 are better than the 2003, which has 40 more horsepower and is noticeably faster.
I took the 2003 Accord to the three Toyota dealers. The first one offered $11,000. Edmunds had suggested $12,500 (p.s. it is a real cream puff, low millage). So I was not happy with this offer.
I took the Accord to CarMax and they offered $12,000 cash. Now around here, trade is better than cash by 6.75% because of the discount on sales tax that trade gives.
But when I went to the the second toyota dealer, they offered $10,500. Even more unhappy, I went to the third one who offered $11,000. I told him that that was not going to do it, and when I got home he called and raised it to $11,500.
Emboldened, I recirculated all of the numbers to the three dealers and told them to give me their best bid by close of business Monday. The first dealer came back at $11,500, but the second one surprised me by going to $12,000.
I inked the deal with them and settled in to negotiate colors with my wife. (This years manufacturer motto: “you can have nay color you want as long as its gray”), she settled for “silver gray metallic”, i.e. gray.
It is a nice car, very utilitarian for our purposes. Since we choose the 4cyl 2WD model (flat as a pancake hereabouts), that gets 25/30 mpg, we will have a reasonable gas saving over the 17/22 Chrysler. I think it is kind of homely as vehicles go, but my wife doesn’t care.
The real impact of this story is that the idea there is a new attitude in car dealer land is wrong. It is still the same old stuff out there. The Forbes article has good advice.
The internet has affected the the process, but not as much as it might. The dealers are still not in the 21st century. A number of them did not respond to my initial inquiries with even so much as a robot generated reply. One of them was having her e-mail forwarded from a third party service in another city.
CarMax is a very good thing, because they will give you a written offer good for 5 days. Edmunds has better info on new cars than used. KBB was not as useful as Edmunds.
There is a saying in the car business, and I’m sure that anyone in the business has heard it before.
It goes “Buyers are Liars”.
I can tell you from personal experience that it is VERY true.
I can’t tell you how many times I have had a customer waste 1 or more hours of my time grinding me for a price on a car only to find out that they couldn’t finance a bicycle because their credit is so bad. But they will tell you “Oh I have excellent credit.” Or how many times I’ve gotten the Dealer to agree to their number with a commitment to buy, only to have them say “I want to think about it” and find out that they took your number BACK to the dealer they just left to get them to beat it by a hundred bucks. BAM! I just spent 1 or 2 hours with that jerk getting stroked so that he could save $100. In the meantime, I could have met a REAL buyer and sold a car to feed my family.
I hate these idiots that talk about “What not to say to car dealers” and moronic crap like that.
Sure, there are shady car dealers. But, as with ANY aspect of life, if you aren’t smart about what you do, you DESERVE what you get.
When you go to a car lot, remember that the person helping you is doing this for a living and ONLY gets paid if they sell something. They cant pay the bills with “Thank you for your time” or “We just want to look around and see whats out there”. Folks, hese some great advice to keep car dealers off of your back; if you only want to LOOK at cars, go to the MALL, there are hundreds of cars there that you can see without a salesperson hassling you.
Getting you in the office makes it harder for you to back out.
What ?
Great I pissed off my pregnant wife.
Redbarchetta,
In regards to your Sis-in-law, I would approach it this way. Tell her you thought she did well buying her first big car purchase (you may need to practice looking sincere). Also tell her she got a nice car (hopefully she did). Compliment her, make her feel good. Then tell her you would like to go over the deal with her and show her how she can do *even better* the next time she buys a car (which I assume will be a brand new car).
You can giver her the same help and advise by just reframing the situation to make her feel good about her first real big purchase. NOBODY wants to be criticised, EVERYONE wants to be given advise on how to do it better.
windswords Thanks for the advice, but I’m just going to shut up on the subject from now on. Read my NOTE TO SELF above, written by my wife after I went to bed. I think I am just going to listen to my wife and shut my trap and let her fall on her face 100 more times until she gets it. Pregnant pissed off spouses are SCARY!
Well redbarchetta, you kinda had it coming.
You know one of the reasons people hate buying cars, or motorcycles, or other big-ticket items? It isn’t just the dealer experience, it is the fear that some a**hole is going to say “F*ck man, you got hosed. I bought mine for $x less.” Everyone goes to a dealer afraid of being hosed. If they leave satisfied with the deal, then don’t be a killjoy and spoil it.
If she thinks she got a good deal, let her. She’s got 5 years of car payments to make on this vehicle. There is no sense in her beating herself up every month for 60 months when the payment leaves her account. That doesn’t help anyone.
And if the next time she buys a car she pays a couple grand more than you might have, it isn’t the end of the world. As long as she is happy with the experience and is comfortable with her payments, who cares?
My sister learned the hard way to listen to me when it comes to buying cars. I wasn’t afraid to tell her the truth about it when she bought it. Yeah, she was pretty ticked off at me at the time, but she has realized the error of her ways and that believe it or not, I want to HELP her to not make more mistakes. Saves you grief in the long run, when you don’t have to bite your tongue over yet another ill-advised purchase.
There should not even be a discussion like this.
Car dealerships are under a FULL DISCLOSURE law. This means that everything must be presented to you before you sign.
There is a line for purchase price.
There is a line for trade allowance.
There is a line for down payment.
There is a line for months and interest rate.
If you get ripped off with having ALL the numbers in front of you, you deserve what you get. I hate to see people get ripped off, but when they don’t take 10 seconds to look over paperwork, whose fault is it?
Plus, do you realize how many people lie about rate? Hell, I have done it to make myself sound better in my family so they don’t think I over purchased at a younger age.
Here is what you need to do when you purchase a car.
Walk into the dealership and go straight to the service department. Ask the service writer or receptionist you should work with. They will give you the name of the “good guy” 9/10 times.
Ask for that person and just be honest with them. Tell them the service department recommended them, it will stroke their ego and they will in turn want to prove they are the nicest guy.
I know it works, I fall for it all the time.
“If you get ripped off with having ALL the numbers in front of you, you deserve what you get.”
No. There are many ripoffs that can occur befor any paperwork is completed:
1. Trade-in values. You need to do a lot of research, shop your trade-in around. Like I said. CarMax is a good thing.
2. Dealer options and prep charges. Research, research, research.
3. Finance rates. Should be quoted at the APR used on the TILA form, but they are not. Carry your HP-12C at all times, or learn to use finance web sites to calculate payments.