Most People Probably Prefer Going to the Dentist Over Purchasing a Car
My original intention for my blog was to discuss interesting cars from a casual enthusiast’s point of view. I wanted to take this opportunity to discuss something that is constantly brought up to me as a car enthusiast. I wanted to talk about purchasing a car from a dealership. I have now have been a part of a number of vehicle purchases from dealerships whether it be a vehicle for my wife or myself. I also worked for a large dealership here is Western New York while I was in college, and had the opportunity to see some of the inner workings of a car dealership.
Driven by Profit and Greed
So many people have apprehension when it comes to purchasing a car from a dealership, and for the most part they are justified. The dealership franchise model that has been in place for decades has one goal; to supply people with their product at a maximum profit. In this model, a franchisee, which is usually a single person, or group of investors, purchases a franchise of a particular brand or sometimes multiple brands to sell their vehicles. Once a franchise is purchased, the franchisee purchases vehicles from the car company, often using business loans often banked by the manufacturer, and the vehicle is sold by the franchisee at a profit.
With dealerships holding hundreds or sometimes thousands of vehicles in stock, they are forced to hire a sales staff to sell the vehicles. Typically, a dealer’s sales staff includes multiple tiers of management, and salespeople. Most sales staff at dealerships is paid based on the number of vehicles sold, and how much profit is made on the vehicle. This creates the atmosphere that makes people so apprehensive about the vehicle purchasing process.
Shop, Shop, and Shop Some More!
The most common mistake people make when purchasing a vehicle is to not shop around. Salespeople are trained in a way that they should not let you out of the building. They know that once you leave, the chances of your returning are very low. The likelihood of your visiting a dealership of the same brand and getting a lower price on the same vehicle is quite good. At the end of the day, the dealership wants a sale. If you drive around your town looking to save five cents per gallon of fuel, shouldn’t you do the same for your car purchase?
Your salesperson is not a car geek like you
Since a smart car buyer stops at multiple dealerships, you are going to encounter many different personalities. In my experience, most car salespeople aren’t extremely knowledgeable about cars. Granted, there are a few that are genuine enthusiasts, but there are many that know the bare minimum amount of information to get a car sold. For the most part, this works out fine, because most vehicle buyers aren’t knowledgeable enthusiasts either. Most car salespeople are, however very good at creating a false sense of friendship during your encounter. A salesperson’s real job is to get you comfortable with the transaction. A good and successful salesperson will chat about your interests with you. Sports, kids, news, pets, and whatever else it takes to convince you that they are your buddy. You start feeling like this person would never want to take advantage of you. This is what you as a car buyer must always have in the back of your mind when dealing with salespeople.
Your Cousin Vinny Might Not Cut You the Best Deal Right Off the Bat
Another area where people get taken advantage of when purchasing a car is using a salesperson that is a relative, or a friend. Often people don’t shop around and compare prices, because they trust that relative will just give them a great deal without having to negotiate. A dirty little secret I have learned from those who have worked in the car sales business is that salespeople are trained to take advantage of this trust. Salespeople are reminded in sales meetings that some of their most profitable deals will be made to friends and family. I am by no means advising that you do not patronize your family member or friend for your vehicle purchase, but I do advise to stop by other dealerships and get their prices before you visit that car salesperson that is close to you, to ensure your interests are protected.
Hostage Negotiator Buys a Car
I do not want to mislead anyone into thinking that you must be rude to the sales staff at the car dealerships that you visit. A person who is friendly, but firm will be least likely to be taken advantage of. I recall people throwing fits at the dealership that I worked at, only resulting in being the butt of jokes in the sales manager’s office. A great story on how to deal with car sales people I heard on NPR a few years ago about an FBI hostage negotiator buying a car. If you get a chance, you really should listen to it before you buy a car.
http://www.npr.org/sections/money/2012/12/21/167802325/episode-425-an-fbi-hostage-negotiator-buys-a-car
The More You Know…
Another mistake car buyers make, is that they don’t do the research on the cars they are interested in. Figure out the type of car that you want, and then research what is the most reliable, and has the best resale in that segment. Once you settle on a few makes and models, learn what the trim levels are and what features are on those trims. Why pay more for a higher trim level for features you have no interest in having? Go out and drive these cars. See what you like best. You may really like the most reliable best resale vehicle in that segment. Maybe you really like the vehicle that isn’t rated well at all. This might be a compromise you are willing to make, just as long as you realize you are making that compromise.
Have You Considered Used?
If you are shopping new, have you considered a late model used car? Just about all of the manufactures offer certified used programs that have extended warrantees. These can be a great opportunity to save some money and get a vehicle that is similar to the new ones that you are already shopping for, and have additional warranty. If you research and find that you are purchasing a car that had a great reputation for dependability, you might not even want to get a certified used car, as they typically cost a little more. Just be sure to review the vehicles history using one of the vehicle history services that most dealership already have. Personally, I wouldn’t purchase a vehicle that has been in an accident, or used as a rental car, and these services report typically show this. Also, I you are very serious about a particular used vehicle, ask the dealer if you can take it to a reputable mechanic to do a pre-purchase inspection. The sales person will tell you that the vehicle has been through their shop, and passed with flying colors, but you must remember that they are looking out for their own interests. Not all accidents show up on vehicle history reports. A good independent mechanic will catch things like that along with other issues that you may not be aware of. Spending a couple hundred bucks here could save you thousands in the long run.
What Do I Do With My Old Car?
If you are shopping for a car, it is fairly likely that you currently have a car that you are replacing it with. In a perfect world, you can advertise it on Craigslist, and someone will quickly come along and offer you exactly what you think it is worth, pay you in cash, and you own the car without an liens in the title from a bank as it is paid off. In reality, the chances of that scenario playing out are unlikely. Dealing with people on Craigslist is often a terrible experience. People like to find ads for items on Craigslist and offer much less than the asking price. People also like to set up times to look at a vehicle, and never show up. People also like to tell you that you are asking too much for car vehicle via text message. If you still owe money on your car, then the process of selling the car yourself becomes a little more complicated. If you don’t have the free cash kicking around to pay off your loan, you must find a buyer that is willing to pay you a price that you are willing to agree upon, and take a leap of faith in the fact that they are giving their money to a stranger upon an agreement that you are going to use that money to pay off the loan and get a document from the lender stating that the vehicle has been released from its lien.
Should I Trade-In My Vehicle?
These scenarios make trading your vehicle into a dealership appealing. If you still owe money on your vehicle, it is common practice for dealerships to pay off the lien. If you owe more money on the vehicle than what is offered, they can roll the debt into the new loan. This is not ideal, as you are essentially adding to the purchase price of a depreciating asset, but it is an option. The downside to trading in your vehicle is that typically you receive a smaller amount of money for your vehicle.
Don’t Let the Dealership Steal Your Trade-In
Generally there are three different types of values for any given used vehicle. Retail is usually highest, and is what a typical dealership will list a vehicle for. Trade-in is usually the lowest, and is what a dealership will pay to take your car in. Private party is usually somewhere in the middle, and is what you can list your car for. You can use car value websites such as Kelly Blue Book kbb.com to give you a general reference point as to what those values are, however they are not a crystal ball as to what a dealer or individual will pay for your car. Valuing a used car has a number of variables such as condition, mileage, location, and current market. The best advice is to research these values and evaluate what is the best for you, and realize that they are just estimates.
Dealers Love to Manipulate Numbers
When it comes to trading in your car, this is another variable that can be manipulated by the dealer. Just like in the sale price in your new vehicle, the trade in price is initially going to be very low, in favor of the dealer. Again, this is where shopping multiple dealers can be beneficial. You could find yourself in a scenario where Dealer A and Dealer B are giving you a very similar sales price for the purchase for the car, however Dealer A is giving you significantly less for the trade in of your old vehicle. Already you are ahead at Dealer B. A smart buyer would try another dealership to see if they can do better. The more dealerships you visit, the better are your odds at getting a better deal. It all depends on how much time and effort you want to dedicate to shopping for your next vehicle.
Get Approved Before You Start to Shop
Another way to help get the best deal possible is to have your vehicle financing situation figured out before you start shopping. If you are fortunate enough to have the funds to purchase the vehicle outright, then this makes things much simpler. If not, get pre-approved by your bank or credit union for an amount that you want to spend. This way you know what your interest rate and monthly payment will be. Also, check to see if there is any financing incentives for the vehicle you plan on purchasing. If you can get a lower interest rate than you bank is offering, then you are saving money. Just know ahead of time what your spending limits will be ahead of time.
The Sales-Pitch After You Made Your Deal
So after you strike a deal with the salesperson, and you agree upon your sales price and trade-in value, you are escorted to another office with a finance and insurance salesperson. They won’t call this person a salesperson, but they indeed are just that. This person is going to talk about your financing with you, so you are already in a position of advantage if you have that sorted out before you arrive at the dealership as I mentioned above. Normally, these folks try to find banks to take your loan application and find you the “best” interest rate. The truth is, they make money when they setup your loan. Their goal is to convince you that they worked really hard to get you a great rate, and that this is the best rate that anyone will find you. The reality is that the rate will probably be higher than what your bank or credit union will get you because they typically make more selling you on a higher interest rate. But the loan isn’t the end of the sales pitch from this person.
Want a Warranty for that Lemon You Just Bought?
Now the salesperson is going to try to sell you on warranties and insurance. Before you go into the dealership, and especially before you talk to this person, you should know whether or not you are going to want any kind of extended warranty. Typically, is you have done your research, and know you are buying a dependable car, you probably aren’t going to want the extended warranty. If you do want to purchase a warranty, you need to verify that it is a warranty that is provided by the vehicle manufacture and not a third party. Third party warranties have a reputation of denying claims because of technicalities, or sometimes they are so small, they go out of business before your warranty expires. Also, warrantees are negotiable. Don’t ever pay the price they initially offer. Offer half, or even less and see what they shoot back at you. They make a ton on money on these things.
Expensive Car Wax and Other Scams
Next they are going to try to sell you on all sorts of add-ons like window etching for security, paint and fabric protectant, and maintenance plans. My personal advice is to just say no. Scrutinize the offers, but in reality, usually these are purely moneymakers for the dealership.
Check for Discrepancies on the Purchase Agreement
At this point they should go over what should be the final invoice from the dealership to you. Look closely at this and check for any additional fees. Anything beyond titling and registration is probably added on as a last ditch effort to make money off of you. Scrutinize every fee and make them explain to you what it is and why you have to pay it. You might have to state that you are reconsidering the deal with these new fees tacked on, but you may want to consider how much you are saving over the other deals you shopped. Hopefully they haven’t added anything that you see unfit and you can move on to arranging when you are picking up your car.
Give the Car a Final Lookover
Finally the time has come to take delivery of your new car. A very important thing to remember is that until you sign the paperwork at delivery and drive the car off the lot, is that it is not your car. It is imperative that you look over what is about to become your new car in well-lit conditions free from rain or snow so you can have a final look at the car before you take it. Any imperfections must be pointed out and repaired before you take delivery. If you drive the car home and find an issue in your driveway, the dealer is going to say that it wasn’t there when you left the lot so they aren’t going to do anything about it, nor are they legally obligated to. If you do happen to find an issue, the dealer may tell you to take delivery of the vehicle and they will fix it at a later date. This is not optimal. If you bring the car back and their attempt to repair the issue isn’t satisfactory, it could lead to an on-going dispute regarding the repair. If you don’t take delivery of the car until it is fixed as you see fit, don’t take it. Move on to another car. Perhaps the dealership can substitute it for another car in stock.
I Think I Get It Now
As I write this, I think now I better realize why people are so apprehensive about the car purchasing process. There are so many opportunities to get taken advantage of. I think the key is to keep a calm state of mind, but at the same time be critical of every aspect of the car purchasing process. The dealership has the consumer in a tough position, because most consumers are both purchasing a car because it is a necessity to facilitate their life, and also it can be something that they are passionate about. This can put a purchaser in a relatively vulnerable state.
