Say What? by Mike Cady
January 27, 2010
SAY WHAT!
Caveat Emptor is Alive and Thriving! By Mike Cady
Caveat emptor is Latin for “let the buyer beware” and it is alive and thriving in many businesses, but none more than in the auto industry. For the past three years, I served as the Business Development and Internet Manager for a local car dealership and what I learned was a real eye opener. I understood that buying a vehicle was a negotiation process, but I did not know on how many levels. Now retired, I am happy to share with you a few thoughts that may save you thousands of dollars on your next vehicle purchase.
Most people do a fair to excellent job of negotiating the price of their new car purchase, but completely cave in when it comes to the value of their trade, finance rates, and after-market products, such as: extended warranties, gap insurance, car care services, and security systems to name just a few options. First, here are a few general rules to help you avoid making an emotional versus intellectual decision:
- Ø Research the vehicles of interest to you prior to contacting any dealership. Make sure you know which vehicles best meet your transportation needs and desires (e.g. style, size, power, fuel efficiency, safety ratings, price range, etc.).
- Ø Ask a friend or relative to accompany you when you visit a dealership. Make them promise not to let you sign any papers on your first visit.
- Ø Go to the dealerships closest to your home or place of work to test drive the vehicles of greatest interest and have all of your questions answered to your satisfaction. Be sure to get a quote on one or two vehicles that you want most.
- Ø After getting the quote, have your trade-in (if any) appraised. Do not let the sales consultant know of your trade until after you get the quotes you desire.
- Ø Do not reveal any financial data on the first visit (e.g., completing a credit application or how much down payment you plan to make). None of these factors should influence the price of your new car or the value of your trade.
Each visit should take less than an hour and it is imperative you take charge of the situation by staying focused on your objectives, not those of the sales consultant.
New Vehicle Sales Price - Having a minimum of three quotes on the sales price of your new vehicle and trade-in value, you are ready to do some serious marketplace testing. To get your best deal, use the Internet by e-mailing three dealerships within a reasonable distance from your home or place of work that sells the brands of greatest interest to you. For example: if you decided on a Ford Taurus, Nissan Altima and Toyota Camry, ask nine dealerships for their respective prices on the exact models (including options) you are considering. This includes the dealerships you visited. Quite often, you will get a better price through the Internet than on the showroom floor. Do not concern yourself with your trade at this time. This important issue will be addressed on your second and (hopefully) last visit. Also, do not give your phone number and insist all communications be by e-mail. Regardless of the responses received, do not accept any of them as being their best price. There is still room for further negotiations on your second visit.
Return to the dealerships you originally visited armed with your Internet quotes. Many dealerships say they will match or beat any written quote. Directly ask the sales consultant how much over invoice is their quote. Once answered, ask to see a copy of the invoice. If they refuse or the invoice presented does not match the quote given, leave at once as this dealership cannot be trusted. Now, you are ready to deal by making an offer less than any of the quotes received.
Start the negotiation by taking the lowest quote received and offering the dealership of your choice $500 less than this quote. Pay no more than the lowest quote received or an amount greater than factory invoice (less factory rebates and incentives).
Trade-in Value - Tax wise, it is to your advantage to trade your current vehicle rather than sell it on you own. Note: its value is even more important to negotiate than the new car price. Start by going to www.kbb.com and entering all of the information about your trade (including zip code, mileage, all options and general condition). It will give you a trade-in value. Simply stated, take a copy of this information to the dealership and accept nothing less.
Finance Rates - Dealerships are only too happy to arrange financing for you. Most of them work with multiple lending institutions, but not necessarily to get you the lowest rate. Instead, most (if not all) of them try to place your loan with the institution that gives them the most mark up. For example, the dealership may tell you the interest rate is 7% for 60 months and the bank is actually offering 4.9%. Thus, the Dealership makes a profit of 2.1% on the life of this loan, which can add up to hundreds (if not thousands) of dollars. To avoid this mark up applying to you, always request the exact interest rate being paid and the name of the lending institution. Then, while at the dealership, call that entity and confirm the rate being quoted. If you are a member of a credit union, check with it for its best rate prior to visiting the dealership. USAA, as an example, offers a much better rate than commercial institutions. You can leave a deposit on a vehicle confirming the purchase and trade values while checking out finance options in subsequent days. If your credit is good, you should not pay more than 4.9% on a new vehicle and 6.9% on a used one.
After-Market Products - After a deal is agreed upon, the dealership will sweep you off to a Finance Office where a very pleasant person will go over all of the paperwork with you. However, before doing so, they will try to sell you a whole litany of products. Some of them are very worthy of your consideration. However, all of them are subject to negotiation. Do not pay the price quoted on any of them without seeing their actual cost and the mark-up being applied. One dollar over cost for extended warranties is a good deal. Gap insurance may be required by the lending institution, but that rate is also negotiable. By now, you have seen and talked to a number of people and are worn out. If too tired to cope with the Finance Officer, ask if you can return the next day to complete the transaction. Just the thought of you leaving the dealership will encourage the Finance Officer to be more efficient with your time and offer you their best product prices. And, there is nothing wrong with refusing all of the offerings. You can always return in a reasonable time-frame and pay cash for the items of interest to you.
Remember, caveat emptor (let the buyer beware) usually refers to the actual business deal itself. Is the
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