The secret to beating a car dealer
It can be tough, but knowing how the game is played means you're more likely to win.
This post comes from Adam Levin at partner site Credit.com.
As players get ready to snap the football in every college and NFL home town in America, baseball builds up to the crescendo of the World Series and duck hunting season is less than 30 days away in some parts of the country, another kind of contest begins in earnest. Wading their way through billions of dollars of ads and eagerly navigating through fields of auto-malls throughout America, consumers are on the hunt for the best deal on a 2013 model, oblivious to the fact that they, indeed, are the prey.
Yes friends, the end-of-summer auto clearances are beginning in earnest as dealerships across the nation fight to “move metal,” making way for the 2014 model year. Dealers are dropping prices and manufacturers are ramping up a new batch of 0% financing deals on many current models.
There’s a whole lot of money floating in that new car smell and tucked tidily in the seats. Never forget, in the world of automobiles, the dealer wins by netting as much of your money as possible. Every deal point needs to be carefully thought out and vigorously negotiated. You win by knowing the rules of the sport and making them fight for every dollar.
While it’s true that getting a good price is a big part of the hunt, the biggest, most important, super-secret strategy to turn the stealth hunter (them) into the prey: stand tough and fight to maximize your dollar throughout the process.
If you are borrowing the money, the biggest ticket item will be your car loan. An astounding 80% of car buyers finance their vehicle at the dealership. Every one of them is a sitting duck for an aggressive salesman. Dealers have relationships with several banks, including the financing arms of manufacturers, and they earn a fee for every borrower they refer to the bank. The more money you are willing to pay for access to the money, the more money they make.
Getting the best auto loan deal is a two-step process. First, you need to check your credit report and score. You can use Credit.com’s free Credit Report Card to get your credit scores along with an overview of the information in your credit report. If you want to take a deeper dive, you can get a free copy of each of your credit reports, but that’s limited to once a year. If you want regular access to your credit reports, then you’ll likely have to subscribe to a credit monitoring service.
Once you have a solid handle on your credit history, the second step is to shop for a loan. Check with your credit union or bank, other lenders (both online and bricks and mortar) to find the loan with the lowest fees and interest rates. Cutting the dealer out of the process and being pre-approved for an auto loan could save you hundreds, possibly thousands, of dollars.
The invoice price
Once you have your finances ready to go, it’s time to negotiate the price of the car you want. Before you visit the dealership, do some research online to determine the invoice price -- i.e., what the dealership paid for the car of your dreams, wants or needs.
Secret: when the dealer buys a car from the manufacturer, there’s a “holdback” that usually equals 2%-4% of the total invoice price. Think of it as their vig. After the dealership sells the car, it receives that amount of money back from the manufacturer over the period of a year.
Offer less than the invoice price -- unless you’re buying a popular model, in which case the laws of supply and demand favor the dealership -- and then use the holdback to walk the price down to something you can live with.
If they give you a hard time about paying invoice, remember there is always another guy selling cars. Even if you drive off the lot without paying a single penny above the invoice price, the dealer has turned a profit. If the dealership won’t sell you a car for invoice, and it’s not a hot selling car, it’s their loss. You’ll find someone willing to do the deal with you. Keep shopping.
New cars come with various warranties. The dealer may try to sell you an extended warranty, often with fine print that will prevent you from actually using it should anything go wrong, according to Consumer Reports, which suggests ignoring such offers entirely.
If you’re buying a late-model used car with low miles, the dealer will offer you a warranty to cover future repairs. Make sure the original warranty is used up first. If it is, bear in mind that warranties offered are usually not great deals, written to cover only things that rarely break, such as the power train.
If you decide you want a warranty, shop around. Before you walk onto the lot, get a quote for a third-party warranty that provides the best coverage for the least money. Compare this plan to the one offered by the car dealer, and be prepared to walk away from whatever they offer. The dealer’s warranty is likely limited and overpriced. Ask what the warranty costs them, and offer that amount.
As surely as the sun rises in the east and sets in the west, the dealer will offer less for your trade-in than it’s worth. Maybe they offer expensive add-ons such as tinted windows, a better stereo, heated seats, a sports package, or etching the vehicle ID number into the windshield. Whatever the case, do your research beforehand to find out what these goodies should cost. Let them know that you know, and insist on cost. Negotiate the price of each item separately.
Car dealers are in business to make money. That’s fair. You have the responsibility to assure they make as little of that money from you as possible. By getting your loan first and then negotiating everything else separately, you’ll have a much better chance of getting the best deal.
More from Credit.com:
Just do your research prior to purchasing. Always check online to find a reputable dealer. Then make sure you have a reasonable budget and an idea of a vehicle you can afford. Also, hopefully you've saved up a good amount for a down payment. Finally, don't fool yourself into thinking you can purchase a vehicle at a good price if you have horrendous credit or none at all. Do your 'homework' first so you're not sucked into a 'scam'.
I just purchased a new vehicle in March. I had plenty for down payment, have great credit, and went to a good dealer knowing what I wanted and what I was willing to pay. We worked out a reasonable deal we both agreed on. I left with exactly the car I wanted and the dealer made a fair sale.
Car dealers are always the bad guys. So what if a bank is going to pay the dealer for sending them a loan. Indirect lending has better rates than direct. The car dealership does more buisness with a bank than a normal consumer. Car dealers have millions of dollars of loan with banks, do most consumers? Repeat customers always want a better deal. Well aren't the dealres repeat customers with the banks? yes they are. Profit is not a bad word. Everyone else gets paid to do there job, why should employees of a car dealership. I agree that a customer shouldn't be taken advantage of, but isn't the customer the best one to decide if they got a fair deal. If everyone wants the same deal then pay sticker. I promise you you will spend less time haggling at the dealership and more time enjoying you car.
Another expert! I run an Automomotive Internet Sales Department that has sold over 30,000 vehicles in the last 17 years. I give my customers a good price and I do make a profit. When they start playing games, I can do that too....and I'm better at it. Wanna buy a car? Ask for the invoice and make an offer.(Don't bother with limited production vehicles). Buy extended warranties when you need them, not up front.
Find out from you bank or your credit union/insurance company what rates they offer on auto loans, and if the dealer beats it, close the deal. You'll be in and out in less than an hour.
There are no other "secrets"
If you hate dealers, buy your car on the street. We can do without you.
As an automotive finance manager I do the best I can to offer customers the most options. The creation of some mythical demon, within dealerships, is ridiculous. For example, unless a customer specifically asks me for less coverage, the extended service plans I offer customers cover the identical components as the factory 36 month/36,000 miles warranty that comes with the vehicle. Basically this article is saying that anyone who buys an extended warranty is throwing away money. So the article should also suggest never buying life insurance, unless you plan on dying, and never covering your vehicle for collision unless you plan on getting into a lot of accidents.
Insurance is simply that, insurance. It is in case something happens. As far as interest rates are concerned, I process roughly $30,000,000 in loans on an annual basis. I can offer customers rates that are lower than any credit union.
As far as profitability, dealerships are a business. When you buy your Ipad for $829 and it cost apple $300 to make it, no one complains, but if a car dealer sell a $50,000 vehicle and makes $1,000 including our hold back everyone is in arms. The same vehicle that the manufacturer made $9,000 on selling it to the dealership.
The reality is, that everyone needs to make a living. Are there dealerships that do not do things the right way? Absolutely, but it is just bad journalism to make invalid points in a stereotypical manner. After all, the only way you make money is by writing articles. Who will read an article that suggests everyone pays the Manufacturers Suggested Retail Price?
One more thing. Don't ever use credit.com to find your credit worthiness. Try MYFICO.com . Know your true FICO score.
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