Few shopping trips are as challenging as when customers visit a dealer to buy a new car. Besides the fact that it’s one of the most expensive purchases most people will ever make, there is also the matter of the transactions being very intricate, especially if they involve financing (a record 84 percent of which now do, according to Experian Automotive).
The complicated nature of new car sales enable unscrupulous dealers to take advantage of their customers. Thankfully, many dealerships operate fairly and are not interested in ripping off their clientele.
That said, it’s almost impossible for average consumers to know whether or not they have been swindled, unless they educate themselves about the process. That’s where Dealspotr comes in. We’ve highlighted several classic tricks car dealers use to try and artificially inflate the price. See them listed below:
Unlike many other items, the pricing structure for cars is very complex. There is a Dealer Invoice, a Factory Invoice, a Manufacturer Suggested Retail Price and the actual Sticker Price that the customer sees. Basically, dealers can charge pretty much whatever they want for any particular vehicle and it’s up to the buyer to negotiate a fair deal. The Dealer Invoice price is unlikely to be shared with the consumer, but is usually the break-even number for the dealer. Any buyer wants to get as close to that number as possible.
A common technique dealers use to make buyers think they are getting a deal is that they advertise fabricated discounts. For example, a dealer may claim that the customer can get $2,500 off a new sedan in a commercial. In reality, that means absolutely nothing, because the original price that the dealer sets is completely arbitrary.
In almost every case, the dealer needs to sell the automobile more than the customer needs to buy it. This gives the prospective buyer significant leverage in the negotiation. All too often, however, consumers forget they have the edge. This is because dealers are masters of flipping the script and making the patron feel powerless. They do so by using a variety of techniques designed to stress and pressure customers.
If consumers begin to hear things like “the prices is only good for today,” “it’s the last one left and someone else is also very interested,” or “we only have the more expensive model in stock” then they have a choice. Either they can just leave the dealer and conduct business at a dealer that won’t behave that way or they can play hardball and stick to their guns.
This is an especially sneaky way that car dealers like to make a few extra bucks. The unnecessary options are relatively easy to spot as long as the customer is paying attention. Buyers might like fancy rims or mood-lighting, but they aren’t worth spending thousands of dollars on as options, no matter how “cool” the salesman tells the patron they are at the moment. Same goes for leather vents or granite trim.
Likewise, there are other options that might be very useful, but are ridiculously jacked up in price. Don’t get caught napping by paying way more for stuff like a CD changer, car alarm or power steering. These options come standard with a lot of cars and shouldn’t cost an exorbitant amount.
Many consumers don’t realize that they can purchase warranties and services outside the dealer. Most new cars include some kind of manufacturer warranty, usually for five years or 60,000 miles, and some are actually very good.
If customers aren’t comfortable with the warranty that comes with the car, they might want an extended warranty or a more robust one. Dealers love pitching these, though, so beware. If the warranty consumers are being offered costs more than most repairs they would ever expect to have done in that time frame, then it’s best to go ahead and pass. Consumer Reports found that most warranties don’t end up being worth the money, especially if they are made part of financing.
Don’t fall into the services trap, either. A package promising car wash services for the interior and exterior of the vehicle might sound awesome, but if the fine print shows a ton of exclusions for when customers can use it, then they might end up paying $600 just for some car cleaner.
There are so many prices thrown around when a car negotiation takes place that it can be challenging to keep track of what’s what. Sneaky car dealers will try to use this to their advantage by employing the “4 Square Method”.
Basically, what it means is that the dealer will try to confuse customers by throwing out a rapid series of numbers like the sticker price, the negotiated price, the down payment, the monthly payment, etc. in hopes that they’ll settle on a higher purchase price.
Once buyers shift into the financing side of the transaction, there are a whole host of other ways that some dealers look to exploit their customers. One of the primary ways is by charging sky high interest rates on the loan. If they do their own financing, then they stand to profit by charging as high an interest rate as possible. They can also benefit from this if they have an agreement with a local loan servicing company or bank and get a kick back.
Shoppers should research a site like BankRate.com to find out the current interest rate trends. If a shopper has a good credit score then they should never accept an interest rate worse than the general trend and should probably expect a better one. Even those people with lousy credit scores, though, should not permit the dealer to charge too much more than the trending number.
First of all, these are typically only offered through the manufacturer’s finance division, so if a dealer is trying to promote a zero-interest loan that doesn’t have the backing of the manufacturer, then the customer should immediately just walk away. That said, there are lots of legitimate no-interest loans available as part of manufacturer promotions, but as Auto Trader points out, they are often only available to buyers with excellent credit. Even then, they aren’t are always the best choice.
It’s incumbent upon the buyer to do the math and figure out if a no-interest loan is a good deal. Usually, no-interest loan offers are accompanied by much higher prices on the car itself. It doesn’t make sense for manufacturers or dealers to offer no-interest loans in addition to huge discounts on the overall price.
If the customer plans to pay the loan off relatively quickly, then it makes more sense to skip the no-interest loan and get a lower price on the car, but if the customer plans on having a long-term loan then the no-interest option is sensible.
From the dealership’s perspective, the monthly payment for a car is somewhat inconsequential. They are going to get paid regardless of the increments. For the buyer, however, the monthly payment can be a huge difference-maker. This gives the dealer a rare opportunity to have leverage over the customer.
Dealers love to approach customers with really attractive monthly payment numbers, but the trade-off is usually a much longer loan. This practice has become more common in recent years, according to another Experian Automative study reported on by The Wall Street Journal. In reality, the dealer is often charging more for the car, but is trying to make customers feel as though they got a good deal because their monthly payments are smaller.
One of the most valuable chips a buyer can play in a new car negotiation is the trade-in. A trade-in is the existing car that a customer is willing to sell to the dealer as part of the transaction for getting a new car.
Dealers prefer to downplay the value of trade-ins, though, because they stand to gain a lot if they can get a used car for a fraction of the price it would go for on the open market in addition to selling a new car. Managing trade-in talks can be tough for many buyers because it forces them to balance two significant negotiations at once (the new car and the trade-in) and as trained professionals, dealer salespeople tend to like their odds the more negotiations they are able to involve a customer in.
