This article is courtesy of SmartMoney.com
1. “These cars cost me less than you think.”
As car dealers try to move inventory off their lots, consumers can exert more leverage in their buying power and try to negotiate the lowest price possible.
And, with online buying and selling, consumers can arm themselves with more research before making an offer: Car-buying sites like CarsDirect.com provide a car’s invoice price and the manufacturer’s retail suggested price (or MSRP), and consumer information hub Edmunds.com even lists cars’ invoice prices with various options.
What’s more, “holdback” allows dealers to pay up to 3% below invoice for vehicles. Here’s how it works: The dealer buys the car from the manufacturer at the invoice price. Then after the car is sold, the manufacturer reimburses the dealer for the cost of keeping it in inventory for 90 days. When a dealer sells the car faster than that, part of the holdback payment becomes pure profit, even if the car is sold at invoice price. “You’ll never get holdback money back from a dealer,” says Burke Leon, owner of BL Auto Enterprises, a Fullerton, Calif.-based dealership that sells nearly-new off-lease cars, and author of The Insider’s Guide to Buying a New or Used Car. But just knowing about it can help when a dealer whines that he can’t meet your price.
2. “Our lenders aren’t as tough as I’ll make them seem.”
Some car dealers will try to pass the buck regarding pricing and sales tactics. One common trick: Blame everything on the lender. For example, some dealers who don’t want to give you the price you’re asking for may tell you that the leasing company requires all deals to be based on the sticker price, says Mark Eskeldson, founder of CarInfo.com, which provides consumer-protection advice to car buyers, and author of What Car Dealers Don’t Want You to Know. That probably isn’t the case, since lenders can’t control a car’s price.
Likewise, some dealers will try to sell you an extended warranty, claiming that the lender requires it. Don’t be fooled. In its online “Facts for Consumers” report on auto-service contracts, the Federal Trade Commission tells car buyers to watch their backs: “If you’re told you must purchase an auto-service contract to qualify for financing, contact the lender yourself to find out if this is true.” The FTC also says that some people have had a hard time trying to get out of a service contract they signed up for thinking it was a standard requirement for their car loan—another good reason to ask questions before any papers have been signed.
3. “You could probably get this car cheaper on eBay.”
One of the biggest threats to bricks-and-mortar car dealerships today is direct sales over the Internet. Nearly one in four consumers looking to buy a late-model used vehicle went online to buy a car in 2007, a 44% increase from 2006, according to the most recent report by J.D. Power and Associates. EBay Motors alone has helped consumers sell more than 3.5 million cars on its website; That’s not surprising since as of January 2010, 21% of all online automotive minutes are spent on eBay Motors, according to the Nielsen Company. What might come as a surprise is the fact that car shopping on the Internet is saving consumers money — an average of $1,794 per purchase, according to J.D. Power.
Dealerships have been slow to catch on to the trend, but more are recognizing the value of promoting their brand online. FordDirect, for example, is a joint venture between Ford Motor and Ford dealers aimed at promoting Internet sales. Sales from FordDirect Internet referrals totaled more than 229,000 in 2009, a 7% increase over 2008 sales; this represents over 19.3% of total Ford retail sales, up from 15.5% in 2008.
4. “The old bait-and-switch is alive and well.”
It’s a tried-and-true tactic: You walk onto the car lot, your heart set on a certain model, but immediately, the salesperson starts ticking off all the reasons why that model simply isn’t good enough for you. Before you know it, you’ve signed on for something bigger and better and, naturally, more expensive.
These tactics can result in drivers signing up for leases so that they can afford the monthly payments on an expensive car, says Eskeldson.
Another problem is that car buyers often think they’re showing up at the lot with tons of information they found online that they can use to negotiate – but often that information isn’t helpful, says Phil Reed, an editor at Edmunds.com. Knowing the invoice price of a car, he says, isn’t enough since it isn’t in lockstep with the car’s true market value. True market value pricing takes into account several factors, including a car’s current inventory levels – the higher they are, the more willing a dealer will be to negotiate – the local market sale conditions, hidden pricing details (i.e., all those extra fees that get added on before you sign the contract) and available rebates and incentives.
5. “I’ll give you a great price—and then lowball your trade-in . . .”
If you’re trading in an old car, Leon explains, the dealer’s greatest potential for profit lies in giving you the lowest possible value on your trade-in. How come? Most people have no idea what their car is worth, and besides, you’re less likely to play hardball on this point when that new car is much more interesting. “They get you involved in loving the new car,” Leon says. “And your old car seems kind of punk in comparison, so they ‘do you a favor’ and get it off your hands.” For this reason, Leon recommends always settling on a trade-in price before considering a new or even a used car, despite the conventional wisdom of doing it the other way around.
Reed went undercover as a salesman in two Los Angeles-area dealerships and then wrote about it for Edmunds.com. During three months he saw firsthand how much money can be made in used car departments. One day, he says, he watched a man drive into the dealership’s parking lot, scurry over to the used cars, and then rush back to his car. “He said he had just traded in his Chevy Cavalier here,” Reed says, “and wanted to know what they were selling it for.” The discouraging answer: While the customer had gotten $5,000 for the car, its asking price on the lot was $12,000.
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