5 Ways New Car Dealerships Try to Rip You Off

[xchrom]

http://www.alternet.org/5-ways-new-car-dealerships-try-rip-you



1. Mixing negotiations. Most car shoppers are fixated on the amount they can spend each month for a car, and salespeople know this. It’s their hope that you’ll tip your hand as to what you think an affordable monthly payment will be. Oftentimes, they’ll even ask you what that figure is. Don’t fall into that trap, as a slick salesperson will use that number to pad in as much profit as he can for himself.

***SNIP

2. Marked-Up Financing. Car dealerships might make very little profit on the actual sales price of a new car, so they have to find other streams of revenue like selling used cars and repair and maintenance charges. But one common profit center is to offer in-house financing. What typically happens when you apply for financing through a dealership is that they take your loan application to several lenders to see what interest rates you qualify for. So, if the best interest rate they can find for you is 5%, they’ll come back to you with a rate that's between 2-4 points higher, skimming that extra interest right off the top and sometimes splitting it with the finance company.

***SNIP

3. The Spot Delivery Scam. Don’t ever take that new car home unless all the financing has been finalized. Some unscrupulous car dealerships use a “ spot delivery scam,” where they allow potential buyers to leave with the car they’ve chosen before financing has been finalized, only to call them up several days later to tell them the loan has fallen through. They then ask for the car to be returned, sometimes threatening repossession.

***SNIP


4. Unneeded Extras. Car dealerships like to add “dealer-installed options” to pad the price of the car, often doing so after a sales price has already been negotiated. This allows them to boost profits by adding things such as rustproofing, paint sealers, fabric protection, and VIN etching (where they scratch the car’s vehicle identification number into the windshield). Together, these add-ons can add hundreds, even thousands, to your bill.

[cbayer]

1. Best rules in my experience:

Never go in with your heart set on a particular vehicle.

Always arrange financing beforehand and not with the dealership.

Never take a trade in with you.

Always be prepared to get up and walk away if you are not getting what you want.

[xchrom]

2. +1

[cbayer]

3. I learned all of this the hard way, of course.

Good article.

[yeoman6987]

6. They were so pissed off with me after

Going through negotiations, I turn around and filled in my pre approved check from Navy Federal. I was never treated so different from that point on. I should have walked out, but it ended up a really good deal all around.

[tech3149]

11. Ohhh Yeeaaa!

They really hate when you just drop full payment in their lap.

[cbayer]

12. I have had that experience as well.

They assume you will need financing and make the deal based on that.

I'm not opposed to them making a few hundred dollars off me, but over the years I have become a very savvy car buyer.

[bhikkhu]

18. That sort of thing was always a mystery to me

years ago I was trying to buy a used car with cash (a zero interest advance on a credit card, actually). Just wanting to buy the car and drive it away, I figured I'd be the ideal customer, no fuss or problem. I had trouble finding anyone interested in selling me a car, and I walked out of two dealerships after trying for hours to be given a cash price on two cars I wanted to buy. It was bizarre; I wound up getting one from a smaller car lot that seemed really happy to give me a price, haggle briefly, then just get paid.

[ProdigalJunkMail]

9. excellent...

it only gets fun when you start to walk away. i had a salesman literally try to block my exit from the parking lot... and another that called me back the next day and asked something to the effect of "what if we could knock off another $3000?" WOW!

sP

[cbayer]

13. Exactly! They will call you back.

It costs them money every day that car sits on the lot unsold. Once they understand the deal you are willing to make and it makes them a little money, they will sell it to you.

Good for you!

[ProdigalJunkMail]

15. car buying is really stressful for some people

it feels too much like conflict to a lot of folk... but i kinda see it as a game. the cool thing about the game is, with a little time and effort both of you can win. you get a decent deal and the dealership makes a little dough, too.

sP

[cbayer]

23. In general, Americans don't like to negotiate and car salespeople take

advantage of that, imo. They know the customer is uncomfortable and it works to their advantage.

Once I figured out how to find out exactly what the dealership had paid for the vehicle, I loved the game. I added a couple hundred dollars to that and told them that was my only offer.

As you say, it's a win-win. They get to make a few hundred for very little work and I get a great deal.

[ksoze]

26. And is why the real robbery happens at the finance office

where the consumer is lulled into thinking the sale is over and lets their guard down. The F&I office is the last stand to regain any margin from the car sale and can be recovered in marked up interest rates, tire and detail packages, alarms, rust proofing and extended maintenance contracts all of which are at huge margins.

[cbayer]

27. Agree. That's why I only financed through a dealership one time.

I learned my lesson and have paid for every car since then with a check. Whether new or used, I will arrange my financing else where….

or, better yet, get only what I can afford to pay for up front.

[ProdigalJunkMail]

29. yep... get your financing before you go in...

but try not to reveal that until the price is the price... and stay away from all the 'goodies' you mention. hell, i don't even buy the floormats; i have recently had the custom made floormats that are rubber and keep all the gunk off the floor! they're awesome...

sP

[Boom Sound 416]

17. +2

[Logical]

21. Honda financing has always been equal or beat the 3 or 4 banks I have check with. So went with them.

[cbayer]

24. It's not that the percentage is necessarily higher, it's that

they make their deal with that on the table. That means you have to tell them what you can put down and what kind of monthly payment you are comfortable with.

I don't want any of that to be part of the negotiation. I want to make my best deal and just pay them outright.

[Logical]

38. Not in my dealings, just discuss the price of the car. nt

[cbayer]

40. I think that negotiating price for Hondas and Toyotas is much less an option.

[lumberjack_jeff]

32. The only times I feel I got a fair deal...

... was when, at the end of the month, I went to a lot far out of town and said; "I like this truck, I have cash, and I have to leave town at 2:00. Will you take (asking price x .8)?"

Cars are far better than they used to be. (In my area) They rarely rust out, and with few exceptions (*cough* ford trucks *cough*), adequately lubricated and cooled engines and transmissions last for hundreds of thousands of miles. I don't oversweat the test drive and I don't take it to a mechanic.

Better yet is to buy from a private party. They know what is wrong with the car and at least have to look you in the eye and lie to you, but most of the time, a seller will disclose what he knows.

[cbayer]

33. I agree with you about buying a used car from a private party.

Particularly since you can obtain accurate history on vehicles very easily. It is now quite difficult to lie about a car.

[ksoze]

35. Private party sales can also be problematic

Although generally they seem like a more honest and cheaper sale from a previous owner, they are harder to unwind if problems do exist. While dealer used cars do come with a price, they also generally come with some warranty and are easier to challenge if problems or issues occur. Obtaining an accurate history is also dicey, since services like CarFax and others only list incidents the consumer reports and many items are never reported. Many states also have a 30 day limited warranty for used cars sold at dealers, which can be invaluable as many problems can be detected early on. I have had both good and bad experiences buying from private parties - it is a questions of risk and price where the best deal can be found.

[cbayer]

39. Excellent points and I agree.

I may be mistaken, but I think the CarFax reports do include anything that involved the police or an insurance company. It is possible that you might not get an accurate history, but it seems unlikely. But the laws regarding are dealership are probably going to be stricter than those regarding an individual.

But then, there is always Judge Judy, lol!

[mnhtnbb]

4. Better yet? Avoid buying new cars

Lots and lots of places to find good quality, low miles vehicles.

[ProfessorGAC]

8. But, If Nobody Did

There wouldn't be those good used cars. BTW, we do exactly what you say, but everyone can't do it or there wouldn't be any more cars at all. I just sold a 2005 Sebring that had 220k on it. I bought it at 56k. Still ran great. So, i went and replaced with a much newer Sebring.

I'm a ragtop guy.

[Warren DeMontague]

5. Both Costco and AAA have arrangements with pre-negotiated pricing

Those are two good ways to buy a new car.

[phylny]

10. I just found out that USAA has it, too.

One of our daughters is working through them now (got her USAA insurance from us, due to my husband's service in the Army).

[JHB]

19. My entire family swears by the USAA pricing information, as done so for years

One is in a much better position to bargain when you can find out what all these items cost up-front, and how much is the dealer trying to snow you.

[ProfessorGAC]

7. I Think #2 Is Very Rare

Since most consumers drive by a bank every day that advertises interest, they aren't going to add 2% to a 4.2% alone because few folks with the money for a new car would accept a 6.2% loan when they KNOW they can do much better.

I haven't had a car loan in several years, but when we bought my wife's car at Carmax, they showed us the screen of lenders the moment it came up. We, of course, took the lowest rate and i know it was 0.2% better than at the credit union of which is was a member of the board of directors.

So, i think that one is a true mark of an unscrupulous dealership.

[ksoze]

14. Even a quarter of percent tacked on adds up for a dealer

It is common for dealers to mark up finance as a way to make up for the loss in margin on new cars. Even when manufacturers offer incentive or subsidized interest rates, dealers are encouraged and allowed to mark it up, sometimes with a limit by some makers. Enough quartre and half point tack ons can mean a sizable revenue stream over time.

[ProfessorGAC]

20. I Know I Was Exaggerating, But. . .

. . .your point doesn't change mine. There is plenty of advertising about car loan rates everywhere, every day. If people don't want to pay that 0.25% they won't.

[ksoze]

25. Consumers become light headed when buying

The final trip to the F&I office after closing the deal with the salesman is the magic moment for the dealership to make up for anything given away on the showroom floor.

With the brand new car being prepped just feet away, many consumers can become easy marks when their guards are down thinking the negotiating is over. It is at that time when selling a marked up interest rate can be buried within the pressure to get to the new car to drive off and fend off the numerous add-ons that are sold by the finance department. Although many know what the going interest rates are, many more are easily sold a rate which may only a a tad off a rate they may have seen and which could be shielded by the terms, which is gold to the dealerships margin. The uneducated consumer unfortunately greatly outnumbers the buyer armed with current rates, invoice prices and manufacturers incentives and hold backs.

[ProfessorGAC]

44. We Will Have To Agree To Disagree

You're making an assumption that this happens to everyone or the vast majority. I don't think that's true.

[dumbcat]

16. That's why I always use a buying service

For the last 30 something years I have always bought new cars by going through a buying service. I now can do all my investigating, selection, negotiating and nailing down the price on line. Then I go to the dealer and tell him what I will pay. I usually drive off the lot in less than 45 minutes.

I've done that with the last seven vehicles I bought. I usually keep them for about 10 years or so.

Works for me.

[vanlassie]

22. Buying service like AAA? Or are there other kinds?

[dumbcat]

28. I use

USAA Buying service. USAA is a military centered insurance and financial services member based association. I have been a member for 44 years. But there are others.

[vanlassie]

31. Ah. Great idea. I may try with AAA since no military.

Thanks!!

[Johonny]

30. Unneeded Extras !!! Such B.S. they try to get away with

I remember buying my Prius and they wanted me to "purchase" these things on my pre-owned "used" car. I said no. They kept at me for a half hour to fork over the money for them. The thing is... the car already had all this installed. They were trying to charge me a service fee for stuff they had already done when the car was new. When I picked up my car I was like "WTF they were going to charge me another 300$ for VIN itchings that are already on my windows!" I haven't been back to that dealer since driving my Prius off the lot.

[JCMach1]

34. Bought a used car lately...?

Hard to find a traditional seller. Most are marked way beyond Blue Book value and are sold through a rip-off finance system.

[roamer65]

36. Do your homework, go in with a budget and stick to it. N/t

[customerserviceguy]

37. Timing is also an important part of the negotiating process

Remember the end of 2012? Congress was deadlocked on a new tax law until the very end. We had no idea if negotiations would completely fall apart, and tax rates might have jumped for everybody, not just those in the top brackets. If that had happened, a lot of people would have held off on buying new cars, and the dealers would be sitting there with some 2012-marked inventory deep into 2013.

I picked that time to negotiate $1150 off the sticker price, $1000 trade in for my ten year old Elantra with 144K miles on it, $2,500 in rebates, and zero percent dealer financing for sixty months on a 2012 Sonata Hybrid, with only $600 cash down. Yes, according to the KBB, the trade in value on it is a bit less than I owe on it, but with only three and a half years left on the financing, I should be above water on it before very long. And as I'm going to keep the car for at least ten years, I'll be in great shape for half of that time, stowing away the car payment in a savings account. Also, that hybrid saves me a bundle on gasoline, even with the price of gas being cheaper than I expected it would be at this point.

[Warpy]

41. My little Kia came with AC standard

which is a good thing because driving in the desert is miserable without it.

The runner up car was a Focus. To get AC, you also had to accept a "package" of extras I really didn't want because most of them were things that were likely to screw up over time.

If car manufacturers would dump the "package" idea, they might sell more cars.

I've been quite happy with the Kia. I might get another one on its tenth birthday.

[ksoze]

42. There are cars without standard A/C?

I would think it would be difficult to find a non A/C car these days.

[Warpy]

43. I spent the first 15 years out here without it

Pickups were fine without AC as long as they were moving.

But yes, people don't use it in a lot of the northern part of this country. It was rare in New England. I imagine it's rare in the PNW.

[ileus]

45. only 5....

Someone hasn't bought a car lately.

Around her we still have dealer markup on the sticker.
They'll hose you on your trade in.
They'll hose you on the price of the vehicle.
They'll hose you on the interest if you let them.
They'll hose you by adding extended warranties if you let them.


Then they hose you every trip back for recommended maintenance.



Does anyone know if they still get a 3-5% kickback from the car company on the sale of a new vehicle? I know the big 3 used to do it...

[ksoze]

46. Hold back rates...

Make and Holdback for USA dealers
Acura 2% of the Base MSRP
Audi No holdback
BMW No holdback
Buick 3% of the Total MSRP
Cadillac 3% of the Total MSRP
Chevrolet 3% of the Total MSRP
Chrysler 3% of the Total MSRP
Dodge 3% of the Total MSRP
FIAT 3% of the Total MSRP
Ford 3% of the Total MSRP
GMC 3% of the Total MSRP
Honda 2% of the Base MSRP
Hyundai 3% of the Total MSRP
Infiniti 1.5% of the Base MSRP
Jaguar No Holdback
Jeep 3% of the Total MSRP
Kia 3% of the Base Invoice
Land Rover No Holdback
Lexus 2% of the Base MSRP
Lincoln No Holdback
Mazda 1% of the Base MSRP
Mercedes-Benz 1% of the Total MSRP
Mercury 3% of the Total MSRP
MINI No Holdback
Mitsubishi 2% of the Base MSRP
Nissan 2.8% of the Total Invoice
Porsche No Holdback
Ram 3% of the Total MSRP
Scion No Holdback
smart 3% of the Total MSRP
Subaru 2% of the Total MSRP (Amount may differ in Northeastern U.S.)
Toyota 2% of the Base MSRP
Volkswagen 2% of the Base MSRP
Volvo 1% of the Base MSRP

[ileus]

47. Lincoln zero but ford 3%...interesting.

[Blue_Tires]

48. The idea of a car dealership needed to DIE at least 10 years ago...

Especially in this era where you can buy anything else online direct from the manufacturer...

The intense lobbying from the NADA and chamber of commerce cronies is the only thing keeping this fatally flawed business model afloat...