9/14/2011 6:04 PM ET|
5 things car salesmen won't say
Consumers are arming themselves with information before buying new wheels, and the folks at the dealerships are responding with a few new tricks of their own.
Buying a car can be a phenomenally complicated -- and expensive -- experience. As buyers have gotten savvier about researching and negotiating their purchases, dealerships have gotten sneakier about building in traps that may force you to pay more.
Here are a few to watch out for:
1. "I'm getting a secret incentive to push this car."
Most dealer and manufacturer incentives aren't hard to uncover. Rebates, low interest rates and other inducements are often advertised or easily found with a little research on car sites such as MSN Autos, Edmunds.com and others.
Harder to sniff out is an enticement known as dealer cash. That's a payment, typically of $500 to $2,000, that manufacturers quietly make to dealerships to sell certain slow-moving models.
"It's never advertised," said Philip Reed, a senior consumer advice editor for Edmunds.com. "They try to keep it a secret."
Dealership cash is different from a payment known as the holdback. The latter is a percentage of the car's sticker price (usually 2% to 3%) that the manufacturer pays to the dealership after the car is sold. Not all manufacturers pay holdbacks (Edmunds has a list of which ones do and don't), but it's a form of secret profit that allows dealerships to make money even when they sell a car at invoice.
Dealerships view holdbacks as pretty much untouchable, Reed said. Car dealers think of it as "their" money and aren't willing to give up or share any part of this payment with buyers. The main reason it's good to know about holdbacks is so you can counter the salesperson's phony lament that "we aren't making any money on this deal."
Dealer cash, on the other hand, is up for grabs -- as long as you can find out about it. Edmunds.com lists dealer cash arrangements in its incentives and rebates section, under the heading of "manufacturer to dealer." If you're interested in a particular car, though, you might also want to call a few dealerships' Internet departments to discuss pricing.
If you ask "How much is the dealer cash on this?" rather than "Is there dealer cash on this?" and ask several dealerships, you'll probably get a good idea of the amount available, Reed said.
2. "Sticker shock is built into this deal."
Invoice pricing -- what the dealership pays the manufacturer for a vehicle -- is no longer a secret, said Brandy Schaffels, a senior editor for TrueCar, a new-car pricing service. Buyers can find invoice costs on a number of websites, and many customers focus on negotiating a deal as close to that cost as possible.
What buyers forget is that there are additional costs that can add thousands of dollars to a car's price -- costs that can't be negotiated away.
At the very least, there will be licensing, registration and title fees mandated by your state's department of motor vehicles. These fees are often based on the sales price of the car. Most states also have sales taxes on car purchases.
Early in your negotiations, you should ask what these fees will add to the purchase price so that you can negotiate with those in mind, Schaffels said.
You also may face "documentation fees" that cover the administrative costs of processing the paperwork involved with your purchase. A few states set limits on documentation fees -- in California, it's $55 -- but others don't.
"In Florida, for example, documentation fees can be another $1,000 on top of the price of the car," Schaffels said.
Though these may sound like junk fees, they aren't, Schaffels said, and you typically can't negotiate them directly. State laws usually require dealers to post the same documentation fee on all purchases. To reduce the fee could trigger a class-action lawsuit that would require a dealership to refund fees for every buyer, Schaffels said, and that could put it out of business.
What you can do, though, is ask for a lower sales price to help offset these fees. And it may help to focus your negotiations on the "out the door" cost -- the total price, including all required taxes and fees, that you have to pay to get the car.
What you don't want to do is strike a deal without considering these costs, then wind up with an unaffordable car once they're added in.
3. "You'll get a better deal from the Internet department."
Most car shoppers use the Internet to do at least some of their research. When it's time to buy a car, though, the majority still head to dealerships to match wits with salespeople.
What people typically don't understand is that the car buying is more transparent, and salespeople have more authority, in the dealerships' Internet departments, Reed said. You don't have to cool your heels in a salesperson's office for 45 minutes while he or she "checks with the boss" on every aspect of your negotiation.
The Internet department salespeople know what the bottom-line prices are for the cars they sell and usually are authorized to cut deals without checking in with superiors.
You can take advantage of this setup in two ways. From the comfort of your home, you can solicit lowest-price quotes on a car from a bunch of dealerships at once. Or, if you insist on going to a car lot, you can simply ask for the Internet department when you walk through the doors and skip the usual hustle.
4. "Knock yourself out negotiating a good price; I've got plenty of other ways to skin you."
Price is just one of the many moving parts of the typical car deal. Three other important factors are:
- How much you get for your trade-in.
- How much you'll pay for financing.
- Whether you'll fall for any of the expensive add-ons that dealerships like to sell.
The add-ons -- paint sealant, car alarms, rustproofing, gap insurance and so on -- are huge profit centers for dealerships, Reed said. For example, a dealership might charge $300 for "fabric protection" that you could do yourself in a few minutes with a $5 can of Scotchgard.
"I can't think of anything that's an add-on that you couldn't do better (on price) by getting it later, on your own," he said. "The one exception may be the extended warranty."
Consumer Reports has long warned against buying extended warranties on most products, including cars, saying they're expensive protection against unlikely repairs. But some buyers like the security of an added layer of assurance, Reed noted. Still, you may be able to get an extended warranty for a significant discount by shopping around.
You also should know the trade-in value of your current vehicle so you don't get lowballed. Most car-comparison sites offer some kind of appraisal calculator; use a few different ones so you have a ballpark idea what your car is worth. If you want to get the maximum value for your car, you should sell it yourself, but you should compare the typical "private party" sale price to the trade-in value to decide if it's worth the hassle.
One simple way to boost the value of your trade-in is to make sure it looks good.
"Taking it to a car wash on the way to the dealership can do a lot for the value of the vehicle," Schaffels said.
If you aren't paying cash for your car, you should know that dealerships routinely mark up the interest rates on the loans they get from their warehouse lending sources.
To make sure you get the best deal, arrange a loan with your credit union or bank before you step onto the lot. If the dealership can give you a better deal, you can cancel the other loan. If not, you'll at least have financing at a reasonable cost.
5. "That great deal we advertised? You won't get it."
You typically have to have good to excellent credit to win those low-interest loans that dealers and manufacturers advertise. Exactly how good your credit needs to be varies by the deal and often isn't disclosed in advance.
Equally elusive may be the base model of any car design. Manufacturers may tout the low cost of a new car, but chances are, they're citing a stripped-down model that you're unlikely to find at any dealership.
"The dealerships aren't going to have the base model on the lot," Schaffels said. "That's just a teaser to get you in the door."
You can always order a stripped-down model, of course, and then wait six to eight weeks for the vehicle to be delivered. But Schaffels said dealerships are less willing to dicker on custom-ordered cars than they are on the vehicles already on their lots.
Likewise, most manufacturers have "build your dream car" features on their sites, but just because you design a certain configuration of features doesn't mean you'll find your ideal car on any lot. You'd be smart to figure out in advance which features are must-haves and which aren't essential, with the idea of avoiding vehicles that have a bunch of unwanted features inflating the price.
As always, the key to a smart car purchase is to do plenty of research before you ever talk to a car salesperson.
"The more prepared you are before you go shopping," Schaffels said, "the better off you're going to be."
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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