Buying a Car or Selling Your Soul? Top Tips to Avoid Losing Your Ass at the Dealership
By Alexander R. Tipton
Buying a car can be incredibly time consuming, infuriating, expensive and even ethically questionable. Some people can’t stand going to a car dealership, wading through all the hoops just to get something new. Once a relatively enjoyable experience, buying a car has become a maze of trial and error in recent years.
Through many years and multiple car buying experiences, I can attest to how the experience is anything but simple. This is especially true for anyone that wants a good deal.
Getting the Best Deal
First, I’ll explain how the process works and why it’s so complicated. Only then can we understand how to navigate the trials and tribulations of such a purchase. More importantly, understanding provides us the ability to get the best deal when buying a car. A vast majority of car buyers buy at dealerships which is where we will start. There are other options, however, which we will cover.
Car dealerships rarely give anyone a good deal. In fact, they use a number of tactics to ensure customers don’t.
To start, all dealerships exist to make money. It is a business after all. No matter what they say, what numbers they show you, or how much you negotiate, the dealership is likely making at least 2,000 dollars on you. At a minimum.
However, they know that consumers want to get a good a deal. The primary goal of any dealership is to reinforce the belief that they are. Customers want you to hear, “you are getting a great deal, and we didn’t make any money on you.”
There are countless tactics that dealerships use to make money while making buyers think they got a good deal. I have seen and navigated them all on many occasions. Through recognizing such tactics, negotiating, and knowing when to walk away, you can get a good deal. You can put your chances at the absolute highest to get an above average “good deal.”
How? Read on.
Car Salesmen Tactics
The Sucker Price
The first tactic comes before a customer is even on the lot. Both new and used cars are always given a price. New cars have an MSRP (Manufacturer’s Suggested Retail Price). Used cars have what I call the sucker price. These prices are never what the dealership intends to actually get for the car. They exist entirely to create the illusion that the price is a good deal.
Discounted prices are displayed with slashes through the MSRP or sucker price. This is often tied in with language like “Sale Price,” “Employee Pricing,” or other terms that imply a good deal. Dealerships are even moving to “call for special price” or similar language. This gives them a vibe on what you’re willing to spend before telling you the “sale price.”
At the negotiation table, dealerships use this sucker price as the starting price when discussing cost. They like to make the argument that they have already come down X dollars, when in reality the sale price should be their starting price in all negotiations.
Trade Overvaluation
Another common tactic is trade overvaluation. This is where dealerships offer you a high market value for your trade, but overcharge you for the new car. Dealers factor the value you gain into the overpriced profit they gain.
This leads customers to believe they made it good on their trade, when in reality the dealership gave them almost nothing. Instead, you receive an overpriced car that simply absorbed the value you supposedly received.
Trade Undercutting
Opposite to trade overvaluation is trade undercutting. This is when dealerships undervalue your trade, but they “make up for it” by giving you a good deal on the new car. This too provides the perception that you’re getting a good deal. In reality, the dealership is simply recouping their losses on the other end.
A smart way around either of these trade tactics is to ask for a buy straight up appraisal. This way you can find out what the dealership would pay for your car without the sale. This therefore can provide information on what to expect in a true exchange. It also helps set realistic expectations and prepares you in advance of negotiations.
Kelley Blue Book or True Car can give you an indication of the value of your trade. However, unless you are being undercut, the value the dealer gives you is typically the lowest price range. This is one of many reasons selling an intended trade vehicle privately almost always pays off more.
The Confusion Tactic
A common and more obvious tactic is when dealers use confusing numbers. This tactic is easy to spot in most cases, especially when dealers speak in terms of payments rather than price or interest. You’ll hear phrases like “What do you need the payments to be? I will earn your business.”
This tactic doesn’t save customers any money. In fact, it’s more costly in the long term.
In this case, the dealer will simply tack on time to the loan to make the monthly price fit. Most customers want five or six year loans, but dealerships might offer seven years to lower the monthly price. Over the life of the loan, a seven-year term will cost considerably more in interest. This doesn’t even take into account the fact that interest rates are typically much higher for seven-year terms versus five or six.
Interest Rates- A Warning
The concept of interest brings up an entirely different concern. Interest is how the bank or loan provider makes money on your loan.
The interest rate determines how much money, in addition to the amount borrowed, needs to be paid. In most cases, the longer the loan, the higher the interest rate.
Some of the best interest rates are offered as incentives to buy new cars, but these change from month to month. Some even offer zero interest, which is one of the few good deals that coincide with buying a new car.
Always consider interest rates when buying a car, both new and used. Seven year loans typically have the highest interest rates and end up costing vastly more in the long run than any other financing options.
Leasing Instead of Buying – the Biggest Hidden Scam in the Industry
Another tactic dealerships offer is leasing. This option is often $50-$100 less per month than buying a car outright, depending on the car. The trouble is that lease terms are generally for three years and during that time, customers pay nearly 50% of the car’s value, yet will not own the car at the end of the term.
I’ve noticed dealerships like to use confusing language and avoid direct questions about interest, depreciation, value, and trading/selling the car after the term ends. Oftentimes, the math simply doesn’t add up.
In many cases, the cost of buying a car over 5 years is less than paying for half the car as a lease and getting nothing from it over 3 years. In all my years of buying cars, the only person to tell me a lease was a good idea was the car salesman trying to talk me into it.
This tactic is most often used when a customer cannot come to an agreement on price or monthly payments. The leasing option is brought up “as an option for lower payments.” I’ve most often seen the tactic used to encourage people who may not be able to afford to buy a vehicle to lease it instead.
On a positive note, leasing does work for a rare minority of buyers. If a buyer can easily afford the monthly lease, intends to upgrade the car every 3 years, and doesn’t mind being locked into the arrangement until the end of the term, then leasing could be beneficial. However, leasing is still usually more costly over the long term, especially when you consider value.
The Role players
Most car dealerships take their tactics to a personal level by utilizing a series of individuals that buyers must navigate in order to make a successful purchase. Each of these individuals is specifically trained to optimize profit for the dealership. Some dealerships are moving to a one person sales system as most customers prefer it, but the status quo is still to use such role players. It is important to be ready for each one throughout the process.
The Salesperson
This person is the face of the business. They greet the customer when they first walk on the lot. They have zero authority over pricing, interest, and payments. Their entire job is to show a customer the car and do the paperwork… and collect their commission, of course.
The Closer
This is the “manager” or “boss” that the salesperson runs back to when customers get to the negotiation table. This is the person that you, the customer has to convince to get the deal you want. After all, the closer knows what the deal will make the business, and whether or not it will break the bank.
I have never completed a car purchase in my life without having to go through a closer. This is the person who will use nearly all the previously mentioned tactics and will attempt in all ways possible to maximize their profit on the sale.
The Warranty Specialist
Car buying tactics don’t stop once a deal is reached. Enter the warranty specialist. This individual makes the dealership more money than any of the other role players.
The warranty specialist enters the scene after the deal is made and a price is agreed upon for the vehicle. Just when your guard has lessened, and you believe the negotiations and hard decisions are over, the dealership unleashes their best role player yet.
The warranty specialist tells you about all the “extras” you must have. These include extended warranties, but range to items like clear-coat covers, and leather or electronic protection plans.
Unfortunately, many customers are talked into buying unnecessary warranties and coverage, especially considering the bumper to bumper warranty many new cars come with. Even if you buy an used vehicle with no factory warranty, you can still purchase an extended warranty for cheaper than the dealership, if you so desire.
Many of us have gotten the spam phone calls and letters offering such warranties. The dealership is simply a more expensive route to acquire such coverage.
The warranty specialist is tasked with raising the final price as much as possible, enabling the dealership to further compound their profit margin on the sale. In my experience, it is best to tell the warranty specialist no to all other offers or deals once you have agreed upon the price of the car.
What Is A True “Good Deal?”
A true win, when buying a car from a dealership, is an all-in scenario. In this scenario, the dealership has covered only their core costs like business overhead, including paying the staff, keeping the lights on, etc. “All-in” means the dealership makes money, but no additional profit or bonus from your purchase. This is typically the best case deal you can get on a car purchase.
Strategies for getting an all-in scenario (i.e. the best deal on the car).
Be Willing To Walk Away
If a customer is hellbent on buying a specific vehicle then it is more difficult to walk away from a bad deal. It’s also easier to agree to unfair terms.
To avoid this trap, recognize that the vehicle is one of many produced, unless it’s a rare classic, and that a similar deal can be found elsewhere. Remind yourself that buying the car does not have to happen at that specific moment. After all, shopping around rarely causes customers to regret walking away.
Sometimes it’s helpful to let the salesperson know the price just isn’t what is desired. In this case, you can simply walk away and leave them a number to call if they change their minds. You might even casually mention that you’ll be checking out the same car on another lot.
Nearly 100% of the time the salesperson will at least make contact and try to bring you back with some enticing new numbers. This strategy once saved me $800.
Know What You Want To Spend
Know what you can afford and stick to the limits on what you’re willing to spend. Don’t allow salesman to wrap you up in nickel and dime tactics to spend “just a few more dollars.”
Set your limits on price/payments/term/interest ahead of time and stick to it. Salesmen will always try to get you to spend “a little more.”
Call The Dealer Out When They Use Tactics
If you notice any of the tactics used in this article, you should call it out right at the negotiation table.
If a closer realizes that you know the business then they will be less likely to waste time and more willing to get to the bottom line.
Make The Deal Late
The very best time to buy a car is the last couple days of a month. The best time of year is December, especially for new cars.
Dealerships often push to make a sale during these end of month/year periods and are often more willing to negotiate in order to move the maximum amount of inventory. After all, cars that sit only cost the dealership money.
The week after Christmas is hands down the most effective time of year to buy a new car, if you’re looking to get a good deal. This is also when previous models are on their way out. Oftentimes, dealerships will wholesale price last year’s models, or come close to it to make room for new models.
Keep Financing In Mind
Interest directly impacts how much a car costs. There is a massive difference between 1.9% and 4.5% financing, especially if it is a five-year versus a seven-year term.
If you have good credit, there is no reason you shouldn’t qualify for the lowest interest available. Remember that every year on the term of a car loan will likely cost hundreds to thousands of dollars in interest.
If you can get an all-in deal on a vehicle with 0% financing, then you will have received one of the best deals in new car shopping. Such a deal is difficult, but not impossible to obtain. There are various strategies to get a dealership to go all-in. There are even situations where doing better than all-in is possible, especially if 0% financing is on the table.
Car buying should be fun and enjoyable. Remember, spending thousands of dollars should not be a nightmare. If it is then walk away! Let the salesperson know the experience was frustrating. There are many other dealerships.
Avoid The Dealership
The dealership will make money on each sale. One of the best ways to avoid that loss is to look at alternative routes to buying a car.
Private Party
The simplest and most common method is to buy a private party vehicle. That is, buying a vehicle from another person who owns the car without involving other companies or individuals.
This option typically saves 10% to 25% in price over buying from a dealership. For example, a vehicle typically priced around $10,000 at a dealership can usually be bought for $8,000 from a private party.
The seller wins as well, because the dealership may have offered them $6,000 in a trade. They make an extra $2,000 by selling private party and the buyer saves $2,000. The savings for both parties generally goes up along with the price of the car.
Internet Car Sales
A new trend gaining traction is purchasing cars from nationwide companies that deliver them. Some of these companies allow you to pick cars up at local spots or even car vending machines.
These companies buy cars at wholesale and sell them to consumers for a little over the purchase price. Their overhead costs are lower, and those savings get passed along to the consumer. Companies like Carvana and Carmax are two big names in the industry and others are joining the field.
The downside to buying a car from an internet sales branch or private sale is less protection for the buyer. In general, used cars are riskier to buy than new, but dealerships are held liable under lemon laws and other public safety standards. However, private sales are not held to similar laws.
When considering risk, internet sales companies fit somewhere in the middle. Vehicle quality is not always easy to determine, but these companies typically specialize in lower mileage cars, which are less likely to have issues.
Whether Buying from a Dealership or Looking Elsewhere, Remember These Key Strategies…
Research the cars that you are considering purchasing. Edmunds, Car and Driver, and several other automotive review groups put out detailed overviews of cars. Even with reviews, however, nothing is better than a test drive that allows you to experience the physical vehicle and its features. Take time and do research to determine the best vehicle for your personal needs, desires, value and price point.
Don’t be afraid to walk away. There are likely countless vehicles similar to any given vehicle on a lot. It’s a good idea to shop around while considering models and types of cars. If the deal isn’t good, or something about it doesn’t feel right, walk away.
Place logic over emotion. Buying a car can be an emotional and exciting experience. Place emotion in the back seat and allow your best judgement to aid the decision.
When buying a car, take time to make an educated and thoughtful decision and you’ll set yourself up for success.
Does this resonate with you? Do you have any unanswered questions? Let us know if you have any lingering questions or thoughts by leaving a comment below, or send us a message on the contact page. We look forward to hearing from you!
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