Biography:
The following interview was conducted with an experienced car salesman in the San Francisco Bay Area. He has worked at several dealerships, including fixed-priced used car dealers selling rental cars and new car dealers. He has held the job title salesman, sales manager and finance manager.
Interview:
Summary of Questions (Click on Question to see answer, or space down)
Question: How does a vehicle's popularity influence the discount a dealer will offer?
Question: Is there a best time to buy?
Question: Are there some sales tactics to be aware of?
Questions: Does "no haggle pricing" mean what it says?
Question: How can I get the best interest rate?
Question: Are there hidden finance costs?
Question: How is the lease rate set?
Question: Are extended service contracts/warranties worthwhile?
Question: Are dealer added options a good value?
Queston: Are used cars a better value?
If you need Auto Accessories:
Answer: "The MSRP is the "list price." Of course, there are several components to the price. First, is the actual price paid by the dealer. This is commonly known as the "invoice price." Then, there are several charges the dealer passes on to the buyer. These charges are known as "destination/shipping/RR charges. These charges are actually passed on to the buyer without markup and are not negotiable. It is easy to find out what these charges are for most vehicles by visiting a website, such as www.edmunds.com
"If you ask a salesperson to show you the "invoice" price he or she probably will. This is obviously a good starting point. It is obviously important to know what the dealer has actually paid in order to establish a "reasonable price." However, the "invoice" is not necessarily the actual price the dealer has paid. There is an amount known as a "holdback" which is what the dealer keeps as its "guaranteed profit." The "holdback" can amount to about 5%.
Moreover, late in the buying season manufacturers offer incentives to move the vehicles off of the lot before the new model year vehicles arrive. Dealer incentives may actually rebate money to the dealer so that it pays much less than the "invoice price."
Every dealer buys its cars differently. Some dealers pay cash. Other dealers buy its vehicles on credit. Obviously, if a dealer finances the purchase of the vehicle and it has kept a car on its lot for many months it is paying interest.
Question: How does a vehicle's popularity influence the discount a dealer will offer?
Answer: A vehicle's popularity may be the most significant factor in determining if you will get a discount. A dealer may know that there are more buyers than sellers. If so, the dealer is not motivated to discount the price.
You may be able to get a better price if you buy a less popular color or option package. But remember, it is very hard sometimes to find "stripped" versions of popular vehicles. The dealer knows the vehicle is popular and tries to order loaded versions to maximize its profit.
Question: Is there a best time to buy?
Answer: Generally, the best time to buy is the last day of the month. A better day is the last day of the month at the end of the quarter. As I am sure you are aware, deals get sweeter once the next year's vehicles arrive on the lot. Dealers will be motivated because manufacturers will be offering beefy incentives.
Question: Are there some sales tactics to be aware of?
Answer: Yes. The following are things you will hear often:
"buy today!" The dealer will tell you the price will only be good through today. The dealer is trying to pressure you to buy the car. There really would be no reason for the dealer to not sell you the car, for the same price, the next day if you choose.
"good cop, bad cop": This is an age-old sales technique which is popularly used in automotive sales. There are several approaches, but basically the technique works like this. You will be working with a salesperson when at some point the negotiations intensify and the salesperson gets angry or upset. He or she leaves and another salesperson comes into the picture. This salesperson is friendly and helpful. He or she tells you that the other salesperson is having a bad day. This salesperson will try to gain your confidence by seeming reasonable and understanding, in contrast to the rather unpleasant bad cop. Just hold your ground and don't get emotional.
"we can't discount because it is the only one in stock...": This is rarely true.
Questions: Does "no haggle pricing" mean what it says?
Answer: Generally, it does. But, like everything, dealers will try to complete a sale. Yet, dealers know that if they continually negotiate "no haggle prices" word will get out and render the practice meaningless. What dealers are doing is adding options, like a CD player to a vehicle "at no additional cost" to close a sale.
Question: How can I get the best interest rate?
Answer: Before you finance for your car, through the dealer, or through a bank, do a little research. All financial newspapers or websites such as list the going rate that day. Check the rate out. Realize that the dealer probably pays about 1/2 point less than what is listed. Then, figure the dealer will quote a rate about 1 to 2 points higher. You should not pay more than 1 to 2 points more than prime.
If you have bad credit you may have to pay more. But be careful and shop around. Your bad credit should not be justification to gouge you.
Remember that promotional rates, such as the popular "0.9% financing" are fixed rates that are not negotiable.
Question: Are there hidden finance costs?
Answer: Your credit contract will probably contain "bank fees." The lender will charge the dealer a fee for the loan. Dealers pass this cost on to you. The dealer may waive this fee in rare situations, primarily to save a deal.
Question: How is the lease rate set?
Answer: Leases are much more complicated than sale transactions. We recommend before leasing a vehicle that you go to the book store and get a book on the subject or spend some extensive time on the web researching the issue.
One important point, however, is that the lease rate is determined by a "money factor." "Money factors", like interest rates, can vary. Check the world wide web for the going "money factor." The factor will vary from person to person for the same car. The amount of the factor for an individual will depend upon that person's credit. However, the web should be able to give the buyer parameters.
Question: Are extended service contracts/warranties worthwhile?
Answer: You will be quoted a "cost" for an extended service contract. The cost of this "contract" is negotiable as well. In some instances you may ask for a discount up to 1/2 of the cost. The dealer will actually have a cost sheet which shows its cost for the service contract. Ask to see it. You will probably see 50% mark-up. If you really want the contract, try to negotiate the best price. Before you buy, check the world-wide-web and you may be able to find after-market service contract providers. But beware, unless you can independently confirm the companies reputation do not buy the contract. Dealers, of course, use the same companies but at least the contract may ultimately be backed up by the dealer if the provider dissolves. Again, there are no guarantees.
Question: Are dealer added options a good value?
Answer: Dealers are increasingly trying to add to the bottom line by offering after market add ons. Some of the products are value oriented, such as Honda air conditioners. Other products, such as paint sealant and undercoating are not a good value. Remember, there is an incredible aftermarket parts business which offers almost every dealer installed option. The quality varies, however.
Many of the dealer added options are costly. Paint sealant works but it can be very expensive. Undercoating may cost about $600 but may cost the dealer as little as $55.00. Rust inhibitor will typically cost the consumer $700 but the dealer cost is probably about $70.00. Do your research on the world wide web.
Think realistic. In most cases general maintenance will keep your vehicle in pristine condition.
Queston: Are used cars a better value?
Answer: With a new car the dealer may show you the invoice if you ask. Most dealers will not reveal what they paid for their used vehicles, but you can ask. The best bet is to check Edmunds or the Blue Book web sites. Keep a list of the cost of options in your pocket when you shop. Keep in mind mileage will influence the price. Many popular new cars, in excellent condition, will command premium prices.
Dealers are now designating vehicles "certified lease-returns." Dealers are not permitted to lie about this and are generally truthful. These vehicles are good buys because owners are required by contract to maintain their vehicles. Of course, the dealers know this and charge a premium. Shop around.
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