TIPS ON BUYING A NEW CAR I found this text file sometime ago and converted it for the use of the list. It is written in a pretty informal style, but I found it quite informative. The original author is unknown and I do not take credit for writing it. I have done -extensive- text editing to make it presentable. -TRH So, you've decided to buy a new car. - Do you know how to obtain the BEST PRICE for your trade-in? - Do you know how to get the BEST DEAL on that new car? - Do you know which cars are marked up the most? - Do you know how to bargin for "optional" equipment? - Do you know how the "Walk Around" tactic works? - Do you know what "Bait-and-Switch" means? - Do you know what the "Green Pea" tactic is? - Do you know how the "Turn Over" tactic works? - Do you know how to handle the test drive "YES" tactic? - Do you know what a "Deal Sheet" is? - Do you know about all the tricks and schemes the salesperson uses to get you to PAY THE MOST and yet get you to "think" that you are still getting a GOOD DEAL? If you've answered NO to any of the above questions, read on. The information in this document was researched and collected in an effort to place YOU the buyer on an EQUAL footing with the car dealer when it comes time to purchase your next new car. Wouldn't that be nice for a change! Let's start out by listing the main ways that the car dealers make their profits. DO YOU KNOW THE 8 BASIC AREAS THAT DEALERS MAKE THEIR PROFITS IN? - The SUCKER PRICE, oops!... I mean... "STICKER PRICE". - The 3% factory REBATE from the manufacturer direct to the dealer for each and every car the dealer sells. - The "low ball" (below blue book) trade-in allowance. - The "inflated" interest rate on the financing of the new car. - "Extra" items installed by the dealer and added to the SUCKER, there I go again!... "STICKER PRICE" at highly inflated rates. - The EXTENDED RIP OFF option, oops!... I can't help it folks, I mean the EXTENDED WARRANTY option. - Adding UNNECESSARY Insurance coverage. - Adding the omnipresent "DOCumentation" fee. Fully understanding the mechanics of the 8 items shown above can save you anywhere from $1,000 up to an incredible $5,000 on your next new car purchase. Let's examine the 8 items one by one. STICKER PRICE What's the "Sticker Price" mean? All NEW cars are supposed to have the Manufacturers Suggested Retail Price (MSRP), better known as "LIST PRICE" or "STICKER PRICE", displayed in plain view on a "sticker" on the car's window, preferably on the driver's side. This sticker is known as the "Monroney Sticker" and must list the following information: - The "base price" of the car (The price of the base model before adding the optional equipment). - An itemized list of the prices of the optional equipment - The "destination charge" (The charge for delivering the car from the place of manufacture to the dealer). - The total "suggested list price" MSRP of the car which is the price that the manufacturer "suggests" (who are they kidding) that the car be sold for. - The "estimated" fuel economy that this car should get. NOTE: THE "STICKER" PRICE IS ***NOT*** THE PRICE THAT THE DEALER PAYS THE MANUFACTURER FOR THE CAR. MOST DEALERS ACROSS THE NATION PAY THE MANUFACTURER THE *SAME* PRICE FOR THE *SAME* CAR. THE PRICE THAT ANY PARTICULAR DEALER PAYS HAS LITTLE, IF ANYTHING, TO DO WITH THE SIZE OF THE DEALERSHIP AND IS ALWAYS LESS THEN AND OFTEN CONSIDERABLY LESS THEN (BY OVER 20%) THE MSRP PRICE. If the dealer tells you that he cannot possibly sell you the car at less then LIST (MSRP) price he is a LIAR and you should shop elsewhere. If you do pay FULL LIST PRICE, you are indeed truely a SUCKER and the dealer will love you for it. THE 3% FACTORY "HOLDBACK" Have you ever wondered if the sales people told you EVERYTHING when they said that the dealer was "only making $200" or "only making $300" on the car at the price they were trying to sell you the car at? Have you ever been told by the salesperson that the dealer gets back *** 3% OF THE TOTAL LIST PRICE OF THE CAR *** from the manufacturer at the end of year (some cases, end of quarter)? Here's how it works: Let's consider a compact car that the dealer pays $11,213 for and which has an MSRP price of $13,175 (not including destination charge). At the end of business year (or business quarter), the manufacturer REFUNDS directly to the dealer *** 3% *** of the MSRP price, and NOT base cost price for each car sold by the dealer during the previous year (or quarter). In this case, that's $395! ( $13175 x .03 = $395.25) This $395 is OVER AND ABOVE ANY OTHER "PROFIT" that the dealer may make on the car sale. For this example, the ACTUAL DEALER COST. (ADC) is figured as follows: (1) Amount dealer initially pays for car = $11,213 (2) 3% Holdback Amount (.03 x MSRP) = -$ 395 -------- (1) - (2) = $10,818 (3) Destination Charge (DC) = +$ 430 -------- Actual Dealer Cost (ADC) = $11,248 Comparing Total List Price -vs- ADC price: MSRP = $13,175 Dealer Cost = $11,248 DC = $ 430 -------- -------- Total List = $13,605 ADC = $11,248 Difference = Total List - ADC = $13,605 - $11,248 = $ 2,357 Therefore, the dealer ACTUALLY pays 17.3% LESS THEN Total List Price for this car ((2357 / 13605) x 100 = 17.3). Finally, if you were to bargain with the dealer for the car mentioned above, you should be able to obtain it for around $11,500 to $11,600 plus tax. This allows the dealer a FAIR PROFIT of between $250 and $350 on the deal. In actuality, it is not quite that simple. Remember the dealer buys his cars using "borrowed" money and that the dealer must pay a finance charge for the use of that money. However, the finance charge only applies for the period that the dealer has the use of that borrowed money and is eliminated when the dealer sells the car and receives payment from YOU the customer. This means that the 3% REBATE is actually somewhat less then 3% and usually comes out to be around 2.7% instead. Therefore, based on all that, the EFFECTIVE REBATE (the actual additional profit direct to the dealer) is about $355 and not $395. On that basis, you should have to pay no more then $11,550 to $11,650 for the $13,605 MSRP car giving the dealer a FAIR PROFIT of $250 to $350. For cars costing the dealer less then $11,248, the amount is proportionally smaller. For cars costing the dealer more than $11,248, the amount is proportionally larger. KEEP THIS IN MIND WHEN BARGINNING FOR YOUR NEXT NEW CAR. THE NEXT TIME THAT THE DEALER TRIES TO TELL YOU THAT HE IS ONLY MAKING "$200" OR "$300" ON THE DEAL, REMIND HIM OF THE 3% HOLDBACK! THE "LOW BALL" (BELOW BLUE BOOK) TRADE-IN ALLOWANCE Do you have any idea of how much your car is worth at trade-in time? Do you know what the dealer uses to determine how much he will allow you for your trade-in? NO, you say again? Well here's how that works: The auto dealers across the country use information compiled from a database of used car Wholesale and Retail prices and issued under the generic name of the "Blue Book". The Blue Book is generally published bi-monthly with occassional monthly updates. Each dealer will look up the Blue Book price of your car when they make the "allowance" for your trade-in. Most dealers will NOT tell you that they are only giving you the Blue Book "wholesale" price for your car. The dishonest dealers will try and make it sound like they are giving you a "super deal" by quoting you a VERY HIGH price for your trade-in and neglecting to mention that the price they are quoting you is actually made up of two parts: (1) The Blue Book "wholesale" price of your trade-in, and (2) A "discount" off of MSRP price. Make no mistake about it, ALWAYS request a price BOTH WITH a trade-in and WITHOUT a trade-in. Anyway, how does the "LOW BALL" trade-in allowance work? This is where the dealer is giving you LESS then fair "wholesale" price for your trade-in. The Blue Book lists an "average" price range for each make, model and year of car. The average Wholesale and average Retail price of the car is listed assuming the vehicle has at least the "standard" equipment on it and that the vehicle is in GOOD CONDITION, CLEAN and READY FOR RESALE. The "standard" equipment included in the "average" wholesale price for most cars includes: -Automatic Transmission -Power Steering -Power Brakes -Air Conditioning -AM/FM Stereo Radio A "core" group of popular options would include something like the following: AM/FM Stereo w/Cass. Player - add $ 75.00 to Avg. Price Power Windows - add $150.00 " " Power Seats (Drivers Side only) - add $ 50.00 " " Power Seats (Driver & Pass. - add $ 75.00 " " Power Door Locks - add $ 50.00 " " Tilt Steering Wheel - add $ 75.00 " " Cruise Control - add $100.00 " " ----------- Total Additions: add $575.00 to Avg. Price The allowance that a reputable dealer will give you is based on the "average" Wholesale price of your vehicle with "standard" equipment PLUS an additional amount depending on what additional options you have on the vehicle. If your vehicle has HIGH MILEAGE on it, you can expect a smaller wholesale quote. Generally, if you average about 12,000 miles per year, the mileage on your vehicle is considered appropriate and NO DEDUCTION FOR EXCESSIVE MILEAGE should be made. The following criteria is generally followed by a reputable dealer when evaluating your trade-in: (1) If your trade-in is in generally GOOD condition, CLEAN and generally RUST FREE, you are entitled to the AVERAGE Blue Book Wholesale price for your trade-in *** Plus *** an additional amount depending on the options that your vehicle has on it. (2) If your trade-in shows more then average signs of WEAR or has minor rust on it but is in otherwise GOOD condition, your vehicle falls in the LOW range of Blue Book Wholesale price. (3) If your trade-in is in EXCEPTIONALLY GOOD CONDITION (meaning no rust, no noticeable wear, very CLEAN inside and out and within the acceptable mileage criteria for the year of car), your vehicle falls in the HIGH range of Blue Book Wholesale price and you should get that amount *** PLUS *** an additional amount based on the options that your vehicle has on it. This type of trade-in is referred to as a "cream puff" and demands TOP trade-in allowance. (4) If you have a VERY OLD car (over 25 years old) that is also in EXCEPTIONALLY GOOD CONDITION, you would do far better by selling the vehicle privately since the dealer won't give you anything near what the car is really worth. (5) If your trade-in is RUSTED OUT or DAMAGED or VERY WORN on the interior and/or exterior, the dealer will only give you what is called "junkyard value" for it! This can be next to nothing at all in some cases. The range of Blue Book Wholesale prices generally are +/- 5% of the "average" value, depending on the condition of the vehicle. Also, the spred between Wholesale and Retail price for a vehicle is referred to as the "mark up". The spred between Retail and Wholesale price is referred to as the "mark down." If the dealer's allowance for your trade-in is BELOW the range of values for your trade-in, or, if the dealer is only giving you a "low range" value when your trade-in is actually in the "high range," you are getting the "LOW BALL" allowance and the dealer is NOT reputable. You should be able to find out the Blue Book value of your trade-in at your Credit Union, local Bank or your local library. You can also get an idea of the value of your vehicle by looking in the "Edmund's Book Of Used Car Prices" available at your local book store or at the magazine section at most drug stores. The car dealer's all use the Blue Book (or its regional equivalent) so you're better off checking the Blue Book when determining the value of your trade-in! The Blue Book is actually called the "Kelley Blue Book Auto Market Report" and is issued bimonthly by: Kelley Blue Book P.O. Box 19691 Irvine, California 92713 (714) 770-7704 / FAX: (714) 837-1904 The Blue Book will usually only list prices for cars from the past 7 years. So if your car is older than a 1987, you should check the "Kelley Old Car Report" also, published by Kelley Blue Book. If you know what your car is worth BEFORE you shop for a new car, you will be able to determine whether or not you are really gtting a "fair allowance" for your trade-in. Oh, by the way, if the dealer tries to tell you that he does NOT use the the Blue Book price but rather the "auction" price or something like that, remind him of where the "Blue Book" prices come from the "Auction" prices. The dealers all need a reference price to judge what a car is worth to them and will usually use the Blue Book "Wholesale" price when quoting you a trade-in price. THE INFLATED INTEREST RATE ON THE NEW CAR FINANCING During final barginning with the salesperson, you will be asked how you plan on financing the new car purchase. If you indicate that you are going to take out a loan, the salesperson will try and persuade you to take your loan out with them instead of your bank or credit union. What the dealer isn't telling you is, by financing through the dealer, you must pay the interest rate PLUS a dealer "mark-up". This is great for the dealer since he borrows at, say 11%, then turns right around and charges you 13% (or more). The dealer might offer you a "lower" interest rate, say 9%, but fail initially to mention that it is for 60-months instead of the usual 36-months. When you compute this out, the EXTRA amount you are paying can often be over a THOUSAND dollars more. Always BESURE TO ASK about the TIME INTERVAL over which the loan is to be payed back. SOME THINGS TO REMEMBER There are three types of new car buyers out there: TYPE 1 BUYER - Cares mostly about how much the monthly payment will be (called the "Payment Buyer") TYPE 2 BUYER - Cares mostly about what "allowance" is being given for the trade-in (called the "Allowance Buyer") TYPE 3 BUYER - Cares mostly about what the "difference" will be in price when the trade-in is subtracted from the final price (called the "Difference Buyer") The dealers LOVE Type 1 buyers (payment buyers) because that type of buyer usually ONLY CARES ABOUT THE MONTHLY PAYMENTS and does NOT FULLY understand what it means to pay $209/mo. for *** 60 months *** versus paying $299/mo. for *** 36 months ***. This type of buyer can and does get soaked by the dealer. The smartest of the three types of buyers is the Type 3 (Difference Buyer) because the "Difference Buyer" is conscious of the actual allowance being given for a trade-in and is usually NOT fooled by the low monthly payment tricks. EXTRA ITEMS INSTALLED OR ADDED BY THE DEALER This is one area where an unscrupulous dealer thrives. For example, a dealer may try and sell you "EXTRA Rust Proofing, EXTRA Undercoating and Sealer, and EXTRA Interior Protection Sprays" as a package "deal" for say $675. Since the dealer's cost for such services is more in the $175 to $200 range, a nice profit of almost $500 can be made from the unsuspecting customer. Another situation could arise whereby the dealer offers you a "special" on "premium" non-standard tires. The pitch usually is to first show you how great the "special" tires are and then to give you the punch line and tell you that they "only" cost $350 more. What the unreputable dealers will do is "forget" to give you a CREDIT for the tires that come with the car and simply tack on the extra cost of the "special" tires. ALWAYS BESURE AND ASK HOW MUCH CREDIT ALLOWANCE YOU ARE GETTING FOR THE BASE TIRES BEFORE YOU ACCEPT SUCH A "SPECIAL DEAL." THE "EXTENDED" WARRANTY The "Extended Warranty" is nothing more then a Service Contract for coverage AFTER the manufacturer's warranty runs out. The manufacturer's warranty is ALREADY INCLUDED in the price of the car, meaning you already paid for it when you bought the car. The Extended Warranty is an extra-cost item and is sponsored by an INDEPENDENT organization NOT working for the manufacturer. The cost of the Extended Warranty can run up to near $900 in some cases. When discussing the Extended Warranty option with the dealer, consider asking the following questions: (1) Exactly what repairs are covered and exactly what repairs are NOT covered? (2) Does the Extended Warranty cover BOTH parts and labor? (3) Is the Extended Warranty work performed at the dealer by factory authorized mechanics? (4) Can Extended Warranty repairs be made elsewhere? If traveling, can any dealer perform the Extended warranty service? (5) What are my owner requirements to keep the Extended Warranty enforce throughout the duration of the contract? Do I have to follow a preset schedule for preventive maintenance including things like: regular oil changes, regular tire rotation, etc.? If the schedule is not followed, is the Extended Warranty voided? (6) Should I decide to NOT continue the Extended warranty contract, is there a "cancellation" and "refund" policy? (7) Is there a "deductable" amount attached to the warranty? If so, how much is it? (Generally, the smaller the deductable amount the better off you will be when Extended Warranty repairs are needed!) If the deductable amount is over $200 it is TOO MUCH and the Extended Warranty is nothing more then a ripoff!!! Extended Warranty's can be good BUT only if you get coverage per the above 7-items and only if you can get it at dealer cost PLUS about 25%. As an example, consider that the above items are covered in an Extended Warranty package covering 3 more years beyond the manufacturer's warranty and that the dealer wants $500 for it. Since the dealer's cost for this package is generally about 50% less that what he tries to get from you, you should be able to get the coverage for about $313. This is figured as follows: $500 x .50 = $250.00 (dealer's cost) $250 x .25 = $ 62.50 (fair markup) $250 + $62.50 = $312.50 (fair deal) UNNECESSARY INSURANCE COVERAGE Some dealers will try an get you to sign up for what is called "Credit Life" and "Accident" insurance. This insurance is supposed to protect the dealer in case you default on a loan or otherwise, fail to make payments. It should be known that, in most states, you are NOT obligated to obtain this insurance from the dealer and you can REJECT IT. THE "DOCumentation" FEE Most dealers will try and get you to pay their documentation costs and add a fee called the "DOC fee" onto the final price. This fee covers nothing but the paperwork that the dealer goes through when you by a car and is deducted by the dealer on his income tax as "costs associated with doing business". An honest fully reputable dealer will waive the DOC fee charge. However, most dealers include it and it ranges from $20 up to around $65. IN NO CASE SHOULD THE "DOC" FEE BE MORE THEN $75. In some states, you are EXEMPT from paying the "DOC fee" and you may have to check the laws in your state to be sure. Now that you know the eight basic areas that the dealers make their profits in, lets take a moment to examine a case where a totally uninformed person goes into a dealer to purchase a new car. Let's call our "Sucker" Mr. S. Well Mr. S knows absolutely nothing about the above eight items and he decides he likes the new 1991 Strobe Model J25 sitting in the show room all shiny and new. The MSRP price on the Strobe is $15,845 (w/o dest. chrg.) and the dealer cost is $13,941 (w/o dest. chrg and excluding holdback). Mr. S buys the Strobe at full MSRP price. Mr. S currently drives a 1986 model with a Blue Book Wholesale price of $3000 and a retail price of $4800. Mr. S is offered "$3850" for his "trade-in" (actually $3000 plus an $850 discount off of MSRP) and he accepts. Mr. S then decides to get the dealer add-on's and a "special" 3-year Extended Warranty! Mr. S accepts the dealer financing at 10.4% for 60-months and has the $50 DOC fee included too. How much PROFIT did the dealer make off of Mr. S? How does a whopping *** $4,186.77 *** sound? You say you don't believe it? *See section XX.1 for the details of Mr. S's purchase. Now do you see why it is so important that you know how the car buying game really works? MISCELLANEOUS INFORMATION (1) WHEN IS THE BEST TIME TO SHOP FOR A NEW CAR AND SAVE THE MOST MONEY? Historically, it has been proven that the best time to shop for a new car is during the following periods: (a) During periods when the economy is SLOW or when CASH incentives and REBATES are offered. (b) When automotive advertising seems to be increasing in the newspapers and especially on TV (Advertising usually increases during periods of SLOW sales). (c) At the VERY BEGINNING or at the VERY END of the month (Dealers will try and start each month with a sales "upswing" and if the "upswing" doesn't materialize, they will try and CLOSEOUT the month by giving better deals). (d) After 3:00 p.m. until closing time (If the salesperson has NOT made any sales by 3:00 p.m., the incentive to make at least "one" sale BEFORE CLOSING TIME is the greatest after 3:00 p.m.). (2) WHAT IS THE BEST APPROACH TO USE WHEN FIRST ENTERING THE DEALERSHIP? Have you ever begun shopping for a new car and had the salesperson tell you "...try another dealer first, then come back and we will beat their deal!"? This is very frustrating since you have to start someplace and if every dealer is telling you to go somewhere else "first", how can you ever get any prices? Startout by using the price cost quote from the Edmund's Car Price book plus $100. That will be your "quoted price" and you will have a foundation to work from. Therefore, you can then tell the salesperson that you ALREADY have one price quote and that you now want a quote from the salesperson. The salesperson will almost always ask you what your price quote was and where you went for the quote. Tell the salesperson that you will discuss that AFTER they give you a price quote. If the salesperson then quotes you a HIGHER price, tell them the predetermined price you already figured out and state that you are now going to TRY ANOTHER DEALER. If the salesperson quotes you a LOWER price then your predetemined price, also tell them your predetermined price and IMMEDIATELY state that you are still going to try one more dealer BEFORE making a decision. The reasoning behind all of this is: (A) If the salespeople think that you are just doing some "preliminary shopping" they will NOT be inclined to give you their "best price". The salespeople use several prices when dealing with customers. The first price quote you are likely to obtain is called the "starter price". Once the salesperson senses that you are serious about shopping for a new car, you will then be given what is called the "working price". This is done to make you think that they are willing to bargin if only you will stay a while and discuss it further". The next price you get is called the "barginning price" and usually requires you to enter into further discussions with the salesperson. Once the salesperson is ready to make a final offer, you will be given the "best price". (B) If the salesperson thinks that you already have at least ONE price quote from another dealer, they will be much more likely to start out with the "working price" and "beat" their competition's price. (3) WHAT IS A REASONABLE DISCOUNT TO EXPECT WHEN BARGINNING FOR A NEW CAR? You can use the following information to get an idea of how much of a discount off of MSRP you can reasonably expect to obtain when barginning for that new car: % DISCOUNT TO EXPECT OFF OF MSRP PRICE * -------------------------------------- TYPE OF CAR DOMESTIC FOREIGN ----------- -------- -------- Mini-Compact 5 - 8% 5 - 7% Sub-Compact 9 - 10% 8 - 10% Compact 10 - 13% 10 - 11% Intermediate 13 - 17% 12 - 14% Full Size and/or 17 - 22% 15 - 16% Luxury Model * Remember to DEDUCT the Destination Charge BEFORE figuring the discount and then add it back to the discounted price. Ex: ( MSRP - Dest. Charge) x nn% = Reasonable Discount where nn = percentage found from above Reasonable Discount + Dest. Charge = Reasonable Price (4) It is absolutely critical that you negotiate the Trade-in Allowance, the Purchase Price and the Finance Charge all SEPARATELY! SOME COMMON "TRICKS OF THE TRADE" THE "TURNOVER" TACTIC If, when barginning with you for the final price, the salesperson feels that they can't get you to budge UPWARDS from the amount you are willing to pay, they will usually excuse themselves and leave the room for a few minutes. Then they will return with someone else, usually the sales manager, who will then try and put the final "squeeze" on you! This tactic is called the "TURNOVER" and is done with the hope of trying to get you to come up to their "final" price! The ploy used usually runs something like this: "Mr. Brown....I'm Mr. Wilson the sales manager. Frank was telling me that you are very close to making a deal for the car BUT you are still $300 apart! You know we are giving you all that we can for your trade-in and we're only making a "few bucks" on the deal ourselves! We just can't go any lower with our price!" NOTE: IT IS VERY RARE THAT THEIR "FINAL" PRICE IS THE ABSOLUTE "BEST" PRICE THEY CAN GIVE YOU! ESPECIALLY CONSIDERING THE 3% HOLDBACK ALLOWANCE THAT THEY WILL GET LATER! THE BEST THING THAT YOU CAN DO IS TO STATE SOMETHING LIKE THE FOLLOWING: "Mr. Wilson...I am giving you my best offer for the car. You will still get the "holdback" allowance from the manufacturer in addition to the amount over invoice that I am willing to pay! I will agree to buy the car here and now for the price that I stated. If you don't want to sell me the car for that price, we have nothing more to discuss and I will leave!" At this point, you must be prepared to GET UP AND LEAVE if they still refuse to come down anymore!!! If they quote you a lower price that actually is agreeable to you but is NOT the price that you stated you were willing to pay, you can "reluctantly" agree to it or you can get up, excuse yourself and leave the premises. If they really sense that you WILL BUY the car and, if they are willing to accept a smaller profit on the sale, they will call you back before you get a chance to leave. If they let you leave, consider going to another dealer and starting again. This all sounds like a lot of trouble and aggrevation to go through and it very well may be! However, if you can save another $300 to $500, isn't it worth it? THE "BAIT AND SWITCH" TACTIC This tactic is used when you first start barginning with the salesperson for a new car. It usually involves the salesperson asking you what model car you are interested in and what color and what equipment you want on it. The salesperson will almost always try to find you a car in current inventory and, when he has nothing like what you wanted, he will usually say something like: "I have just the car for you but it's brown instead of the tan you asked for, is that allright?" or "I have a car I think will fill the bill but it's got the leather seats instead of the cloth seats, will you take a moment to look at it?", etc. Once you agree to at least "look" at the car you have taken the BAIT. Now for the SWITCH! The salesperson takes you to the car and shows you its features then asks you how you like it. You reply, "it's OK but it's not exactly what I wanted!". The salesperson then offers to make you a "real deal" on the car. You then examine the sticker and see that this car has some options on it that you really didn't want and costs several hundred dollars more then the car that you asked for! The salesperson then tries to coax you into "reconsidering". If you agree, the SWITCH has taken place and you now find yourself barginning for a car you didn't actually want. THE "TODAY ONLY" TACTIC When in the final barginning stages for the new car, if the salesperson senses that you are almost but not quite ready to accept, he will usually say something like: "You know this price is only good for TODAY ONLY and I can't guarantee anything after that!" The fact of the matter is, if you then walked out of the dealership and came back tomorrow, you would 99% of the time get the EXACT SAME PRICE! THE "DEMAND FOR THAT CAR" TACTIC If the salesperson senses that you are still hesitating, but you do like the car you were shown, you might be told something like this: "I can sell you that car today for $nn,nnn (whatever price he was quoting) BUT if you don't want it I had somebody else in here last evening who was interested in the same car and he is due back tonight! If you don't take it, I'm sure he will!" This is almost always a trick to get you to say yes! Be on guard and politely tell the salesperson: "well, if the other person decides NOT to take it, then give me a call!" THE "GREEN PEA" TACTIC When the salesperson is having an especially hard time trying to get you to come UP to his price, he might say something like: "Mr. Smith, I'll be honest with you, I'm new at this business and I'm trying my best to give you a good deal but I'm sure that my salesmanager won't go for it! I have a wife and kids to support and I really need a sale and that's why I'm giving you such a good deal!" This tactic is used to try and generate some sympathy for the salesperson. To respond, simply restate what was said, except from your point of view! THE "WALK AROUND" TACTIC After the salesperson asks you the type of car and options you are looking for, he probably will say something like: "I think I've got a car that will fill your needs! Let's go and take a look at it." At that point he will escort you out to his lot and to the car he thinks you might be interested in. If he does not have anything that meets all of your specifications, he will try and show you something close but MORE EXPENSIVE! The "walk around" tactic gets its name from what happens next. The salesperson will take you to the car BUT stand in front of the sticker so you can't directly see it! He will then point out several of the car's features and begin leading you away from the sticker and around the car again pointing out several more features on the car. Once you have been taken completely around the car, he probably will stop once more in front of the sticker and ask you how you like it. He may even let you drive it but he will try and distract you from looking at the sticker price. The way to handle this tactic is to IMMEDIATELY ask for the price of the car! THE TEST DRIVE "YES" TACTIC When you near a decision on the car you want to buy and are offered a test drive, watch out for these subtle tricks of the salesperson. If the salesperson accompanies you, he probably will ask you: - Isn't the car nice and QUIET? You probably reply "yes". - Doesn't it FEEL SOLID? You probably reply "yes"! - Aren't these seats real comfortable? You probably reply "yes"! - Don't you think it would look great in your driveway? You again probably reply "yes"! What has happened here is that the salesperson has "primed" you to respond with a "yes" answer! This makes it MUCH EASIER to get you to say "yes" when you are asked if you want to buy it! THE DEAL SHEET Once you have reached the barginning stage for that new car purchase, the salesperson will usually take you to a small room or private area and begin writing information down on paper. The form that the salesperson uses is called the "Deal Sheet" and it is usually composed of four sections, as follows: Section 1: Information about you, the customer Section 2: Information about the car you are interested in Section 3: Information on your trade-in, if any Section 4: Information about the purchase price, the amount of your down payment, specific monthly payment details and other information related to the financing of the new car. When supplying "deal sheet" information to the salesperson, NEVER divulge any CREDIT CARD or BANKING information and NEVER sign the sheet until you are ACTUALLY READY to make the deal! Once you sign the sheet, the dealer will ask you to sign a "credit application" form and that gives the dealer the right to run a FULL CREDIT CHECK on you EVEN IF YOU DECIDE NOT TO BUY THE CAR!!! HOW TO BARGIN FOR THAT "OPTIONAL" EQUIPMENT The way cars are sold today is not like in the 50's, 60's and 70's! During those periods it was FUN to shop for a car because YOU decided what options you wanted and what options you didn't want, one by one! You could even pick two-tone and three-tone color schemes! YOU decided which engine, from a choice of several, that YOU wanted in the car! You could order Manual or Automatic transmission, 2-BBL, 4-BBL or even 2 or 3 separate carburators (remember the fantastic pontiac tri-power beauties)! You could even specify the exact Rear End Ratio from a choice of 3 or 4 different combos! You even had a choice of Cam Shafts on some of the hotter "super sport" varieties!!! Today, options are grouped together in what are referred to as "popular option packages" or "preferred option packages"! These packages usually group together several options which the MANUFACTURER (not YOU) has determined that you would buy anyway! Statistics show that about 50% of the time, all of the options in a particular package are wanted by the customer. But what about the other *** 50% *** of YOU out there who do NOT necessarily want ALL the options in any given option package? If you do want all of the options in any particular option package, you can save some money buy getting the package! If you do NOT want all of the options in a package, but only some of them, you can STILL SAVE money by using a tactic of your own called the "DON'T WANT IT" tactic! Here's how it works. Suppose the optional package includes: - Auxilliary Lights - Power Seats - Rear Window Defogger - Power Antenna - Cycle Windshield Wipers - Electric Outside Mirrors - Tilt Steering Wheel But suppose you only WANT the Rear Defogger, Cycle Wipers and Tilt Steering Wheel and do NOT WANT the Auxilliary lights, the Power Seats the Power Antenna and the Electric Mirrors! The items that you DO WANT would cost $325 if you could buy them individually. The other items that you do NOT want would cost $425 individually! However, the option package will cost you $600, saving you $150!!! "Wait a minute", you say, "you mean I have to pay $600 to get the $325 worth of options that I DO want?". "Yes" I say, you DO indeed have to pay an additional $275 to get the options that you want! Now, where does all of this lead to? If you run into a situation like what is shown above, you can STILL BE IN CONTROL and handle it by IMMEDIATELY letting the salesperson know that you really WANT only the options that you mention and DO NOT WANT the others. Figure out the EXTRA amount that you will have to pay to get the options that you want and use that amount as a "barginning tool" when final price discussions begin! Every time that the salesperson tries to get you to come UP to his price, IMMEDIATELY remind him that you are ALREADY PAYING for some options that you do NOT want and insist on sticking to your price! Also, remember that ALL BARGINNING should be conducted from the Dealer's ACTUAL COST up and NOT from the LIST PRICE down!!!!!! WHAT'S BETTER - BUYING A CAR FROM DEALER'S INVENTORY OR HAVING THE DEALER ORDER IT FROM THE FACTORY? If you are not too fussy about colors and option packages you usually can buy the car out of dealer's inventory. You probably won't get the exact color and/or options that you asked for but you can get the car right away, provided your credit rating is good! On the other hand, if you are fussy about colors and\or options, the dealer will probably have to order the car from the factory for you. It turns out that there really isn't much difference whether you buy from dealer's inventory or have the dealer order it from the factory! The dealer usually will be more eager to sell you a car that he has in inventory because he has purchased that car with borrowed money and the sooner he sells that car, the sooner he pays off his loan! This is a plus for buying out of inventory. However, if you have the dealer order the car from the factory, the dealer knows ahead of time that the car will be sold and it will not become part of inventory! This is also an incentive for the dealer to sell you a car that way! Also, you will have to wait anywhere from 3 weeks up to about 8 weeks to get the car from the factory! If you have a trade-in, keep in mind that the dealer will usually re-evaluate your trade-in when the new car arrives to besure it is in the same general condition as when he first appraised it! The dealer has the right to change his appraisal at this time BUT you also have the right NOT TO ACCEPT any new re-appraisal if it is less then the original appraisal! The only problems arising out of this situation involve the "deposit" that you put down when ordering from the factory. The dealer will try and get you to put down a LARGE deposit (usually $600 or $700) and tell you that this is in case you decide not to take the car when it arrives! What he really means is, if you do decide NOT to take the car for ANY REASON WHATSOEVER, the will try and KEEP YOUR DEPOSIT MONEY! The reputable dealer's won't this way especially if they are at fault! That's why you should always leave the SMALLEST deposit possible! As a rule of thumb, if the car that you are ordering from the factory is not some weird color and is not missing the basic options for a car in its catagory (which could make it harder for the dealer to sell to someone else), you should be able to put down a deposit of from 2% to 2.5% of the final selling price! For a $15,000 car, this amounts to between $300 and $375! For a $20,000 car, this amounts to between $400 and $500 TOPS! The dealer will almost always try and get you to leave a larger deposit, but stick to your guns and you will at least have some peace of mind during the waiting period! REBATES - HOW TO USE THEM "EFFECTIVELY" If a "rebate" exists for the car you are interested in buying you, must keep the following information clearly in mind: (1) The "rebate" is NOT in place of a "discount" off of MSRP price but is IN ADDITION TOO the discount off of MSRP price. When negotiating price with the salesperson ALWAYS KEEP THE REBATE OUT OF THE PICTURE and negotiate as if NO rebate was available! If the salesperson keeps trying to include the rebate amount in the discussion, STERNLY STATE that the rebate will be taken into consideration AFTER the final price has been established and agreed upon. (2) The WORST way to use a REBATE is to accept a check back AFTER you already agree to a buying price! (3) The BEST way to use the REBATE is to have it applied toward the final purchase price as a "deposit" and have it deducted from the final amount BEFORE any taxes are computed. This is VERY IMPORTANT since, if you apply the rebate AFTER taxes are computed, you are LOOSING the full effect of the rebate and are paying taxes on the rebate to boot. As an example, consider a full size car that has a $1500 rebate applied to it. Say the car has an MSRP of $25,000 and you got a "best" price of ** $20,000 ** (20% off MSRP price), without a trade-in. The rebate amount of $1500 should now be deducted from the $20,000 leaving a final "taxable" amount of $18,500! You should only pay tax on the $18,500 and NOT on the $20,000! If you did pay tax on the full $20,000, the "rebate" would only be worth $1395 instead of $1500 (assuming a 7% tax rate) and you would actually be LOOSING *** $105 *** on the deal. A WORD ABOUT CONSUMER BUYING SERVICES If you are contemplating using a consumer buying service to purchase your new car, such as: Consumer's Club of America, Unity Buying Service, United Buying Service, etc., please keep in mind that these services charge a fee for their use! The fees generally run anywhere from $100 to $150 depending on which buying service you choose. These "service fees" are NOT readily evident to the consumer and are often embedded in the cost sheet information that you are supplied with when you participate in the service. When using one of these services, you will be referred to a specific auto dealer and often to a specific salesperson and told to set up an appointment with that specific dealer and salesperson. Also, you probably will be told to ask to see the dealer's "invoice sheet" for the car you are interested in. However, you will generally NOT BE TOLD that the "invoice sheet" you will be shown is *** NOT *** the invoice sheet that the dealer receives direct from the manufacturer, but is an invoice sheet especially prepared by the consumer service itself. This "consumer service invoice sheet" already has embedded in it the *** FEE *** that the consumer service charges to the dealer when you buy your car through the consumer service and it appears as part of "dealer cost". For example, if the dealer shows you the "buying service invoice" for a car shown as $15,325, the actual invoice that the dealer got DIRECTLY FROM THE MANUFACTURER would be more like $15,000. The extra ** $325 ** consisted of a *** $125 *** buying service fee plus another $200 over dealer cost! The buying service fee is buried in the total dealer cost figure! Ask the buying service people if they charge any fee's either to you or to the dealer for using the service. If they say "no", then tell them that you want to see the "Manufacturer's Invoice" to the dealer and NOT the special buying services invoice and see what they say. For obvious reasons, most dealer's will refuse to show you their manufacturer's invoice since it could make their salesperson, who just got through telling you that the dealer was "ONLY MAKING $200 ON THE DEAL", look really bad. CLOSING COMMENTS The author realizes that everyone who runs a business has a right to make a PROFIT to stay in business! However, there is a big difference between making a reasonable PROFIT and GOUGING THE HELL OUT OF THE CUSTOMER. If deals are made based on the information you now have, BOTH the Dealer AND the Customer will be treated FAIRLY and that's really the way that GOD wants it, isn't it? Good luck and shop with confidence! CREDITS Shel-O'Brien Associates, Inc., Special Car Buyer's Guide by Harris Publications, Kelley Blue Book Auto Market Report by Kelley Blue Book Publications, N.A.D.A. Used Car Price Guide, Edmund's New Car Price Guide by Edmund Publications Corp., Car Facts by Pace Publications, The Auto Broker Report, The Auto Auctioneer's Deal Sheet, AUTOBUY. CARFACT1.FRM Use this form to COMPARE prices from different dealers. CAR BUYER'S WORK SHEET Dealer #1 Dealer #2 Dealer #3 ----------- ----------- ----------- (1) MSRP Price Inc. Factory | | | Installed Options but | | | minus Dest. Charge | | | ----------------------------------------------------------------- (2) List Price of Dealer | | | Inst. Options (if any) | | | | | | ----------------------------------------------------------------- (3) Total List Price Of Car | | | (1) + (2) | | | | | | ----------------------------------------------------------------- (4) Price Dealer Quotes You | | | For The New Car WITHOUT | | | A Trade-In | | | ----------------------------------------------------------------- (5) Price Dealer Quotes You | | | For The New Car WITH | | | A Trade-In | | | ----------------------------------------------------------------- (6) Trade-In Value Dealer | | | CLAIMS To Be Giving You | | | for trade-in (4) - (5) | | | ----------------------------------------------------------------- (7) Actual Blue Book Value | | | Of Your Trade-In (see | | | value calculated from | | | from CARFACT2.FRM) | | | ----------------------------------------------------------------- (8) Was Dealer Giving You | | | the FAIR Blue Book Val. | | | of your trade? | | | (If (6) - (7) is | | | NEGATIVE, answer NO) | | | (If (6) - (7) is | | | POSITIVE or ZERO answer | | | YES) | | | ----------------------------------------------------------------- (9) Actual Dealer Cost Of | | | Car (see CARFACTS.TXT) | | | ----------------------------------------------------------------- (10) Barginning Price | | | (ADC + $200) | | | ----------------------------------------------------------------- CARFACT3.FRM DATA FOR MR. S's NEW CAR LOAN: ITEM MR. S DEALER DIFFERENCE (PROFIT) ------------- ------------- ----------- ---------- Sticker Price $15,845.00 $13,941.00 $1,904.00 3% Holdback - $ 475.00 $ 475.00 Trade-in Allow. $ 3,850.00 $ 4,800.00 $ 950.00 *Finance Charge $ 4,037.74 $ 3,539.97 $ 497.77 Dealer Add Ons $ 695.00 $ 250.00 $ 445.00 Ext. Warranty $ 895.00 $ 350.00 $ 545.00 Doc fee $ 50.00 $ 30.00 $ 20.00 --------- Dealer's Potential Profit = $4,836.77 ** ** Dealer actually sold Mr. S's trade-in for $4150 not $4800 (Subtract $650) (Mr. S's trade-in was sold "AS IS" with no dealer warranty) $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $ Dealer's Actual Profit = $4,186.77 $ $ ($4836.77 - $650.00) $ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ * FINANCE CHARGES for: Mr. S's Loan 1) Loan Amount : $14085 2) Interest Rate : 10.4 APR 3) Loan Term : 60 mos. ---------------------------------- A) Total Interest Paid : $4,037.74 for: Dealer's Loan 1) Loan Amount : $14085 2) Interest Rate : 9.2 APR 3) Loan Term : 60 ----------------------------------- B) Total Interest Paid : $3,539.97 Dealer Profit On Loan = Amount From (A) - Amount From (B) = $4,037.74 - $3539.97 $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $ $ $ Dealer Profit On Loan = $497.77 $ $ $ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ EOF