This is a follow-up on my last column which exposed a direct mail scam by a local car dealer. After the General Manager of this dealership mailed this letter out a short time ago, some recipients sent me copies. They either recognized that it was phony or they wanted my opinion. I did some research which proved that the claims this General Manager was making were false and discussed this in my last column.
After I wrote my last column, a customer sent me another letter he received from a different General Manager of a different car dealership which was the exact same letter as the first dealership mailed out. For clarification, I will repeat the text of both, identical letters below:
Dear ______,
You are receiving this letter because I have some very timely and important information about your vehicle. As General Manager of [Name of Dealership], I am making a personal appeal to purchase your vehicle. Because of a unique wholesale market condition, I have allocated additional funds and I am now in the position of being able to offer you over book value for your vehicle—whether you trade it in or I purchase it outright. My dilemma simply means that right now your vehicle is worth more than it was last month. Here’s why:
Normally, we purchase over 200 pre-owned vehicles per month at nationally recognized automotive auctions. Unfortunately, flood damaged Katrina vehicles (see enclosed article) are currently showing up at these auctions. I simply will not allow my auction buyers to risk our reputation by inadvertently purchasing one of these units and reselling it to one of our customers. Therefore, I have put a moratorium on any auction purchases until I am confident flood damaged vehicles are properly disclosed to our wholesale buyers.
This is a straight forward, genuine appeal to purchase your vehicle. I need local vehicles with local histories—vehicles with a pedigree so to speak. As always, [Name of Dealership] will pay off your trade balance as part of any final retail transaction. My purchase offer is in addition to all [Name of make of car] incentives, should you decide to maximize your market timing. But hurry, my appraisers have from now until the close of business, 6:00PM [Date] to extend thee purchase offers. Call me at [Dealership number] to receive a no obligation, written trade or purchase estimate.
Sincerely,
[Signature of General Manager]
As I said this exact letter was mailed out by two dealerships within 10 miles of each other. One was a Ford dealership and one was a Toyota dealership. One is owned by a public corporation and one is owned by a local person. There is no affiliation between the two. Obviously this direct mail scam is being sold to car dealers by some unscrupulous marketing company. Neither of these dealerships sells even close to 200 used cars a month and there would be no reason in the world for them to purchase “over 200 pre-owned vehicles per month at nationally recognized automotive auctions”. There are very likely lots of other dealerships sending out this same letter. If you receive the letter above, throw it in the trash. It is absolutely and shamelessly false.
Letters of this nature are peddled to dealers with promises of how many “suckers” they will bring into the dealers’ showrooms. Oftentimes they have a guarantee of a certain minimum percentage…3% would be a very effective mailer. The direct mail marketing company would guarantee that if the 10,000 mailers didn’t bring in at least 300 potential victims, they would run another promotion free. Dealers usually count on selling about one out of every five prospects, which means that this mailer could result in about 60 sales resulting from this lie.
You may ask how car dealers get away with something like this. The answer is that direct mail usually falls beneath the “radar” of the regulators. When you consider all of the deceptive advertising out there, the regulators have a hard enough time keeping the TV, radio, and newspaper advertising clean, advertising that is very visible to all. Only the unfortunate addressees usually see the direct mail advertising. My advice to you is to ignore all direct mail advertising unless you have personal knowledge of the integrity of the company.
Friday, June 29, 2007
BE VERY CAREFUL WHEN LEASING A CAR
I just received a letter and a follow-up phone call from an attorney who is representing a large group of buyers from one dealership who he is alleging was taken advantage of by a South Florida car dealer. He and his clients are readers of my column and he was asking my advice. All of these buyers are elderly. In fact, two have passed away since the lawsuit was filed. These buyers paid huge profits to this dealer, thousands of dollars more than an average profit on a new car which is typically under $2,000. These senior citizens came in to buy a car, but salesmen convinced them that leasing was a better option because they put so few miles on their cars (This is not true). This lawyer told me that, when he confronted the owner of the dealership, he admitted to making exorbitant profits on his clients and said, “It’s all legal and there is nothing you can do about it!”
It’s true that, when we get older, we drive less and put fewer miles on our cars. But that is not a good reason to lease a car instead of buy one. A car with fewer miles is worth more than one with a lot of miles, all things being equal. You have an advantage trading in a car that you own with low mileage. You will get a better trade-in allowance on your next purchase or you can sell it for more with low miles. In fact, you actually have a bigger advantage if you own a car with extraordinarily low miles. Leasing companies typically allow 10,000 or more miles per year, after which they add charge for each mile you have above that. If you put less than 10,000 miles per year on your car, they don’t “pay” you any money per mile. This lower mileage advantage goes to the leasing company.
After this dealer had given these customers a false reason convincing them they should lease instead of buy, he proceeded to get as much cash from these customers as he could squeeze out of them. If they were trading in a car, he undervalued the appraisal. He commanded large down payments (down payments are not normally necessary when leasing) with the excuse of “getting their payments down to what they could afford”. Remember that these customers came into the dealership with the mindset of buying, not leasing. They were prepared to make down payments, which are usually necessary on a purchase. They also had monthly payments in mind, based on purchasing. When you make a down payment on a lease and end up with a payment of about the same amount as if you purchased the car, you are paying the dealer a HUGE profit. After making a down payment and all of your monthly payments on a purchase, you own the vehicle. After making a similar down payment and similar monthly payments on a lease, you own nothing. What would have been equity in your car of thousands of dollars if you had purchased, was converted to profit for the dealer because you leased.
Don’t get me wrong, leasing is a viable alternative to buying but you must carefully analyze each option before you commit to one or the other. The best way to lease a car is to “buy it first”. I don’t mean that literally. But you should get your very best selling price on a car even if you would rather lease it. In past columns, I have told you how to get your best price. Decide first on the exact make, year, model, and equipment you want. Then, comparing “apples and apples”, get prices from at least three dealerships. Also, your Internet price is usually the lowest price. Don’t be fooled by “dealer fees”. Be sure you get an “out-the-door” price plug tax and tag only. Separate the shopping of the price on the car from your trade-in. Get at least three bids from other dealers of the same make to buy your trade-in. Offer the dealer you choose to buy your new car from the right of first refusal.
Now you have selected the dealer with the best price. Tell the dealer that you have changed your mind. You want to lease the car, not buy it. Tell him that you know that, when he calculates your lease payment, he should use your quoted price as the “capitalized cost” on the lease. This is the sum which, when applying the lease factor (interest rate) and residual value (what the lease car is estimated to be worth at the end of the lease), gives you your monthly payment. All lease companies also add something called a “lease acquisition fee”, as much as $800. This is just like a “dealer fee” and is profit for the leasing company and usually the dealer gets a piece of it. You may be able to negotiate that down, at least the dealer’s part of the profit. Now, tell him how many miles you typically drive and, if its more than the leasing company allows, include that extra cost into the lease so that you have no “surprises” at the end of the lease. Be sure that the dealer gets payments from several leasing companies. Different leasing companies offer different lease factors and sometimes different residuals. Your capitalized cost will remain constant, but you will choose the lease company with the highest residual and lowest lease factor which will result in the lowest payment.
I have one final warning about leasing. Just as a dealer will mark up the interest rate from the bank when you finance a car, a dealer will mark up the lease factor (interest cost) from the leasing company. Be sure that that the dealer has not done this on your lease contract. Agree to sign the lease contract only if the dealer will guarantee in writing that he has not marked up the lease factor that the leasing company charges.
It’s true that, when we get older, we drive less and put fewer miles on our cars. But that is not a good reason to lease a car instead of buy one. A car with fewer miles is worth more than one with a lot of miles, all things being equal. You have an advantage trading in a car that you own with low mileage. You will get a better trade-in allowance on your next purchase or you can sell it for more with low miles. In fact, you actually have a bigger advantage if you own a car with extraordinarily low miles. Leasing companies typically allow 10,000 or more miles per year, after which they add charge for each mile you have above that. If you put less than 10,000 miles per year on your car, they don’t “pay” you any money per mile. This lower mileage advantage goes to the leasing company.
After this dealer had given these customers a false reason convincing them they should lease instead of buy, he proceeded to get as much cash from these customers as he could squeeze out of them. If they were trading in a car, he undervalued the appraisal. He commanded large down payments (down payments are not normally necessary when leasing) with the excuse of “getting their payments down to what they could afford”. Remember that these customers came into the dealership with the mindset of buying, not leasing. They were prepared to make down payments, which are usually necessary on a purchase. They also had monthly payments in mind, based on purchasing. When you make a down payment on a lease and end up with a payment of about the same amount as if you purchased the car, you are paying the dealer a HUGE profit. After making a down payment and all of your monthly payments on a purchase, you own the vehicle. After making a similar down payment and similar monthly payments on a lease, you own nothing. What would have been equity in your car of thousands of dollars if you had purchased, was converted to profit for the dealer because you leased.
Don’t get me wrong, leasing is a viable alternative to buying but you must carefully analyze each option before you commit to one or the other. The best way to lease a car is to “buy it first”. I don’t mean that literally. But you should get your very best selling price on a car even if you would rather lease it. In past columns, I have told you how to get your best price. Decide first on the exact make, year, model, and equipment you want. Then, comparing “apples and apples”, get prices from at least three dealerships. Also, your Internet price is usually the lowest price. Don’t be fooled by “dealer fees”. Be sure you get an “out-the-door” price plug tax and tag only. Separate the shopping of the price on the car from your trade-in. Get at least three bids from other dealers of the same make to buy your trade-in. Offer the dealer you choose to buy your new car from the right of first refusal.
Now you have selected the dealer with the best price. Tell the dealer that you have changed your mind. You want to lease the car, not buy it. Tell him that you know that, when he calculates your lease payment, he should use your quoted price as the “capitalized cost” on the lease. This is the sum which, when applying the lease factor (interest rate) and residual value (what the lease car is estimated to be worth at the end of the lease), gives you your monthly payment. All lease companies also add something called a “lease acquisition fee”, as much as $800. This is just like a “dealer fee” and is profit for the leasing company and usually the dealer gets a piece of it. You may be able to negotiate that down, at least the dealer’s part of the profit. Now, tell him how many miles you typically drive and, if its more than the leasing company allows, include that extra cost into the lease so that you have no “surprises” at the end of the lease. Be sure that the dealer gets payments from several leasing companies. Different leasing companies offer different lease factors and sometimes different residuals. Your capitalized cost will remain constant, but you will choose the lease company with the highest residual and lowest lease factor which will result in the lowest payment.
I have one final warning about leasing. Just as a dealer will mark up the interest rate from the bank when you finance a car, a dealer will mark up the lease factor (interest cost) from the leasing company. Be sure that that the dealer has not done this on your lease contract. Agree to sign the lease contract only if the dealer will guarantee in writing that he has not marked up the lease factor that the leasing company charges.
Friday, June 15, 2007
When a Car Dealer Crosses the Line
Readers of this column know my thoughts about unethical advertising. I have written about advertising a very low price which is applicable to only one car that is always “gone” when you ask to see it. I wrote about advertising giant discounts on cars that are artificially marked up over MSRP. You have read several of my articles about dealer fees which are really just additional dealer profit, disguised as a federal, state, or local “official” fee. You probably know about “get em in the door” phrases like “no credit application refused” [They will accept a credit application from everyone, but they won’t approve everyone’s credit if they don’t like your application].
As bad and unethical as this kind of advertising is, it is not illegal and it is not an out and out lie. If a dealer made the above statements under oath, she would not go to jail for perjury. I was made aware of a direct mail advertisement recently that crossed over this line. It was a “personal letter” written by the general manager of a local dealership to owners of a particular make of car imploring those owners to sell their used car to this dealer. Several of my customers called me about this and some sent me the letter that they received.
This dealership’s general manager explained that she had stopped buying cars at the auto auctions to protect her used car customers from buying “Katrina flood cars”. Because she couldn’t buy cars from the auction, she therefore had to buy cars directly from the public. She also promised to pay “over book” for these cars because she was desperate for used cars. She didn’t comment about the higher price she would have to charge her used car customers for these cars that she paid so much money for.
I did a little checking on this and found out that this dealer rarely ever bought cars from the auction (just 5 so far in 2007). This general manager said that she normally bought over 200 cars a month from auctions. This is simply not so. This dealership doesn’t sell anywhere near 200 used cars per month and they trade in more used cars on their new cars than they can sell. In fact, they sell a lot of used cars at the auction because they cannot retail them.
The proof of the Katrina flood car problem was an article inserted in the envelope from a company named CarFax, whose business is researching the history of used cars for evidence of flood damage, collision, etc. My dealership and all responsible car dealerships screen all of their used cars with CarFax before they buy them or sell them to the public. The responsible auctions also screen their cars for problems like flood damage and do not sell cars like this at their auctions. If one should slip by the checks, the dealer could return the car to the auction.
This letter is simply a ploy to get you “in the door” based on a totally false premise. This general manager’s goal is to sell you a new or used car. They can and will offer you “over book” if you trade your used car in for new or used car because they can mark up the purchase price high enough to make it look like you are getting a great price for your trade-in. If you will not buy a car from them, they have no choice except to offer you as much below book for your car as they can get away with.
The bottom line is that the general manager of this dealership premeditatedly and deliberately made up a story to fool you and other potential car owners to come into her dealership. How can she get away with this? For one thing, direct mail advertising gets far less scrutiny than TV, radio, or newspaper. Also, because this is not directly an advertisement for new cars, the manufacturer will likely not get involved. The public who reads this letter doesn’t have the inside knowledge to know that they are reading a fairy tale written by a wicked queen that has a very bad ending.
As bad and unethical as this kind of advertising is, it is not illegal and it is not an out and out lie. If a dealer made the above statements under oath, she would not go to jail for perjury. I was made aware of a direct mail advertisement recently that crossed over this line. It was a “personal letter” written by the general manager of a local dealership to owners of a particular make of car imploring those owners to sell their used car to this dealer. Several of my customers called me about this and some sent me the letter that they received.
This dealership’s general manager explained that she had stopped buying cars at the auto auctions to protect her used car customers from buying “Katrina flood cars”. Because she couldn’t buy cars from the auction, she therefore had to buy cars directly from the public. She also promised to pay “over book” for these cars because she was desperate for used cars. She didn’t comment about the higher price she would have to charge her used car customers for these cars that she paid so much money for.
I did a little checking on this and found out that this dealer rarely ever bought cars from the auction (just 5 so far in 2007). This general manager said that she normally bought over 200 cars a month from auctions. This is simply not so. This dealership doesn’t sell anywhere near 200 used cars per month and they trade in more used cars on their new cars than they can sell. In fact, they sell a lot of used cars at the auction because they cannot retail them.
The proof of the Katrina flood car problem was an article inserted in the envelope from a company named CarFax, whose business is researching the history of used cars for evidence of flood damage, collision, etc. My dealership and all responsible car dealerships screen all of their used cars with CarFax before they buy them or sell them to the public. The responsible auctions also screen their cars for problems like flood damage and do not sell cars like this at their auctions. If one should slip by the checks, the dealer could return the car to the auction.
This letter is simply a ploy to get you “in the door” based on a totally false premise. This general manager’s goal is to sell you a new or used car. They can and will offer you “over book” if you trade your used car in for new or used car because they can mark up the purchase price high enough to make it look like you are getting a great price for your trade-in. If you will not buy a car from them, they have no choice except to offer you as much below book for your car as they can get away with.
The bottom line is that the general manager of this dealership premeditatedly and deliberately made up a story to fool you and other potential car owners to come into her dealership. How can she get away with this? For one thing, direct mail advertising gets far less scrutiny than TV, radio, or newspaper. Also, because this is not directly an advertisement for new cars, the manufacturer will likely not get involved. The public who reads this letter doesn’t have the inside knowledge to know that they are reading a fairy tale written by a wicked queen that has a very bad ending.
Friday, June 08, 2007
Should I Buy a Car or Have a Colonoscopy?
If you are over 55, you should have had a colonoscopy. If you haven’t, call your doctor because this could save your life. It did mine, but that’s another story. I had another colonoscopy yesterday and I have to tell you that it’s a very unpleasant experience, mainly from the mental anguish anticipation and the discomfort of the preparation the previous day. I had a lot of time to think about my procedure and I started thinking about how this experience parallels that of buying a car. It’s something you must do and has a very good benefit, but you dread the process.
This column, my 39th for Hometown News, has consisted mainly of suggestions and inside information that can make your new or used car buying experience less of a fearful occasion. If this is the first column of mine you have read, you can read all of them on my Blog, http://www.earlstewartoncars.com/. Some of the titles/subjects are “Always Get an Out the Door Price”, “Bait and Switch Advertising”, “Beware of Deceptive Internet Car Pricing”, “Beware of Direct Mail Car Advertising”, “Buying a Car When You Have a Credit Problem”, “Eight Steps to Ensure You Are Buying the Best Car for the Best Price”, “List Price and MSRP Might Not Be the Same”, “Negotiating to Buy a Car”, “Open Letter to Florida Car Dealers” (I, II, III, and IV), “Shop Your Financing and Trade”, “Should I Buy My Car at the End of the Lease?”, “Should I Lease or Buy my Next Car?”, “Should I Pay Cash or Finance My Next Car?”, “Should I Trade in My Old Car or Sell it Myself”, “Tell Your Car Dealer to be Nice”, “The Right Used Car is a Better Buy than a New Car”, “Translating Misleading Car Ads”, “What is the True Cost of that New Car?”, “What to do if You Are Treated Badly by a Car Dealer”, “When is a Car Sale Not a Car Sale?”, and “The Internet Price is the Lowest Price for a New Car”.
Almost every one of these articles originated from my customers’ and others’ experiences when buying cars from other car dealers. I get a lot of calls from people who have never bought a car from me. They call to tell me of their bad experience with another dealer and, when I get several calls on the same subject, I write a column on it. People often call me asking for advice or assistance after they have already bought, which is “closing the barn door after the horse is gone.” On more than one occasion I have called car dealers asking them to consider undoing a wrong they have caused one of their customers. I have to confess that I am “batting zero” on this effort. I won’t give up, however. I just made another call this afternoon on behalf of a customer whose installment sales contract, signed by her and the dealership had a higher interest rate than a second contract that the dealer sent to the lender. The customer told me she signed only one contract, the one she took home a copy of.
One thing that amazes me about these weekly columns that I have been writing for almost a year is that no car dealer has ever called me to complain or for any other reason. I have not been sued either. I think that says something about the truth of my articles. I’m not a lawyer, but I do know that you can’t successfully sue somebody for libel or slander if they write or say the truth. I know of one car dealer who threatened to cancel her advertising in the PB Post because she thought it owned the Hometown News. I am puzzled why not one single dealer would call me just out of curiosity. I don’t have a secretary and I don’t screen any of my calls…nor do any of my employees. They do know how successful my dealership is and how fast my sales are growing. They know that I am selling a lot of their former customers. Many of these new customers tell me how they told the other dealers why they chose to take their business elsewhere. I believe that before too much longer we will see some changes in the way other car dealers do business even if they refuse to call me, as I have repeatedly invited them to do. Sooner or later they will understand that treating your customers with courtesy and integrity is just plain good business.
I apologize for the 3 repeat columns. I am in the midst of move from to my new house and my computers have been out of commission until a few minutes ago. Next week I will be back in the swing of things with a fresh column.
This column, my 39th for Hometown News, has consisted mainly of suggestions and inside information that can make your new or used car buying experience less of a fearful occasion. If this is the first column of mine you have read, you can read all of them on my Blog, http://www.earlstewartoncars.com/. Some of the titles/subjects are “Always Get an Out the Door Price”, “Bait and Switch Advertising”, “Beware of Deceptive Internet Car Pricing”, “Beware of Direct Mail Car Advertising”, “Buying a Car When You Have a Credit Problem”, “Eight Steps to Ensure You Are Buying the Best Car for the Best Price”, “List Price and MSRP Might Not Be the Same”, “Negotiating to Buy a Car”, “Open Letter to Florida Car Dealers” (I, II, III, and IV), “Shop Your Financing and Trade”, “Should I Buy My Car at the End of the Lease?”, “Should I Lease or Buy my Next Car?”, “Should I Pay Cash or Finance My Next Car?”, “Should I Trade in My Old Car or Sell it Myself”, “Tell Your Car Dealer to be Nice”, “The Right Used Car is a Better Buy than a New Car”, “Translating Misleading Car Ads”, “What is the True Cost of that New Car?”, “What to do if You Are Treated Badly by a Car Dealer”, “When is a Car Sale Not a Car Sale?”, and “The Internet Price is the Lowest Price for a New Car”.
Almost every one of these articles originated from my customers’ and others’ experiences when buying cars from other car dealers. I get a lot of calls from people who have never bought a car from me. They call to tell me of their bad experience with another dealer and, when I get several calls on the same subject, I write a column on it. People often call me asking for advice or assistance after they have already bought, which is “closing the barn door after the horse is gone.” On more than one occasion I have called car dealers asking them to consider undoing a wrong they have caused one of their customers. I have to confess that I am “batting zero” on this effort. I won’t give up, however. I just made another call this afternoon on behalf of a customer whose installment sales contract, signed by her and the dealership had a higher interest rate than a second contract that the dealer sent to the lender. The customer told me she signed only one contract, the one she took home a copy of.
One thing that amazes me about these weekly columns that I have been writing for almost a year is that no car dealer has ever called me to complain or for any other reason. I have not been sued either. I think that says something about the truth of my articles. I’m not a lawyer, but I do know that you can’t successfully sue somebody for libel or slander if they write or say the truth. I know of one car dealer who threatened to cancel her advertising in the PB Post because she thought it owned the Hometown News. I am puzzled why not one single dealer would call me just out of curiosity. I don’t have a secretary and I don’t screen any of my calls…nor do any of my employees. They do know how successful my dealership is and how fast my sales are growing. They know that I am selling a lot of their former customers. Many of these new customers tell me how they told the other dealers why they chose to take their business elsewhere. I believe that before too much longer we will see some changes in the way other car dealers do business even if they refuse to call me, as I have repeatedly invited them to do. Sooner or later they will understand that treating your customers with courtesy and integrity is just plain good business.
I apologize for the 3 repeat columns. I am in the midst of move from to my new house and my computers have been out of commission until a few minutes ago. Next week I will be back in the swing of things with a fresh column.
Monday, June 04, 2007
TIPS ON NEGOTIATING TO BUY A CAR
Buying a new or used car is one of the last bastions of the negotiated price. In some countries, negotiation is fairly common in stores, but in America most products are sold at a fixed price. Some of us are simply not comfortable negotiating and most of us are not very good at it.
As I have said in previous columns, the best way to buy a new or used car is on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.
If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car.
(1) If you have a trade-in, keep that separate from the negotiation. Negotiate the best price on the car you are buying and then negotiate the best price you can get for your trade-in. Don’t fall for the old “over allowance” on your trade-in ruse. This is where the dealer makes up the price of car you are buying higher so that he can make you think you are getting more for your trade-in.
(2) Never buy a car on payments alone. Always negotiate the best price you can for the car you are buying and then calculate your best payment after you have negotiated for the best interest rate.
(3) Be sure you understand how the dealer arrived at his retail price. Federal law dictates that a Monroney label be affixed to every vehicle with a manufacturer’s suggested retail price. Many dealers mark that up with another label, often referred to as a “Market Adjustment Addendum”. This markup can be several thousands of dollars.
(4) Expect the first price you are given to be substantially higher than what you can buy the car for. Sales people and sales managers are trained to “start high because you can always come down”. Don’t be afraid to offer substantially less than the initial asking price. You should do what the car salesman does, but in reverse…”start low because you can always go higher”. If the salesman accepts your first offer, you probably offered too much. In fact, shrewd car sales people are trained to always ask for more money, even if the offer is good one. This is because they don’t want to “scare off the customer” by telegraphing to the customer that his offer was high.
(5) If the sales person asks you for a deposit before he will begin negotiating, determine whether the deposit is refundable. Florida law requires a nonrefundable deposit be disclosed in writing on the receipt. If this is printed on your receipt, insist that this be waived in writing on your buyer’s order. If the dealer will not agree to this, be warned that he may be able to keep your deposit if you change your mind about buying the car.
(6) Be prepared for a lot of “back and forth” when the salesman takes your first offer back to the manager. When you get close to finding a mutually acceptable price, the manager himself will often come to talk to you. Don’t be intimidated and stick to your guns even when they tell you this is “positively, absolutely the lowest price”. Even if you think you do have the lowest price, a great strategy is to get up, walk out of the showroom, and get into your car to drive away. This will often precipitate an even better price. When you try this, the worst case scenario is that you really do drive home, but you can always return and buy the car the next day for the last price they quoted you. They may tell you that you have to buy today, but nine times out of ten that is a bluff. The only exception is when there are factory rebates and incentive expiring.
(7) The last day of the month really is a good time to buy a car. The salesman’s bonus money is maximized, the factory incentives are in effect, the managers are desperate to make their quotas, and it is the one time of the month when the buyer has the best edge in the negotiation.
Caveat emptor “let the buyer beware” could have been written specifically for what you can expect when you walk into a car dealership to negotiate the best price. You are up against some of the shrewdest, experienced negotiators anywhere. But, if you will follow my advice above, you should be able to hold your own and maybe even get a great deal.
As I have said in previous columns, the best way to buy a new or used car is on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.
If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car.
(1) If you have a trade-in, keep that separate from the negotiation. Negotiate the best price on the car you are buying and then negotiate the best price you can get for your trade-in. Don’t fall for the old “over allowance” on your trade-in ruse. This is where the dealer makes up the price of car you are buying higher so that he can make you think you are getting more for your trade-in.
(2) Never buy a car on payments alone. Always negotiate the best price you can for the car you are buying and then calculate your best payment after you have negotiated for the best interest rate.
(3) Be sure you understand how the dealer arrived at his retail price. Federal law dictates that a Monroney label be affixed to every vehicle with a manufacturer’s suggested retail price. Many dealers mark that up with another label, often referred to as a “Market Adjustment Addendum”. This markup can be several thousands of dollars.
(4) Expect the first price you are given to be substantially higher than what you can buy the car for. Sales people and sales managers are trained to “start high because you can always come down”. Don’t be afraid to offer substantially less than the initial asking price. You should do what the car salesman does, but in reverse…”start low because you can always go higher”. If the salesman accepts your first offer, you probably offered too much. In fact, shrewd car sales people are trained to always ask for more money, even if the offer is good one. This is because they don’t want to “scare off the customer” by telegraphing to the customer that his offer was high.
(5) If the sales person asks you for a deposit before he will begin negotiating, determine whether the deposit is refundable. Florida law requires a nonrefundable deposit be disclosed in writing on the receipt. If this is printed on your receipt, insist that this be waived in writing on your buyer’s order. If the dealer will not agree to this, be warned that he may be able to keep your deposit if you change your mind about buying the car.
(6) Be prepared for a lot of “back and forth” when the salesman takes your first offer back to the manager. When you get close to finding a mutually acceptable price, the manager himself will often come to talk to you. Don’t be intimidated and stick to your guns even when they tell you this is “positively, absolutely the lowest price”. Even if you think you do have the lowest price, a great strategy is to get up, walk out of the showroom, and get into your car to drive away. This will often precipitate an even better price. When you try this, the worst case scenario is that you really do drive home, but you can always return and buy the car the next day for the last price they quoted you. They may tell you that you have to buy today, but nine times out of ten that is a bluff. The only exception is when there are factory rebates and incentive expiring.
(7) The last day of the month really is a good time to buy a car. The salesman’s bonus money is maximized, the factory incentives are in effect, the managers are desperate to make their quotas, and it is the one time of the month when the buyer has the best edge in the negotiation.
Caveat emptor “let the buyer beware” could have been written specifically for what you can expect when you walk into a car dealership to negotiate the best price. You are up against some of the shrewdest, experienced negotiators anywhere. But, if you will follow my advice above, you should be able to hold your own and maybe even get a great deal.
The Owner of the Car Dealership is Accountable
Congress passed a law a few years ago that really shook up publicly owned companies. It’s called Sarbanes-Oxley, named after the Congressmen who sponsored the bill. Basically this law says that the CEO and other high echelon management of a public owned company cannot get of the hook from wrong doings because he claims he didn’t know what his employees were doing. I believe the same rules should apply to all businesses, even if their stock is not publicly held. The boss should always be held accountable for the actions of his employees and this should apply especially for car dealerships.
Most of the employees that the customer comes into contact with in a car dealership are paid on commission. Those employees get a percentage of the profit that the company makes on the transaction. Car sales people, service sales people (also called service advisors or assistant service managers), parts sales people, and the mechanical technicians who work on your car are mostly all paid on commission. This method of pay tilts the relationship between the customer and employee in somewhat of an adversarial manner. The employee wants the profit to be as high as possible but the customer wants it to be low. In a car dealership that has talented, fully engaged, and ethical management, this potentially adversarial relationship is kept in a fair balance. Without the oversight of upper and middle management and careful hiring practices, some employees will exploit a customer to increase his commission.
What brought the subject of this column to mind was a call I received yesterday from a 78 year old widow from Ft. Pierce. She called to thank me for writing my column and to tell me that she wished she had read some of my columns before she bought her 2005 used Mazda. This was the first car she had bought on her own. Her husband had always taken on this responsibility. She paid the dealership a huge profit on her purchase. She was sold a maintenance package that she believed cost only $25 but it really was $2,500. She was rushed to sign the papers at night because the dealership was closing. In the morning, when she realized the mistake, she drove back to the dealership and asked to back out the sale but was told it was too late. She was told she had signed all the papers and that they had already sold her trade-in even though she had not given them the title. When she asked to speak to the General Manager, three different employees identified themselves as the General Manager. I get a lot of sad calls like this.
The owner of that dealership should know what’s going on. I’m giving him the benefit of the doubt by saying that he doesn’t know because if he does know it’s even worse. The owner should look at the big picture and the long term view of his business. You can take advantage of customers and benefit in the short run, but you eventually “pay the piper” when your bad reputation spreads far enough. Most of the bad things I hear about car dealers from their customers are not illegal things. They are simply unethical and not the way one human being should treat another. Refusing to refund the money of an elderly, widow after she realized that she had been taken advantage of is not illegal, but it sure “stinks”. Jim Press is the top executive for Toyota over all of North America and he is also the only non-Japanese to occupy a place on Toyota’s board of directors. He was quoted in the book, The Toyota Way by Jeffrey Liker, as saying “It’s what you do for a customer when you don’t owe him anything that is the true measure of character. It’s like sticking up for somebody who can’t defend himself”. I really like this quote and I have it engraved on a plaque which I give out each month to the employee who wins the “Above and Beyond Award”. This award goes to our employee who does something for her customer above and beyond what the customer would have expected.
If you have a bad dealing with your car dealership, do your best to contact the owner. This is impossible with publicly held dealerships like AutoNation and United Auto Group, but you should be able to talk to their General Managers. If it’s privately owned dealership, don’t give up until you see the owner.
Most of the employees that the customer comes into contact with in a car dealership are paid on commission. Those employees get a percentage of the profit that the company makes on the transaction. Car sales people, service sales people (also called service advisors or assistant service managers), parts sales people, and the mechanical technicians who work on your car are mostly all paid on commission. This method of pay tilts the relationship between the customer and employee in somewhat of an adversarial manner. The employee wants the profit to be as high as possible but the customer wants it to be low. In a car dealership that has talented, fully engaged, and ethical management, this potentially adversarial relationship is kept in a fair balance. Without the oversight of upper and middle management and careful hiring practices, some employees will exploit a customer to increase his commission.
What brought the subject of this column to mind was a call I received yesterday from a 78 year old widow from Ft. Pierce. She called to thank me for writing my column and to tell me that she wished she had read some of my columns before she bought her 2005 used Mazda. This was the first car she had bought on her own. Her husband had always taken on this responsibility. She paid the dealership a huge profit on her purchase. She was sold a maintenance package that she believed cost only $25 but it really was $2,500. She was rushed to sign the papers at night because the dealership was closing. In the morning, when she realized the mistake, she drove back to the dealership and asked to back out the sale but was told it was too late. She was told she had signed all the papers and that they had already sold her trade-in even though she had not given them the title. When she asked to speak to the General Manager, three different employees identified themselves as the General Manager. I get a lot of sad calls like this.
The owner of that dealership should know what’s going on. I’m giving him the benefit of the doubt by saying that he doesn’t know because if he does know it’s even worse. The owner should look at the big picture and the long term view of his business. You can take advantage of customers and benefit in the short run, but you eventually “pay the piper” when your bad reputation spreads far enough. Most of the bad things I hear about car dealers from their customers are not illegal things. They are simply unethical and not the way one human being should treat another. Refusing to refund the money of an elderly, widow after she realized that she had been taken advantage of is not illegal, but it sure “stinks”. Jim Press is the top executive for Toyota over all of North America and he is also the only non-Japanese to occupy a place on Toyota’s board of directors. He was quoted in the book, The Toyota Way by Jeffrey Liker, as saying “It’s what you do for a customer when you don’t owe him anything that is the true measure of character. It’s like sticking up for somebody who can’t defend himself”. I really like this quote and I have it engraved on a plaque which I give out each month to the employee who wins the “Above and Beyond Award”. This award goes to our employee who does something for her customer above and beyond what the customer would have expected.
If you have a bad dealing with your car dealership, do your best to contact the owner. This is impossible with publicly held dealerships like AutoNation and United Auto Group, but you should be able to talk to their General Managers. If it’s privately owned dealership, don’t give up until you see the owner.
Subscribe to:
Posts (Atom)