The trade journal for auto manufacturers and dealers, Automotive News, predicted that September 2009 will be the worst retail month for retailing automobiles in 28 years. Nevertheless, virtually all manufacturers have increased their output of new vehicles based on the huge response to “cash for clunkers” in late July and most of August.
Adding these two facts together, very low demand and very high inventories, translates into a “buyer’s market” for new automobiles. Inventories are building rapidly after being severely depleted in August. The manufacturers are gambling that the 700,000 new vehicles that were sold by trading in a clunker were mostly plus business. They want to believe that most of those sales were to buyers who would not have bought a car if the US government had not given them $4,500 or $3,500 for their clunker. What happened in September, an absolutely terrible retail month for car dealers, suggests otherwise. It suggests that the cars dealers sold in late July and August were to people who would have bought anyway but moved up their purchase to take advantage of the “cash for clunkers” program. Car sales were very bad before “cash for clunkers” and they could get much worse afterwards. Add to that the overreaction of the manufacturers of building and shipping too many new vehicles to dealers and car-buyers may have a great buying opportunity even if you don’t own a clunker that the government can give you $4,500 in taxpayer’s dollars for.
If you are in the market for a car, just remember that time is on your side. New vehicle inventories will build for the next 30 to 60 days. Car production is not like a faucet that you can turn on and off. If the manufacturers guessed wrong two months ago, which I believe they did, it’ll take them another two months to “shut off the faucet”. Meanwhile, they will increase their advertising, rebates, special lease rates, and generally do whatever they can to move that excess inventory. The dealers will be doing the same thing.
Please remember that “dealer desperation” can work against you as well as for you. Expect to see deceptive advertising increase in direct proportion to the size of dealers’ inventories. When shopping for a car expect to be told “if you sign in now and drive the car home today, I will give you a special price” or “this price is good today only”. Never, ever buy a car on the first day that you begin shopping. It should take you at least two weeks of due diligence and competitive price shopping before you can make an intelligent decision.
Please refer to my blog, www.EarlStewartOnCars.com for hundreds of articles written on “how not get ripped off by a car dealer”. Here are the basics that you should commit to memory: (1) Research the right car for you in Consumer Reports or on the Internet, www.KBB.com or www.Edmunds.com. (2) Always get at least 3 competitive bids on the exact same year, make, model car you want. If leasing, be sure all terms and condition of the lease are the same, not just the monthly payment. (3) Likewise get 3 bids on your trade-in price and on the interest rate on your financing. (4) Be sure you know the “out the door” price. Most dealers add dealer fees/doc fees/dealer prep fees, administrative fees/transportation fees etc. to the price they quote you.
Monday, September 28, 2009
Monday, September 21, 2009
I WRECKED MY CAR…NOW WHAT?
The article below was written by Alan Napier, the manager of my body shop. It was written for my Toyota customers but the advice Alan gives applies to any make of car.
This Is Supposed To Be Easy
Dealing with your insurance company has never been as difficult as it is right now. 2008 was a disaster for most insurance companies. Falling revenues, catastrophic disasters, poor investments and last years financial meltdown led to losses for most major carriers. Why should you care? Because now that the horse is out, they’ve slammed the barn door. This means that they are utilizing more aftermarket, remanufactured and junk yard parts to repair your vehicle. It means that insurance companies are applying discounts to their estimates that were not there prior to the collapse of Wall Street. It means that they are not negotiating in good faith with your repair facility to bring your vehicle back to its pre-accident condition.
What Can I Do?
Most importantly, insist that your damaged parts be replaced with new genuine Toyota replacement parts. Toyota only provides warranties on new OEM parts. If necessary, involve your agent. Remember, your agent works for you and should be your advocate when dealing with claims staff.
Second, insist that the insurance appraiser explain the estimate they are providing to you. Many times the estimate will not come close to paying for all of the vehicle damages. It’s not a mistake when this occurs, but a calculated tactic. Many people don’t repair their vehicles and have no idea that their insurance company did not provide enough funds to repair the car properly. Point out any damage that the appraiser doesn’t acknowledge on the estimate and insist that it be added to the appraisal right away. Often the appraiser will tell you he has already written the check, so he cannot change the estimate until the vehicle is at a repair facility. This is not true. The appraiser is obligated to pay for all of the visible damage regardless of how many estimates and checks he has to write. As with any negotiation, be polite, but firm.
I Don’t Have Time for This!! Somebody Help Me!!
If you just really don’t want to deal with all of that, that’s where we come in. Your insurance company will advise you to repair at a shop that “works with us”. Translation: “They do what we tell them.” Earl Stewart Toyota will insist that your insurance company pay to repair your vehicle properly, per the manufacturers’ recommendations, to its pre-accident condition. Bring in your car, show us the related damages, sign a repair authorization, hand us the keys and you are done. It’s that easy. We take care of everything from that point. All we ask is that you support our efforts to negotiate with your insurance company. They will do everything from using scare tactics to telling outright falsehoods to save a few bucks. You trusted us to sell you a Toyota and maintain it to manufacturers’ standards, now trust us to repair your collision damaged vehicle to its pre-accident condition.
This Is Supposed To Be Easy
Dealing with your insurance company has never been as difficult as it is right now. 2008 was a disaster for most insurance companies. Falling revenues, catastrophic disasters, poor investments and last years financial meltdown led to losses for most major carriers. Why should you care? Because now that the horse is out, they’ve slammed the barn door. This means that they are utilizing more aftermarket, remanufactured and junk yard parts to repair your vehicle. It means that insurance companies are applying discounts to their estimates that were not there prior to the collapse of Wall Street. It means that they are not negotiating in good faith with your repair facility to bring your vehicle back to its pre-accident condition.
What Can I Do?
Most importantly, insist that your damaged parts be replaced with new genuine Toyota replacement parts. Toyota only provides warranties on new OEM parts. If necessary, involve your agent. Remember, your agent works for you and should be your advocate when dealing with claims staff.
Second, insist that the insurance appraiser explain the estimate they are providing to you. Many times the estimate will not come close to paying for all of the vehicle damages. It’s not a mistake when this occurs, but a calculated tactic. Many people don’t repair their vehicles and have no idea that their insurance company did not provide enough funds to repair the car properly. Point out any damage that the appraiser doesn’t acknowledge on the estimate and insist that it be added to the appraisal right away. Often the appraiser will tell you he has already written the check, so he cannot change the estimate until the vehicle is at a repair facility. This is not true. The appraiser is obligated to pay for all of the visible damage regardless of how many estimates and checks he has to write. As with any negotiation, be polite, but firm.
I Don’t Have Time for This!! Somebody Help Me!!
If you just really don’t want to deal with all of that, that’s where we come in. Your insurance company will advise you to repair at a shop that “works with us”. Translation: “They do what we tell them.” Earl Stewart Toyota will insist that your insurance company pay to repair your vehicle properly, per the manufacturers’ recommendations, to its pre-accident condition. Bring in your car, show us the related damages, sign a repair authorization, hand us the keys and you are done. It’s that easy. We take care of everything from that point. All we ask is that you support our efforts to negotiate with your insurance company. They will do everything from using scare tactics to telling outright falsehoods to save a few bucks. You trusted us to sell you a Toyota and maintain it to manufacturers’ standards, now trust us to repair your collision damaged vehicle to its pre-accident condition.
Tuesday, September 15, 2009
What is the “true” cost of that new car?
It is almost impossible for you to determine the true cost of a new car. This might sound crazy, but many dealers don’t know the true cost of their cars. The manufacturers and distributors invoice their dealers for an amount when they ship them a car that is almost always several hundreds of dollars more than the true cost. It’s fair to say that in virtually every case the “invoice” for a new car is much higher than the true cost. By true cost, I am referring to cost as defined by GAAP, generally accepted accounting principals.
You probably have heard about “holdback”. That is an amount of money added into the invoice of a car ranging from 1% to 3% of the MSRP which is returned to the dealer after he has paid the invoice. Some manufacturers include the cost of regional advertising in the invoice which offsets the dealer’s advertising costs. Another fairly common charge included in invoices is “floor plan assistance”. This goes to offset the dealer’s cost of financing the new cars in his inventory. Another is “PDI” or pre-delivery expense which reimbursed the dealer for preparing the car for delivery to you. I could name several more, depending on the manufacturer or distributor. Some of these monies that are returned to the dealer are not shown as profit on his financial statement and some are. Technically a dealer could say that the cost he showed you reflected all of the profit (by definition of his financial statement), but the fact would remain that more money would come to back to him after he sold you the car. To me, that’s called profit.
Besides holdbacks and reimbursements for expenses, you must contend with customer and dealer incentives when trying to figure out the cost of that new car. You will probably be aware of the customer incentives, but not the dealer incentives. Most dealers prefer and lobby the manufacturers for dealer rather than customer incentives just for that reason. Also, performance incentives are paid to dealers for selling a certain number of cars during a given time frame. These usually expire at the end of a month and are one reason why it really is smart to buy a new car on the last day of the month.
Last but not least, remember the “dealer fee”, “dealer prep fee”, “doc fee”, “dealer inspection fee”, etc. which is added to the price you were quoted by the salesman.. It is printed on the buyer’s order and is lumped into the real fees such as Florida sales tax and tag and registration fees. Most dealers in Florida (it is illegal in many states) charge this fee which ranges from $500 to $1,000. If you are making your buying decision on your perceived cost of the car, even if you were right, here is up to $1,000 more in profit to the dealer.
Hopefully you can now understand why it is virtually impossible to precisely know the cost of the new car you are contemplating buying. Most often the salesman and sales manager is not completely versed on the cost either. Checking the cost on a good Internet site like www.kbb.com or www.edmunds.com is about the best you can do. Consumer Reports is another good source. One reason that Internet sites don’t always have the right invoice price is that different distributors for cars invoice their dealers at different prices.
Do not make a decision to buy a car because the dealer has agreed to sell it to you for “X dollars above his cost/invoice”. This statement is virtually meaningless. As I have advised you in an earlier column, you can only be assured of getting the best price by shopping several dealers for the exact same car and getting an “out the door” price plus tax and tag only.
You probably have heard about “holdback”. That is an amount of money added into the invoice of a car ranging from 1% to 3% of the MSRP which is returned to the dealer after he has paid the invoice. Some manufacturers include the cost of regional advertising in the invoice which offsets the dealer’s advertising costs. Another fairly common charge included in invoices is “floor plan assistance”. This goes to offset the dealer’s cost of financing the new cars in his inventory. Another is “PDI” or pre-delivery expense which reimbursed the dealer for preparing the car for delivery to you. I could name several more, depending on the manufacturer or distributor. Some of these monies that are returned to the dealer are not shown as profit on his financial statement and some are. Technically a dealer could say that the cost he showed you reflected all of the profit (by definition of his financial statement), but the fact would remain that more money would come to back to him after he sold you the car. To me, that’s called profit.
Besides holdbacks and reimbursements for expenses, you must contend with customer and dealer incentives when trying to figure out the cost of that new car. You will probably be aware of the customer incentives, but not the dealer incentives. Most dealers prefer and lobby the manufacturers for dealer rather than customer incentives just for that reason. Also, performance incentives are paid to dealers for selling a certain number of cars during a given time frame. These usually expire at the end of a month and are one reason why it really is smart to buy a new car on the last day of the month.
Last but not least, remember the “dealer fee”, “dealer prep fee”, “doc fee”, “dealer inspection fee”, etc. which is added to the price you were quoted by the salesman.. It is printed on the buyer’s order and is lumped into the real fees such as Florida sales tax and tag and registration fees. Most dealers in Florida (it is illegal in many states) charge this fee which ranges from $500 to $1,000. If you are making your buying decision on your perceived cost of the car, even if you were right, here is up to $1,000 more in profit to the dealer.
Hopefully you can now understand why it is virtually impossible to precisely know the cost of the new car you are contemplating buying. Most often the salesman and sales manager is not completely versed on the cost either. Checking the cost on a good Internet site like www.kbb.com or www.edmunds.com is about the best you can do. Consumer Reports is another good source. One reason that Internet sites don’t always have the right invoice price is that different distributors for cars invoice their dealers at different prices.
Do not make a decision to buy a car because the dealer has agreed to sell it to you for “X dollars above his cost/invoice”. This statement is virtually meaningless. As I have advised you in an earlier column, you can only be assured of getting the best price by shopping several dealers for the exact same car and getting an “out the door” price plus tax and tag only.
Monday, September 07, 2009
BUYING A CAR WHEN YOU HAVE A CREDIT PROBLEM
There are fewer things more sensitive or embarrassing than having to share your personal credit problems with a stranger. Having credit problems can also put many buyers in a weakened and defensive position when buying a car. Many people with bad, or too little, credit feel like the car dealer is somehow “doing them a favor” by selling them a car and getting them financed. Make no mistake about it. A car dealer is probably making more money selling a person with bad credit a car than one with good credit. If you have a credit problem, go about buying a car with the same care and due diligence as if you had the very best credit. Shop and compare your financing, your interest rate, and your trade-in allowance. Get at least three quotes on each of these.
Lenders who specialize in lending to those with bad credit are known as “special finance” lenders. Many of these lenders charge the dealer a large upfront fee, as much as $2,500. Legally, the dealer is not supposed to add this fee to the price of the car you buy but, in the real world, the price of the car is usually higher as the result of this fee. In addition to an upfront fee, the interest rates are very high from special finance lenders. Because they anticipate a much higher amount of repossession losses, they must make more on each transaction. Don’t automatically accept a dealer’s opinion that you must finance through such a lender. There are many conventional banks these days that loan to people with bad credit. Their interest rates are lower and they don’t charge large upfront fees.
There is much fraud in special finance lending. Credit applications are falsified to show more time on the job, higher incomes, etc. W-2 forms and check stubs are counterfeited. Buyer’s orders show accessories and equipment that do not really exist on the car. Hold checks or promissory notes are misrepresented as cash down payment. Co-signers signatures are forged. Confederates pose as employers, answering pay phones to verify employment. These falsifications are performed by finance managers, salesmen, brokers for special finance lenders (who are paid on commission) and the customers themselves. If you sign a credit application, be sure that you know all of the information on that application is accurate. Be sure that you understand and agree to all parts of the transaction including down payments, accessories on the car, etc. Never be a party to falsifying information to a lender to obtain a loan. This is a criminal offense.
Advertisements aimed at people with bad credit usually exaggerate with claims like, “We finance everyone”, “Wanted, good people with bad credit”, “No credit, no problem”, and, my favorite, “No credit application refused” (it doesn’t say your loan won’t be refused, just your application). My advice is to ignore these kinds of ads and these kinds of dealers. Their strategy is to take advantage of people with bad credit who they believe will buy any car, pay any amount of interest, and any profit to the dealers as long as the dealer can get them a loan.
It is common practice in Florida to encourage the car buyer to drive the car home immediately upon signing all of the papers. In some states like New York this is not permitted until all the car has been registered with the state in the new owner’s name. The reason for this immediate delivery (commonly referred to as the “spot delivery”) is to discourage and possibly even prevent the buyer from changing his mind. Taking possession of the car is a legal consideration making the purchase more binding. I recommend that you not rush the purchase or the delivery. For one thing you want to be sure that the car is exactly the way you want it…clean inside and out, all the accessories properly installed, no dings, dents or scratches, and that you have a complete understanding of how to operate all of the features of the vehicle.
I mention the risk of the “spot delivery” in this column on buying a car with bad credit because it can be especially harmful to someone whose credit is denied after the car has been delivered. You will most likely be required to sign a “Rescission Agreement” before you drive the car home. This is a legal document which requires you to return the car if your credit is denied. You will probably be told that your credit will be approved, but sometimes the dealer is wrong. The rescission agreement will have a charge for time and mileage that you have put on the car you are driving. Usually this is a very high charge from 25 cents per mile plus $50 per day and higher. It can take weeks for a special finance lender to rule on a credit application. If your credit is denied you could owe the dealer thousands of dollars which the down payment you made might not even cover.
As frightening as all of the above may sound, the one single thing you can do to prevent bad things from happening when you purchase a car is to choose your car dealer very carefully. How long has he been in business? What is his track record with the Better Business Bureau, the County Office for Consumer Affairs, and the Florida Attorney General’s Office? Ask friends, neighbors, or relatives who have dealt with this car dealer what their experiences have been like. Choosing a good dealer with integrity will resolve 95% of all your concerns.
Lenders who specialize in lending to those with bad credit are known as “special finance” lenders. Many of these lenders charge the dealer a large upfront fee, as much as $2,500. Legally, the dealer is not supposed to add this fee to the price of the car you buy but, in the real world, the price of the car is usually higher as the result of this fee. In addition to an upfront fee, the interest rates are very high from special finance lenders. Because they anticipate a much higher amount of repossession losses, they must make more on each transaction. Don’t automatically accept a dealer’s opinion that you must finance through such a lender. There are many conventional banks these days that loan to people with bad credit. Their interest rates are lower and they don’t charge large upfront fees.
There is much fraud in special finance lending. Credit applications are falsified to show more time on the job, higher incomes, etc. W-2 forms and check stubs are counterfeited. Buyer’s orders show accessories and equipment that do not really exist on the car. Hold checks or promissory notes are misrepresented as cash down payment. Co-signers signatures are forged. Confederates pose as employers, answering pay phones to verify employment. These falsifications are performed by finance managers, salesmen, brokers for special finance lenders (who are paid on commission) and the customers themselves. If you sign a credit application, be sure that you know all of the information on that application is accurate. Be sure that you understand and agree to all parts of the transaction including down payments, accessories on the car, etc. Never be a party to falsifying information to a lender to obtain a loan. This is a criminal offense.
Advertisements aimed at people with bad credit usually exaggerate with claims like, “We finance everyone”, “Wanted, good people with bad credit”, “No credit, no problem”, and, my favorite, “No credit application refused” (it doesn’t say your loan won’t be refused, just your application). My advice is to ignore these kinds of ads and these kinds of dealers. Their strategy is to take advantage of people with bad credit who they believe will buy any car, pay any amount of interest, and any profit to the dealers as long as the dealer can get them a loan.
It is common practice in Florida to encourage the car buyer to drive the car home immediately upon signing all of the papers. In some states like New York this is not permitted until all the car has been registered with the state in the new owner’s name. The reason for this immediate delivery (commonly referred to as the “spot delivery”) is to discourage and possibly even prevent the buyer from changing his mind. Taking possession of the car is a legal consideration making the purchase more binding. I recommend that you not rush the purchase or the delivery. For one thing you want to be sure that the car is exactly the way you want it…clean inside and out, all the accessories properly installed, no dings, dents or scratches, and that you have a complete understanding of how to operate all of the features of the vehicle.
I mention the risk of the “spot delivery” in this column on buying a car with bad credit because it can be especially harmful to someone whose credit is denied after the car has been delivered. You will most likely be required to sign a “Rescission Agreement” before you drive the car home. This is a legal document which requires you to return the car if your credit is denied. You will probably be told that your credit will be approved, but sometimes the dealer is wrong. The rescission agreement will have a charge for time and mileage that you have put on the car you are driving. Usually this is a very high charge from 25 cents per mile plus $50 per day and higher. It can take weeks for a special finance lender to rule on a credit application. If your credit is denied you could owe the dealer thousands of dollars which the down payment you made might not even cover.
As frightening as all of the above may sound, the one single thing you can do to prevent bad things from happening when you purchase a car is to choose your car dealer very carefully. How long has he been in business? What is his track record with the Better Business Bureau, the County Office for Consumer Affairs, and the Florida Attorney General’s Office? Ask friends, neighbors, or relatives who have dealt with this car dealer what their experiences have been like. Choosing a good dealer with integrity will resolve 95% of all your concerns.
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