Monday, March 28, 2011
Emotion Is Your Enemy When Buying a Car
It’s hard to believe, but a high percentage of people will buy a new or used car on the first day they go car shopping. Many buyers never even compare prices with other dealers or research the car for safety, fuel economy, reliability, maintenance costs or resale value. If you’re a reader of this blog/column, you know that the car purchase process should take weeks. You must not only choose the best car to meet your needs, but you must choose the best price by getting at least three competitive quotes. The best price must include your trade-in and your financing interest rate. Since the terrible tragedy befalling Japan, tsunami-earthquake-nuclear reactor damage, panic buying of Japanese cars has been ignited. People are frightened that that new Honda, Nissan, Mazda, or Toyota they’ve been thinking about buying won’t be available if they don’t rush out and buy it today. Nothing could be further from the truth. In the first place, most Japanese brands that are bought in the USA are also built in North America and countries other than Japan. Parts for these cars are also mainly manufactured here. Of course there will be interruptions and slower production of a few models such as the Honda Fit and the Toyota Prius, but these will be only temporary. If there’s a shortage of the specific model you want to buy, wait a few weeks and there will be larger inventories and selections than ever before! Why? Japan’s economy and consumers have suffered a terrible economic blow. When manufacturing is reestablished and parts are full available again, there will be virtually no domestic buyers and Japan can only export what they make. Waiting to buy that Japanese car that is in short supply for a few weeks can save you thousands of dollars. Did you know that emotion can be the car dealer’s enemy sometimes and this can work to your benefit? There are two forces that have the net effect of driving car dealers and their salesmen and managers into an emotional frenzy. One is the “end of the month” and the other is the “stair-step incentive system”. It might sound like an old wives tale or an urban legend to be debunked by Snopes, but car dealers do sell cars for less at the end of a month. This is for a variety of reasons: (1) Dealers and manufacturers concentrate their advertising of sales and specials in the 2nd half of the month. (2) Manufacturers’ and dealers’ rebates and incentives typically expire at the end of the month. (3) Salesmen and sales managers are usually paid bonuses which culminate at the end of the month. Salesmen are paid volume bonuses and just one car sale can mean $1,000 or more on the last day of the month. (4) Manufacturers “live for market share” and sales numbers are widely publicized at the end of each month. Ford wants to outsell GM, Honda wants to outsell Toyota, etc. Stair step incentives are the most popular way that manufacturers motivate their dealers to sell more cars. An example would be a dealer earning $500 for each car he sold in a given month, but not until he sold the number of cars in his objective that was set by the manufacturer…say 250 cars. If the dealer sells 249 cars in the month, he earns zero incentive money. If he sells 250, he earns $125,000! Now, I think you can understand why you, a customer for that 250th car at midnight on the last day of the month might be able to negotiate a pretty good price. In fact, it would actually pay the dealer to “give’ you the car. Of course, it isn’t only the 250th buyer, but all buyers that the dealer believes may help him hit his objective. At the beginning of the month, it’s too soon to know if a particular sale will be the pivotal one. You’re probably reading this article close to the beginning of April. This gives you 3 or 4 weeks before the end of the month to do your homework and choose the right car. You have plenty of time to get three prices on the car you want to buy as well as on your trade-in and financing. Now, the fun part is to wait until the last day of the month and visit the dealer who gave you the lowest price earlier in the month. There’s a very good chance that you can negotiate a better price by hundreds if not thousands of dollars. Your emotion is the enemy when you buy a car, but the dealer’s emotion can be your friend.