11 RED FLAGS TO WATCH FOR WHEN BUYING A CAR

(1) The “Big Sale Event”. If you look in today’s newspaper, you will find that most car dealers in your area are having a sale of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure. Advertising 101 says that you should give the prospective buyer a “motive to act”. Unfortunately, it doesn’t matter whether the motive is real or not. The fact is that most car dealers do not sell their cars for less during “sales events” than they do at any other time. I point this out so that you don’t rush your buying decision. If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price the next day. The exceptions to this are legitimate rebates offered by the manufacturer. These often expire at the end of the month which is one reason why the “last day of the month” really can be the best time to buy a car”.


(2) This is the out-the-door price, plus FEES. Every car dealer I know of adds (except me) raises the price he gives you by tacking on multiple PHONEY FEES, disguised asgovernment fees. Many buyers never realize that the total price includes an average of over $1,000 (as much as $3,000) in hidden added profit to the dealer. Customers don’t know this because the paperwork you sign when you think you’re buying the car is not a legal document (vehicle buyer’s order), but a worksheet. You sign the legal documents in the F&I or business office when the law requires disclosure of non-government fees. These are hidden in the fine print along with lots of other fine print that nobody reads. Most buyers assume that the big increase in the price they thought they were paying is from sales tax and license-registration government fees. The names of these fees disguise them to make you think they’re paid to the government…electronic filing fee, e-filing fee, doc or documentary fee, tag agency fee, etc.

(3) “The Price I’m giving you is only good for today”. If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car. The only exception would be the expiration of a factory rebate. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.

(4) “Take the car home tonight and see how you like it”. Driving the car you are considering buying home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop prices with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day.

(5) “You must give me a deposit before I can give you a price”. This must be one of the most insulting ways that some car salesmen have of intimidating a prospective buyer. It’s amazing how many people succumb to this which allows the salesman an element of control…. you can’t leave until they give you your money back. If confronted with this ultimatum, simply walk away.
“Are you ready to buy a car today”? Often, if you say no to this question, the salesman will tell you to come back when you are ready to buy. He will tell you to shop around and come back with your best price so that he can beat it. The salesman is afraid that, if he does give you his best price, you will go somewhere else and that salesman will beat it. Of course, that is the whole idea of competition and that is exactly what you want to do. If the salesman is afraid to give you a price because his competitor will beat it, it must not be the best price!


(6) “Make me an offer and I will take it to my manager for approval”. This is a very common tactic which you have probably already encountered. It is not unethical. It is simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for. If you cannot negotiate a price close to your best price, get up and leave. Continue this process with another car dealer.

(7) The “really big” discount. The other day a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $2,000 discount on any car in his inventory. This is very common for newspaper and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.

(8) The” really big” trade-in allowance. Car salesmen are trained to seek out your “hot button”. Some car buyers are focused on how much the car dealer will offer for his trade-in. It’s very easy to offer you more for your trade-in than it’s truly worth by simply inflating the price of the car you’re buying by hidden fees, dealer installed accessories, or by simply inflating the MSRP.

(9) The “very low” monthly payment. Everybody is a “sucker” for a low monthly payment. That’s why leasing is so popular today. We budget all our spending around our weekly or monthly salaries. It’s easy for us to overlook the fact that it’s not only the amount of the monthly payment but the total number of payments and the down payment hidden in the fine print that counts.

(10) Just $100 above “dealer invoice”. Webster defines “Invoice” as the price the buyer pays to the seller. It should be ILLEGAL for manufacturers and car dealers to label the document that they send car dealers when they sell them a new vehicle as an invoice. THE INVOICE IS NOT THE SELLING PRICE BY THE MANUFACTURER TO THE DEALER. The invoice conceals multiple hidden kick-backs to the dealer by innocuous names like holdback, dealer incentive, advertising fee, floorplan assistance, etc. A car dealer averages thousands of dollars of kick-backs on each vehicle invoice he buys. Many dealers sell most of their new vehicles below invoice. Interestingly many manufacturers don’t allow their dealers to advertise prices on new cars below dealer invoice. One could conjecture that this may have the effect of artificially inflating the fair market price of new vehicles.

(11) “We want to buy your used car”. First, let me say that car dealers do like to buy used cars from the public; it’s not always a ruse to sell you a new car. Dealers like to buy used cars from you because they can buy them for much less than they must pay at the auto auction where other car dealers are competing to buy the same vehicle. However, most advertisements that you see (especially direct mail) are just trying to trick you into coming into the dealership so they can sell you another new or used car.

The best protection from all the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. Check the dealers’ Google rankings. A good tip on reading Google rankings is to ignore the “5 stars and “0 stars”. Read the 3- and 4-star ratings. They’re likely to be more real and thoughtful. All things being equal choose the dealership that has been in business a longer time and an owner or general manager who will make himself accessible to you and all his customers.