Don’t Let Dealers Steal Your Discount on a New Car

All auto manufacturers offer price discounts and very low interest rates. As we begin the recovery from the microchip and other supply line shortages, car dealers and manufacturers inventories are growing rapidly. This will trigger more and steeper discounts to move inventory in the form of cash incentives and interest rate reductions.

 
Cash incentives take two forms, dealer, and customer. Dealer incentives, as the name suggests, are paid directly to the dealer, and are kept secret from the public. These discounts range from a few hundred to a few thousand dollars. Depending on how large an inventory of a particular model is, dealer and customer incentives can range from several hundred to several thousand dollars. Discounts of $10,000 and higher are not uncommon.

 
Customer cash incentives are advertised by the manufacturer to the public. For all intents and purposes, these customer incentives may as well be secret. Car shoppers and buyers rarely buy cars because they know of advertised manufacturer’s discounts. A big reason for this is that dealers’ advertised prices already includes the manufacturer’s advertised incentives. In effect, the dealer is taking your discount for himself and then “discounting” the car in his advertised price. When you buy the car, one of the many papers you will blindly sign in the “business office” is assigning your manufacturers discount to the dealer. By making your discount part of his advertised price, the dealer has secretly converted your discount to his profit.

 
Manufacturer discounts are paid directly to the dealer and are kicked back to the dealer after he sells you the car. These “kick-backs” are in addition to the routine kick-backs such as advertising money, 2% or 3% holdback, interest rebates, quota rebates, etc. The “invoice” that the manufacturer sends dealers for every car they buy are loaded with thousands of dollars in hidden profit for the dealer. You’re supposed to believe the invoice is the “true cost” of the car. In normal times the average car’s “invoice” includes thousands of dollars in hidden profit to the dealer.

 
Interest rates are rising rapidly, and manufacturers are offering subsidized, lower interest rates to attract buyers. Sadly, the average buyer is unaware of these available low interest rates because the dealer won’t tell the customer. The reason is that manufacturers offer a cash discount OR the low interest rate, leaving the choice to the customer. The dealer makes the choice of cash without informing the customer so that he can convert the discount into his profit.

 
You can avoid being taken advantage of by going to the manufacturer’s website after you choose the specific year-make-model car you will buy. This will tell you what customer discounts are available from the manufacturer and what low interest rates.

It’s Time to Begin The Car-Buying Process

Please note that my headline doesn’t read that “It’s time to buy a car”; It’s time to begin the process. All indicators are that the microchip shortage and other supply line issues over the last three years are past. Auto production is geared and gearing up to where we were before the pandemic. Dealers’ inventories are growing, and prices are coming down. Dealers’ bad behavior is even beginning to mitigate. This resulted from the price gouging and deceitful advertising and sales practices during the past 3 years that brought on aggressive retaliation by the Federal Trade Commission and some local regulators.

 
The car buying process will take some time, weeks, at least. Time is on your side because car prices will continue to come down for months, even up to a year. Inflation is coming down, interest rates are not going much higher, and soon increasing supply will more than catch up with demand. Here are the “bases that you should touch” before you sign on the dotted line: 

• Study Consumer Reports online or magazine. You don’t even have to join or subscribe. Your local library provides both hard copies and online Consumer Reports. Be sure you check the annual auto issue, and most issues carry reports on all cars, new and used. CR evaluates cars from every angle…safety, reliability, cost of maintenance and repairs, fuel economy, handling, comfort, and price. CR is the only totally trustworthy source of information on cars. Unlike every other car information source, like Edmunds, Kelly Blue Book, Cars.com, J.D. Power, CarFax, Motor Trend, car and Driver, etc., Consumer Reports has NO FINANCIAL AFFILIATION with car dealers or manufacturers. CR accepts no money from anyone except consumers’ donations. When they test a car, they pay full price from a car dealership. 

• Shop online, not at dealerships, after you’ve made your choice. When you enter a dealership, the salesman and sales manager are in control. You’re playing on their home field. Salespeople and managers are trained on taking control of the negotiation. They attend classes on sales techniques that work best when they’re face to face with the customer. You can insulate yourself from car salespeople by using a different email address than you normal one. You can also not give them your real phone number. 

• Select the dealership that gives you the best OUT-THE-DOOR price. The true definition of an out-the-door price is one with only the government fees of sales tax and tag added.

• Shop your trade in with, at least, three different sources such as CarMax, Carvanna, WeBuyAnyCar.com, Vroom, and dealers that sell the brand of your trade in. Don’t accept only the trade-in allowance offered by the dealer you buy from. 

• Arrange your financing in advance with your bank or credit union. Credit Unions have much lower interest rates than banks. If you’re not a member of a credit union, it’s worth the small annual fee to join.
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• Ignore after sale products offered by the dealer. If you buy a good car, you don’t need an extended maintenance plan. Road Hazzard insurance, emergency brake down insurance, etc. are typically overpriced and can be purchased elsewhere, like AAA, for much less.