Ethical Car Dealers Attract the Best Customers
Dear Florida Car Dealer:
In past columns I have “confessed” to advertising and employing sales tactics in years past that I am not proud of today. I hasten to say that I never did anything illegal, but 20 to 40 years ago my ethical standards were a lot lower than they are today. I evolved and my customers evolved. Consumers today are far better educated, informed, and demanding than those of three decades back. As I my business practices, sales tactics, and advertising improved, I noticed a very interesting, positive parallel improvement in the kind of customers my company was attracting. It was a sort of a “push-pull” phenomenon. I needed to get better to meet the expectations of my customers and, as I improved, I attracted a better kind of customer.
Today, my customers are smarter, more affluent, better educated, and “nicer”. There’s a good reason for this. For one thing, my advertising is totally ethical and honest. I don’t advertise used cars for $99, I don’t advertise that, if you buy vehicle you can get a second one free, and I don’t advertise a car below cost knowing that there is only one available which is next to impossible for the customer to buy. When you advertise like this, you attract people who are uneducated, gullible, naive or expecting “something for nothing”. The smart, fair dealing customers who know that “there is no such thing as a free lunch” buy their cars from me. I don’t surprise my customers with a dealer fee/doc fee ranging up to $1,000 which is nothing more than profit to you. In fact, many of my customers were almost yours, until you tried to “slip in” your dealer fee. A lot of my service customers used to be your service customers until they discovered that you charge an extra 5% or 10% on their service bill and tried to justify it by calling it “sundry supplies”, “shop supplies” or “environmental impact fee”.
So, you ask, what’s so great about having smart, educated, affluent, and nice customers? Well, for one thing, I don’t get sued like you do and I don’t get nasty letters from the BBB, County Office of Consumer Affairs, and Florida Attorney General’s Office. The last time I was sued was about 7 years ago. Ironically, my customer’s lawyer sued me because I settled a dispute with his client (my customer). After he wrote me a letter saying he was suing me I called his customer on the phone, drove out to her home, sat down with her and her husband at her kitchen table and settled our differences over a cup of coffee. This lawyer sued me because I had deprived him of the fee he would have charged her if he could have sued me. It’s an ongoing saga after all these years. It’s too long a story to tell here, but I will write a column about it one day. I’m guessing that the car dealers who read this column (and I know you do) have at least a half dozen lawsuits going on all of the time.
Another great thing about having nicer, smarter, more affluent customers is that they treat my employees and me with courtesy and respect, just like we treat them. I love to walk into my dealership because customers smile and wave and even stop me to tell me how well they were treated. Customers, who don’t see me in person, know that all they have to do is pick up one of four red phones located in the showroom, service drive, next to the service cashier, and in the body shop to be in immediate personal contact with me. I even give my customers my business card with my home phone number and my cell phone number. Most of the calls that I get are complimentary, just like my personal encounters. You wouldn’t do what I do because you couldn’t. Your secretary screens your phone calls and you wouldn’t dare give your home or cell phone number to a customer. By the way, if you aren’t familiar with my dealership, I probably sell a lot more cars than you do…I average about 475 a month. I have a lot more customers than you, so it’s not like I’m a little rural car dealer who can get away with what I do because I have so few customers.
Here’s another benefit of having such nice, intelligent customers. They don’t have unrealistic expectations like your customers. Remember that you probably tricked your customer into coming in with your advertising. If it worked and your customer bought a car from you thinking that you really could give him $10,000 minimum trade allowance on his car which was really worth only $500, you have reinforced his unrealistically high expectations. In his future dealings with you, he will continue to believe that he can get “something for nothing”. When you finally have to tell him “no”, he’s going to be mad, maybe even sue you.
There are other benefits, too numerous to mention, of having such happy, nice customers. Wouldn’t you like to come to work in that environment? Just think, no more law suits, no more nasty letters from governmental agencies, no more threats from the factory about your customer satisfaction index, and you could walk right through your service department or through your showroom without fear of being accosted by an irate customer. If you would like to give this a try, I would love to discuss it with you personally at any time. This is my 5th open letter to car dealers and I have yet to receive the first phone call… just a few nasty, anonymous emails. Maybe you will be the first to call.
Monday, October 26, 2009
Monday, October 19, 2009
Holdback or Holdup?
Back in 1968 when I first went into the retail car business with my father, I can remember asking him, “What is holdback?” I was learning the business and had been studying the invoices on new Pontiacs that General Motors sent us when they shipped a new car that we had ordered. We had to pay the invoice immediately when it was issued, sometimes even before the car arrived at our dealership. Actually, in most cases, it was our bank or GMAC who paid GM and we borrowed the money from them to pay for the car.
My father’s answer to my question about holdback was that it was an increase in the amount of the invoice that we paid General Motors which was not really part of the price of the car. It was just an extra amount added to the real price of the car and included in the invoice. At that time it was 2% of the MSRP [suggested retail], so if a new Pontiac Bonneville had an MSRP of $10,000 and a true cost of $9,000, the factory invoice would be $9,200. I asked my father, “When do we get the $200 back?” He said, “At the end of the year”. I asked him if they paid us interest on our money and I can remember him laughing loudly and saying no.
Of course my next question was why they do that. He told me that the reason they gave him was to be help dealers sell their cars for more money so that they didn’t go broke. He said that because they didn’t get their holdback money for such a long period of time, they began to think of their invoice as being the actual cost of the car. General Motors felt that many dealers were such poor businessmen that they might sell their cars so cheaply that they would go out of business. Now, because GM was kind enough to hold back hundreds of thousands of dollars of the dealers’ money [and pay them no interest on it] but return the money to them once a year, they could help the dealers make a bigger profit and maintain adequate working capital.
At that time I thought this was the biggest bunch of boloney I had ever heard and I was sure that this was a scheme by the manufacturers to keep a free float of millions of dollars of their dealers’ money under the guise of helping the dealers. I asked my father why the dealers didn’t strongly object to this and he said that most dealers actually “liked” the idea of holdback. When I heard that, I thought that maybe GM and the manufacturers were right about the dealers not being smart enough to sell their cars for a reasonable profit.
It took me a few more years in the business before I understood what was really going on with holdback. It was a “no brainer” as to why the manufacturers liked it but at last I understood its attraction to us dealers. Because we had to pay an extra amount over the true price of the car and not see that money for up to a year, we began to think of the invoice as the true price, even though it was actually inflated by hundreds of dollars. Because all manufacturers added holdback to all dealers invoices, the net effect was to raise the price of all cars to all buyers by the amount of this holdback. I know this is a dirty word, but it is price fixing on the grandest of scales. This might have been something that Henry Ford, Alfred Sloan, and Walter Chrysler concocted while playing golf at Bloomfield Hills Country Club outside of Detroit.
Another neat thing about holdback for us dealers is being able to tell our customers that we are only charging them “X dollars” over invoice. Or, we can tell them that we will sell them this car at invoice with no profit to us at all! [There’s a sucker born every minute] Dealers often have “invoice sales” with copies of the invoice pasted on the car windows. Who doesn’t believe that an invoice is the cost of the car? The truth is in the semantic skullduggery …”Mr. Customer, I solemnly swear to you that this the exact price that I paid the factory for this car. In fact, here’s a copy of the invoice.” That’s what the dealer “paid” the factory all right, but it’s not what the he paid the factory after he got his holdback check in the mail.
You might be thinking, so we’re talking about $200 more or less on a $10,000 car. Who cares? Don’t forget, that was over 40 years ago. Holdbacks have expanded considerably and now instead of several hundred dollars we’re talking several thousand. Also, dealers no longer have to wait a year to get their hold back money back. Now they get it back monthly. Manufacturers even changed the names of these monies they hold back. These are innocuous names so that, if you see them on the invoice, you will have no suspicion…names like floorplan assistance, advertising, PDI, Administrative or DAP. Of course there are also cash rebates to dealers that don’t even show on the invoice. I estimate the average car invoice today includes $3,000 to $4,000 in hidden holdbacks to the dealer. Holdbacks are also applied to factory or distributor accessories like “protection packages” [wax, undercoat, window etch, roadside assistance], floor mats, window tint, etc.
The bottom line is that you don’t rely on the dealer’s factory invoice to determine the price you are willing to pay for a car. And be especially suspicions when the dealer quotes you a price of “X dollars over invoice” or actually shows you the invoice. You’ve heard the old joke, “How can you tell when a politician is lying?” Answer: When his lips are moving. “How can you tell when a car dealer is lying?” Answer: When he shows you the invoice.
My father’s answer to my question about holdback was that it was an increase in the amount of the invoice that we paid General Motors which was not really part of the price of the car. It was just an extra amount added to the real price of the car and included in the invoice. At that time it was 2% of the MSRP [suggested retail], so if a new Pontiac Bonneville had an MSRP of $10,000 and a true cost of $9,000, the factory invoice would be $9,200. I asked my father, “When do we get the $200 back?” He said, “At the end of the year”. I asked him if they paid us interest on our money and I can remember him laughing loudly and saying no.
Of course my next question was why they do that. He told me that the reason they gave him was to be help dealers sell their cars for more money so that they didn’t go broke. He said that because they didn’t get their holdback money for such a long period of time, they began to think of their invoice as being the actual cost of the car. General Motors felt that many dealers were such poor businessmen that they might sell their cars so cheaply that they would go out of business. Now, because GM was kind enough to hold back hundreds of thousands of dollars of the dealers’ money [and pay them no interest on it] but return the money to them once a year, they could help the dealers make a bigger profit and maintain adequate working capital.
At that time I thought this was the biggest bunch of boloney I had ever heard and I was sure that this was a scheme by the manufacturers to keep a free float of millions of dollars of their dealers’ money under the guise of helping the dealers. I asked my father why the dealers didn’t strongly object to this and he said that most dealers actually “liked” the idea of holdback. When I heard that, I thought that maybe GM and the manufacturers were right about the dealers not being smart enough to sell their cars for a reasonable profit.
It took me a few more years in the business before I understood what was really going on with holdback. It was a “no brainer” as to why the manufacturers liked it but at last I understood its attraction to us dealers. Because we had to pay an extra amount over the true price of the car and not see that money for up to a year, we began to think of the invoice as the true price, even though it was actually inflated by hundreds of dollars. Because all manufacturers added holdback to all dealers invoices, the net effect was to raise the price of all cars to all buyers by the amount of this holdback. I know this is a dirty word, but it is price fixing on the grandest of scales. This might have been something that Henry Ford, Alfred Sloan, and Walter Chrysler concocted while playing golf at Bloomfield Hills Country Club outside of Detroit.
Another neat thing about holdback for us dealers is being able to tell our customers that we are only charging them “X dollars” over invoice. Or, we can tell them that we will sell them this car at invoice with no profit to us at all! [There’s a sucker born every minute] Dealers often have “invoice sales” with copies of the invoice pasted on the car windows. Who doesn’t believe that an invoice is the cost of the car? The truth is in the semantic skullduggery …”Mr. Customer, I solemnly swear to you that this the exact price that I paid the factory for this car. In fact, here’s a copy of the invoice.” That’s what the dealer “paid” the factory all right, but it’s not what the he paid the factory after he got his holdback check in the mail.
You might be thinking, so we’re talking about $200 more or less on a $10,000 car. Who cares? Don’t forget, that was over 40 years ago. Holdbacks have expanded considerably and now instead of several hundred dollars we’re talking several thousand. Also, dealers no longer have to wait a year to get their hold back money back. Now they get it back monthly. Manufacturers even changed the names of these monies they hold back. These are innocuous names so that, if you see them on the invoice, you will have no suspicion…names like floorplan assistance, advertising, PDI, Administrative or DAP. Of course there are also cash rebates to dealers that don’t even show on the invoice. I estimate the average car invoice today includes $3,000 to $4,000 in hidden holdbacks to the dealer. Holdbacks are also applied to factory or distributor accessories like “protection packages” [wax, undercoat, window etch, roadside assistance], floor mats, window tint, etc.
The bottom line is that you don’t rely on the dealer’s factory invoice to determine the price you are willing to pay for a car. And be especially suspicions when the dealer quotes you a price of “X dollars over invoice” or actually shows you the invoice. You’ve heard the old joke, “How can you tell when a politician is lying?” Answer: When his lips are moving. “How can you tell when a car dealer is lying?” Answer: When he shows you the invoice.
Monday, October 12, 2009
BUYERS ARE LIARS!
I’m always amazed by the way car dealers who use deceptive advertising and unethical sales tactics rationalize their behavior by actually blaming you, their customer. The following is a direct quote from an anonymous car dealer’s email I received this morning in response to one of my recent columns in this newspaper: “I don't think you would make any of these comments if you sold fords in a non-metro market. How do you expect dealers to change when consumers think they should pay less than dealer cost for a car and then walk into any other form of retail store and pay what they are asking?? Your ideas are noble but there are other dealers who have tried 'your' methods who are no longer in business.” This dealer is saying that his customers are so ruthless and cunning that they won’t buy a car unless they can buy it below his cost and his only solution is to trick them into thinking that they are buying it below his cost, like tacking on a “dealer fee” to the price they quoted the customer. He also goes on to say that my “ideas are noble” but I can’t possibly be successful and I will go broke trying. I truly appreciate his concern and I want to assure him, if he is reading this article, that my business is doing very nicely.
This attitude is actually a prevailing part of the culture in many car dealerships. Many dealers, dealer managers, and sales people don’t trust their customers (how paradoxical!). They don’t even like their customers. A very common expression among car dealers and their sales staff is “Buyers are liars”. This means that a prospective customer will not tell you the truth about the condition of his trade-in, he will lie to you about the price he got from your competitor, and he is likely to remove those new tires that were on his trade-in when the dealer appraised it when he comes in to pick up his new car.
There are also a lot of dealerships where used car buyers and people with bad credit are held in especially low esteem. They have nicknames for people with bad credit like “slugs” and “roaches”. Apparently dehumanizing these unfortunate members of our society with derogatory labels makes it easier to treat them so shabbily. People with bad credit are targeted with direct mail and newspaper ads making absurd promises that convince prospective customers that they can finance a car no matter how bad their credit. In some dealerships applicants are coached on how to falsify credit application and pay records. In some cases the applicant may not even know he is signing a false credit application which is federal offence. In most cases the credit is refused and the applicants are not even given the courtesy of a return phone call to tell them this.
I don’t claim to be a psychologist (and I don’t even play one on TV), but I have read articles explaining how humans will stereotype other people in a fashion that falsely justifies their negative behavior toward those same people. We see this with racism and even in wars. If you make yourself believe that car buyers are out to take advantage of you, “buyers are liars”, you can’t feel guilty about tricking them into paying a dealer fee. If you trick a “roach” or a “slug” into coming in to buy a car on credit when they probably can’t, why should you feel guilty? After all, roaches and slugs don’t have feelings.
What these kinds of dealerships don’t understand is that you must trust a person first before you can expect her to trust you. You have to treat a person with respect before you can expect that person to respect you. Somebody has got to go first. My experience over the past 40+ years as a car dealer is that 99.9% of my customers are good people who I can believe and trust. Those are pretty good odds and I just assume that every customer I am dealing with is part of that 99.9%. Once in a great while I get burned, but the loss from that one in a thousand that takes advantage is far out-weighted by the other 999 who respond positively to my trusting them and treating them with respect.
This attitude is actually a prevailing part of the culture in many car dealerships. Many dealers, dealer managers, and sales people don’t trust their customers (how paradoxical!). They don’t even like their customers. A very common expression among car dealers and their sales staff is “Buyers are liars”. This means that a prospective customer will not tell you the truth about the condition of his trade-in, he will lie to you about the price he got from your competitor, and he is likely to remove those new tires that were on his trade-in when the dealer appraised it when he comes in to pick up his new car.
There are also a lot of dealerships where used car buyers and people with bad credit are held in especially low esteem. They have nicknames for people with bad credit like “slugs” and “roaches”. Apparently dehumanizing these unfortunate members of our society with derogatory labels makes it easier to treat them so shabbily. People with bad credit are targeted with direct mail and newspaper ads making absurd promises that convince prospective customers that they can finance a car no matter how bad their credit. In some dealerships applicants are coached on how to falsify credit application and pay records. In some cases the applicant may not even know he is signing a false credit application which is federal offence. In most cases the credit is refused and the applicants are not even given the courtesy of a return phone call to tell them this.
I don’t claim to be a psychologist (and I don’t even play one on TV), but I have read articles explaining how humans will stereotype other people in a fashion that falsely justifies their negative behavior toward those same people. We see this with racism and even in wars. If you make yourself believe that car buyers are out to take advantage of you, “buyers are liars”, you can’t feel guilty about tricking them into paying a dealer fee. If you trick a “roach” or a “slug” into coming in to buy a car on credit when they probably can’t, why should you feel guilty? After all, roaches and slugs don’t have feelings.
What these kinds of dealerships don’t understand is that you must trust a person first before you can expect her to trust you. You have to treat a person with respect before you can expect that person to respect you. Somebody has got to go first. My experience over the past 40+ years as a car dealer is that 99.9% of my customers are good people who I can believe and trust. Those are pretty good odds and I just assume that every customer I am dealing with is part of that 99.9%. Once in a great while I get burned, but the loss from that one in a thousand that takes advantage is far out-weighted by the other 999 who respond positively to my trusting them and treating them with respect.
Monday, October 05, 2009
Are Car Manufacturers and Dealers “Grasping for Salvation?
Last week Akio Toyoda, the CEO of Toyota, apologized to his customers, employees, and stockholders. He said that Toyota had suffered from “hubris” [Overbearing pride or presumption; arrogance], “undisciplined pursuit of more” and “denial of risk and peril”. He said that Toyota now is “grasping for salvation”. Akio Toyoda who is also the grandson of Toyota’s founder then said “Toyota has become too big and distant from its customers”. His confession and apology is courageous, refreshing, and encouraging. If GM and Chrysler had had a leader like Akio Toyoda, they wouldn’t find themselves where they are today. Mistakes don’t cause failures; Denial of mistakes does.
I ordered Jim Collins’ book, How the Mighty Fall, on Amazon. The author postulates that big companies don’t die suddenly but rather through five stages: (1) Hubris born of success. (2) Undisciplined pursuit of more. (3) Denial of risk and peril. (4) Grasping for salvation. (5) Capitulation to irrelevance or death. I must say that these stages describe General Motors, Chrysler, Ford, and even Toyota to a T. In fact GM and Chrysler may be in, or too near, the final stage 5, “capitulation, irrelevance, or death.
I was a Pontiac dealer in West Palm Beach from 1968 to 1999. I have lots of memories of those times, good and bad. The good times were when Pontiac was the 4th largest selling brand in the world, behind Chevrolet, Ford, and Oldsmobile. Pontiac and GM thought that Japanese cars were inferior and no threat whatsoever. I still remember the day in 1970 when the Pontiac zone manager, Murph Martin, visited my dealership and told me to get that “Jap” car off his showroom floor. He was referring to a Mazda as I had just signed a franchise agreement with that Japanese auto manufacturer. Today Pontiac no longer exists but Mazda is still going strong.
My regular readers will sense where I’m going now. Nobody can argue that car manufacturers, including Toyota, the mightiest of them all, have fallen precipitously in the past 3 years. I want to believe and I do believe that the new CEO of Toyota, Akio Toyoda, “gets it”. For him to publically apologize and acknowledge that his company was one step away from “capitulation to irrelevance or death” took great self awareness and courage. On the other hand, Ed Whitacre, the Chairman of GM, is doing TV commercials comparing GM cars to Toyota and Lexus, saying “If you can find a better car, buy it”. I have to say, “Hey Ed! Be careful what you wish for!” I would also recommend that Ed check out Consumer Reports, 2009 Best and Worst Cars, the April issue, page 17. All 34 car brands sold in America are ranked by Reliability. There is not one GM brand listed in the top half. Buick is 18th. The top 10 brands are all Asian. The bottom 10 includes GMC truck, Pontiac, Cadillac, and Saturn. Chevrolet is #24, 11th from the bottom.
But what about car dealers? In my opinion, we car dealers also have succumbed to the same temptations as manufacturers. Great success brings on hubris/arrogance. Big is never big enough and so we strive for more in an undisciplined fashion. When you make a lot of money and get lots of recognition, you feel “bullet proof”. Can you say “Bernie Madoff”? How many of us find ourselves in stage 4 “grasping for salvation”, like Akio Toyoda now? In order to successfully manage stage 4, a business owner or CEO must be courageous, but more importantly, he must have self awareness. Mark Twain said “It ain’t what you don’t know that gets you in trouble; it’s what you know for sure that just ain’t so”. I have to confess, that occasionally I start to feel a little “full of myself”. I’ve grown to be the largest seller of automobiles in Palm Beach County, the 5th largest Toyota dealer in the southeast USA. When I go out to a restaurant or shopping, lots of people recognize me and shake my hand. Now, when I get that feeling that I’m a “big shot”, I simply remind myself who it was that “brung me to the dance”… my customers.
I ordered Jim Collins’ book, How the Mighty Fall, on Amazon. The author postulates that big companies don’t die suddenly but rather through five stages: (1) Hubris born of success. (2) Undisciplined pursuit of more. (3) Denial of risk and peril. (4) Grasping for salvation. (5) Capitulation to irrelevance or death. I must say that these stages describe General Motors, Chrysler, Ford, and even Toyota to a T. In fact GM and Chrysler may be in, or too near, the final stage 5, “capitulation, irrelevance, or death.
I was a Pontiac dealer in West Palm Beach from 1968 to 1999. I have lots of memories of those times, good and bad. The good times were when Pontiac was the 4th largest selling brand in the world, behind Chevrolet, Ford, and Oldsmobile. Pontiac and GM thought that Japanese cars were inferior and no threat whatsoever. I still remember the day in 1970 when the Pontiac zone manager, Murph Martin, visited my dealership and told me to get that “Jap” car off his showroom floor. He was referring to a Mazda as I had just signed a franchise agreement with that Japanese auto manufacturer. Today Pontiac no longer exists but Mazda is still going strong.
My regular readers will sense where I’m going now. Nobody can argue that car manufacturers, including Toyota, the mightiest of them all, have fallen precipitously in the past 3 years. I want to believe and I do believe that the new CEO of Toyota, Akio Toyoda, “gets it”. For him to publically apologize and acknowledge that his company was one step away from “capitulation to irrelevance or death” took great self awareness and courage. On the other hand, Ed Whitacre, the Chairman of GM, is doing TV commercials comparing GM cars to Toyota and Lexus, saying “If you can find a better car, buy it”. I have to say, “Hey Ed! Be careful what you wish for!” I would also recommend that Ed check out Consumer Reports, 2009 Best and Worst Cars, the April issue, page 17. All 34 car brands sold in America are ranked by Reliability. There is not one GM brand listed in the top half. Buick is 18th. The top 10 brands are all Asian. The bottom 10 includes GMC truck, Pontiac, Cadillac, and Saturn. Chevrolet is #24, 11th from the bottom.
But what about car dealers? In my opinion, we car dealers also have succumbed to the same temptations as manufacturers. Great success brings on hubris/arrogance. Big is never big enough and so we strive for more in an undisciplined fashion. When you make a lot of money and get lots of recognition, you feel “bullet proof”. Can you say “Bernie Madoff”? How many of us find ourselves in stage 4 “grasping for salvation”, like Akio Toyoda now? In order to successfully manage stage 4, a business owner or CEO must be courageous, but more importantly, he must have self awareness. Mark Twain said “It ain’t what you don’t know that gets you in trouble; it’s what you know for sure that just ain’t so”. I have to confess, that occasionally I start to feel a little “full of myself”. I’ve grown to be the largest seller of automobiles in Palm Beach County, the 5th largest Toyota dealer in the southeast USA. When I go out to a restaurant or shopping, lots of people recognize me and shake my hand. Now, when I get that feeling that I’m a “big shot”, I simply remind myself who it was that “brung me to the dance”… my customers.
Monday, September 28, 2009
“Post-Clunker” Era: A Buying Opportunity?
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.
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 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.
Monday, August 31, 2009
A Sea Change in the Way Cars Are Sold?
The dictionary defines a sea change as “a striking change, as in appearance, often for the better.” A lot of economists and other experts have speculated that we are experiencing a sea change in America, or even globally, as a result of this worst recession since the Great Depression. The experts are saying that Americans will never again spend as much or save as little as they have. Because so many of us have lost our jobs, had our homes foreclosed on and cars repossessed and have seen our 401K’s cut in half we will never be the same.
Nobody disputes the fact that the Great Depression caused a sea change, at least in that generation who lived in it. Those of you who were old enough to remember the thirties will vouch for that. I was born in 1940 but my father was born in 1892. He was a young man during the thirties and those years changed him for the rest of his life. Even though he was a relatively wealthy and successful Pontiac dealer, he saved and spent his money as if he might be looking for a job tomorrow. As a child, I can remember my mother admonishing him for wearing his shirts and his pants for too many days. He didn’t want to spend the money to send them to the cleaners. A lot of my Dad rubbed off on me and I still can’t stand to throw anything away. My wife, Nancy, has to cajole me to donate shoes or clothes that don’t fit me anymore to Goodwill or other charities.
Last Friday, I was honored to be invited to an interview at the Palm Beach Post. Charles Passy, one of their oldest and best reporters, invited several local business owners and I was the one representing car dealers. It was Charles’ interview that gave me the idea for this column. The purpose of this interview was to learn what local businesses had experienced with their customers and employees that might suggest a sea change in saving and purchasing habits. You can read what everybody had to say in this Sunday’s, September 6, PB Post.
I agree that we are experiencing a sea change but one that is quite different from the one of the Great Depression. This time in addition to Americans being traumatized by the loss of their jobs, homes and retirement, they are traumatized by their loss of trust. Just a short while ago, insurance companies and banks were considered among the most trustworthy of institutions, but no longer. Wall Street and their government regulators are among the least trusted also. Trust in the media and politicians are at an all time low. Americans don’t know where to turn to invest or save their money. Just recently, Americans were so afraid of putting their money in a bank or any place else except the U.S. Government that they actually paid the government interest on treasury notes to keep their money safe.
The recent government incentive program, “cash for clunkers” is evidence of the lack of trust that car-buyers have for car dealers. Read car ads or watch them on TV and every day you will see offers of savings that exceed the savings of “cash for clunkers”. But when car buyers heard it from a trusted source, the United States government, they came in and bought cars in record numbers. August is the best auto sales month since January 2007 and it has occurred in the middle of the biggest recession since the Great Depression. In my Toyota dealership in North Palm Beach, I shattered my old record of 404 new Toyotas. I’m writing this column on Monday, August 31, and it looks like we will sell about 500 new Toyotas in August.
As many of you know, I practically never advertise prices. This is simply because most other dealers advertise prices less than what they are actually willing to sell the car for…often times below their actually cost. If I advertise a car for an honest price, mine will appear higher in comparison.
More evidence of this sea change of Americans gravitating to invest, save, and spend their money only with those whom they can trust is my rapidly expanding market share. I outsell my two nearest Toyota dealer competitors to the south of me combined. I outsell the three nearest Toyota dealers to the north of me combined. I outsell Ed Morse Delray Toyota by a large margin even though he is in a population area three times the size of Lake Park/North Palm Beach. I outsell all the Toyota dealers in the Orlando, Tampa, and Atlanta markets. I also outsell most of the Toyota dealerships in the Ft. Lauderdale-Miami markets. I am the 5th or 6th largest seller of Toyotas in the Southeast USA. I use only Toyota for comparison, because Toyota is the number one retailer and I obviously outsell all of the other makes.
I’ll probably take a lot of flak for bragging about how many cars I sell. I’d be lying if I didn’t admit it feels good to be #1. However, I believe my unparalleled success is good news for car buyers, even those who don’t buy Toyotas. Auto retailers everywhere are watching Earl Stewart Toyota and trying to figure out how we do it. If they figure it out, they too can match or exceed my success. And if they do, you, the car buyers of America will benefit as well.
Nobody disputes the fact that the Great Depression caused a sea change, at least in that generation who lived in it. Those of you who were old enough to remember the thirties will vouch for that. I was born in 1940 but my father was born in 1892. He was a young man during the thirties and those years changed him for the rest of his life. Even though he was a relatively wealthy and successful Pontiac dealer, he saved and spent his money as if he might be looking for a job tomorrow. As a child, I can remember my mother admonishing him for wearing his shirts and his pants for too many days. He didn’t want to spend the money to send them to the cleaners. A lot of my Dad rubbed off on me and I still can’t stand to throw anything away. My wife, Nancy, has to cajole me to donate shoes or clothes that don’t fit me anymore to Goodwill or other charities.
Last Friday, I was honored to be invited to an interview at the Palm Beach Post. Charles Passy, one of their oldest and best reporters, invited several local business owners and I was the one representing car dealers. It was Charles’ interview that gave me the idea for this column. The purpose of this interview was to learn what local businesses had experienced with their customers and employees that might suggest a sea change in saving and purchasing habits. You can read what everybody had to say in this Sunday’s, September 6, PB Post.
I agree that we are experiencing a sea change but one that is quite different from the one of the Great Depression. This time in addition to Americans being traumatized by the loss of their jobs, homes and retirement, they are traumatized by their loss of trust. Just a short while ago, insurance companies and banks were considered among the most trustworthy of institutions, but no longer. Wall Street and their government regulators are among the least trusted also. Trust in the media and politicians are at an all time low. Americans don’t know where to turn to invest or save their money. Just recently, Americans were so afraid of putting their money in a bank or any place else except the U.S. Government that they actually paid the government interest on treasury notes to keep their money safe.
The recent government incentive program, “cash for clunkers” is evidence of the lack of trust that car-buyers have for car dealers. Read car ads or watch them on TV and every day you will see offers of savings that exceed the savings of “cash for clunkers”. But when car buyers heard it from a trusted source, the United States government, they came in and bought cars in record numbers. August is the best auto sales month since January 2007 and it has occurred in the middle of the biggest recession since the Great Depression. In my Toyota dealership in North Palm Beach, I shattered my old record of 404 new Toyotas. I’m writing this column on Monday, August 31, and it looks like we will sell about 500 new Toyotas in August.
As many of you know, I practically never advertise prices. This is simply because most other dealers advertise prices less than what they are actually willing to sell the car for…often times below their actually cost. If I advertise a car for an honest price, mine will appear higher in comparison.
More evidence of this sea change of Americans gravitating to invest, save, and spend their money only with those whom they can trust is my rapidly expanding market share. I outsell my two nearest Toyota dealer competitors to the south of me combined. I outsell the three nearest Toyota dealers to the north of me combined. I outsell Ed Morse Delray Toyota by a large margin even though he is in a population area three times the size of Lake Park/North Palm Beach. I outsell all the Toyota dealers in the Orlando, Tampa, and Atlanta markets. I also outsell most of the Toyota dealerships in the Ft. Lauderdale-Miami markets. I am the 5th or 6th largest seller of Toyotas in the Southeast USA. I use only Toyota for comparison, because Toyota is the number one retailer and I obviously outsell all of the other makes.
I’ll probably take a lot of flak for bragging about how many cars I sell. I’d be lying if I didn’t admit it feels good to be #1. However, I believe my unparalleled success is good news for car buyers, even those who don’t buy Toyotas. Auto retailers everywhere are watching Earl Stewart Toyota and trying to figure out how we do it. If they figure it out, they too can match or exceed my success. And if they do, you, the car buyers of America will benefit as well.
Monday, August 24, 2009
CASH FOR CLUNKERS LEGISLATION IS A WASTE OF TAXPAYERS’ MONEY (With New Preface)
*Now that the cash for clunkers program has ended, I thought it would be good to rerun my original column on this subject. My belief about the program being ill thought out remains, but I’m hopeful about there being some economic benefit. This will be decided in the next few months based on whether the demand for new vehicles “falls off a cliff’ because clunker deals were not fresh business. There is a fear that we merely borrowed sales from the future from those who would have bought a new car in the next few months anyway.
The cash for clunkers program was not only wasteful of taxpayers’ money but it was administered just about as sloppily and inefficiently as is possible. Ray LaHood, the head of NHTSA did not have a clue as to how car dealerships operate, what paperwork is pertinent to a sale, or how a dealership’s cash-flow would virtually dried up by not paying dealers promptly. You will be reading about dealerships that were literally put out of business by this program because they did not receive the money from their sales from NHTSA. As I write this preface, less than 10% of the $3 Billion dollars has reached dealers. My own dealership is owed well over $1 million. Because dealers make far less than $4,500 or $3,500 on a sale, every clunker transaction drove them further into a negative-cash position….some to the point of bankruptcy and thousands were forced to quit the program early.
Once again our Congress and Senate have proven that they are out of touch with reality or, perhaps more likely, simply inclined to pass any legislation that will get them reelected.
The “Cash for Clunkers” bill passed the House and the Senate and awaits President Obama’s signature. It is supposed to be help energy conservation because it will take higher gas mileage vehicles off the road. It’s also supposed to help our floundering economy because it will incentivize owners of “clunkers” to buy new cars. When the driver of a clunker, defined to be a vehicle with relatively poor gas mileage and worth up to $4,500, trades it in he gets a voucher for either $3,500 or $4,500. Then the dealer must scrap that vehicle.
Here’s why our politicians are out of touch with reality. Our country is in the worst economic condition since the Great Depression. The most severely affected are those at the lower end of the economic spectrum. Arguably even more important than housing to this class of people is transportation [you can sleep in your car]. It’s not possible for many to get to work without a car. It’s not even possible for many to look for work without car. How about taking your children to school or getting to a doctor or hospital? These are the people who buy “clunkers” because they don’t have the credit to buy anything more expensive. Or, maybe they can’t get any credit at all and can afford only cars cheap enough to afford to buy for cash.
If this legislation works the way the politicians say they want it to, it will remove most clunkers from the road and drive up the prices of those few remaining to make them unaffordable to those that have no other transportation option. Of course, a lot of the economically challenged are already driving clunkers. The new law doesn’t permit them to use the $3,500 or $4,500 voucher to buy a nicer, more reliable used car. They may only buy a much more expensive new car. Unfortunately, most people with bad or no credit who are forced to drive a clunker, won’t be able to get financed on a new car even with the $3,500-$4,500 down payment.
Logic dictates that no one would have his vehicle scrapped for a $4,500 voucher if was worth more than $4,500. But, who is to say what a clunker is really worth? I can tell you from my 40+ years in the retail auto business that you can show a used car to five different used car managers and get five different opinions as to what it’s worth. I advise consumers to shop their trade-in to at least three different car dealers before they accept a trade-in allowance from the dealer they buy from. Typically you will see a $2,000 to $5,000 difference between the 3 professional opinions. I see nothing in the legislation to control this variable. I can guarantee you that there will be thousands of vehicles scrapped that are worth more than the voucher amount. How will you feel knowing that you paid $4,500 of your tax dollars to scrap a car that had a market value of $6,000?
To the extent that lower gas mileage vehicles are taken off the roads, this is good. But energy conservation is not our country’s top priority right now. We need to think about cutting our 10%+ unemployment in half. Scrapping the only cars that many of our unemployed can afford to buy and driving up the prices of those that remain is not the right way to go about this.
The car dealers love this because of the general lack of understanding of this new law will likely drive potential buyers into their showrooms. You can argue that this is good because it will stimulate new car buying. But, is it good to stimulate the economy through deception? I’m already getting solicitations from marketing companies with all sorts of cute ideas about how to exploit this legislation. You can expect to see an advertising media blitz on “Cash for Clunkers”.
I will end this column on a positive note. One Congressman who voted against this legislation is Tom Rooney from my district, the 16th. There are always a few who vote their conscience and not what will get them reelected. Unless we recognize and vote for guys like Tom Rooney, this endangered species will vanish.
The cash for clunkers program was not only wasteful of taxpayers’ money but it was administered just about as sloppily and inefficiently as is possible. Ray LaHood, the head of NHTSA did not have a clue as to how car dealerships operate, what paperwork is pertinent to a sale, or how a dealership’s cash-flow would virtually dried up by not paying dealers promptly. You will be reading about dealerships that were literally put out of business by this program because they did not receive the money from their sales from NHTSA. As I write this preface, less than 10% of the $3 Billion dollars has reached dealers. My own dealership is owed well over $1 million. Because dealers make far less than $4,500 or $3,500 on a sale, every clunker transaction drove them further into a negative-cash position….some to the point of bankruptcy and thousands were forced to quit the program early.
Once again our Congress and Senate have proven that they are out of touch with reality or, perhaps more likely, simply inclined to pass any legislation that will get them reelected.
The “Cash for Clunkers” bill passed the House and the Senate and awaits President Obama’s signature. It is supposed to be help energy conservation because it will take higher gas mileage vehicles off the road. It’s also supposed to help our floundering economy because it will incentivize owners of “clunkers” to buy new cars. When the driver of a clunker, defined to be a vehicle with relatively poor gas mileage and worth up to $4,500, trades it in he gets a voucher for either $3,500 or $4,500. Then the dealer must scrap that vehicle.
Here’s why our politicians are out of touch with reality. Our country is in the worst economic condition since the Great Depression. The most severely affected are those at the lower end of the economic spectrum. Arguably even more important than housing to this class of people is transportation [you can sleep in your car]. It’s not possible for many to get to work without a car. It’s not even possible for many to look for work without car. How about taking your children to school or getting to a doctor or hospital? These are the people who buy “clunkers” because they don’t have the credit to buy anything more expensive. Or, maybe they can’t get any credit at all and can afford only cars cheap enough to afford to buy for cash.
If this legislation works the way the politicians say they want it to, it will remove most clunkers from the road and drive up the prices of those few remaining to make them unaffordable to those that have no other transportation option. Of course, a lot of the economically challenged are already driving clunkers. The new law doesn’t permit them to use the $3,500 or $4,500 voucher to buy a nicer, more reliable used car. They may only buy a much more expensive new car. Unfortunately, most people with bad or no credit who are forced to drive a clunker, won’t be able to get financed on a new car even with the $3,500-$4,500 down payment.
Logic dictates that no one would have his vehicle scrapped for a $4,500 voucher if was worth more than $4,500. But, who is to say what a clunker is really worth? I can tell you from my 40+ years in the retail auto business that you can show a used car to five different used car managers and get five different opinions as to what it’s worth. I advise consumers to shop their trade-in to at least three different car dealers before they accept a trade-in allowance from the dealer they buy from. Typically you will see a $2,000 to $5,000 difference between the 3 professional opinions. I see nothing in the legislation to control this variable. I can guarantee you that there will be thousands of vehicles scrapped that are worth more than the voucher amount. How will you feel knowing that you paid $4,500 of your tax dollars to scrap a car that had a market value of $6,000?
To the extent that lower gas mileage vehicles are taken off the roads, this is good. But energy conservation is not our country’s top priority right now. We need to think about cutting our 10%+ unemployment in half. Scrapping the only cars that many of our unemployed can afford to buy and driving up the prices of those that remain is not the right way to go about this.
The car dealers love this because of the general lack of understanding of this new law will likely drive potential buyers into their showrooms. You can argue that this is good because it will stimulate new car buying. But, is it good to stimulate the economy through deception? I’m already getting solicitations from marketing companies with all sorts of cute ideas about how to exploit this legislation. You can expect to see an advertising media blitz on “Cash for Clunkers”.
I will end this column on a positive note. One Congressman who voted against this legislation is Tom Rooney from my district, the 16th. There are always a few who vote their conscience and not what will get them reelected. Unless we recognize and vote for guys like Tom Rooney, this endangered species will vanish.
Thursday, August 20, 2009
Cash for Clunkers to End Monday August 24th
The story below was just forwarded to us from TMS. The bottom line is as follows:
-The CARS program will end Monday August 24, at 8 PM EDT.
-All deals must be submitted by that time -Dealers are still able to resubmit rejected applications after the deadline
-The CARS program will end Monday August 24, at 8 PM EDT.
-All deals must be submitted by that time -Dealers are still able to resubmit rejected applications after the deadline
Monday, August 17, 2009
The Achilles’ heel of Car Dealerships [and even good businesses like Costco]
I’m often asked why my Toyota dealership in North Palm Beach is so successful. My dealership is actually located in the tiny little town of Lake Park [population 8,721 as of the last census]. I’m on the city border of North Palm Beach, so I advertise my location there so people can find me. I mention this because Earl Stewart Toyota sells more cars than any other car dealership in Palm Beach County. We are the 7th largest seller of Toyotas in the Southeast USA. People can’t understand how we can sell so many cars in such a small population area.
Furthermore, people are mystified by our high customer satisfaction ranking. Last year, for example, we were honored to be selected by Toyota as one of just 12 dealers [out of 1,277] in the USA for the President’s Cabinet Award. The award is based on sales volume and customer satisfaction.
I know that I sound like I’m bragging and I guess I am. A lot of people have been quoted as originating, “It ain’t bragging if you can back it up”. I first heard it when Mohammed Ali said it, but he probably wasn’t the first. In this column, I’m going to reveal the secret to my success. All car dealers and all businesses can use my secret to become at least as successful as I.
First, let me relate an incident that happened to me just recently at the Costco Wholesale Club on Northlake Boulevard in Palm Beach Gardens. Costco is my favorite retail store and my wife, Nancy, and I shop there almost every Saturday. In fact, I’m also a stockholder and, for readers of this column, I recommend you buy some Costco stock.
In the past several months we noticed that the shopping carts at Costco were littered with trash…used napkins, used tissues, paper and plastic bags, and unidentifiable “stuff”. This is partly caused by the free food samples that are passed out in paper cups or plates and with napkins and toothpicks sometimes. Customers eat their samples and throw what they don’t eat into their carts. When Nancy and I come into Costco on Saturday mornings and pick up our cart, we have to take the trash out of the cart with our bare hands and find a trash receptacle. This would be a nasty enough a task even without the Swine Flu pandemic in the news every day. Because I’ve been a regular member of Costco for 25 years or more, I know many of the store’s employees and regard many of them as my friends. I mentioned this to several of them and they promised to bring it up with upper management.
When nothing changed and the carts were still filthy, I spoke to a Costco employee who I knew very well and who I especially admired for his special concern for his customers. He suggested that I fill out a written suggestion and put it in the suggestion box in the front of the store. He said that all of these suggestions were sent to Costco headquarters in Issaquah, Washington. I did that, but two months later there was nothing done. At this point I took it upon myself to speak to the “weekend manager” because I shop at Costco only on Saturdays. He listened but didn’t seem very concerned. He told me that the reason the carts were littered with trash is because Costco customers left their trash in the carts. I told him that I understood the reason, but I thought the carts should be cleaned for the next customers. I asked him why the employees who picked the carts up from the parking lots and brought them back to the front of the store couldn’t clean the carts out first. He didn’t have an answer for that but he said he would “take it under consideration”.
About a month has passed since my last conversation. Last Saturday, the carts were still filthy. In fact, I cleaned out two carts for ladies waiting for carts plus my own cart. For those of you familiar with Costco, you know that you have to show your membership card when you enter the store. When I did this, I asked “the shopping carts are still littered with trash. Why can’t Costco clean them out?” The Costco employee replied, “It’s the customers’ fault that the carts are dirty”. I have to admit that I briefly lost my cool. I turned to him and said incredulously, “Are you blaming me because your shopping carts are dirty?” He looked at me angrily and said again, “It’s not our fault; It’s the customers’ fault.” Immediately after this, I went to men’s room so that I could wash my hands.
By now, you may have guessed what my secret to success is. You can sense my frustration with Costco which is still my favorite retail store, by the way. That frustration is that I, their customer, cannot communicate with higher management. When I advised the local lower level Costco employees, it went no higher than the weekend manger. When I send a written complaint to their headquarters, who knows what happens to it? When I spoke personally to the weekend manager, it stopped right there. Most of the employees in Costco are great employees who care very much about their customers. These employees agree with me that the shopping carts should be cleaned before they are returned to the customers. In fact, one employee said that they should emulate Publix which, not only cleans their carts meticulously, but provides sanitary wipes in a dispenser so customers can clean the cart’s handle.
When a customer has any kind of a problem in my company, I hear about it 99% of the time. As most of you know, nobody in my company, including me, screens their calls. All calls to me and all of my employees are put immediately through. If I’m not in the dealership, the calls are put through to my cell phone. You probably know that I have 4 red phones strategically located through my dealership. A red phone is always within a few steps of every customer. The sign on the phone says, “If we have not exceeded your expectations, please pick up this red phone; The buck stops here”. There is no dialing required and when the customer picks up that red phone it automatically dials my cell phone. If all of that isn’t enough, I give every customer my home telephone number which is printed on my business cards.
So there you have it, CEO’s of companies all over the world. This is the secret to success. LISTEN TO YOUR CUSTOMERS. You all say that but you don’t walk the talk. You have layer after layer of insulation between you and your customers…secretaries, assistants, middle managers, executive managers. All of them are telling you what they think you want to hear but not what’s going on “in the trenches”. It’s not easy, but who said success was supposed to be easy. How bad do you want it and how much are you willing to sacrifice to get it? Am I worried that my competition will read this and be able to compete more successfully against me? What do you think? LOL!
Furthermore, people are mystified by our high customer satisfaction ranking. Last year, for example, we were honored to be selected by Toyota as one of just 12 dealers [out of 1,277] in the USA for the President’s Cabinet Award. The award is based on sales volume and customer satisfaction.
I know that I sound like I’m bragging and I guess I am. A lot of people have been quoted as originating, “It ain’t bragging if you can back it up”. I first heard it when Mohammed Ali said it, but he probably wasn’t the first. In this column, I’m going to reveal the secret to my success. All car dealers and all businesses can use my secret to become at least as successful as I.
First, let me relate an incident that happened to me just recently at the Costco Wholesale Club on Northlake Boulevard in Palm Beach Gardens. Costco is my favorite retail store and my wife, Nancy, and I shop there almost every Saturday. In fact, I’m also a stockholder and, for readers of this column, I recommend you buy some Costco stock.
In the past several months we noticed that the shopping carts at Costco were littered with trash…used napkins, used tissues, paper and plastic bags, and unidentifiable “stuff”. This is partly caused by the free food samples that are passed out in paper cups or plates and with napkins and toothpicks sometimes. Customers eat their samples and throw what they don’t eat into their carts. When Nancy and I come into Costco on Saturday mornings and pick up our cart, we have to take the trash out of the cart with our bare hands and find a trash receptacle. This would be a nasty enough a task even without the Swine Flu pandemic in the news every day. Because I’ve been a regular member of Costco for 25 years or more, I know many of the store’s employees and regard many of them as my friends. I mentioned this to several of them and they promised to bring it up with upper management.
When nothing changed and the carts were still filthy, I spoke to a Costco employee who I knew very well and who I especially admired for his special concern for his customers. He suggested that I fill out a written suggestion and put it in the suggestion box in the front of the store. He said that all of these suggestions were sent to Costco headquarters in Issaquah, Washington. I did that, but two months later there was nothing done. At this point I took it upon myself to speak to the “weekend manager” because I shop at Costco only on Saturdays. He listened but didn’t seem very concerned. He told me that the reason the carts were littered with trash is because Costco customers left their trash in the carts. I told him that I understood the reason, but I thought the carts should be cleaned for the next customers. I asked him why the employees who picked the carts up from the parking lots and brought them back to the front of the store couldn’t clean the carts out first. He didn’t have an answer for that but he said he would “take it under consideration”.
About a month has passed since my last conversation. Last Saturday, the carts were still filthy. In fact, I cleaned out two carts for ladies waiting for carts plus my own cart. For those of you familiar with Costco, you know that you have to show your membership card when you enter the store. When I did this, I asked “the shopping carts are still littered with trash. Why can’t Costco clean them out?” The Costco employee replied, “It’s the customers’ fault that the carts are dirty”. I have to admit that I briefly lost my cool. I turned to him and said incredulously, “Are you blaming me because your shopping carts are dirty?” He looked at me angrily and said again, “It’s not our fault; It’s the customers’ fault.” Immediately after this, I went to men’s room so that I could wash my hands.
By now, you may have guessed what my secret to success is. You can sense my frustration with Costco which is still my favorite retail store, by the way. That frustration is that I, their customer, cannot communicate with higher management. When I advised the local lower level Costco employees, it went no higher than the weekend manger. When I send a written complaint to their headquarters, who knows what happens to it? When I spoke personally to the weekend manager, it stopped right there. Most of the employees in Costco are great employees who care very much about their customers. These employees agree with me that the shopping carts should be cleaned before they are returned to the customers. In fact, one employee said that they should emulate Publix which, not only cleans their carts meticulously, but provides sanitary wipes in a dispenser so customers can clean the cart’s handle.
When a customer has any kind of a problem in my company, I hear about it 99% of the time. As most of you know, nobody in my company, including me, screens their calls. All calls to me and all of my employees are put immediately through. If I’m not in the dealership, the calls are put through to my cell phone. You probably know that I have 4 red phones strategically located through my dealership. A red phone is always within a few steps of every customer. The sign on the phone says, “If we have not exceeded your expectations, please pick up this red phone; The buck stops here”. There is no dialing required and when the customer picks up that red phone it automatically dials my cell phone. If all of that isn’t enough, I give every customer my home telephone number which is printed on my business cards.
So there you have it, CEO’s of companies all over the world. This is the secret to success. LISTEN TO YOUR CUSTOMERS. You all say that but you don’t walk the talk. You have layer after layer of insulation between you and your customers…secretaries, assistants, middle managers, executive managers. All of them are telling you what they think you want to hear but not what’s going on “in the trenches”. It’s not easy, but who said success was supposed to be easy. How bad do you want it and how much are you willing to sacrifice to get it? Am I worried that my competition will read this and be able to compete more successfully against me? What do you think? LOL!
Friday, August 14, 2009
WSJ - Clunker Plan Needs a Tune Up
http://online.wsj.com/article/SB125019621566330159.html
Earl talks to the wall Street Journal about Cash for Clunkers
Earl talks to the wall Street Journal about Cash for Clunkers
Monday, August 10, 2009
Don’t let the Dealer Clunk You With Your Clunker
Since the U.S. Senate voted an extra $2Billion of our taxpayer’s money toward Cash for Clunkers, the insane rate of frenzied new car sales has not slowed. In over 40 years as a car dealer, I’ve never seen an incentive that has so energized the retail auto industry. The CARS program has so exceeded the expectations of our government, the auto manufacturers, and car dealers that auto inventories are evaporating at a rate so fast that dealers will be virtually out of cars in the next few weeks. Auto manufacturers will not be able to gear up production fast enough to keep cars on dealers’ lots.
Anytime you see buyers panicked into buying based on a program that’s almost too good to be true, you see buyers being taken advantage of. I’ve listed some of the main dangers you may encounter if you decide to trade in your clunker before Labor Day, September 7, which is when the program is scheduled to end. I believe it will end sooner because the extra $2 Billion will be gone before that.
(1) Confirm for yourself that your old car qualifies. You can get this information by clicking on www.Cars.gov or calling the toll free number 866 CAR-7891. The basic qualifying rules are that your car must be less than 25 years old, get no better than 18 miles per gallon, and be continuously owned and registered by you for at least one year. It also must be continuously insured for one year, but not necessarily by you. You may have given your old car to your child or grandchild. Knowing that your car does qualify and for how much, gives you an edge in the price negotiation.
(2) Do not tell the dealer you are negotiating a price with that you own a clunker. Tell him that you have no trade-in. When dealers know that you have a clunker worth $4,500 or $3,500, they see “dollar signs” and extra profit in their pockets. Surveys show the average profit dealers are making on sales with clunker trades is 20% higher.
(3) Get at least 3 competitive price bids. If you are Internet savvy, you can get a dozen or more price quotes in less than the time it takes you to drive to 3 dealerships. Your Internet price is usually the lowest price a dealer will sell a car for.
(4) Do not sign a form making you responsible for the government not paying the dealer the clunker money. Many dealers are requiring that customer sign a form accepting the responsibility to reimburse the dealer if the CARS program does not pay the dealer all the money that he expected. In many cases customers are signing these forms along with the myriad of others, not even being aware. If the dealer won’t budge on this, buy your car from another dealer.
(5) Demand to see the actual price the dealer is getting for the salvage on your vehicle. The government does not require that the dealer take this amount off the price of the new vehicle, but it does require that the dealer inform you of the “estimated” salvage value of your vehicle. This is so that you will have this information in negotiating the best price of the new vehicle. However, this is a big oversight in the government program and does not accomplish its intent. The estimated price means nothing and can be far from the actual price he sells your car to the salvage company for. The average price so far given as estimates to clunker owners is $75. In my dealership, with about 130 clunkers traded for so far, we are averaging about $450 per clunker. We allow the full salvage value less $50 [specified by the government]. Insist that the dealer take the full salvage price he got for you car [less $50] off the price of the new one.
(6) If you are buying a used car, be sure it’s not a clunker trade-in. It’s illegal to sell a clunker trade-in to anyone except an authorized salvage yard. But, with all the confusion going on and the desperation of many dealers, it’s likely that clunker trade-ins have been and will be sold. I’m seeing an unusually large number of old cars advertised for sale. If you see a used car advertised for under $10,000 be very, very careful. Check first to see if it would qualify as a clunker and, if so, do a CarFax title search and contact the previous owner. You may be able to get this information from the government, but their computers are so overwhelmed, it’s doubtful. Even if the old car you’re considering is not a clunker trade-in, be very wary of paying $6-$10 thousand for an old car that is worth a few hundred dollars for salvage.
(7) New vehicle inventories are approaching their lowest levels ever. You will be pressured by many dealers to buy a car you don’t want because the one you do is not available. They will tell you that, if they have to order the car, the cash for clunker program will have expired. This may be true but do you really want to spend $26,000 or for a new car that you really don’t wan to drive?
(8) 60 months is the minimum lease under the CARS program. This is another big mistake by the government. You should not lease a car for 60 months or more, but you have no choice with CARS. When you sign any lease contract, you are obligated to make a lease payment for every month the lease is for. If the car turns out to have big mechanical problems, you still have to make 60 lease payments. If you die, your estate must make the rest of the lease payments. If you become disabled, you’re still obligated. If you buy or lease another car before the 60 months is up, the unpaid lease payments are added to the price of that new car.
Anytime you see buyers panicked into buying based on a program that’s almost too good to be true, you see buyers being taken advantage of. I’ve listed some of the main dangers you may encounter if you decide to trade in your clunker before Labor Day, September 7, which is when the program is scheduled to end. I believe it will end sooner because the extra $2 Billion will be gone before that.
(1) Confirm for yourself that your old car qualifies. You can get this information by clicking on www.Cars.gov or calling the toll free number 866 CAR-7891. The basic qualifying rules are that your car must be less than 25 years old, get no better than 18 miles per gallon, and be continuously owned and registered by you for at least one year. It also must be continuously insured for one year, but not necessarily by you. You may have given your old car to your child or grandchild. Knowing that your car does qualify and for how much, gives you an edge in the price negotiation.
(2) Do not tell the dealer you are negotiating a price with that you own a clunker. Tell him that you have no trade-in. When dealers know that you have a clunker worth $4,500 or $3,500, they see “dollar signs” and extra profit in their pockets. Surveys show the average profit dealers are making on sales with clunker trades is 20% higher.
(3) Get at least 3 competitive price bids. If you are Internet savvy, you can get a dozen or more price quotes in less than the time it takes you to drive to 3 dealerships. Your Internet price is usually the lowest price a dealer will sell a car for.
(4) Do not sign a form making you responsible for the government not paying the dealer the clunker money. Many dealers are requiring that customer sign a form accepting the responsibility to reimburse the dealer if the CARS program does not pay the dealer all the money that he expected. In many cases customers are signing these forms along with the myriad of others, not even being aware. If the dealer won’t budge on this, buy your car from another dealer.
(5) Demand to see the actual price the dealer is getting for the salvage on your vehicle. The government does not require that the dealer take this amount off the price of the new vehicle, but it does require that the dealer inform you of the “estimated” salvage value of your vehicle. This is so that you will have this information in negotiating the best price of the new vehicle. However, this is a big oversight in the government program and does not accomplish its intent. The estimated price means nothing and can be far from the actual price he sells your car to the salvage company for. The average price so far given as estimates to clunker owners is $75. In my dealership, with about 130 clunkers traded for so far, we are averaging about $450 per clunker. We allow the full salvage value less $50 [specified by the government]. Insist that the dealer take the full salvage price he got for you car [less $50] off the price of the new one.
(6) If you are buying a used car, be sure it’s not a clunker trade-in. It’s illegal to sell a clunker trade-in to anyone except an authorized salvage yard. But, with all the confusion going on and the desperation of many dealers, it’s likely that clunker trade-ins have been and will be sold. I’m seeing an unusually large number of old cars advertised for sale. If you see a used car advertised for under $10,000 be very, very careful. Check first to see if it would qualify as a clunker and, if so, do a CarFax title search and contact the previous owner. You may be able to get this information from the government, but their computers are so overwhelmed, it’s doubtful. Even if the old car you’re considering is not a clunker trade-in, be very wary of paying $6-$10 thousand for an old car that is worth a few hundred dollars for salvage.
(7) New vehicle inventories are approaching their lowest levels ever. You will be pressured by many dealers to buy a car you don’t want because the one you do is not available. They will tell you that, if they have to order the car, the cash for clunker program will have expired. This may be true but do you really want to spend $26,000 or for a new car that you really don’t wan to drive?
(8) 60 months is the minimum lease under the CARS program. This is another big mistake by the government. You should not lease a car for 60 months or more, but you have no choice with CARS. When you sign any lease contract, you are obligated to make a lease payment for every month the lease is for. If the car turns out to have big mechanical problems, you still have to make 60 lease payments. If you die, your estate must make the rest of the lease payments. If you become disabled, you’re still obligated. If you buy or lease another car before the 60 months is up, the unpaid lease payments are added to the price of that new car.
Monday, August 03, 2009
SHOP YOUR FINANCING AND TRADE-IN WHEN BUYING A CAR
If you have read my earlier columns you know how important it is to get several competitive prices from different car dealers on the car you are buying. Equally important is to get at least 3 prices/bids on your financing and the true value of your trade-in.
The absolute worst thing you can do is to tell the dealer “all I care about is keeping my payments under “$X per month” and not know what the interest rate, terms, or products are included in the payments. Part of the profit a dealer makes on his cars is called “F&I income” and averages from $500 to as much as $2,000 per car sold. You can do your homework and buy your car at a very good price, but by not shopping your financing you can pay the dealer thousands of dollars in finance profits.
Credit unions are often the best source of funds for buying a car. Because they get special tax breaks from the government not available to banks, they usually have the lowest finance rates. Even if you don’t belong to a credit union, there are several you can join for a nominal fee. You should also get a financing quote from the bank you do business with. Also, give the dealer that you are buying from an opportunity to beat the rates you were quoted. Sometimes he can.
When you are taking delivery of your car, you will be asked to consider buying products like extended warranties, maintenance plans, road hazard insurance, GAP insurance, roadside assistance, credit life insurance, etc. My suggestion is that you do not make a snap decision on these products at the last minute. You should get complete information on each product and determine if it has value for you. You may already have coverage for some insurance products in policies you already own. With extended warranties and maintenance be sure you understand what is covered and what is not covered and what the deductibles are.
You should get at least 3 bids on the value of your trade-in. You can get some pretty good guidance from Kelly Bluebook, www.kbb.com and www.edmunds.com. Make an appointment to drive your trade-in to show the used car manager at a dealer who is franchised to sell the make you own. A Chevrolet dealer will likely pay you more for a Chevrolet trade-in than a Ford dealer would. That’s because people generally will shop for a used Chevy from a Chevrolet dealer. Get one or two more bids from other dealers in the same make. If you are near a CarMax store, you should take your car there too. They regularly buy cars like this for their inventory. The price you will be quoted is referred to as the ACV which stands for “actual cash value”. This is the wholesale value of your trade in.
Don’t confuse the ACV with the trade-in allowance that the dealer you are buying from gives you. The trade-in allowance includes part of the markup on the vehicle you are purchasing. You have probably read ads saying “MIMIMUM $4,000 ALLOWANCE ON ALL TRADES”. It’s not hard to offer thousands more on a trade-in than its ACV (true wholesale value) when you mark up the new car several thousand dollars more. Be sure that you explain that want to compare the ACV of your trade-in. Tell them you want the markup on the price of the car you are buying discounted, not added on to the ACV of your trade. Remember, however, that if you sell your trade-in to another party, you lose the advantage of deducing the trade-in from the price your sales tax in calculated on. At 6%, you would pay an extra $600 in sales tax for a trade-in with a $10,000 ACV.
With competitive bids on the car you are buying, the interest rate on your financing, and your trade-in ACV you are sure to minimize the total cost of that new or used car.
The absolute worst thing you can do is to tell the dealer “all I care about is keeping my payments under “$X per month” and not know what the interest rate, terms, or products are included in the payments. Part of the profit a dealer makes on his cars is called “F&I income” and averages from $500 to as much as $2,000 per car sold. You can do your homework and buy your car at a very good price, but by not shopping your financing you can pay the dealer thousands of dollars in finance profits.
Credit unions are often the best source of funds for buying a car. Because they get special tax breaks from the government not available to banks, they usually have the lowest finance rates. Even if you don’t belong to a credit union, there are several you can join for a nominal fee. You should also get a financing quote from the bank you do business with. Also, give the dealer that you are buying from an opportunity to beat the rates you were quoted. Sometimes he can.
When you are taking delivery of your car, you will be asked to consider buying products like extended warranties, maintenance plans, road hazard insurance, GAP insurance, roadside assistance, credit life insurance, etc. My suggestion is that you do not make a snap decision on these products at the last minute. You should get complete information on each product and determine if it has value for you. You may already have coverage for some insurance products in policies you already own. With extended warranties and maintenance be sure you understand what is covered and what is not covered and what the deductibles are.
You should get at least 3 bids on the value of your trade-in. You can get some pretty good guidance from Kelly Bluebook, www.kbb.com and www.edmunds.com. Make an appointment to drive your trade-in to show the used car manager at a dealer who is franchised to sell the make you own. A Chevrolet dealer will likely pay you more for a Chevrolet trade-in than a Ford dealer would. That’s because people generally will shop for a used Chevy from a Chevrolet dealer. Get one or two more bids from other dealers in the same make. If you are near a CarMax store, you should take your car there too. They regularly buy cars like this for their inventory. The price you will be quoted is referred to as the ACV which stands for “actual cash value”. This is the wholesale value of your trade in.
Don’t confuse the ACV with the trade-in allowance that the dealer you are buying from gives you. The trade-in allowance includes part of the markup on the vehicle you are purchasing. You have probably read ads saying “MIMIMUM $4,000 ALLOWANCE ON ALL TRADES”. It’s not hard to offer thousands more on a trade-in than its ACV (true wholesale value) when you mark up the new car several thousand dollars more. Be sure that you explain that want to compare the ACV of your trade-in. Tell them you want the markup on the price of the car you are buying discounted, not added on to the ACV of your trade. Remember, however, that if you sell your trade-in to another party, you lose the advantage of deducing the trade-in from the price your sales tax in calculated on. At 6%, you would pay an extra $600 in sales tax for a trade-in with a $10,000 ACV.
With competitive bids on the car you are buying, the interest rate on your financing, and your trade-in ACV you are sure to minimize the total cost of that new or used car.
Monday, July 27, 2009
Your Clunker’s Salvage Value Should Reduce the New Car Price
The CARS government program which pays you up $4,500 for your old gas-guzzler, clunker is up and running. In fact, it’s exceeding my expectations for effectiveness. My first thought when I heard about this program was that most owners of older, cheap cars would not have the credit to buy new one, even with a $3,500 or $4,500 gift from Uncle Sam. I was wrong. A lot of people with good credit are trading in these old cars and this will result in a real short term boost for car sales nationwide. It’s entirely possible that the program could run out of money before the November 1 deadline. The funding for the program is $1 billion. This sounds like a lot, but will fund only about 250,000 new car sales which is an average week’s sales.
For all of the information on the program, you can click on http://www.cars.gov/. Unfortunately, as is the case with most government programs there is “too much” information. The rules comprise 136 pages and are quite confusing and ambiguous.
The purpose of this column is to point out one of the least understood but most important elements of the program. That is what is the true “salvage value” of your clunker trade-in. You are at the mercy of the dealer to learn about this unless you want to shop your clunker to the list of government approved salvage companies. The dealer is permitted to keep $50 of the salvage value of the trade and the rest is to be given to the consumer. With a typical salvage value of $200, the dealer retains $50 and $150 is added to the $3,500 or $4,500 you qualify for.
However that small amount assumes that the car will be crushed and sold only for scrap metal value. A lot of clunkers have valuable parts and accessories that can be disassembled and sold individually. These can total thousands of dollars...a CD player, tires, camper top, air-conditioning compressor or condenser, an alternator, etc. The only way to truly maximize the true value of your clunker is to competitively shop it with several approved salvage dealers. The dealer you buy your new car from should do this for you. In my dealership, we get bids from 5 different government approved salvage dealers and, of course, take the highest bid.
The dealer you are buying from is required by law to disclose the amount of money he is receiving from the salvage dealer. You should sign a form with this information on it and receive a copy signed by the dealer. This is your money and should be taken off the price of the new car you are buying.
This salvage value could make a big difference in the final price you pay for your new car. When you are shopping for your new car, you need to compare not only the price of the new car, but the salvage amount each dealer is allowing you. If he discloses that he is allowing you only $150, that means that you are receiving only the scrap metal value of your car. If you tires are in good shape, these alone should be worth more than $150. You should ask the dealer to identify the salvage company he is selling your clunker to. You should also ask to see what the other bids were from other salvage dealers. If a dealer is getting only one bid from one salvage dealer I would be very suspicious.
One of the reasons that it took the government so long to get all of the rules of the CARS program out was the realization that there is a huge opportunity for fraud in the sale of the clunker. In my opinion, this opportunity still exists. What’s to prevent a car dealer from disclosing a lower amount than the scrap dealer actually pays him? The scrap dealer can pay the dealer one amount by check and the other in cash “under the table”. Using multiple scrap dealers with multiple bids would go a long way to reduce this threat, but, unfortunately, this is not a requirement of the CARS program.
For all of the information on the program, you can click on http://www.cars.gov/. Unfortunately, as is the case with most government programs there is “too much” information. The rules comprise 136 pages and are quite confusing and ambiguous.
The purpose of this column is to point out one of the least understood but most important elements of the program. That is what is the true “salvage value” of your clunker trade-in. You are at the mercy of the dealer to learn about this unless you want to shop your clunker to the list of government approved salvage companies. The dealer is permitted to keep $50 of the salvage value of the trade and the rest is to be given to the consumer. With a typical salvage value of $200, the dealer retains $50 and $150 is added to the $3,500 or $4,500 you qualify for.
However that small amount assumes that the car will be crushed and sold only for scrap metal value. A lot of clunkers have valuable parts and accessories that can be disassembled and sold individually. These can total thousands of dollars...a CD player, tires, camper top, air-conditioning compressor or condenser, an alternator, etc. The only way to truly maximize the true value of your clunker is to competitively shop it with several approved salvage dealers. The dealer you buy your new car from should do this for you. In my dealership, we get bids from 5 different government approved salvage dealers and, of course, take the highest bid.
The dealer you are buying from is required by law to disclose the amount of money he is receiving from the salvage dealer. You should sign a form with this information on it and receive a copy signed by the dealer. This is your money and should be taken off the price of the new car you are buying.
This salvage value could make a big difference in the final price you pay for your new car. When you are shopping for your new car, you need to compare not only the price of the new car, but the salvage amount each dealer is allowing you. If he discloses that he is allowing you only $150, that means that you are receiving only the scrap metal value of your car. If you tires are in good shape, these alone should be worth more than $150. You should ask the dealer to identify the salvage company he is selling your clunker to. You should also ask to see what the other bids were from other salvage dealers. If a dealer is getting only one bid from one salvage dealer I would be very suspicious.
One of the reasons that it took the government so long to get all of the rules of the CARS program out was the realization that there is a huge opportunity for fraud in the sale of the clunker. In my opinion, this opportunity still exists. What’s to prevent a car dealer from disclosing a lower amount than the scrap dealer actually pays him? The scrap dealer can pay the dealer one amount by check and the other in cash “under the table”. Using multiple scrap dealers with multiple bids would go a long way to reduce this threat, but, unfortunately, this is not a requirement of the CARS program.
Monday, July 20, 2009
Cash for Clunkers: BUYERS BEWARE
If all goes according to plan, the CARS government stimulus program, “Car Allowance Rebate System”, aka “Cash for Clunkers” will goes into effect this Friday, July 24th. I’m predicting that this government program will be exploited by car dealers and that car buyers will be taken advantage of on a scale rarely seen.
These are the basic requirements to determine if your car qualifies:
Your trade-in vehicle must:
§ have been manufactured less than 25 years before the date you trade it in
§ have a "new" combined city/highway fuel economy of 18 miles per gallon or less
§ be in drivable condition
§ be continuously insured and registered to the same owner for the full year preceding the trade-in
§ The trade-in vehicle must have been manufactured not earlier than 25 years before the date of trade in and, in the case of a category 3 vehicle, must also have been manufactured not later than model year 2001
Note that work trucks (i.e., very large pickup trucks and cargo vans) have different requirements.
Here are some tips to avoid being one of the victims:
(1) Do not pay any attention to car dealers’ advertising on this program. Most of it is entirely misleading and deceptive. Go to the official government Web site, www.CARS.gov and read the real story. Beware of fake Web sites which purport to be the official government Web site.
(2) If you own a car that qualifies for the rebate, be sure that it’s not worth more than the government voucher. Before you consider excepting a check for $3,500 or $4,500 for your old car, be sure that it’s not worth even more. An older, cheaper car that will run is in higher demand today than ever before. In today’s terrible economic times, many people cannot get credit to buy a new car or nicer used car. Therefore they have to buy older, cheaper ones for cash. This high demand and low supply has raised the prices for “clunkers”. Get at least three bids for your old car from the used car managers at the dealerships that sell your make of car. If you live near a CarMax, they also pay top dollar for used cars. Although this is more trouble and time consuming, you may want to consider selling your old car to a friend, neighbor or listing it on Ebay.
(3) Be sure that the dealership you are trading in your clunker to, is registered with the Government. Registered letters were sent out last Friday, July 17, to tell dealers how to register. These dealers will be listed on www.CARS.gov. You can check this Web site to see if your car qualifies for getting bad enough gas mileage www.fueleconomy.gov/feg/sbs.htm.
(4) Verify that the $3,500 or $4,500 credit you are getting for your clunker is coming from the government and not from the dealer. A dealer could find that your car is worth more than the amount he can get from the government program. Or, the dealer may not really be registered for the program. Demand official verification that the government voucher for the VIN number for your car has been issued to this dealer.
(5) Buy the new car before you tell them you have an eligible clunker. You probably have heard the consumer tip, “don’t tell the dealer that you have a trade-in until you have negotiated the best price for the new car”. That tactic is even more important with the CARS program. The dealer sees your clunker as $3,500 or $4,500 in extra profit for him. Don’t let him see that extra profit but make it your extra savings on the best new car price you can negotiate. Remember to get at least three competitive bids on that new car. When you have selected the dealer with the best price, “spring” your clunker worth $3,500 or $4,500 on him and take that right off low price you already have locked in.
(6) Remember that this program does not apply to buying a used car. Although I believe it should, the car you are buying must never have been titled. If the dealer tells you otherwise, he is not using the CARS program and is tying to trick you into thinking you are participating.
(7) Why your clunker could be worth a lot more than $3,500 or $4,500. If sold separately, the parts in a car costing $3,000 can be worth more than $10,000 and more. Cars that are totaled are sold at auction to junk dealers who dismantle the car and sell the useable parts one at a time. Cars that can’t be sold in this country because of emissions or safety considerations can be exported to South or Central America where they have much looser regulations. It’s common in South Florida for cars with very high mileage to be exported because in other countries they have no rules against rolling back odometers or they aren’t enforced. Our government can’t track the VIN of a car sold out of the county. I predict that some dealers participating in the CARS program will be taking cash kick-backs from exporters and junk dealers; or setting up companies in different names to handle these kinds of transactions.
These are the basic requirements to determine if your car qualifies:
Your trade-in vehicle must:
§ have been manufactured less than 25 years before the date you trade it in
§ have a "new" combined city/highway fuel economy of 18 miles per gallon or less
§ be in drivable condition
§ be continuously insured and registered to the same owner for the full year preceding the trade-in
§ The trade-in vehicle must have been manufactured not earlier than 25 years before the date of trade in and, in the case of a category 3 vehicle, must also have been manufactured not later than model year 2001
Note that work trucks (i.e., very large pickup trucks and cargo vans) have different requirements.
Here are some tips to avoid being one of the victims:
(1) Do not pay any attention to car dealers’ advertising on this program. Most of it is entirely misleading and deceptive. Go to the official government Web site, www.CARS.gov and read the real story. Beware of fake Web sites which purport to be the official government Web site.
(2) If you own a car that qualifies for the rebate, be sure that it’s not worth more than the government voucher. Before you consider excepting a check for $3,500 or $4,500 for your old car, be sure that it’s not worth even more. An older, cheaper car that will run is in higher demand today than ever before. In today’s terrible economic times, many people cannot get credit to buy a new car or nicer used car. Therefore they have to buy older, cheaper ones for cash. This high demand and low supply has raised the prices for “clunkers”. Get at least three bids for your old car from the used car managers at the dealerships that sell your make of car. If you live near a CarMax, they also pay top dollar for used cars. Although this is more trouble and time consuming, you may want to consider selling your old car to a friend, neighbor or listing it on Ebay.
(3) Be sure that the dealership you are trading in your clunker to, is registered with the Government. Registered letters were sent out last Friday, July 17, to tell dealers how to register. These dealers will be listed on www.CARS.gov. You can check this Web site to see if your car qualifies for getting bad enough gas mileage www.fueleconomy.gov/feg/sbs.htm.
(4) Verify that the $3,500 or $4,500 credit you are getting for your clunker is coming from the government and not from the dealer. A dealer could find that your car is worth more than the amount he can get from the government program. Or, the dealer may not really be registered for the program. Demand official verification that the government voucher for the VIN number for your car has been issued to this dealer.
(5) Buy the new car before you tell them you have an eligible clunker. You probably have heard the consumer tip, “don’t tell the dealer that you have a trade-in until you have negotiated the best price for the new car”. That tactic is even more important with the CARS program. The dealer sees your clunker as $3,500 or $4,500 in extra profit for him. Don’t let him see that extra profit but make it your extra savings on the best new car price you can negotiate. Remember to get at least three competitive bids on that new car. When you have selected the dealer with the best price, “spring” your clunker worth $3,500 or $4,500 on him and take that right off low price you already have locked in.
(6) Remember that this program does not apply to buying a used car. Although I believe it should, the car you are buying must never have been titled. If the dealer tells you otherwise, he is not using the CARS program and is tying to trick you into thinking you are participating.
(7) Why your clunker could be worth a lot more than $3,500 or $4,500. If sold separately, the parts in a car costing $3,000 can be worth more than $10,000 and more. Cars that are totaled are sold at auction to junk dealers who dismantle the car and sell the useable parts one at a time. Cars that can’t be sold in this country because of emissions or safety considerations can be exported to South or Central America where they have much looser regulations. It’s common in South Florida for cars with very high mileage to be exported because in other countries they have no rules against rolling back odometers or they aren’t enforced. Our government can’t track the VIN of a car sold out of the county. I predict that some dealers participating in the CARS program will be taking cash kick-backs from exporters and junk dealers; or setting up companies in different names to handle these kinds of transactions.
Monday, July 13, 2009
LEASE A NEW CAR BEFORE YOU BUY IT
I wrote another column that was entitled, “Buy a New Car before You Lease It”. The main message in that column was to establish the lowest “capitalized cost” which is critical in determining your lowest lease payment. Almost every lease ad I read establishes the capitalized cost at MSRP. My column explains that you should shop and compare prices as if you are going to buy the car. Once you’ve determined the lowest price, you can then ensure the dealer you are leasing from uses that lowest for your capitalized cost on the lease and not full sticker or MSRP.
The reciprocal of this rule is also true. The purchase price of your new car is only one component in the total cost of ownership. Depreciation is the largest single cost of owning. Two different make/model cars can have almost identical prices, but one can easily depreciate thousands of dollars more than the other. For example, in the current Automotive Leasing Guide, the residual value for a Honda Accord sedan on a 36 months lease is 52% and the residual value for a Chrysler Sebring sedan is 25%. The MSRP of these two cars is $22,400 for the Honda Accord and $21,900 for the Chrysler Sebring. The Sebring depreciates $16,245 in 3 years! The Accord depreciates only $10,752. Even if you were able to buy the Sebring for a much larger discount than the Accord, the discount would not offset the extra depreciation.
The Automotive Lease Guide, ALG, is the “bible” that virtually all leasing companies use to establish the used car value of the car they lease you at the end of the lease. All car dealerships, leasing companies, and banks that lease cars will have a copy of this book. You can get information from ALG’s Web site, www.ALG.com and you can also get information on residuals and depreciation from www.KLB.com and www.Edmunds.com.
ALG has been doing this for more than 40 years and they look at many factors before they establish a residual number for a particular year, make, and model vehicle. For example, the residuals for Chrysler and GM products plummeted when these companies entered bankruptcy. The residuals for these makes came back, although not all the way, after they emerged from bankruptcy. Higher priced cars typically have higher markups and as a general rule, depreciate faster [have lower residuals] than low priced cars. Cars with high sticker prices can have a markup of 25% and a low sticker priced car can have a markup of 8% or 9%. Vehicles that you typically see large discounts and cash rebates on, most recently Chrysler and GM, are usually the ones that depreciate the fastest.
The biggest single factor that translates into a higher residual [low depreciation] is high quality. Historically, Asian vehicles have typically ranked highest in quality surveys. My favorite judge of vehicle quality is Consumer Reports and in their tests for reliability there was only one American nameplate in the top 10, the Chevrolet Corvette ZO6 manual.
Another important factor in establishing depreciation rates is the price of gasoline. The residual values of trucks, vans, and SUV’s plummeted over a year ago when the price of gas hit $4 a gallon. As you might expect, the residual values of fuel efficient cars, especially hybrids, soared. With gas prices being volatile, you may want to consider leasing if you want to “lock in” the depreciation. You can hedge the price of gasoline and let the leasing company bear the risk or reward. At the end of the lease on a big truck if gas prices go back to $4.00 or higher, the resale value will plummet but you can simply walk away from the lease vehicle and let the leasing company absorb the loss. On the other hand, it the price of gas drops precipitously, the resale/residual will rise. You can then exercise your purchase option and “flip it” to the dealer who will pay you the higher wholesale value.
The bottom line is that, if you are going to buy your next car, don’t make a final decision until you know what the ALG residual value for that specific year, make, and model is. The higher the value, the less is the cost of depreciation which translates into a higher trade-in allowance when you go to buy your next vehicle. Or, it translates into being able to sell it outright for more money.
The reciprocal of this rule is also true. The purchase price of your new car is only one component in the total cost of ownership. Depreciation is the largest single cost of owning. Two different make/model cars can have almost identical prices, but one can easily depreciate thousands of dollars more than the other. For example, in the current Automotive Leasing Guide, the residual value for a Honda Accord sedan on a 36 months lease is 52% and the residual value for a Chrysler Sebring sedan is 25%. The MSRP of these two cars is $22,400 for the Honda Accord and $21,900 for the Chrysler Sebring. The Sebring depreciates $16,245 in 3 years! The Accord depreciates only $10,752. Even if you were able to buy the Sebring for a much larger discount than the Accord, the discount would not offset the extra depreciation.
The Automotive Lease Guide, ALG, is the “bible” that virtually all leasing companies use to establish the used car value of the car they lease you at the end of the lease. All car dealerships, leasing companies, and banks that lease cars will have a copy of this book. You can get information from ALG’s Web site, www.ALG.com and you can also get information on residuals and depreciation from www.KLB.com and www.Edmunds.com.
ALG has been doing this for more than 40 years and they look at many factors before they establish a residual number for a particular year, make, and model vehicle. For example, the residuals for Chrysler and GM products plummeted when these companies entered bankruptcy. The residuals for these makes came back, although not all the way, after they emerged from bankruptcy. Higher priced cars typically have higher markups and as a general rule, depreciate faster [have lower residuals] than low priced cars. Cars with high sticker prices can have a markup of 25% and a low sticker priced car can have a markup of 8% or 9%. Vehicles that you typically see large discounts and cash rebates on, most recently Chrysler and GM, are usually the ones that depreciate the fastest.
The biggest single factor that translates into a higher residual [low depreciation] is high quality. Historically, Asian vehicles have typically ranked highest in quality surveys. My favorite judge of vehicle quality is Consumer Reports and in their tests for reliability there was only one American nameplate in the top 10, the Chevrolet Corvette ZO6 manual.
Another important factor in establishing depreciation rates is the price of gasoline. The residual values of trucks, vans, and SUV’s plummeted over a year ago when the price of gas hit $4 a gallon. As you might expect, the residual values of fuel efficient cars, especially hybrids, soared. With gas prices being volatile, you may want to consider leasing if you want to “lock in” the depreciation. You can hedge the price of gasoline and let the leasing company bear the risk or reward. At the end of the lease on a big truck if gas prices go back to $4.00 or higher, the resale value will plummet but you can simply walk away from the lease vehicle and let the leasing company absorb the loss. On the other hand, it the price of gas drops precipitously, the resale/residual will rise. You can then exercise your purchase option and “flip it” to the dealer who will pay you the higher wholesale value.
The bottom line is that, if you are going to buy your next car, don’t make a final decision until you know what the ALG residual value for that specific year, make, and model is. The higher the value, the less is the cost of depreciation which translates into a higher trade-in allowance when you go to buy your next vehicle. Or, it translates into being able to sell it outright for more money.
Monday, July 06, 2009
Always get an “Out the Door” Price
Many states have laws prohibiting car dealers from adding “fees” onto the prices they quote you. Unfortunately, Florida is not one of these states. The state law in Florida requires only that the dealers disclose on the buyers’ order that this additional charge is not a local, state, or federal fee, but is actually just profit to the dealer.
Almost every car dealership in Florida has this extra profit printed on their buyer’s order, under an assortment of labels like “Dealer Fee”, “Doc Fee”, and Dealer Prep”. You will not see it on the car’s price sticker you will probably not hear any verbal disclosure by the sales person or manager, unless you ask. If you ask, you will be told that “all other dealers charge this” and this is “almost” true.
Florida law also requires that when a dealer has this additional profit printed on his buyer’s order, he must not delete it for some customers and charge it to others. The only way he can effectively eliminate this extra profit is by reducing the quoted selling price of the car by this amount, but keep the dealer fee amount that is printed on the buyer’s order. This is rarely done because dealers do not pay their salesmen or managers a commission on the dealer fee. If you demand the price be reduced to compensate for the dealer fee, it cuts the salesman’s commission. Dealer fees range from $500 to $900 and a typical salesman’s commission is 25%, costing the salesman $125 to $225.
Florida law requires that a dealer include the dealer fee in the price of an advertised car. This is often ignored by dealers advertising on the Internet and in direct mail because it is below the “radar screen” of the Attorney General’s office. In newspaper, TV, and radio ads one car is advertised at a low price with a seemingly innocuous designation like “#1234B” (the stock # of the car) all there is to tell the buyer that only one car is available at this price. Another common tactic is a fine print disclosure at the bottom of the ad reading “price good on date of publication only”. The odds of being able to buy one of these cars at the advertised price are not good. Not only is there only one car with the price good for just one day, but the salesman receives no commission or a much smaller commission if he sells you this car.
My advice is not to pay much attention to advertised car prices. Do your shopping on the Internet or by telephone. Insist on an “out the door” price including everything except sales tax and license tag. If buying a new car, get several “out the door” prices quoted on the exact same year, make, model, and accessorized car. Two very good free Web sites to get information on dealer costs and fair retail prices are www.kbb.com and www.edmunds.com. Consumer Reports is also an excellent source of product information and pricing information, but there is a fee for their Web site.
Almost every car dealership in Florida has this extra profit printed on their buyer’s order, under an assortment of labels like “Dealer Fee”, “Doc Fee”, and Dealer Prep”. You will not see it on the car’s price sticker you will probably not hear any verbal disclosure by the sales person or manager, unless you ask. If you ask, you will be told that “all other dealers charge this” and this is “almost” true.
Florida law also requires that when a dealer has this additional profit printed on his buyer’s order, he must not delete it for some customers and charge it to others. The only way he can effectively eliminate this extra profit is by reducing the quoted selling price of the car by this amount, but keep the dealer fee amount that is printed on the buyer’s order. This is rarely done because dealers do not pay their salesmen or managers a commission on the dealer fee. If you demand the price be reduced to compensate for the dealer fee, it cuts the salesman’s commission. Dealer fees range from $500 to $900 and a typical salesman’s commission is 25%, costing the salesman $125 to $225.
Florida law requires that a dealer include the dealer fee in the price of an advertised car. This is often ignored by dealers advertising on the Internet and in direct mail because it is below the “radar screen” of the Attorney General’s office. In newspaper, TV, and radio ads one car is advertised at a low price with a seemingly innocuous designation like “#1234B” (the stock # of the car) all there is to tell the buyer that only one car is available at this price. Another common tactic is a fine print disclosure at the bottom of the ad reading “price good on date of publication only”. The odds of being able to buy one of these cars at the advertised price are not good. Not only is there only one car with the price good for just one day, but the salesman receives no commission or a much smaller commission if he sells you this car.
My advice is not to pay much attention to advertised car prices. Do your shopping on the Internet or by telephone. Insist on an “out the door” price including everything except sales tax and license tag. If buying a new car, get several “out the door” prices quoted on the exact same year, make, model, and accessorized car. Two very good free Web sites to get information on dealer costs and fair retail prices are www.kbb.com and www.edmunds.com. Consumer Reports is also an excellent source of product information and pricing information, but there is a fee for their Web site.
Monday, June 29, 2009
The Internet Price is the Lowest Price for a New Car
Ten years from now, I believe that at least 75% of all new cars will be purchased over the Internet. Right now it is less than 20%. The reason is simply that that Internet price is usually your lowest price and more and more car buyers are figuring that out every day. Dealers must give their best price to a prospect inquiring over the Internet because that dealer probably will have only that one chance to sell the car. If they try “the old negotiating game” the Internet prospect will simply choose the lowest price from several other quotes he gets. When my friends ask me to advise them on how to get the best price on a new car, I always tell them to use the Internet. If they ask me for the best price on my product, Toyota, I give them my Internet price.
I am not suggesting that you don’t visit your local dealer to see, touch, smell, and drive the new vehicles you are considering. This is very important. You can’t make a valid, final decision on which new vehicle is best for you by solely reading data and looking at pictures on the Internet, Consumer Reports, or any other source. Research of that nature is important, but you should finalize your decision with visits to the dealers to actually experience the vehicle.
Once you have made your final decision on the year, make, model, color, and accessories, you are ready to sit down at your PC and choose the dealer from whom you will buy this specific vehicle. If you are not handy with a PC, ask a friend or relative who is. First, go to the manufacturer’s Web site like www.ford.com, www.toyota.com, www.chevrolet.com, etc. You will be able to type in your zip code to find all of the dealers of that make within a given radius, usually about 40 miles, giving you 3 or 4 dealers. To expand the radius, choose another zip code further from yours. The dealers within your radius will show their Web site addresses. Click on their Web site and ask for a quote on the specific car you have selected. Most Web sites have a page for what is called a “quick quote”. You type in the year, make, model, color, and accessories. It will also ask you for your name, telephone number, address, if you have a trade (check “no”), whether you are ready to buy now (yes), and other questions. All you really need to fill out is year, make, model, and accessories and your email address. If you prefer not to be contacted by phone, don’t fill in the phone number. If they require it before you can submit your request, type in any 10 digits so that the Web page will allow you to. If you can’t find a “quick quote” page, just email your request to their Internet sales department.
Depending on your PC and typing skills this whole process should take less than half an hour. Think of all the time, gasoline, shoe leather, and especially aggravation you are saving compared to visiting as many dealerships in person. The time it will take to get back quotes varies from dealership to dealership. You may get some back within a few minutes, some will take a few hours, and some may take a day or two. Believe it or not, some might not respond at all. There are even a few dealers who will not quote a price on the Internet, but try to lure you into their store with false promises. Ignore them. I recommend that you get a minimum of 3 valid price quotes on your specific vehicle. It’s so easy to get quotes, why not get a half dozen or so? You are not necessarily even limited by driving distances. If the best price is from a dealer who is too far away, show that quote to a dealer nearer you and ask him if he will match it.
There are some things that you must be careful about. Be sure that that the price you get is an “out the door” price. That is a price which excludes only federal, state, and local fees and taxes which are usually just for tax and tag. Most dealers in Florida tack on a fee or fees of their own which are variously referred to as “dealer fee”, “delivery fee”, “documentary fee”, etc. This is illegal in many states, but not in Florida. These fees vary from around $500 to $900. Be sure that this fee which is just profit to the dealer is included in your “out the door” price. Also be absolutely certain that you are comparing “apples and apples”. When you select your low bid, double check that this dealer is quoting you on the same year, make, model, and accessories as the other dealers. A good double-check is to compare the MSRP. The MSRP, manufacturer’s suggested retail price, will be identical on identically equipped cars of the same model and year. Also, be sure that the car you have the price on will be there when you come in. Give them deposit on your credit card to hold the car for you.
Internet car buyers are the wave of the future. The retail car business is going through rapid changes and the old fashioned, price-haggling way of buying cars is slowly but surely becoming obsolete. If you haven’t already, now is the time to join the ranks of the smart, sophisticated car buyers.
I am not suggesting that you don’t visit your local dealer to see, touch, smell, and drive the new vehicles you are considering. This is very important. You can’t make a valid, final decision on which new vehicle is best for you by solely reading data and looking at pictures on the Internet, Consumer Reports, or any other source. Research of that nature is important, but you should finalize your decision with visits to the dealers to actually experience the vehicle.
Once you have made your final decision on the year, make, model, color, and accessories, you are ready to sit down at your PC and choose the dealer from whom you will buy this specific vehicle. If you are not handy with a PC, ask a friend or relative who is. First, go to the manufacturer’s Web site like www.ford.com, www.toyota.com, www.chevrolet.com, etc. You will be able to type in your zip code to find all of the dealers of that make within a given radius, usually about 40 miles, giving you 3 or 4 dealers. To expand the radius, choose another zip code further from yours. The dealers within your radius will show their Web site addresses. Click on their Web site and ask for a quote on the specific car you have selected. Most Web sites have a page for what is called a “quick quote”. You type in the year, make, model, color, and accessories. It will also ask you for your name, telephone number, address, if you have a trade (check “no”), whether you are ready to buy now (yes), and other questions. All you really need to fill out is year, make, model, and accessories and your email address. If you prefer not to be contacted by phone, don’t fill in the phone number. If they require it before you can submit your request, type in any 10 digits so that the Web page will allow you to. If you can’t find a “quick quote” page, just email your request to their Internet sales department.
Depending on your PC and typing skills this whole process should take less than half an hour. Think of all the time, gasoline, shoe leather, and especially aggravation you are saving compared to visiting as many dealerships in person. The time it will take to get back quotes varies from dealership to dealership. You may get some back within a few minutes, some will take a few hours, and some may take a day or two. Believe it or not, some might not respond at all. There are even a few dealers who will not quote a price on the Internet, but try to lure you into their store with false promises. Ignore them. I recommend that you get a minimum of 3 valid price quotes on your specific vehicle. It’s so easy to get quotes, why not get a half dozen or so? You are not necessarily even limited by driving distances. If the best price is from a dealer who is too far away, show that quote to a dealer nearer you and ask him if he will match it.
There are some things that you must be careful about. Be sure that that the price you get is an “out the door” price. That is a price which excludes only federal, state, and local fees and taxes which are usually just for tax and tag. Most dealers in Florida tack on a fee or fees of their own which are variously referred to as “dealer fee”, “delivery fee”, “documentary fee”, etc. This is illegal in many states, but not in Florida. These fees vary from around $500 to $900. Be sure that this fee which is just profit to the dealer is included in your “out the door” price. Also be absolutely certain that you are comparing “apples and apples”. When you select your low bid, double check that this dealer is quoting you on the same year, make, model, and accessories as the other dealers. A good double-check is to compare the MSRP. The MSRP, manufacturer’s suggested retail price, will be identical on identically equipped cars of the same model and year. Also, be sure that the car you have the price on will be there when you come in. Give them deposit on your credit card to hold the car for you.
Internet car buyers are the wave of the future. The retail car business is going through rapid changes and the old fashioned, price-haggling way of buying cars is slowly but surely becoming obsolete. If you haven’t already, now is the time to join the ranks of the smart, sophisticated car buyers.
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