Knowing the Dealer

Dealers are human. Car salespeople are like anyone else trying to make a living. That being said, don't let the dealers intimidate you into making a bad deal. Dealers aren't bad people—they just want to make money off of the sale. Dealers count on you to be uninformed. If you know what angle they are taking, then you can put yourself in the best purchasing position. And you never know, the dealer might appreciate someone who knows their stuff.

Buying a new car is a battle for the best price. That being said, if you're going into battle, you better be prepared. All dealers are different, but never confuse a dealer's kindness with their desire for profit.

• How Does the Dealer Make Money?

  There are several ways that a dealer makes money off of you. However, there is a way for the dealer to get paid and for you to save money at the same time (the proverbial “win-win” situation). 

  Holdbacks
  Even if the dealer sells you a car at the invoice price, he is often still making money off of the transaction due to a little-known technique called holdback. Basically, upon completing a sale, the dealer is compensated by the manufacturer at a rate of 2-5% of the MSRP. Thus, a dealer can make between $400-1,000 off of your purchase without even haggling with you. But you are not entitled to the holdback, so don't even try to wrangle any of this money from the dealer when negotiating. You shouldn't even mention it unless he's complaining that he's not making any money off of the sale.

  Factory Rebates
  Similar to holdbacks, these are bonuses that the manufacturers give to the dealers to help them move specific cars.

  Financing
  If you finance through the dealer and you don't know how much you should pay, then you will probably pay too much. If you qualify for a 5% APR and the dealer tells you that you qualify for a 7% APR, he is pocketing the difference. Not every dealer will do this, but if you don't know what rate you qualify for, you will never know. Just another reason to either obtain your own financing before you visit the dealer or at least know what rate you qualify for.

  Trade-in
  Dealers will lowball you on the price of your trade-in so they can make as much profit as possible. Either sell your car to a private party before you reach the dealership or have several estimates for your trade-in so that you don't get snowed.

 

• Dealer Traps

Accessories at the end of the sale. An iPod cable does not cost $50 and most of the accessories are gimmicks. Remember, even if they tell you that your accessories purchase will be only an extra $10 per month if you wrap it into your car loan, it will end up costing you $480 over the course of a 48 month loan—and that's not including interest. Imagine what 7 accessories at $10 extra per month would be over the course of a 48 month loan? $3,360. Most of the time you could buy those accessories separately for 1/10 of the price. That's $3,360 of additional savings.

 

• Things Not to Say to the Dealer
  • Never say how much you want to spend a month on payments. Tell him how much you want to pay for the car.
  • Don't mention that you have a trade-in until you have negotiated the price.

 

• Everything is Negotiable 

  What most people don't know is that all of the options that are available can be negotiated. The prices of all of the little extras such as extended warranties, paint protection, LoJack, rust proofing, floor mats, etc. are not set in stone. The dealer is counting on you not to know this.

   

• Top Dealer Strategies 

  Most dealers are honest. However, all dealers are trying to make as much profit as possible. Here are some of the documented strategies that a select few dealers have pulled—so beware!!!!

  • Financing fell through.
  • They lie about your credit score.
  • Forced warranty. Total joke.
  • Dealer Prep. If you order your car from the dealer, most of the time they will tack on a “dealer prep” fee that is completely ridiculous. They want to charge you between $300-600 just to take the plastic off of the seats and prep the car for you. That usually takes 1-2 hours max. You can have it waived.

  BOTTOM LINE: Look at the car buying experience as a game. The dealer is the other team and the car is the trophy. The majority of dealers aren't bad people—they just count on consumer being uninformed. In order to be successful at anything you must be informed. Knowledge is king and if you know the dealer's tactics, you can win the car-buying game.