Some Instructions To Close A Car Deal
Congratulations! You and the dealer salesperson have finally come to terms on a fair price for your spanking-new dream car. You even managed to get a reasonable price in trade for that old heap you’ve been driving. You passed a credit check and the nice salesperson quoted you a very competitive figure on a dealer-arranged loan or lease. It’s taken a eternity, but you can almost feel those keys dropping into the palm of your hand. Time to breathe a sigh of relief, right?
Not quite. There’s just one item left on the dealer‘s agenda: A visit to its finance and insurance office – “F&I,” in the lingo of car sales – to sign the final papers. Here, many buyers expect to encounter some sort of clerk, and let their guard down. In fact, F&I people are masters at salesmanship, and are often more accomplished at sales tactics than the sales folk on the showroom floor. With a few strokes of the pen, an F&I person can turn a sweet deal for the customer into a bonanza for the dealer.
It’s logical to think that dealers make their money – lots of it – on the sales of new cars. Look at a dealership and what do you see? Showrooms filled with marble and chrome. Sales people running around in designer ties and expensive shoes. And of course, there are the cars – scores of pristine cars, each worth tens of thousands of dollars.
Now, if the department store marks up those ties or shoes that the sales folk wear by 20 or 30 percent, then most people assume the car dealer – also a retailer – probably pockets $4,000 or $6,000 on a $20,000 new car. Not even close. Take a look at the vehicle charts that follow in this book and you’ll see that difference between the dealer‘s cost and our suggested target prices are considerably less – perhaps $800 or $1,000 on a $20,000 vehicle. In fact, over the past decade, dealer gross margins have hovered in the 6 to 7 percent range. And out of that, the dealer has to pay for income taxes, sales commissions, interest, advertising and other overhead costs. Pretty slim pickings. But don’t grab your hanky and weep for the dealers yet. They have other ways to pay their bills. What they don’t make on sale of the car itself, they can more than make up in the F&I office.
On loans, for example. Dealers don’t lend buyers their own money; they arrange loans through banks and then tack on a couple of percentage points of interest for themselves. A dealer who marks up an 8.0-percent loan by two more percentage points stands to make $684 on a four-year, $15,000 loan.
But while some buyers may need the dealer‘s help in arranging for a loan or a lease, F&I people all too often push a laundry list of unnecessary or exorbitantly priced stuff:
• Extended warranties. Often sold with a 200 to 300 percent markup. New cars have lengthy manufacturer’s warranties these days, so an extended warranty is redundant protection for buyers who trade cars every three or four years. And in any case, a car buyer doesn’t have to purchase one at the time of the car sale, or even from the dealer. Mechanical breakdown insurance, sold only through insurance companies, can be a cheaper alternative and can usually be purchased any time before the car‘s factory warranty runs out.
• Security systems. Many new cars already come equipped with factory-installed anti-theft devices, ranging from alarms to ignition-defeating devices. Aftermarket retailers can also install security systems. And window-etching plans offered by dealers often carry a huge markup.
• Rustproofing. Completely unnecessary on today’s cars with their galvanized and plastic panels and comprehensive factory corrosion warranties. Rustproofing jobs can even void the factory new-car warranty.
• Paint sealant and fabric protection. Car buyers can save $200 or $300 by waxing their cars from time to time, or by buying a $5 can of Scotchgard or the equivalent and applying it themselves.
• Credit life insurance. Better to buy insurance through an insurance agent than a car dealer. Standard term life insurance or disability insurance policies are likely to be far cheaper ways of protecting a buyer after a disabling illness or a buyer’s family after the buyer’s death.
If the “F&I” person tries to sell you anything that you’re not absolutely sure you want or need, take a former First Lady’s sage advice: just say “no”-to all the sales pitches.
Just the thought of buying a car is enough to give many people a headache. The lengthy process, high-pressure sales and the staggering amount of information that you need to take in makes car buying a dreaded activity for most. If you do your research ahead of time and mentally prepare yourself for the process, closing a car deal can be a low-stress and even enjoyable experience.
Research prices on cars that you are interested in buying, as well as the car you plan to trade in. Look in the newspaper, online and on car lots to get an idea of your car‘s retail value as well as the pricing on the car you want to buy. Check Kelly Blue Book for the retail and trade-in prices for your car. Be brutally honest about your car‘s condition to get the most accurate assesment of its value. To be sure, the dealer will be nitpicking every bit of your car in an attempt to drive down the trade in value. Beat him to the punch so you know what you have to work with. If you arm yourself with financial statistics, you can bargain more effectively and be sure that you are getting a fair deal. Keep in mind that cars with good fuel economy are in high demand. You won’t find a great deal on a hybrid or get much of a trade in for your SUV.
Obtain loan approval before you set foot into a dealership. Shop around for the best rates offered by reputable lenders. It is possible to get financing through the dealer, but you won’t necessarily get the best deal. Furthermore, it is best to have loan approval before you begin negotiations. Not only will this help streamline the closing process, you and the salesman will know exactly how much you are able to spend. Watch out for hidden add-ons to your loan that can drive up your payments.
A common one is a life insurance policy that provides for the loan payoff on your car in case of your death. Be realistic about what kind of monthly payment you can afford, and stand firm once you have made the decision.
Schedule your car buying trip during a time when dealers are most motivated to sell. Usually, the end of the month is the best time for good deals. This is especially true if it has been a slow month. During this time, the salespeople will be stressing out about meeting their quotas and getting a good paycheck. Therefore, they are much more apt to negotiate with you on the 26th than on the 5th, when a whole month of prospective sales stretch before them. If you have a specific car in mind, pay attention to when the end of the model year occurs. This is not necessarily in December. Car manufacturers release new models throughout the year. This means that if it is June, you may be able to get a great deal on a current-year model because next year’s models have just been released.
Go to the dealership with the right mindset. Now that you have done your financial homework, gotten loan approval and selected the best time for your trip, you are ready for battle. Set aside the whole day for car buying so you won’t feel rushed to make a decision or feel impatient when playing the waiting game.
Walk into the dealership and tell the salesman that you are a today buyer. This lets him know that you are committed to make a purchase immediately, and it will be in his best interest to work with you if he doesn’t want you to head across the street. Be upfront about what car or cars you are willing to consider and about how much you are willing to pay. Rather than one set figure, offer the salesman a range. If you tell him you are willing to spend 10,000, that’s what you’ll get even if they would have sold the car for 8,000.
Be clear and firm from the beginning about your expectations. This lets the salesman know that you are not going to be manipulated or pressured. Once you have test driven and chosen your car, the real battle begins.
Go to the negotiation table with the same firm and confident attitude. This is the point in the car buying process when many people forget everything they have learned and all the promises they have made to themselves. Remain unemotional and detached. Even if you have fallen in love with the car, never let them see it. No matter how clear you have been about your financial limits, expect the first figure that they show you to be more than you want to spend. This is all part of the closing game. The dealers are betting that by this point you have become committed in your mind to driving that car home and will pay more than you have said that you will. Don’t fall for it. Keep an eye out for dealer prep fees that may be included in the price. These can always be omitted, no matter what they tell you. Argue for a higher price on your trade-in. If you are buying a used car, closely go over the history report and point out the deficiencies.
Always be prepared to leave. If they still won’t meet your price, the best thing that you can do is to call their bluff immediately. Stand up, gather your things, shake hands and say, “Thank you, but I’m going to look elsewhere.” Watch how fast they stop you and run back to the business office for more number crunching. Let them know this is the last straw. You have set your price and if they can’t make the sale, you are headed out immediately to find someone who can. Most likely, when they come back, it will be with the figure you want. If not, move on to the next dealership. Don’t give up on getting the price you need.