Primer on Buying a Car (New or Used)
Couple points as at one time I was on the dark side selling cars and trucks for several major dealers at a low point in my life. They wanted to make me management so they taught me the tricks of the trade.
1. Dealers pay actual invoice for the vehicle each and every time. But that is not how much it might actually cost them in the end so knowing dealer invoice pricing does not mean it helps you. So just offering $500 over invoice might be the sucker deal of the month. There could be thousands of behind the scenes money left on the table.
2. Manufacturers track 60 and 120 day inventory in the field of every model monthly and adjust monthly what is called "holdback". They send every new car dealer a holdback sheet monthly with the new figures. Think of it as a rebate to the dealer when he sells that vehicle and sends the paperwork to the manufacturer. That is how you see dealers selling below invoice and still making money. You really think they are selling that vehicle for a loss? That is also why you see certain models advertised certain months by all dealers. They are getting big holdback to push that model out fast.
3. Holdback is always highest at end of model year, especially before a major body/motor change. They want to push out the old model before the new one is on the lot.
4. Very few ways to find what actual holdback is, but I have seen it as has as $7000 or more at end of model year on ford pickups for example. Typical is $800-1800 for lower end and up to $2500-4000 for higher end vehicles but that will fluctuate monthly depending on what the manufacturers want the dealers to push. End of model years, those numbers can vary greatly. New body style change coming out and that number will go way up. You can use a CU or True Value buying service to get a ballpark price of what that vehicle is available for sale at. Remember, the dealer pays the CU or buying service normally $500 if they refer you to them. You can use that as a bargaining chip in final price.
5. All dealerships run on numbers regardless of what they tell you. They all set a quota monthly to hit. Every morning sales meeting starts with the weekly and monthly numbers count for the dealership and each salesman. First half the month, the sales manager works on maximizing his profit per vehicle. Last half he is looking at hitting his target sales number. He is paid % commission on hitting numbers, so he actually can let a vehicle go for no profit, hit his number or a higher quota number and increase his overall sales commission big time by selling those last few vehicles. The dealership is only tracking number of vehicles sold and average profit per vehicle. Salesman might not be on commission, but guarantee that the sales manager is on commission, and more numbers the higher his % overall.
Best days to buy a new or used are the last three days of the month to buy, that manager is working hard to hit is number and not worrying about profit. Salesmen are working hard to hit their numbers also. This is key. However, some dealers have become wise to people knowing this and adjust their sales months to the 15[SUP]th[/SUP] of each month. Find out when your dealers sales month ends. Just ask the salesman.
6. The secret is to know their game is "what is your payment"! I cannot emphasize that enough. How can they get you into a car at that payment, even if it means they move you down to a cheaper car. They want to know if a trade is involved upfront as that allows them to sandbag $2-4K profit almost everytime. Do not play that game! Walk in state you are not a payment buyer, you have pre-approved % interest and not interested in a trade. You have thrown them off their plan and into your plan. You must stick to it and not fall for them to push you back into the payment game as they most certainly will try.
7. NEVER talk trade until a price is agreed upon, and THEN throw a trade in if you plan on trading. He is only going to give you "Blackbook" value no matter what anyway. That is relatively easy to find thru bank or CU or just stop at a lot and ask. Always better to sell yours outright anyway unless you do not want to go thru the hassle. Blackbook is the weekly book of what that car/truck sells for at the local auctions. ALL dealers subscribe to it and use it religiously as it is their Bible. They might tell you they use Kelly’s Blue Book or something else, but that is BS. Blackbook value is what they call "real money", or exactly what they car is worth and they can buy/sell it for at the auctions. Think about it, why is a dealer going to give you more "real money" for a vehicle than he can buy it for. If he knows you have a trade upfront he suckers deals the value of the trade often ending up making an extra $1-2K over no trade. They love you telling them up front you have a trade. Now later they act mad that you threw it in at the last moment AFTER you got an agreed price and they lost that extra money. They will try to lowball the value by not giving you all the credit for the adds in the book. You must KNOW what your trade is worth before and then tell them that. Ask them to show you in the Blackbook.
8. If you are financing, go in with firm % financing approved or known. They get you to agree on "Payment" that has added warranty, and other goodies rolled in and finish the sale in the Finance and Insurance (F&I) office, where the real money is made. Know your FICA rating, tell the salesman/manager you have what level credit you have and NOT to add anything to the payment except principle and interest and tax even IF you are making payments. Their job is to put you into the highest interest (not the lowest) loan, loaded with all the extras at your agreed payment or even a few dollars more. Focus on final price, not payments until then. It is pretty easy for you to know what your payment window is and then back figure what total price that equals out to. Keep that total price figure in mind.
9. Even then, the first time he little sheet the salesman brings back to you will only show payment and not what all is rolled into that price. They are trying to put you into their plan on payments which will include, warranty, life insurance and all the extras included. They want you to agree to the payment price with that included so you buy it in the Finance and Insurance office. Do not fall for it. He will act ignorant of the interest also. The sales manager will always try to use the HIGHEST interest he can to a payment buyer. If it does, take a quick look, tell the salesman that is not what you wanted, do not discuss, tell him to take back and have final price put on it and ask what % they are using. DO NOT discuss payment until final price is agreed upon. You should have idea what your payment will be BEFORE walk in if you have done your homework.
10. Here is where the dealership makes the real money. The F&I office farms your credit app to 30-40 places, selects the HIGHEST not LOWEST interest that gets you to the "agreed payment" and makes more money selling a higher interest loan than lower ones. The manufactures now often give you 0% financing and that is hard to beat. If buying a used, get an approved rate ahead of time you can get them to give you a lower rate IF you want to finance with them. They will sell you scotchguard, extended warranties etc that are marked up 2-3x. You can negotiate at least 50% off if you want one quite easy. They want to sell you on them and will take a lesser profit versus zero. The F& I guys are the highest paid people at the dealership and they make more money for the dealership than the sales dept.
11. IF you are a payment buyer, and just a few dollars off your target payment, tell the F&I manager to pull out a "% off coupon" out of his desk to help you hit your payment. Trust me they have them. Lenders give them to the dealers for putting so many loans to them or as an incentive to send loans to them. Loan managers at banks etc, have monthly goals too. They get coupons for 1/4-1/2% off a loan from lenders as incentives in cases like this. They rat hole them for circumstances to make the deal go thru and will never admit they have them unless forced to.
12. If a buying service is offered by your credit union, bank, USAA, or even Trucar etc, get a price from them. I have told a manager he has to beat that price for me to NOT use the buying service. The dealer pays the buying service a fee, (usually minimum $500) so he just cuts it and gives it to you in a lower price.
13. In buying used cars, you need to know that the real trade in value was of the car you are looking at. You can go to a local small car dealer and ask him to give you the Blackbook trade in with all the adds (leather, sunroof, electric seats, trim package etc) and deductions for manual trans, high miles also. Figure average profit for a used car is $1500 to maybe $2000 but I have seen $7500 because the owner did negotiated from MSRP and told them he had a trade up front. There is a base price for each model, trim level and a whole list of adds and minuses you need to look at to get the correct value. A yearly subscription costs about $70 and you get a book each week for you locality.
14. You need to do your homework before you look for a vehicle. Call sales manager tell him what you are looking for, no time to BS, you want his best price. Tell him you are not a payment buyer even if you are. That takes them out of the payment game, which is what they want. You can easily figure your payment with online calculators or your bank can tell you that it will be X$ per 100 financed. Now most large big dealers have an "internet salesman" who handles all internet inquiries. That person is normally the best salesperson and wants to get you in there to deal. Get him to agree to a sales figure BEFORE you come in. They will try to forget they did that too.
All large and major dealerships work this way. The local lot dealer might vary a lot at times.
Yes, some here will disagree with what I said and the sales manager loved to see them walking thru the door as they always had a big lollipop stick hanging out of their rear end.
two examples.
New car MSRP $32,000 trade car worth $6000 Black book. You tell them no trade and argue for best price $28,000 then throw trade in for BB value of $6000 for difference of $22,000. they will try to lowball the BB value but if you know it before hand they will come up to it.
New car MSRP $32,000 trade car worth $6000 Black book. They tell them you have a trade up front and they come back with $32,000 sticker price and trade value of $4500. You end up arguing on the trade and finally get them to $6000. You end up paying $26000 and they dealer just made an extra $4000 by you telling them you had a trade.