Dealing with the Car Dealer

There are two things you need to know about car dealers in general.

First, think of them as people selling their wares. They are hard working people trying to make right by themselves. It’s not their fault that their occupation comes with a bad rep. Sure, they may have tricks up their sleeves. Alright, a LOT of tricks. But that’s not saying that they are going to use it all on you. Give them better credit than that. They won’t use ALL. One trick will probably do it.

Second, they are not the enemy. Buying a new car is not a fight so don’t start picking one with your dealer. They are there to help you make a good purchase, never mind if they make a whole lot of money while doing that. They get a commission for each deal they close so you’re actually just helping them make money. Be generous.

CRAP!

All that is crap.

While it’s true at some point, you have to remember that buying a car is an investment, and an expensive investment at that. It’s your money. It’s your call. At best, your car dealer has only got very little to say on the matter.

But therein lays the difficult part. Because your dealer probably knows more about car buying than you do, he has an unspeakable advantage over you even before you step inside the car dealership and catch a glimpse of the car of your dreams. What’s more, it all goes downhill from there. Sales talk, discounts, dealer incentives, the whole shebang and you’re bagged. Negotiation is over; the deal is closed; and you end up with an overpriced hunk of metal.

So how exactly does one go about a car purchase? How do you deal with the dealer?

How Much Should You Offer the Dealer

First thing’s first. You have to have an offer. No buts. No exceptions. You have to have an offer or you’re out. You can’t get into a deal without an offer of your own because that would be like walking inside a store and handing the saleslady your wallet. And trust me, you do not want your car dealer to get a hold of your wallet. Especially if they are particularly trigger-happy with your money, which is highly likely.

So now that we have that part settled, let’s move on to the next obvious question. How do you calculate the offer to the dealer? What are the factors you need? Answering any of these two questions is to answer both – find out how much they paid for the car. That’s the game plan.

Every buyer has one goal in mind when looking for a car purchase and that is to save cash on a car. The rest is secondary. Sure, you want one of them new models, good horsepower, nice interiors, good set of wheels, etc. etc. But all that pales in comparison to cash you can save. You might even be willing to forego that cool add-on if it means you can save some for your kids going to college. So savings are important.

But the road to saving cash in this kind of purchase is not paved in gold. No, the path to a good deal is a helluva lot easier to do than making gold out of pavement. Chiseling off MSRP. It helps, but there’s a better way of doing it and doing it effectively, too. That’s right and it all depends on making an informed offer.

When purchasing a new car and dealing with seasoned negotiators like car dealers, nothing compares to making an informed offer. What is that, you say? An informed offer is nothing but an amount of money over dealer’s cost based on the car’s value. Of course, to do that properly, you have to have patience a-plenty as you research the information first. Don’t go into the fray armed with only some basic idea of what sort of car you want and not even a budget in mind. Your car dealer will pounce on you like a rabid dog. It’s not a nice picture, but it’s pretty accurate. After all, they are essentially salesmen and once you take the bait, you can’t expect to be let off the hook that easy.

So how do you find out how much the dealer paid for the car? Simple. Ask to see the factory invoice for the car. The factory invoice is a bunch of documents that list the base model of the car, and all option packages, floor mats, body trims, and so on. Add to that the destination charge, holdback, and dealer flooring assistance and you have a whole pile of reading matter to dig through. But don’t worry. It’s figures. It’s not that hard to understand. Besides, your brain probably needs the exercise, especially when you need it in tip-top shape as you prepare to face the dealer.

How to Read the Factory Invoice

Since you know already what a factory invoice contains, the only thing left now is to teach you what all those figures mean. How do you read a factory invoice? Well, you have to know which figures you have to pay for and which ones you can dispense with.

Let’s start with the holdback. Most car makers give back the holdback and floor plan to the dealer after they sell the car. So you can actually have the dealer remove that additional fee from your cost. Take heed though because some car makers may charge YOU for the holdback and flooring assistance, so watch out for double collecting. If this happens, make sure that your dealer does not include the holdback and flooring in your purchase price.

You cannot remove the destination charge. It’s non-refundable. Basically, you pay the dealer, the dealer pays the factory, and everybody lives happily ever after. That’s the rule.

But here’s a little insider tip: don’t believe the “invoice” the dealer tears off the printer. It’s no invoice. Who knows what it is. You need to keep in mind that the factory invoice is a copy of the actual invoice from the car maker. It comes complete with the car maker’s logo on it and the dealer’s address for delivery. Anything else is a fake. There’s no use learning how to properly read an invoice if what you’re holding is nothing more than a white MSRP window sticker.

Now, knowing how to read the invoice will give you some idea on how much the dealer paid for that car. But exactly how much, don’t even hope to know. It’s a well-guarded secret. What’s more, they are not even required to show you the invoice. So any invoice-research on your part you must do on your own. Expect no help whatsoever from said dealer.

However, some car dealers actually volunteer to show you the invoice. How is this possible? What’s the deal? You, innocent consumer that you are who is oh-so-sure that car dealers don’t ever, ever, ever volunteer information if not asked, are beguiled. One piece of advice: DON’T. Chances are there are hidden factory incentives built into this “invoice price” that reduce their cost. The end result is the same – they have the carrot; you get the sticky end of the deal. So watch out for dealers who adopt this kind of tactic. It’s not unusual. Don’t be fooled. If they are quick to show you the invoice, you know they are making money. That is why they can settle for less.

The Dealer’s Actual Cost

Okay. So what is the dealer’s actual cost made of? The formula is simple: get the invoice price, minus that with factory dealer incentives and factory holdback and you have the amount you need. You see the difference? The dealer’s actual cost is NOT the factory invoice. That’s a common misconception and it could be fatal to unassuming car buyers out to make a good deal.

One thing you need to learn about dealer incentives. They are all made for the benefit of the dealer, not you. So while doing your research online on sites like Edmunds which show you the latest factory to dealer incentives and you find quotes like $7500 for a 1997 SL500, don’t bite the grip just yet. The money’s not yours. It’s only the dealer who’s one happy camper. Just think, he’s making a profit from you because you bought one of his cars and he’s making a profit from the car maker because he sold one of their cars. I don’t know about you but it sure looks like he’s making a whole lot of profit. And don’t you go believing that he’s got two kids to feed and he’s losing his shirt and he’s desperate to see this car sold, because if you take the bait, it’s him stealing food from your baby’s mouth.

Options! Don’t Forget Options!

Well, you can probably do without them. But dealers are a smart bunch. They know how to sweeten a deal and they know how to play you. We can only give you so much tips on how to avoid most of the pitfalls, but there are some that are completely unforeseen, or if foreseen, then are inevitable. One of those inevitable schemes in car buying is the optional packages.

So let’s say the price of the base model is around $40,000. And let’s say that it’s a really good price for the car. But then your car dealer tells you that you can only get that car with the CD changer, leather upgrade, and moon roof. Add all that up and the car suddenly costs a whopping $45,000 tops. So expect to pay more than the base price. It’s a veritable fact in life that no car on a dealer lot is a base car.

Actually, the options are part of the reason why you should shop dealers first. This is to see what typical option configurations are out there and compare. That’s the secret to making a good deal, and it’s not even a secret, considering how it’s only common sense. One good tip is to bring a pricing info and check off all the options as you go from dealer to dealer. When you get home, you can study them and determine which options are good to have and which ones you can do without.

Dealers usually offer the same cars so you will find that as you hop along countless dealer lots, you’ll see the same cars with only slightly different option configurations. This happens because the factory turns on the machine and cookie-cuts batches of the same configuration. The result is the same product but loaded with options. It’s a way to maximize their profit before moving on to the next model. You, on the other hand, well, you now know better. Plan your option package accordingly and make sure that you don’t go over budget.

Making the Offer

So now we’re down to the final step, which is making the offer. All the steps above were designed to get you to this point. You have all that you need. You know the invoice price. You have a basic idea of the dealer’s cost. And you’ve made your decision on option packages. Now, it’s time for you to make that offer.

You’re not a negotiator. That’s no problem. You don’t have to be. The job gets easier since you have information, your weapon against dealer tactics. Your offer should be comprised of two parts – the dealer’s actual cost and 5% fair dealer profit. After all, the dealer does need to make some money for all that sales talk he’s doing. It’s his job. The fair dealer profit is based on the assumption that the deal was made in all fairness.

However, there are instances in new car purchases that consumer rebates are offered. Take the amount for that and subtract it from the original offer. Hey, it’s only fair that you don’t pay for incentives that are very clearly offered for your benefit, right?

And that wraps it all up. Dealing with the dealer is as simple as that. After all, it doesn’t take a professional to understand a good deal and when to haggle.