Car Dealer – Tricks and Sales Tactics Part 3

This article gives an example of what can and does happen to car buyers everyday at car dealerships who wander onto the lot and haven’t taken the time to prepare and educate themselves.

The following may seem a bit confusing, and it pertains to the used car buying experience, but if at first you don’t quite get what’s going down… re-read it.

This is an extremely important lesson to learn.

It takes a bit of time to run through this and explain it, but it is very important so take your time.

Believe me, you’d better learn it here and not on a some car lot somewhere! This lesson is a bit long, but please stay with it.

With the dealer knowing that they have $11,000 to work with on this car that you want, and that has only cost them $7,000; they can price this car from the bottom up to make sure they get all of your $11,000 and make a very nice profit. In other words, they are going to determine the bottom line first which is your $11,000!

Then they’ll figure out the math from the bottom back up to the top or the selling price that they will quote you!

Watch how this works.

In the sales manager’s office they will start with your $11,000 (which is the bottom line they have to hit) and work their way back up to the selling price.

	Bottom Line Goal: $ 11,000.00 (every dollar you’ve been approved for) This is the number that drives the rest of the calculations. But the dealer must pay sales tax first so they take your $11,000 and divide by the tax (let’s say it’s 7%) and that gets them the sales tax that you must pay. (11,000 divided by 1.07) Sales Tax: $ 719.63 Now they subtract the sales tax from $11,000 (the total amount you’re approved for) and get their pre tax dollars price of: Pre Tax Dollars: $10280.37 Remember they are working their way backwards through the deal here. But wait! The dealer has fees they want to and will charge you. So they don’t want to forget about this: Dealer Fees: $ 250.00 You really didn’t think they were going to let you go without this little profit gem did you? Subtract out the dealer fees and you arrive at a sticker price (or the maximum price that the sales person can quote you). Sticker Price: $ 10030.37 But wait… that’s a bit of an ugly looking price… might scare you off. So, for marketing purposes the sales person can tell you that the car of your dreams is selling today only for you at $9,999! What a deal! Now with a little hocus pocus and an abracadabra or two… let’s flip the numbers right side up since that’s what you’ll be seeing when the salesperson presents the numbers to you and if you go for this deal. Sticker Price: $ 9,999.00 Sticker Price… the one you actually never saw. But remember, I can only hold this price for you today only! Dealer Fees: $ 250.00 These are administrative and documentation fees. Everyone has to pay these (no they don’t) Pin Stripes: $ 30.00 What the heck you’re such a nice person I am going to sell you our pinstripe package at our cost! (actually the dealer cost is much lower) more profit! And I don’t want to leave any of your $11,000 on the table… momma needs new shoes! Pre Tax Total: $10,279.00 Which brings us to the total cost of your car mr/ms car buyer. Sales Tax: $ 719.53 Of course you’ve gotta pay Uncle Sam. Loan Amt: $ 10,998.53 The amount your going to be trying to pay off over the next several years.

Wow! Imagine that!

We just made it under your $11,000 loan approval and on the car you wanted so badly!

Today is your lucky day!

Remember the dealer only paid $7000.00 for the car so their profit on the front end of this deal is a tidy (very, very tidy) $3,279.00.

Gulp!

And you haven’t even been to the finance office where they’ll probably make even more money on the interest rate they offer up to you!

Now, let’s say you have been to this website and you come to this car dealer completely prepared when you look at this car.

You demand to know right up front what the asking price of the car is because you can’t immediately tell from any information posted on the car.

Note the sales person knows nothing of your credit and ESPECIALLY the dollar amount you have been approved for, because you haven’t offered that up.

Now the sales person has to give you a realistic starting price from which to work. Let’s say they quote you $8,999.00 (because that really is what they had the car priced at).

And just like that…You are already starting the negotiations ONE THOUSAND DOLLARS under the previous scenario’s price of $9,999.00!!!

But wait! Because you have checked on the average retail prices for this make and model of car at Edmunds.com you know that a fair retail price for this car is about $7,800.00 to $8,200.

You negotiate hard and stand firm and finally arrive a price of $8,000.00. Let’s compare your numbers for the front end of these two deals.

First Buyer Second Buyer Sticker Price $ 9,999.00 Sticker Price $ 7,999.00 Dealer Fees $ 250.00 Dealer Fees $ 000.00 Pin Stripes $ 30.00 Pin Stripes $ 000.00 Total $10,279.00 Total $ 7,999.00 Sales Tax $ 719.53 Sales Tax $ 559.93 Loan Amt $10,998.53 Loan Amt $ 8,558.93

On the second buyer (note they didn’t want the pinstripes and after some tough negotiating got the dealer to drop their administration fee), the dealer still makes a $1,000 profit on the vehicle, but look at the money you as an informed buyer have saved!

And again, this is only on the front end of the deal! Let’s carry this scenario out just a bit further and take a look how this affects your overall cost of financing your car.

Wrapping it all up: but we’re not quite done.

Let’s say that poor first buyer (not you) went for a 60 month loan at 12% interest rate that the F&I department of the dealership was so kind to get them.

This first buyer will end up forking out about $14,679.60 over the length of the loan.

However, our second buyer did their leg work and got their car loan financed at a 10.5% interest rate. The second buyer will pay only about 11,038.20 for the life of the loan.

A difference of $3,642.00!!!

And if the second buyer really rolled up their sleeves and told the dealer no thanks to their financing offer… the dealer may have been able to beat the second buyer’s bird in the hand interest rate of 10.5% and saved even more money!

And… there always an ‘and’… aside from the additional financial burden the first buyer will have to bear, buyer number one will never be in a position to trade out of this car much of anytime before the full length of the loan. In car business lingo, buyer one is buried in that car!

Buyer two is on their way to improving their credit score and will be in a position to potentially trade out of this car much, much sooner.

Great job!

This was a longer lesson but I think you’ll find it well worth the information.

Let’s talk some more on car deal negotiating next…