Automobile Fraud: Dealer Secrets
The following is a kind of anatomy of the sale from the dealer's standpoint. When you realize how the dealer sees your transaction and the things going on behind the sale, you will have a better understanding of what is being told to you and will be better able to assess that which is the truth and that which is pure puffery.
First, you should understand that the dealer has the advantage of a "holdback" whereby the dealer actually pays from 1% to 3% less than the invoice price which may be shown to you by the sales manager. Although the dealer does buy the vehicle from the manufacturer at the stated price on the invoice, after the car is sold the manufacturer provides a rebate to the dealer for the costs of maintaining that vehicle in its inventory for a period of 90 days. Inasmuch as most vehicles are sold more rapidly, i.e., within 90 days, some part of that rebate or reimbursement from the manufacture becomes bottom-line net profit even if the car is sold at only the invoice price. Although it is not realistic to expect that you will also be provided a further discount below the invoice price, it will help you to better understand and negotiate the deal being aware of this.
Be wary of any dealer who states that they are compelled to charge a certain price because their lenders or the leasing company will not allow them to sell below a stated price. In reality, lenders and leasing companies have no control over the car's selling price and this is merely a convenient excuse to charge more and defend against your request for further reduction in the price. You should also be aware that the extended warranty or service contract that some dealers insist that you purchase, is not a requirement of the lender or leasing company but rather merely another means for the dealer to sell you an added "option."
One of the favorite tricks of salesmen and dealerships is the old "bait-and-switch" which is still as effective as ever. Typically a salesperson will tell you all the things wrong with a model that you had carefully researched and were intent on buying or leasing. Do not be dissuaded by such attempts to "educate" you. The only purpose for a salesman to provide such disparaging information is to induce you to trade up to something which is more expensive and which provides more profit to the dealer.
Also be cautious of the trade-in price being offered to you inasmuch as this represents a dealer's greatest potential profit on the transaction. Because it is difficult to determine the value of the trade in vehicle, even by resorting to such things as the Kelly Blue Book and web sites and information to help you determine the price of your used vehicle, most consumers will be willing to accept a lower trade-in than what the vehicle is actually worth. Psychologically, once you are tempted to buy that new car your resistance has pretty well been lowered and you are more likely to accept a bad deal in your trade. The dealer will lead you to believe that they are actually providing a service to you by taking your old car off your hands. One way to get around this is to agree on the trade in price before negotiate for that new car so as to avoid getting caught in such a trap.
You should also be aware that the Kelly Blue Book, which has long been held up as the ultimate authority on the value of used vehicles actually publishes two separate guides, one for dealers which lists the wholesale prices of the vehicles, and one for consumers which only lists retail prices and therefore really is not nearly as accurate as to what you may be offered by the dealer. Remember that the Kelly Blue Book is designed for people who are in the business and therefore will be slanted towards providing the edge for the dealer rather than for the consumer. Perhaps a better way of determining the value of your car is looking at local newspapers' classified ads to see what vehicles similar to yours are being sold for, bearing in mind, however, that you will not be selling your car to the dealer at retail on your trade-in.
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