We are in the market for a new car, and we spent most of Saturday at local automobile dealerships, test driving various mid-size sedans. I wondered if the Saturday following April 15 would be a big shopping day, especially in a valley where car dealers are closed on Sunday, but the showrooms and lots were almost deserted and the sales personnel had all of the time in the world for us. Whenever we found a car that might fit our needs, they started chopping the price without our even asking.
One salesman went straight to employee pricing (invoice + $300) as his starting price. If we wanted to get someone really excited, we would ask about a 2008 model that was still on the lot. Negotiations for those were starting with $6000-$7000 discounts off the sticker.
I have no idea how low they are willing to go, since we haven't gotten serious about any of the vehicles, yet, but I am feeling pretty popular. On my way home at the end of the day, one of my sons called from home to tell me that a dealership we had just visited "just found a really cool car for you!"
Most of the sales personnel shied away from negative selling, though one guy at a foreign dealership warned me to stay away from the American manufacturers. The resale on those American cars is dropping through the floor. This within minutes of offering to unload a brand new 2008 at a very steep discount.
All of this reminded me vaguely of visiting the tourist markets in India and China. If you have done that, you may recall that mix of guilt over the fact that you were bargaining at all combined with apprehension that you were about to be taken to the cleaners. Here's hoping that we end up with something better than an imitation Pashmina scarf.
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1. Posted by fedgovernor on April 20, 2009 @ 6:33 | Permalink
Heh,
You've fallen for all the classic ripoffs, but until you get serious you won't discover how car companies actually make a profit.
They don't make their profit by selling you the car.
I will guarantee you that you will be unable to get those sorts of discounts WITHOUT also agreeing to borrow money at exhorbitant interest rates.
And, I can safely guarantee that because car companies aren't really car companies. They are banks. They exist to extract a monthly payment from you. The car is just the method by which they do it.
Car companies are borrowing their financing money from the Fed for almost no interest today. So, the real profit for the car company isn't in the car, it's in charging you 7% interest on the loan.
Ahhhhh, you think. "All I have to do is negotiate a low price, and then announce that I'll be paying cash."
I encourage you to attempt that maneuver. You will discover that the car company will not sell you the car for cash - at any price.
2. Posted by fedgovernor on April 20, 2009 @ 6:45 | Permalink
Next,
The dealership makes his money, not on selling you the car for the stated price (that price has been inflated by the dealer to start with, so that they can offer you $6,000 off of the vehicle before you've even asked without batting an eye).
They make their money on the fine print:
1) Destination fees of up to $500.00
2) Undercoating fees of up to $800
3) Sales Promotion Fund (you'll be paying for their advertising!)
4) Car paint fee - if you get black or white, you won't pay this feel, but any metallic color you will pay a fee that is not included in the price.
5) Dealer prep (they charge you for vacuuming the dirt they smudged into the carpeting moving it around their own lot.)
6) ADM fees. Don't even ask. It's just a made up fee that represents another way they rip you off.
You have entered a den of iniquity sir. These people are not your friends. Don't focus on price; since as you can already see the price is irrelevant.
IMPORTANT: The dealer will lower the price to whatever you say you want the price to be, and then begin to add fees until you balk at them. The fees are the real price.
If at the point that you begin to balk, the dealer is happy with his profit, he'll sell you the car.
If not, he won't sell you the car even at the price you agreed upon - even if you put cash on the table. He just won't sell it to you.
Period.
3. Posted by Gordon Smith on April 20, 2009 @ 7:30 | Permalink
fedgovernor: "I will guarantee you that you will be unable to get those sorts of discounts WITHOUT also agreeing to borrow money at exhorbitant interest rates....
"Ahhhhh, you think. 'All I have to do is negotiate a low price, and then announce that I'll be paying cash.' I encourage you to attempt that maneuver. You will discover that the car company will not sell you the car for cash - at any price."
Gee, I must be a better negotiator than I realized. I have never borrowed money for a car. Never. And I have owned lots of cars, most purchased from dealerships. As for the fees, they have never been easier to negotiate away than today. Information is power, and information on costs is plentiful.
4. Posted by Mike Guttentag on April 20, 2009 @ 13:16 | Permalink
Gordon. Once again, thanks for taking the time to share this. We really like Mint.com, and are starting to look for a car.
5. Posted by Jake on April 20, 2009 @ 18:40 | Permalink
Interesting. I've never considered resale value when buying a car. Drive it until it dies. That said, I recognize that some folks view a car as something more than a conveyance from Point A to Point B. Car dealers have a word for such people:
"Suckers."
6. Posted by fedgovernor on April 20, 2009 @ 20:33 | Permalink
Gordon,
Everything you ever learned about car buying in the past is irrelevant. In the past, car companies were in the business of selling cars.
That is no longer true, thanks to the socialization of your country.
I repeat: The car company will not sell you the car with the discounts you have described them giving you (employee pricing, for example) if you do not finance it with them.
Mark. My. Words.
7. Posted by Cathy on May 2, 2009 @ 13:00 | Permalink
A friend just bought a car, but her haggling was undermined by the competing dealer, whose offer she tried to pit against that of the dealer where she ended up going to for the car, going out of business before her deal was done.
(PS: I also buy my cars for cash. Then again, I've bought exactly one car in my life, that was 15 years ago, and it's still running. I don't believe in financing cars, but then again, I don't seem to believe in buying cars either...)
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