What's Really Happening Down at the Dealership?
To win in any auto transaction, you first have to understand what the other side is trying to do to you, and why. “The other side” always includes a physical automobile dealership—even if you’re buying or leasing from an online service. I’m going to take you inside a typical dealership right now. What’s really going on down there?
The pressure game starts before you go near a dealership, either online or in person. Just look at the dealer ads: they promise low payments, sales, big money for your trade, and respect for your intellect. But, as with most selling, these promises come with some crossed fingers. Did you know that many dealers make more during sales than they do at a non-sale time? That's because we consumers automatically equate the word "sale" with "save." That's dangerous math. Dealer advertising really has another purpose: to get you to rush down in a fit of excitement ("Really? Just $99 a month?!") without stopping to think.
The “track” system takes over. A “track” system is an automobile sales program designed to put every customer through the exact same sales steps with the sole intent of selling that customer instantly for the maximum profit. The key words here are “instantly” and “maximum profit.” When you arrive at a dealership (or log-on to most auto websites) the dealership begins to “work” you—put you through the track system.
The objective is always the same: get you to pay more for every item and service than you were planning to pay. Want to spend $450 a month? A savvy dealership will get you to pay $550. Or they will happily sell you a car for $450 per month—but it will be a car you could have bought for $350 per month. Nice of them.
The dealership is concerned about its profit, not your budget. The people at virtually any dealership and most websites and buying services, friendly though they may be, have a little different objective in the car transaction than you do. Their goal is always to maximize profit. And that might mean leaving out an important fact or two.
Take for example, what would you do if you owned a dealership that sold cars ranked lowest on the government crash safety reports? Would you tell all your customers, "Oh, don't forget—our cars are the most dangerous on the road"? See the problem? To survive, the dealership must either lie about the dangerous test results or simply forget to talk about the results.
What’s the outcome of this? The sellers of automobiles generally can’t give you good advice about what you should spend, number one. No salesperson in the auto industry ever prospered by volunteering to cut the price on every sale or always telling the whole truth about its vehicles.
Number two, the sellers of a particular automobile generally can't give you the answers you need to questions about such matters as a car's safety, reliability or resale value.
But these questions are important, aren't they? And you'll need the answers before you even look in the direction of the dealership. Why? Because once you're engaged with these folks, the "track system" will take over and speed you along recklessly, whether you like it or not.
Here’s a look at a few of the tactics "track systems" use to "work" you.
You stop into the dealership simply to pick up a brochure. Even though you have no intention of buying, the smiling salesperson requests your driver's license, your Social Security number, or simply your address. Or maybe they want to register you for a fabulous free trip to Paris.
Even though you haven’t given permission, many dealerships will now search their databases and quickly open a file on you. And because many dealerships are now owned by conglomerates that already have information on you, the dealership has an informal “read” on your credit without even pulling a credit report! With that informal “read,” the dealership then begins to plan the maximum profit they can make on you, based upon your credit worthiness. And you really only stopped into the dealership to use their restroom.
The Dealership T.O.s You
“T.O.” stands for "turn over." You're sitting in a salesperson's office, thinking about how much more fun it would be to change the oil in your car in the dark rather than go through this, when your salesperson returns with reinforcement—another person. The new smiling face asks for more money. And then the salesperson asks for more. The T. O. system operates on the principle of "fresh faces can work miracles." A miracle, in this instance, is defined as more profit. And as long as you keep giving, they'll keep asking.
The “Note” System
Rather than “T.O.ing” you, some dealerships use the note system: the salesperson steps out, returning with a nice note from the sales manager asking for more money. And then another note, then another. Usually, the salesperson comes back with five notes, and usually the last two ask for raises of odd amounts of money—for instance, $113.29 or, finally, $23.19. The note system has one basic problem. It makes you think the dealership is negotiating when it's really only play-acting. Consider the "odd" raises. These are simply designed to make it look like you're really a hard bargainer. You know, you think you've got them "down to the pennies." An Information Edge tip: Many Web-based sellers use versions of the note system.
The Four-Square System
The salesperson divides a piece of paper into four squares and then asks for your "wish list." What do you want to pay a month? What do you want for your trade? What do you want to pay for the new car? However ridiculous the sums, each are written in a square. Then they ask for a large deposit, and then they ask for your signature in the fourth square.
Then they begin to "work" you on each square separately. You wanted to pay $20,000 for the car? They ask for $40,000! Very slowly the salesperson negotiates down, constantly scratching through figures. By the time they finish, the paper is illegible, you're frazzled, but the salesperson is smiling. You've agreed to pay an additional $1,200 to $1,500 profit.
The four square system is probably the worst system in use today because it was designed solely to confuse you and so produce some very nice profits. Don't deal with dealerships that use this system.
Spot Delivery, or “Yo-Yo” Selling
“You can drive it off today!" That is the most expensive statement any car dealer or Web seller can make. Spot delivery means emotion is ruling you rather than good sense. It also means you (very conveniently for the seller) won't have the opportunity to compare costs and terms.
The real danger in Spot Delivery: Spot Delivery has become a fraudulent selling technique at many dealerships. These dealerships deliver you a car on any terms you want. Then a few days after you’ve taken delivery, they call you up and say “Oops, your contract wasn’t approved at the figures you wanted. We need an extra thousand in cash, and your payment has gone up $300 per month, and we’ve added twelve more payments!”
What can you do if they happens? Usually nothing. They’ve already sold your trade-in, and you unknowingly signed an agreement to let the dealer raise the price! This type of Spot Delivery is called “yo-yo selling” by unethical dealerships, and is endemic in the auto business. It is also the subject of hundreds of lawsuits at this very moment.
How do you protect yourself from spot delivery? Never buy or take delivery of a car on your first visit to a dealership or a web site. An Information Edge tip: By financing with your credit union, you are totally protected from yo-yo selling.
The “Business Advisor” or “Financial Counselor” Scam
Even if you have the cash in your pocket to pay for a vehicle, you'll be forced to talk with the dealership's finance sales staff. Or, as they are quaintly called at some dealerships, “Business Advisors” or “Financial Counselors.” Why do these high-pressure finance salespersons insist on talking with you? Because dealerships make much more money on financing these days than they normally make on the sale of an actual vehicle. Many dealerships will do almost anything to convert you to their financing, including shade the truth a bit.
And if the dealership can convert you to their financing, they'll sell you credit life and credit disability insurance that's almost always more expensive than a credit union's or a bank's but sounds downright cheap on a "pennies per month" basis. Then they'll sell you "protection" packages (rust proofing, undercoating, fabric conditioning) "for just $19 per month." Why, you can afford that! But over 60 months, you will pay over $1,140 for products that cost the dealer a hundred bucks. The same approach works for extended warranties or mechanical breakdown insurance, too.
Daily the methods used by many dealerships and online selling organizations grow more sophisticated and subtle. For instance, many dealerships now track customers' movements by computer, rate their moods on scales entered in computers, and flash their progress in the buying process on computer screens so managers and other salespeople can monitor the dealerships' careful plan to sell. How can you avoid the traps?
Go right on to Chapter 2.