Confessions of a Car Salesman
By Frugal Trader
I’ve always wondered what it would be like to be car salesman. What goes through their minds as soon as a potential customer enters the lot? Do they see the new comer as fresh meat while anticipating the kill (sale). Do they profile the customer based on the car that they drive and clothes that they wear? I came across an article on edmunds.com that answers all these questions (and more).
The article is called "Confessions of a Car Salesman" and it’s a report of how an edmunds.com reporter went undercover and found a job as a car salesman. The article is quite long, so I took the helpful tidbits that may be useful the next time you decide to purchase a car.
… process begins by asking the customer how much they want for a monthly payment. Usually, they say, about $300. "Then, you just say, ‘$300… up to?’ And they’ll say, ‘Well, $350.’ Now they’ve just bumped themselves $50 a month. That’s huge." You then fill in $350 under the monthly payment box.
… you could use the "up to" trick with the down payment too. "If Mr. Customer says he wants to put down $2000, you say, "Up to?" And he’ll probably bump himself up to $2500." Michael then wrote $2,500 in the down payment box of the 4-square worksheet.
This is called the "up to" technique/trick. A small $50 raise in the monthly payment may not seem like a lot, but it ends up being $3,000 extra at the end of a 5 year term.
Lesson: Negotiate the final selling price (even for a lease) instead of monthly payments.
The final box on the 4-square was for the trade-in. This was where the most profit could be made. Buyers are so eager to get out of their old car and into a new one, they overlook the true value of the trade-in. The dealership is well aware of this weakness and exploits it.
Car dealerships can make a killing on trade in’s and usually look to low ball the offer since it’s your "old car".
Lesson: Look up the value of your trade-in before you go car shopping. Also, don’t mention a trade-in until after you have negotiated your purchasing price.
"But here’s the beauty of this system," Michael said, "these numbers aren’t coming from you — you’re still the good guy. They’re coming from someone on the other end of the phone. The enemy."
This reminded Michael of something and he laughed. "Here’s another thing. Never give the customer even numbers. Then it looks like you just made them up. So don’t say their monthly payment is going to be $400. Say it will be $427. Or, if you want to have some fun, say it will be $427.33."
So what you do is this," Michael pretended to pick up the phone again, "you ask the desk, ‘What did we get for the last three Tauruses at auction?’ Then they’ll give you some figures — they’ll say, $1,923, $2,197 and $1,309. You don’t have to say anything to the customer. But he sees you writing this down! And he’s going, ‘Holy crap! I thought my trade was worth $6,000.’ Now it’s easy to get it for $3,000. That’s a grand extra in profit. And it’s front-end money too!" (I later learned that front-end money was what our commissions were based on. Back-end money was made on interest, holdbacks and other elements of the deal.)
These are some examples of sales tactics that car dealerships use. The good cop, bad cop routine (using the phone), and pricing strategies.
Lesson: Be aware of the number games that car sales people can pull.
..whenever someone failed to accept the "first pencil" (the high numbers they begin with) Michael would always have "an idea" or "remember" a rebate or special interest rate program. This avoided the head-to-head confrontation. It also promoted the sense that we were working in the customer’s best interest.
The dealership can always go lower than the sticker price.
Lesson: Always ask for a better price!
If the minivan was selling for a sticker price of about $24,000 with options and tax, a 60-month loan at 9 percent interest would be $475 a month. However, I later checked Edmunds.com True Market Value prices and saw that this van should have been discounted about $1,700 from the sticker price. Then, monthly payments at 9 percent would have been $430 a month. Over the life of the loan this was a $2,520 difference.
This goes to show that a little pricing research can go a long way when purchasing a new vehicle. In the states, edmunds.com is popular. Here in Canada, I’ve read that CarCostCanada is popular.
Lesson: Buying a car is just like buying any other big ticket item, research and due diligence is required!
From my commission check it was clear that the minivan couple could have made a better deal and saved several thousand dollars. So where did they go wrong? Well, first of all, they negotiated as monthly payment buyers, rather than bargaining on the purchase price of the vehicle. When you agree to be a "monthly payment buyer" several variables are introduced that are harder to keep track of: the term of the loan can be extended up to 72 months (six years!) without your awareness and the interest rate can be raised. When you bargain on purchase price, it is a cleaner, simpler way of negotiating.
In Summary:
- Car sales people commissions are based on the profit that they bring in. That’s probably the reason why they always push for rust protection, scotch guard, extended warranties.
- If you’re set on purchasing a car, tell the sales person that you’re going to pay cash. That way, you can negotiate a final purchase price instead of discussing monthly payments.
- If you have a trade-in, don’t mention it until you’ve negotiated your final purchase price.
- The more educated you are about the market value of a vehicle (along with the trade-in), the better the deal you’re going to get.
- Never feel pressured to buy a vehicle. The whole meeting with a car sales person is designed to make you feel "rushed" into buying.
- When negotiating on the price of the vehicle, always be prepared to leave the table.
You can read the whole story Confessions of a Car Salesman. Make sure you get comfortable though as it’s a pretty long article but a great read none the less.
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