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Car Buying 101: Volume 4

So you want to buy a car!
This is the fourth volume in a series of the "How to" of car buying.

Okay: in the last three volumes I’ve talked about how to find the price of a car, how to deal with the deal remotely and how to negotiate the price over the phone.

So now I’m going to describe another way to buy a car and try and merge the two methods together at the dealer. Because when you’re at the dealer it doesn’t matter how much work you’ve put into researching the price of a car - it all starts over!

Let's say your driving down the auto row and you spot a car that catches your eye. It’s the perfect color and positioned just right on the lot so you could see it when you drive by. There’s something about that car, you just gotta stop and take a look!

You drive in and out of the corner of your eye you see a herd if salesmen eyeing you. There are four or five of them. Before you’re even out of the car, there ready to open the door for you to help you out of your car (Not all dealerships are this way). One salesmen puts his hand out and introduces himself, and asks how can he be of assistance.

You both walk to the car that caught your eye. The salesmen starts his sales pitch! He then asks if you want to take a test ride.

Here’s a quick note about salesmen. The Salesmen - the good ones - have been in the business for a while and they have seen it all. They know if they can get you to say YES six times they have you sold! For example:

"Mr. Smith isn’t this a great color for this car?"
Mr. Smith unknowingly replies, "I love this color; that’s what caught my eye first."
"Mr. Smith don’t you like this leather."

And the breaking down process has begun! The salesperson knows you like the car, and before you know it you're sitting in a little cubicle filling out a credit application just to see what the car costs. Very low key at this point.

But you’ve let them lead you this far. Now you begin to think how nice that car is.

All of a sudden you're thinking STOP!

You realize that you haven’t done your research and you’re not prepared to buy this car. For me, here’s where the fun begins.

The salesmen brings out a sheet of white paper with a just a little bit of information on it - your name, phone number, and a section in the middle that has line down the middle. This is known as the prep sheet! The salesmen will ask you, "Will you be trading your car in?" You reply, "Sure, I don’t want to deal with trying to sell it." Strange people lurking around your property wanting to drive your car, etc.

The next thing they ask is “May I have your keys so my manager can look at your car?” The answer is “YES" or "NO” depending on how far you want to take this deal. If you're serious then go ahead and let them look. They’re going to look for every flaw on your car. All those little things, like that scratch on the bumper you don’t know where it came from. The condition of the tires, interior, paint, engine, etc.

While you're waiting there, they will run your credit to see if you can afford to buy that car or are just out for a joy ride.

The salesmen comes back and says, "I think we can work something out. Your car is worth $8,000.00." (This is $2,000.00 below wholesale (LOW) blue book value!) and that new car is $35,000.00. This price to the unknown buyer is the MSRP plus the dealer markup of $2000.00 and any additional add-ons that might be on the car.

He has written those numbers on his paper, the $8,000.00 trade in on the left side and the $35,000.00 on the right side. He than asks you what you’d like your payments to be.

(You are trying to purchase a car not create a payment. Deal on the price of the car not the monthly payment. Here’s what's going to happen if you give the salesmen a monthly payment that you feel comfortable with:)

You think about your current monthly payment and say "I could handle $550.00."

The salesman writes down $550.00 @ 60 months.

He looks at you and says, “Mr. Smith if I could get you $8k for your car and $550 a month would you drive that car home today?

You laugh and say, “yes.”

The Salesmen leaves, the breaking down continues, the salesman goes to the back room.

For those of you that are familiar with this process, did you ever wonder what takes so long?

I’ll tell you what’s going on! Not a damn thing! The salesmen is in the backroom with the closers/managers. He hands the paperwork over to them and they laugh and joke. The salesmen proceeds out the back door for a cigarette. All the salesmen working deals are there taking a break and talking about how far along there deals are!

They usually wait 10 to 15 minutes before they go back to the managers office to see what kind of numbers they come up with.

They talk a little and then the manager hands them back the paper work. The salesman comes rushing back with a big smile on his face. And sits down and says, "Mr. Smith, I think we can do business."

He lays the paper down in front of you.  Written in green felt pen are the numbers $10,000.00 and 869.11 @ 60, which means:

Your car and $10,000.00 down, and $869.11 a month for 60 months, you can drive that car home right now! Now do those numbers sound good to you? Don’t read any further, it will just upset you.

Before we go any further lets look at those numbers for a minute! The dealer is giving you $8000.00 for your car (Lets say you owe nothing; it’s yours free and clear) $10,000.00 down payment. $869.11 a month for 60 months.

Your trade in       $ 8,000.00                        The true wholesale value is $10,000.00
Down Payment        $10,000.00                        $10,000.00 cash
Payments            $869.11 @ 60 months               This equals $52,146.60

At a 9.9% interest rate the monthly payments per $1000.00 borrowed is $22.00 (for a 60 month loan). For example: A $10,000 loan at 9.9% for 60 months is $220.00 a month!

So to get your payments to $869.11 the car's sales price would be about $41,000.00.

$41,000.00 Sale price or what the salesmen was told was the total you’d pay which is $6,000.00 higher than the $35,000.00 MSRP + Dealer Mark ups and add ons. Which is $2000.00 higher than the MSRP. Which is about $2-4K above invoice.

So lets say that there was $2000.00 profit between the invoice and the MSRP.

Let's add up the profit:
$2,000,00 in your trade in
$6,000.00 in difference in price and payment schedule minus interest
$2,000.00, Dealer Mark up
$2,000.00 in the Invoice and the MSRP
$10,000.00 Down payment
Now if all the above numbers sound good to you, then the dealer just took you for $22,000.00 above what he paid for the car!

Now that’s a lot of money!

Lets see how much money changes hands if you take this deal:
$8000.00 for your trade in
$10,000.00 Down payment
$869.11@ 60 months this equals $52,146.60
$70,146.60 just went to the dealer and you bought a car worth $31,000.00 $39,146.60 went into the dealers pocket. Nice profit if you can get it!

So what do you do at this point?

Pull out that trusty BIG RED PEN! And take that piece of paper and put down in BIG letters:

$10,000.00 for trade in (“0” down or whatever you feel comfortable putting down as a down payment. (remember your just put down $10,000.00 in the form of your trade in).

And $550.00 a month.

Now lets look at those numbers.

$10,000.00 for your trade in
$550.00 a month for 60 months equals $33,000.00
Totals $43,000.00.

You still paid too much for the car, even though these numbers are much better than the numbers the dealer came up with.

Here’s how we do it: You want $10,000.00 for your car. And you want to subtract $10,000.00 off the price of the car That would put it at $23,000.00 Now if you were willing to pay $550.00 a month how does $544.00 a month sound? Your first guess was good but buy using the $22 per thousand formula you can easily figure out your rough payment. You saved $360.00 just buy not trying to buy a payment and by buying a car instead. Remember: focus on the price of the car not the payment!

That’s as far as we go this time. Next issue: Getting the Dealer to play your game!

This page was last updated on 05/28/2001 by HYPRACTV


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