NEGOTIATING

For most people this is the most fearful and worst part of the whole car buying experience but for you it’s the best part because YOU ARE READY!  Please read this first bullet point very carefully as I draw back the curtain and show you the number of ways a dealership makes money on a car sale…it’s not what you think.

•   HOW A DEALERSHIP REALLY MAKES IT’S MONEY ON A CAR DEAL – Everyone thinks a dealership makes it’s money selling a new car one way…They have a cost on the car and anything they sell the car for over that cost is their profit.  Well as Lee Corso  would say “Not so fast my friend”  In fact, I would be willing to say that of the five ways a dealership can make money on a new car sale, the actual selling of the car may rank fourth or fifth.  Here are the top five ways a dealership will try and make their money.
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• 1.)  SELLING YOU THE CAR – Of course.  Everyone’s dad or neighbor loves to talk about how they spent hours at the dealership and whittled the price of their car down to next to nothing.  They also like to talk about how the sales manager had to come over and they had to go nose to nose until the sales manager saw it their way.  Or how they got up and were walking out and the manager had to run out to the parking lot and grab them to make the deal.Everyone knows someone who has one of these stories but did they really do as well as they thought?  
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• HOLDING BACK ON THE TRADE-IN – Everyone gets so caught up in the price of the vehicle they’re buying that they miss out on this.  Say you have a trade-in worth $2,500.  the dealership is going to offer you $1,500.  Why?  For a couple of reasons…1) You may think it’s only worth $1,500 after the Silent Walkaround – more $ to the dealership.  2.)  Everyone always thinks their trade-in is worth a lot more money than it actually is so they leaves themselves some “wiggle” room in case they need it.  A dealership will never offer you the actual value of your vehicle in the beginning of a negotiation.
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• VEHICLE SERVICE CONTRACTS & ANCILLARY PRODUCTS – More on this in the “In the Finance Office” section after this.  Basically, the Finance Manager is going to try and sell you an extended warranty (Vehicle Service Contract), GAP Protection, Paint Sealant, and a bunch of other stuff you don’t need.
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• DOCUMENTATION FEE – The #1 rip-off at every dealership.  When the negotiating is done and you have decided you’re happy with your deal and wish to purchase the car you will go to the finance office where you will sign a purchase agreement.  On this purchase agreement you will see Documentation Fee or Doc Fee.  The average doc fee is roughly $800.  The Finance Manager will tell you this is for titling fees, prep fees for the car, sending someone to get your new registration, etc…this is all a bunch of bologna.  All of the above mentioned things are already a part of the profit of the car sale and the prep fee is paid by the manufacturer.  A Documentation Fee is simply this:  100% pure profit that goes into the owner of the dealership’s pocket.  It’s what the dealerships call a “pack”.  It insures that no matter what happens on this deal, $800 is going into the owner’s pocket.  Everything else they make money on goes into commissions, paying the back office, utililities for the dealership, etc… but the Doc Fee goes right into the owner’s pocket.  That’s why you see so many 70-80 yr old owners…they don’t have to do anything but sit back and watch the Finance Manager collect this.  Think about this…if a dealership sells just 300 cars per month..300 cars X $800 per car doc fee = $240,000 per month or $2,880,000 per year.  And this is the owner’s salary per year.  Not too bad.  A dealership will never let you out of paying the doc fee but we’re going to make it part of the price of the car.
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• HOLDING RATE – If you finance a car at the dealership they will have you fill out a credit application that they will send online to the bank or banks.  They’ll have an answer back from all the banks in ten minutes or less.  Most of these banks will allow them to hold up to 2 points in rate on every contract.  What does this mean?  It means that if you qualify for a 5% car loan the dealer can tell you your rate is 6.99%.  The dealership then gets to keep the difference.  On a $24k total financed loan this could be $1,800.  But you’ve done your homework…you know that the new vehicle you’re buying has a special rate of 2.9% x 60 months.  If you get this (and you should) the dealership only gets paid a “flat” of $100.  This is fair.
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• SO THINK ABOUT THIS!! – If a dealership sells you a new car and you don’t get the factory incentivized rate your deal could look like this for the dealership…$800 profit for car, $500 hold back on trade-in, $1,200 service contract, $1,800 in rate mark-up for a total of $4,300 profit to the dealer.  See how I told you the actual selling of the car may rank fourth or fifth on how they make money.  Alrighty then…let’s get started on our car deal!!!