Monday, April 13, 2015

Buying Used Cars, Part 3: Negotiations

Fiat 500c
By Michael Rentfro

So we’ve had a rather lengthy discussion about buying used cars. We’ve talked about how to preplan so you have an idea of what you can get for your hard-earned money. We’ve talked about maintaining and populating a list of the vehicles in your price range. We’ve talked a little about how dealerships make their money (although we’ll be getting even more in depth in this installment), and we’ve talked extensively about test driving the vehicle before you purchase to insure you aren’t buying a lemon. Now that the fun of shopping is finished, here comes the hard part. The Negotiation process is the part most people hate. There will be tears. There will be pain. There will be a deep and sorrowful feeling of utter hopelessness. With the right preplanning and some guidance, you can limit the amount of blood loss to manageable levels and therapy that should be covered by most insurance plans.

In this installment, you should already have secured financing and narrowed down the prospective four wheeled mechanical investments to single digits at least. With this out of the way, negotiation and purchase SHOULD be a piece of cake. I have successfully purchased a car out of state with only two 15 minute phone calls, a five hour drive, and 30 minutes of signing papers. Proper preplanning and research really pays off in the end, and I didn’t cry a single tear and there were no thoughts of suicide at all. So now that you’ve found your next potential four wheels of fury, let’s move on to the dreaded purchase phase. Drink plenty of fluids to avoid dehydration, brush up on you verbal judo skills the night before, and brace yourself for a potentially bumpy ride.

Mitsubishi Lancer SE AWD
Once again, like the previous two installments, let’s start with prospective. Some “volume” dealerships thrive on making the negotiation process so painful the customer finally admits defeat, melts into a puddle on the showroom floor, and involuntarily twitches an affirmative nod to whatever the dealer thinks you need added to the final purchase price. I have been to these dealerships. I will not return. The more knowledge you are armed with when you walk through those brightly colored streamers, the less time you will spend sitting at a communal table parked next to the new Corvette Stingray with a cup of 10 hour old coffee in your hand waiting for the salesperson to come back from a conference with the sales manager only to tell you they can’t accept your offer. They all know their bottom-line price, so you should know exactly how high you are willing to go on any particular vehicle.

2013 Chevrolet Spark 2LT
First of all, be straightforward. Maintain control at all times. Sales professionals aren’t used to this, but often prefer it. Walk in and inform the salesperson you are here to buy a car, and tell them which one you are here to buy. Be firm that you aren’t interested in seeing anything else and that if you can’t come to an agreement on price, they have lost your business, plain and simple. Inform them that you will not be utilizing their financing, (more on this later) so there is no reason for you to fill out a credit application. Be up-front that you are not interested in paying an additional $800-$1500 for an “extended warranty” that only covers blinker fluid and muffler bearings. In short, walk in and confidently proclaim:

“I want THIS and only THIS car, I have the money secured already, and I have an appointment in one hour at Bill Smith’s Fordtown if we can’t reach an agreement by then.”

This simple proclamation will let the salesperson know you are in control, but you are also ready to buy. Letting them know in advance that you aren’t interested in looking at anything BUT the car you’ve already inspected and driven will keep the dealership from trying to push you in another direction. Informing the dealer you already have financing secured will prevent them from running a credit check potentially harming your credit score, and lastly, putting a time limit on negotiations will keep the dealer from trying to wear you down slowly to the point you turn into a blubbering gelatinous mass of agreeable goo.

Thumbs DownNow that you have adamantly established control, there are a few tricks dealerships use to squeeze more money from you without you even realizing it. The first, and possibly the scariest, is dealer financing. When buying new, dealers are authorized several different financing incentives to entice customers to buy a certain vehicle. Well-qualified buyers can secure financing directly from the manufacturer with little or no interest and/or large sums of cash back and rebates. This works very well as the manufacturer actually is the bank; therefore they control the profit margin. When buying used, dealerships control the profit margin, therefore when you use the dealership to secure financing, they also control the rebates and incentives. I found out firsthand how this works. A few years ago, I attempted to secure financing through a dealership in town and was told I was approved through a local bank for the low, low interest rate of 5.9%. For whatever reason, the deal fell through, so I found virtually the same car at another dealership, but I decided to talk directly to the same bank I was approved at before. The very nice loan officer informed me that I was approved for the same amount of money for the even lower interest rate of 3.9%. The difference? The dealership “financing fee”.

In the state of Indiana, it is perfectly legal for a dealership to add up to 2% interest to the interest rate of an auto loan. After finding this out first hand, I began to understand why dealerships push their financing so hard the minute you walk in the door. I have never and will never again fill out a single credit application at a dealership solely for this reason. In my case, the additional 2% would have cost me hundreds over the lifespan of the loan. Is this process shady? Maybe, but it is perfectly legal nonetheless. Please be advised though, this only applies to used car loans. Once again, new car loans can come with some really good incentives with the right credit scores.

2010 Suzuki SX4
Ok, now that I have finished my financing tirade, the negotiation should be simple and self-explanatory. Stick to your guns and fight for the price you want to pay. When you are offered a deal you’re comfortable with, sign the papers and move on. As stated earlier, the price on the window is never the actual purchase price. You can always negotiate service items like oil changes, tire rotations, and detailing. Once the sales department knows you are educated, confident, and willing to buy, the nitty- gritty becomes much less painful.

One last rant before I end this series. In the 20+ used car purchases I have under my belt, I have NEVER used an extended warranty of any kind. I’m not saying I haven’t bought one, (hey, live and learn right?) I am saying no matter what happened to the vehicle, it either wasn’t covered, or the repair cost was below the deductible anyway. In my opinion, they are a complete waste of money.

Buying Used Cars, Part 1: Preplanning
Buying Used Cars, Part 2: The Test Drive

1 comment:

Barry Traylor said...

I think it is important to remember that you can just walk away. I once had a problem with a high pressure salesman (this was when looking for a new car) and I just walked away. When I returned a week later I requested a different salesman. Pissed the first guy off, but that was his problem not mine.