I've learned plenty the hard way, including a couple expensive lessons delivered by smart car dealers when I was younger. Thank goodness most of those spankings came when the dollar amounts were much smaller...
Over the last thirty years I've learned a lot about buying cars, boats and trucks, some from the inside. I've also met lots of great people who earn an honest living selling vehicles, so this is not meant to be an indictment of everybody in the car business. In fact, lots of nice folks make plenty of money doing business honestly, but the vehicle sales business also attracts a lot of lying rip-off artists -- and I have met several of them
recently while helping friends buy cars. Those guys and some recent confusion here motivated me to try this. I hope what I have to share here will help some folks separate the BS from the truth and negotiate a good, fair deal.
Some of this will be "old hat" for many of you guys, I know, and I'm certainly not God's gift to vehicle purchasing, but I thoroughly understand how the money works on these deals, and I've done a lot of successful negotiating and purchasing professionally and privately, so I think I can help some of the folks who have been confused about pricing and terminology in other threads I've read. I hope this helps.
The government requires auto dealers to affix a factory window-sticker known as the "Maroni-sticker" on all new cars. The sticker provides a variety of information including the MSRP (manufacturer's suggested retail price). Unless you're looking at a one-off or a very limited production car like a Ford GT-40, it's the only sticker that matters.
Some of the super-slick dealers dealers have started printing "mimic-stickers" with the same borders, coloring and formatting as the factory sticker, so they can put the two together on the window to create the impression that their "ADM" sticker (additional dealer mark-up) has factory legitimacy. It doesn't. Disregard that extra sticker altogether unless it lists accessories you actually at a price you conclude is fair after researching it. (This is sometimes where the dealer will advertise the $600 wheels he'd like to sell for $2,500, the $24 under-coating he plans to sell for $199, the $14 pin-stripe he expects to sell for $199, and so on. I recommend you ignore all of it, and plan to get all that stuff later if you want it.) (There are lots of ways to wrap aftermarket accessories into the car deal/financing, but that's another topic.)
Take a pad and paper to the dealer when you go to shop trucks, as you'll want to write down stock numbers, equipment and pricing information. Make sure you write down the FACTORY MSRP, as that's a number you can use to shop similar trucks at distant dealerships to make sure you're really comparing apples to apples. It's also the number you'll need to figure the value of the factory holdback: On Chevrolets, the factory hold-back is 3% of the MSRP -- so you'll multiply the factory retail price times .03 to get it. That means a Chevy truck that retails for $50,000 will have a $1,500 factory holdback - a significant amount of money. (This is the amount retained by GM and returned to the dealer in batches well after the sales are final. It doesn't show up on any of your paperwork either, and the dealers don't like to talk about it -- as though that profit center is private.)
You'll also want to be armed with the "invoice" cost for the vehicle you wish to buy. This can be found at www.edmunds.com
and other similar sites. The invoice on a Chevy truck is about 89% of the MSRP, but it varies slightly depending on how the vehicle is optioned, as many options include a larger profit margin. To get your estimated price as close as possible you'll want to use the "build your vehicle" option on Edmunds and select all the proper equipment. Then compare the invoice and retail costs you see. If you divide the invoice number by the retail number on your screen you'll be able to get a rough percentage you can carry with you as you shop -- something like .89136 - which you can them multiply times the MSRP of every vehicle you consider. (The 89% figure is a pretty good rule of thumb for Chevy today.)
The next piece to get from Edmunds is "incentives". American manufacturers generally offer some incentives, usually in the form of "customer cash", "rebates" or subsidized (reduced) finance rates. We also occasionally see "marketing support". Whatever the label, if the dealer is getting additional money on each transaction it needs to be figured as reduced cost in your vehicle. I just checked a couple hours ago and found that GM is offering $2,500 in rebate support for my truck, a 3500HD Crew Cab Duramax/Allison package. The support jumps to $3,500 for the same truck with a gasoline engine, so you can tell which one is selling better ;-)
Here's how the numbers from the above example blend into a current truck deal: The factory sticker on the truck shows an MSRP of almost exactly $50,000 and there is a matching ADM sticker showing a $2,500 "market adjustment" (with no additional options). According to Edmunds.com, the invoice on the truck is $44,500. After the $1,500 factory holdback and the $2,500 rebate are subtracted, the actual dealer net-net cost on the truck is $40,500. The factory was trying to sell it for $50,000 and the dealer was trying to sell for $52,500. If I wasn't in a hurry, and there were other trucks like it around, I'd offer $41,500 and be prepared to walk away if they didn't want to sell it for that. There's nothing wrong with offering a guy a $1,000 net profit, but they'll squeal like you were asking to cut off a right hand. Some will even act offended, a tactic I've never understood. If he hasn't spent all day with you, and he can get another truck just like it next week, your chances of buying the truck are pretty good -- at least out here. And if he lets you walk away without the truck, so what? You may have to pay more, but you should NEVER have to pay more than $2000 total profit or, in this case, $42,500.
Here's another tip. I never tell folks anything like, "I'll never pay more than ____!!" Because, the fact is I WILL pay more than that if I have to -- because I want/need the darn truck. I don't engage questions like, "What do you want your payment to be?" I'll figure out my own payment -- I'm telling them what I am willing to pay. When we've agreed on price we'll talk financing. (There's a reason they want to talk payments first.) I just politely say something like, "You know, I think what I'm offering is fair and that's all I'm prepared to pay right now. I will buy the truck right now for that price, but if it's not enough profit for you fellas I understand. If none of the other dealers will sell me that truck at that price I'll come back to you ready to pay more!" That protects my credibility, because I'm not "bumping to pay more after I said I wouldn't" and it sets me on the course they fear most... I'm telling them I'm ready to buy NOW and my next step will take me, the idiot customer, right over to the other hot-shot-car-sales group so they can take a shot at me. If they're every going to be willing to sell the truck at that price it's going to happen before you leave. If it doesn't happen, you haven't wasted your whole afternoon at the dealership and you've learned something.
When I bought my last Dodge truck I went through the above exercise and found that the MSRP on the Dodge truck I wanted was $11,200 above calculated cost, so I offered them $10,200 below their sticker price. The salesman looked at me like I was nuts. He returned with a "Sales Manager". ("Manager" is code for 25 or 27-year-old guy with two years experience who is supposed to be the deal "closer".) The "manager" asked me one stupid question after another like, "How are we supposed to pay our power bill?" Then he followed me out to my truck sharing his wisdom on life, high finance, and every other load of BS he'd been taught to shovel. I left him my number and told him to call me if he changed his mind. He assured me they wouldn't change their minds because my offer was "$2,000 below their cost"! The next week another "manager" called me and said they'd accept my initial offer, so I went down and bought the truck. (The manager who lied to me was nowhere to be found when I went to pick it up.)
My recent Duramax purchase was more honest and friendly. The guys at the Chevy dealership were great. I made my offer and then I followed the sales-guy back to the manager's area so I could just talk to him without my 20-year-old sales-guy/interpreter. I shook the manager's hand, made my pitch, told him I didn't want to meet a herd of 25 year-old "managers", and went to buy a Coke. The salesman was back at his desk in five minutes with the paperwork and I was out of the dealership having spent less than 90 minutes from beginning to end, including the test-drive. That was only a few months ago and I've since sent them two other sales, because the were honest, fair and easy to work with.
Here are a few other tips/reminders:
1) Even if you plan to pay "cash", don't say it. Some guys are under the mistaken impression that new car dealers would rather have a "cash" sale. That's wrong. The reality is, cash can be a security hassle to deal with and the dealers often make more money when you finance. I'll give you an example to explain.
I worked for a boat manufacturer for a while. One of my jobs was negotiating with the engine manufacturers for volume pricing. During the boat-shows and sportsman's shows I would help the dealers by working the shows and talking motors/engines/boats. The dealers ALL offered financing and they WANTED buyers to use it, because the dealer was paid one "point"(percent) for each quarter-point between the dealer's buy-rate on the loan and the buyer's contract rate on the purchase. So, the dealer might get a promotional rate from the bank at 7% and finance a buyer at 8.99% -- not bad on a 15 year boat loan. With one-point-nine-nine (2) percentage points between the buy and sell rate the dealer made EIGHT percent of the amount financed. If the guy borrowed $40,000, the bank would write the dealer a check for $3,200 to "buy" the contract! Sometimes the dealer profit on the financing was higher than the profit on the sale...
That kind of interest margin isn't typically seen at new car dealers anymore, but they DO make money when they finance people, and they make a boat-load on everything else that's in the "Mr. Finance" office, like the $30 fabric treatment they sell for $499, the extended warranties with the 65% margin, the "theft-proof-glass-etching" and all the other crapola listed above. That's where the phrase "nothing but net" comes from. (Well, not really, but it sure fits :-)
2) Remember, the math will change if your dealer has to "locate" a truck at another dealer and then go get it. If they just trade trucks of similar value the only additional cost is driver/transport time -- a "go-get-fee" of a couple hundred bucks -- but if he has to buy the truck from another dealer, the other dealer is going to keep the holdback, so that profit-center will be lost from your deal.
3) Car "leasing" is just another financial "vehicle". If you lease, which is a bad financial plan for 95% of the people who do it, you can still negotiate the purchase price of the truck. The purchase price is the lease "cap" - but the rest of the lease plan is too complicated to discuss here, and very easy to get burned in. If you can't expense the lease, please ask your accountant/bookkeeper to talk you out of leasing...
4) I've been told the rules/plans discussed here would not work in New York and Connecticut -- because they don't have many trucks and people are not willing to travel to get them out there. It certainly does seem
different there. Heck, our county is the size of Connecticut and we've only got three GM dealers, the smallest of which probably has at least 40 or 50 trucks in stock, and a two hour drive north will bring us to at least three or four GM dealers EACH with at least 100 trucks in stock. I don't have any experience trying to buy a truck in a place where they literally have to look to another STATE to locate a one-ton truck. (That's what happened to my brother in law last summer when he had to replace a truck as he was passing through Connecticut en route to Vermont.) For people who live in a place where trucks are hard to come buy, if you feel like a week-long adventure, I'd suggest calling Dave Smith Motors in Kellogg, Idaho. He's on the internet and he's got an 800 number. He sells between 1,500 and 3,000 rigs per MONTH -- and he sells at fair prices that take only a few short minutes to get to. I've beaten his pricing by a few hundred bucks, never more, using the method described above, but he's a GREAT option for folks who don't want to hassle with all this. His sales staff will walk you through what you want over the phone and give you a firm quote. The odds are good that they have what you want in stock. They also have every manner of customizing shop on premises from lifting to stereos to winches/bumpers/wheels and tires -- even custom interiors of every variety. They do a HUGE business selling to out-of-staters, so they send shuttles to the nearby airport several times per day to pick customers up for truck deliveries. (I have NO relation to Dave Smith Motors, and I don't send neighbors there because we can do just as well here, but I'd buy from him if I was stuck in a state where the dealers tried to hold me hostage for an extra $2,500 or $3,500...at least I'd get a free trip out of getting my new truck.
Here's my most fundamental rule: They make new trucks every day and all three American manufacturers are prone to over-produce. GM has been over-producing to meet the need for as long as I can remember. So you can always walk away and buy from another dealer on another day. My worst decisions have been made when I was tired and worn down after a day wasting away in a dealership. Don't do it. LEAVE and think it over free of the pressure and noise. If you still want it, and you're willing to step up to their price, fine - give'em a call. But if you're prepared to walk away you wont be subject to all the mental games the play on you in "system-house" dealerships, and you'll be less likely to agree to something you'll regret later.
I hope some of this is helpful to some of you - and Good Luck!