Time for a New Car! An Insider’s Guide On Your Next Purchase

Like most men, I grew up idolizing cars. In the 80’s I remember having reading time in the library during school. For some reason, they had a ten year history of Car and Driver and MotorTrend magazine. I spent all my allotted time learning about Countaches, 911s, and Testarossas.

Fast-forward to the summer of my junior year in college when I came home to sell cars at a large dealership. It just made sense to me that I like cars, so I should sell cars for three months.  Here is the essence of my sales training from a week in a hotel conference room:

Customers have no idea what they want. Learn the process and take them from one step to the next until they purchase a vehicle or have the courage and fortitude to walk away. The goal of the salesperson is to get them to the finance office with a signed buyers order. They’ll take care of the rest.

Your takeaway as a consumer should be that if you don’t control the process, the process is meant to control you. Not all salespeople are pushy, of course, and there are many salespeople who are consultative and friendly in their approach. The best salespeople give you the sense that they work for you, but must work through their dealer (same with financial advisors, btw). It’s difficult to act that way if you don’t actually feel that way so take comfort that what you sense is accurate.

Go to the lot with an idea of what you want, and when a salesperson approaches you be direct about your intentions.

Here is how to handle the process:

Express your intent to look at a vehicle and drive it. Express that you are in between appointments or on the way to some social event. You may also say that you are looking at a few other vehicles but have not driven them yet (even if you have driven them).You have now built in your “OUT.”  You are managing the expectation and taking control of a situation that is otherwise intended to control you.

Now that you and your salesperson are on the same page, find the vehicle that meets your needs and tell them you want to drive it. They’ll ask for your ID, get you the keys, and you’ll be on your way.

Let’s presume it’s the color and has all the options that you want. You know in your mind this is “The One.” Keep that in your mind, do not let that spill out of you mouth. Your walk and talk should send these two messages:

1. You do not need a car at this moment, or on this day.

2. You are not emotionally involved in the car you are driving, though you do have an appreciation for it.

You don’t have to take the poker-faced thing to the extreme. Enjoy the experience. They should know you are interested.  Drive it, park it, ask whatever questions need to be asked, then be on your way.

Your salesperson typically gathers your contact information and reports the activity based upon some standardized dealer practice. By the following day, the sales manager gets involved.

“Why didn’t you close that deal?” Or, “What was up with that customer? Potential buyer or tire kicker?”

You want to be considered a potential buyer (that’s why acting overly disinterested is not helpful to you).  They will call you. Now, you are in control because you manage the timing and the process through phone and email of the negotiation.

Understand that you were in a very poor negotiating position on the car lot. They know that they have what you want, and the salesperson and sales manager play “good cop” and “bad cop.”  You may get the perception of a good deal, but you will not do as well as you could have because you can pay too much on TWO ends.

1. Front-End Money

This is the amount of money they make on the car itself. Usually the negotiation for price takes place on what is called a buyer’s order. The order has your name and the car you want with VIN listed. You go back and forth on it until you agree on what you’re going to pay. This is where the “good cop, bad cop” happens. You’re working with the salesperson (good cop) and he goes back to the sales manager (bad cop) for each negotiation.  Usually a number on the third try with a low and odd number cents ( .13, for example)  is their representation of the “best they can do,” a messaged delivered by your salesperson.

58,799.99   <======  List Price

57,675.68   <====== Second Offer

56,438.23   <====== Odd and low number of cents… “Best we can do.” “We aren’t making any money on the car!”

Not true, but now they have given you the perception of a good deal. On to the finance office…

2. Back-End Money

This is what they make on the financing of the car. Most consumers don’t even know that the dealership makes money on the financing part of the deal. They’re completely baffled as to why they spend half a day purchasing a vehicle, half of which is spent sitting outside the finance office.

If you’re sitting outside the finance office, you’ve already given them permission to pull your credit. This takes two minutes. The reason you wait longer is they are having conversations with all their financial partners. The essence of the conversation:

“Hey this is Larry at Trust Chevy on 30A. Yeah, I’ve got a client here with a 760 credit rating looks like their debt to equity ratio is 22% and they have income of $140k. Great case here. What do they qualify for with you guys?”

“Thanks for sending this one this way, we’ll give ’em 1.9% for 60 months.”

“Great, how much will you pay us if we set them up with a 2.15”

“$1200”

This happens everyday, everywhere, all day long.  They’ve got to make money, and they will, but the customers who give up the most are the ignorant and overly-eager.

Remember what I said earlier; find what you want, drive it, contain your emotions, and get off the lot. Go home and do your research.

Use our beautiful free market to look at financing offers by other brands and dealerships. If your credit is excellent, you are in a position to make demands and pit a Chevy advertised rate against a Ford advertised rate, for example. I did what I’m telling you to do, I drove a car and went home. They called me when I was vulnerable, drinking an adult beverage in a relaxed state.

“Hey did you like the car.”

“Yeah I liked it, but I don’t need it. Chevy has a published rate of 1.9, and you guys have 2.9, so if I were to do something I wouldn’t be interested at 2.9″

“Send me authorization to pull your credit and we’ll see what we can do.”

“OK (gave him my email), send me the form.”

I was in the midst of a negotiation. I didn’t mean to be but I felt like I had managed the expectations with them, and now I was in control.

They called me the next day to tell me they would match the other brands rate, a full percentage point discount saving me lots of money over the term of the loan. I did the opposite of what they wanted, negotiated the back end before doing anything on the front end.

The best part was I didn’t spend two hours waiting outside the finance office to get screwed on a car I had already agreed to purchase. Saving time and money are always a good thing.

Now for the front end. This was simple. They would send me a buyers order with a purchase price on it, and I would cross through it and scan it back to them after a period of at least half a day. Before I sent the last number, I had gone dark for about a day. After sending the buyers order back and forth several times, I signed and all matters were settled.  We arranged a time for me to pick up a car for which the documents had already been prepared. I only had to make a decision about the warranty, for which I’ll refrain from offering advice on.

It can help create a sense of urgency on the part of the dealer if it’s the end of the month. That’s because dealers own their inventory and pay interest on what’s sitting on their lot at the end of the month. If it’s been a slow month, that could be an opportunity, especially if there isn’t a weekend left in the month. In this case, end of the month was on my side.

My salesperson had many years of experience in the car business, and I’d talked to him a couple of times over the years not having been really serious so I had asked for him by name before the whole process started. Having sold cars a long time ago, I knew new cars usually pay a minimum of between $250 and $500, so I gifted him with bourbon and gave him another $100 when I showed up to sign the papers and drive away with the new car. I thanked him and he thanked me and said “I’ve never sold a car where the dealership didn’t make any money, until now.” Was this salesmanship? Perhaps, but the finance manager reinforced his sentiments.

When I walked in the finance office to sign the documents and discuss the warranty options I could not help but detect a sense of envy. I explained to him I was in the business for a summer. He told me he would have sold me a 2.16% through a local bank had I gone about this differently.

I was in and out of the dealership in 20 minutes. The entire car buying process took 40 minutes worth of test driving, paperwork, and negotiating.

Connect with me at jblack@memphisadvisory.com and let me know if you have good results. Best of Luck!

Josh