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Old 02-07-2013   #1
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Crap dealers say

From time to time people ask for my advice about buying cars, how to get the best deal, what to watch for at negotiating dealers, and just general things about the car sales and finance industry. Since White Bear Mitsubishi is a Best Price dealer, I can expose (read call out) a lot of other dealers on the crap they try to pull! Here are come misconceptions, myths, and truths about the auto industry that you may not know.

On one of the biggest areas where people have misconceptions is on the financing end. So I'll give you guys the whole run down on that.
  • Say you submit an application on a particular car. The bank looks at a couple things; what's the car's model year and mileage, what is your credit score, what does the car book for, and how much is the buyer looking to finance.

    Banks evaluate cars based on risk. That is, the risk that they will end up with the car when you default on the loan and they have to try to get rid of it. Banks view newer cars with fewer miles as less risk because they are easier to get rid of if you default on the loan. Then they take in to account your debt to income ratio. And finally your credit score itself, how likely you are to make those payments.

    All of the these things are calculated to come up with interest rate, and what they call Loan to Value (LTV). LTV is generally between 80-125% of the cars book value. If you have very good credit, and it's a newer car, they may even let you go up to 130% of LTV. Meaning you can buy a car that is over book (privately sold, modded cars for example), or you can add accessories to your loan. However, the worse your credit, or higher your debt to income the lower your LTV might be. This means you may need to come up with money down to compensate for that.

    Take Murlo's car for example. It books for about 27-28 (retail) based strictly on mileage and year. He was asking like 34k for it (correct me if I'm wrong). To educated buyer this may seem reasonable to ask for 4-6k more than book for the tens of thousands of dollars of work he's put in to it. But to a bank that's 121% LTV. You have to have very good credit to get an approval at 120% LTV, or a bunch of money down to offset that percentage that you are over the allowed LTV. So, if a bank will only allow someone to finance 90% LTV on Murlo's car, they have to come up with like 9k down to offset this.
  • Another common finance misconception is the notion that paying cash is somehow better, and you can negotiate a better deal by offering cash. Assuming you have decent (680+) credit, dealerships actually make more money when you finance with us. This happens one of two ways; traditional banks will allow dealers to add up to 2 -2.5% extra interest to your rate. This money goes to the dealer (and a small percentage of that to the finance manager). Sometimes, a dealer will "sign it out flat" meaning we give you the interest rate that the bank actually said they would take it at. In exchange the bank pays us a small flat fee. *BTW I try to make sure referrals, Style members, and friends are signed out flat whenever possible.*

    Credit unions on the other hand do not allow dealers to do this. This is why their rates are often times better, and why people prefer to finance through them, over traditional banks. In exchange the credit unions pay the dealer a flat fee per deal (and some times a bonus for a certain goal). That's also why most dealerships (including ours) work with a bunch of credit unions.

    If you don't have good credit, sometimes the bank will charge whats called a acquisition fee, or "acqu fee." Shady dealerships like Car Hop will charge you this extra fee. This is how a lot of people with bad credit end up WAY upsidedown on crappy car. Fair dealerships will eat this fee. Depending on the car you're looking at though, we may have an approval in place with an acqu fee that is too large for us to eat (Some times they are thousands of dollars) and you may end up getting turned down for a loan.

On to a different subject: Trade ins.
  • We're NEVER the most money you can get for a car! But we're the fastest and easiest way to get rid of a car. Some people feel this is worth not dealing with the hassle.
  • Remember, we're a business. That means a number of things. First and foremost is that we need to make money on your car when we sell it! Secondly is that we're a business that has to follow state/federal regulations and guidelines that you as a consumer aren't always aware of.

    When we take in a trade we have to pay $600 in fees, and $300 to inspect the car, no matter what. So we're automatically out $900 even if your trade is 100% perfect. Secondly, if we have to do anything to the vehicle (brakes, tires, rotors, tie rods, bushings, cosmetic damage, etc). Then the car needs to get detailed (pay the detailer) and sold (pay the sales person).

    Between fees, repairs, paying various employees, etc, by the time we turn a car around (assuming its a month or less) dealerships shoot for a net profit of $800-$1000 per vehicle. It's not the thousands of dollars you would think we make by taking a car in for $12,000 and selling it for $14,999.
  • In the state of MN when you trade in a car, we take the net total of the car you're buying - the full value of your trade (even if you still owe money on it), then calculate tax from that net total. So if you trade in a car worth $10,000 on a car that is $20,000 you only pay 1/2 the sales tax that you would have otherwise paid with out a trade.

    So, keep in mind if you decide to sell a car privately, add in the sales tax savings + whatever they trade offer was. That's your break even point.

    *Thanks Goat Blower for reminding me about that one!

Here are some things that dealers might do, to be aware of.
  • Some dealers, like a particular Mitsu dealer in California known for advertising cars WAY below MSRP, will advertise their prices including 5 or 6 discounts that not everyone will qualify for such as Mitsubishi Owner Loyalty and active military. They also don't advertise the price including destination fees from Japan/Illinois. They also don't tell you that they have an $800 documentation fee.

    Dealers aren't stupid, they're going to make money one way or another.
  • Dealers that negotiate will often times give you a huge discount on a car, then try to low ball your trade. Or give you a huge amount for your trade, then try to sell you the car for a lot more. ITS A TRAP! Again, dealers aren't stupid, we're going to make money one way or another.

So how do you get a fair deal? COME TO WHITE BEAR MITSUBISHI OF COURSE! No seriously though...
  1. One of your best negotiation tools is to be present at the dealership with a deal on the table! We know you're serious about buying a car then. So don't just call up or email and say "My car is X, it has Y miles on it, and BKK says it's worth Z. What will you give me?"
  2. Always get a final number including all fees! Dealers are allowed to charge whatever fees they want on the back end, we don't have to advertise them.
  3. If the store negotiates, let them know you might finance with them if the rate they get you is good enough.
  4. Always get a trade value in writing, with a managers signature. This will prevent the whole huge trade/smal discount thing. If the manager isn't willing to do this, you know something is shady.

And finally to clarify, how exactly do dealers make money?
  1. We make money when you finance a car with us.
  2. We make money when you buy products for your car. This includes dealer installed options, aftermarket accessories, extended warranty coverage, GAP insurance, etc.
  3. We make money on service. An overwhelming majority of a dealerships profits come from it's service department. However, that is cyclical. Sales sells a car and if they do a good job we hope that customers come to us for service when they need it. When our service department does well, you're more likely to buy a car from us again.
  4. We make money when we meet sales objectives. The money we use to discount the vehicles gets paid back to us by the manufacturer if/when we meet sales goals.
  5. What we don't make buckets of money on is selling a car. In fact, if all we did was sell all of our cars for cash with no additional services/products, we would be hemorrhaging money!

Last edited by Trogdor; 02-07-2013 at 01:50 PM..
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Old 02-07-2013   #2
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Re: Crap dealers say

Thank you for posting this, great info to share with the group. Also, thank you for mentioning the games a certain EvoM sponsor dealership in CA plays; there are tons of complaints out there from out-of-state buyers who fly in only to learn their actual price is no where near the "too good to be true" price advertised on the forums.
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Old 02-07-2013   #3
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Re: Crap dealers say

Very well written and great information the general public does not know. You left out one thing in regards to trading in your vehicle with a licensed dealer. Yes, you won't get what you MIGHT get selling it retail, but you actually pay the state less in taxes when you trade in because you only pay the 6.5% or whatever it is now on the NET purchase price(new car-old car trade in value), so with a $20k trade in, you're saving $1300. That explanation helped a lot of people with trade in's because it offsets the lower price and of course is much more convenient.
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Old 02-07-2013   #4
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Re: Crap dealers say

With the high value of Evos and a dealership down here that loves having modded cars on the lot, the majority of Evo owners trade-in here rather than sell privately. It's pretty common for the dealership just to buy the car out-right too, not sure how that works with taxes though. I sold my IX privately, but I really should have gotten it appraised for trade-in first.
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Old 02-07-2013   #5
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Re: Crap dealers say

Good info, although I don't know if I quite get the trade-in part about having a manager sign off. So when do I want to ask them for a trade-in price for a car? Is that the very first thing I should do when walking in the door before I even say what I'm looking for?

I guess to me it seems like there's 2 transactions taking place. No matter which I do first (negotiate car price, or trade-in price), they will always try to offset it. So say I'm looking at a Fusion for 20k. I walk in the door and say yeah we're interested in this fusion for 20k. They say oh ok, yeah with the rebates we can give it to you for 18k. I say OK then how much for my trade in, and they say 5k, so in total i end up at 13k right? Vice versa, I go in and get a manangers signature saying they'll give me 6k for my car. Then we go look at the Fusion for 20k, the guy will say he can get it to us for 19k with discounts. Same 13k final price right?

So I guess I'm not understanding how it matters?

Also, say someone like me wants to just go in and pay cash. That's apparently a turn off, so what do I do to make sure I still get the best price? I could finance for 1 month then pay it off, but that seems silly, especially if it was a deal that was 0% or 2000 cash back and I chose the finance option.

I hate the number games and the bartering, which is why I loved going to Steve. I just want to walk in the door, know the price, and that's it. If I walk out the door and get chased down saying OK OK We Can Go Lower (happened to me in Yuma), then it's like no too late, you already told me that was as low as you could go, that makes you a liar.

Steve, I wish you were still in the business
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Old 02-07-2013   #6
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Re: Crap dealers say

Aww, shucks.

Yeah, the net is really the number you're looking for, the rest of it gets to be fluff. The nice thing about my setup was that my overhead was cheap compared to the bigger dealerships, so my prices were always quite a bit lower as I could give the same trade in but the starting price was cheaper. Plus I got really good at getting the best deals at the auction, that ended up being the key for me.
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Old 02-07-2013   #7
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Re: Crap dealers say

Quote:
Originally Posted by Halon View Post
Good info, although I don't know if I quite get the trade-in part about having a manager sign off. So when do I want to ask them for a trade-in price for a car? Is that the very first thing I should do when walking in the door before I even say what I'm looking for?

I guess to me it seems like there's 2 transactions taking place. No matter which I do first (negotiate car price, or trade-in price), they will always try to offset it. So say I'm looking at a Fusion for 20k. I walk in the door and say yeah we're interested in this fusion for 20k. They say oh ok, yeah with the rebates we can give it to you for 18k. I say OK then how much for my trade in, and they say 5k, so in total i end up at 13k right? Vice versa, I go in and get a manangers signature saying they'll give me 6k for my car. Then we go look at the Fusion for 20k, the guy will say he can get it to us for 19k with discounts. Same 13k final price right?

So I guess I'm not understanding how it matters?
Yes, ultimately the net difference is what matters. But by getting a manager's signature on trade offer it allows you to walk away and come back in an hour, or a day or a week (generally stores that will do this offer 7-14 days) and they can't change the offer. Sometimes dealers that negotiate will change the offer on you if you leave. This ensures they can't do that.

You would be surprised how many people don't understand this the first time you point it out to them. Then you have to actually do the math with them and show them "They said they'll sell you their car for 19,740 and give you 5,000 for your trade. We're offering your $4,500 but selling you our car for 18,999." Happens about once a month. I even had a guy walk once because of this. We offered him less for his trade, but the net difference was that we were $280 cheaper. He was so butt hurt by the fact that our trade offer was $500 less, he walked.

Offering cash isn't a disadvantage. It's just not a way to get an additional discount as it's commonly believed.

If you can get a 0% financing offer, ask them to show it to you both ways, then decide what's best for your situation. 0% offers generally require you to give back a large rebate. This means if you're the kind of person who pays off your loan early, 0% is probably not the best offer. Or, if you have a large some of money down (or valuable trade) than 0% is also not a good of an offer because you could be paying a small amount of interest on a small amount of debt which would not equal the cash you have to give back. I.E. 2.9% on $12,000 financed doesn't total $2000's if that's the rebate you have to give back.

Quote:
Originally Posted by Halon View Post
I hate the number games and the bartering...
You, along with most people don't like this part of buying a car. That's why a lot of dealer's have gone to a Best Price model. That, and the internet. Dealer's can't make buckets of money on cars now-a-days because people know what they should pay for a car, give or take a few hundred bucks. For every person they do make several hundred dollars more off of, there's some guy they sell a car to for under invoice. If a person walks away from a dealership and founds out they could have paid $1000 less across town, they're going to be PISSED. It's a bad business plan.

That's what I like about working for the Rydell Auto Group, we just lay it out like it is.

Last edited by Trogdor; 02-07-2013 at 10:10 PM..
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Old 02-07-2013   #8
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Re: Crap dealers say

Thanks for the explanation. Again though, so should I ask for a trade in value first thing right off the bat before we even go look at cars, and get the managers signature? And I'm still not understanding the trade in stuff I guess, because it seems like they can still offset it no matter what. Unless you are saying I can walk away with hopes that they will call me back a day later with a lower price on the car I want to buy, without being able to offer me less for my trade-in?

Also, is the tousley Ford by you a best price dealer, or are they no good? I ask because they had a lot of fusion that we are interested in.
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Old 02-07-2013   #9
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Re: Crap dealers say

Quote:
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Unless you are saying I can walk away with hopes that they will call me back a day later with a lower price on the car I want to buy, without being able to offer me less for my trade-in?
Yup! You can certainly try that.

And you can compare it against other dealers. If you go to Tousley and they offer you something and you get that in writing, you can confidently shop that against another dealer's offer.

I'm don't think Tousley is a best price dealer (not 100% sure). Most often best price dealers will list their prices on their website, like WB Mitsu's page, or any Walser store. Tousley just has the MSRP listed.

Apple Ford Lincoln 53 1.6T's in stock, and I know they are a best price dealer (That's a Rydell store I could pull inventory from)

An no, please don't just walk in and say "What's my trade worth?" I hate when people do that, lol!
If we don't have a car you want to buy, then why am I going to go look at your car and have my manager do a trade evaluation?

Last edited by Trogdor; 02-07-2013 at 10:46 PM..
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Old 02-08-2013   #10
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Re: Crap dealers say

Quote:
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Also, is the tousley Ford by you a best price dealer, or are they no good? I ask because they had a lot of fusion that we are interested in.
I wouldn't buy from tousley i have went in there twice to look at cars and it was a pain in the butt and the sales people are very very pushy. Witch i understand its their job. I went in there with a check in hand for a new used truck and they wouldn't move the price at all. Meh just went somewhere else ha.

But lots of good info though!
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Old 02-08-2013   #11
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Re: Crap dealers say

Great info! Thanks for sharing this.

Its been a very long time since I traded in a car. Although, I hate selling cars myself because of the craptastic lowballers out there, I still do it to get the most money. I think the last time I traded in a car was 1997. :-)

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Old 02-09-2013   #12
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Re: Crap dealers say

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it was a pain in the butt and the sales people are very very pushy.
I've heard this from several others people too. I also hear that you can'y look at anything on their lot with out talking to a sales person first. You have to walk through the show floor to get to the lot in the back.
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Old 02-09-2013   #13
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Re: Crap dealers say

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Originally Posted by curt_gendron View Post
Great info! Thanks for sharing this.

Its been a very long time since I traded in a car. Although, I hate selling cars myself because of the craptastic lowballers out there, I still do it to get the most money. I think the last time I traded in a car was 1997. :-)

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Old 02-10-2013   #14
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Re: Crap dealers say

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I've heard this from several others people too. I also hear that you can'y look at anything on their lot with out talking to a sales person first. You have to walk through the show floor to get to the lot in the back.
Yea its a real pain. and the one time they wanted my info so they could run a credit check while on the test drive. I understand they have the job to sell a car but for real can i just look with out someone breathing down my neck. ha.
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Old 02-10-2013   #15
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Re: Crap dealers say

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the one time they wanted my info so they could run a credit check while on the test drive.
Seriously? Shouldn't they wait to see if you want to buy their car first before they ask for that?

Sales 101: You have to earn the right to ask for a sale.
You can just toss someone the keys and ask for their social security number so you can soft pull their credit while they're out, lol.
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Old 02-10-2013   #16
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Re: Crap dealers say

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Seriously? Shouldn't they wait to see if you want to buy their car first before they ask for that?

Sales 101: You have to earn the right to ask for a sale.
You can just toss someone the keys and ask for their social security number so you can soft pull their credit while they're out, lol.
lol. They may have stop doing that now but i know when my wife was looking a long time ago they did.
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Old 02-10-2013   #17
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Re: Crap dealers say

Yeah that is annoying as hell, especially when driving around the lot and the salesment hunts you down like dangerous game
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Old 02-10-2013   #18
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Re: Crap dealers say

We've been there twice now. Test drove a total of probably 5 cars. Never once have I felt pressured (same salesman both times). We left both times without him even asking us for our phone number. Guess it all depends on the salesman.
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Old 02-10-2013   #19
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Re: Crap dealers say

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We've been there twice now. Test drove a total of probably 5 cars. Never once have I felt pressured (same salesman both times). We left both times without him even asking us for our phone number. Guess it all depends on the salesman.
Well thats good. Maybe i have just been super unlucky there.
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