We bought a new car about a month ago. We paid a lot more than the sticker price because in our area, plug-in hybrids are in demand and in short supply. We’re happy with the new car. The dealer, on the other hand, has been more of a problem.
Car dealerships are organized into different departments. Each one is supposed to get as much of a customer’s money as possible. The first step is the sales department. The deal begins here. Over the decades, car salesmen have become more honest and transparent. The main reason for this is that consumers can easily shop and compare prices online. That doesn’t mean that car salesmen don’t lie. It just means that it is much easier to catch them.
The second department handles trade-ins. It has been made more honest by websites like Kelly’s Bluebook. This is the same company that provides value information to dealers. The “appraisers” will still try to convince you that your car is worth thousands less than you learned online, but it’s pretty easy to get them to give you a more honest appraisal.
The third department is the one that hasn’t changed at all over the years. This is the finance department. After you negotiate the price for the car, you are sent to the finance office. Inside a “finance manager” is waiting to help you arrange payment and process the necessary documents. At least that’s what they tell you. Actually, the finance manager’s main job is to sell you extras that are very profitable for the dealership.
While the finance manager is filling out the paperwork, he’ll start selling you an extended warranty and a prepaid maintenance plan. If you’ve financed your car, he will give you the interest rate for your loan and try to sell you gap insurance. These items can cost you thousands of dollars.
First, interest rates. Car dealers work with various banks. Before you meet with the finance manager, he will find the bank that offers you the best rate. Well, no, not exactly. He’ll find the cheapest loan and then tack on several percent more. This is how it works. The bank will rebate to the dealer the difference you pay between what the bank offered and what the dealer charged. The bank may have offered a five percent loan. The oh-so-honest finance manager will quote you eleven percent. Often your salesman will give you that quote after consulting with his “manager.”
When you get into the finance manager’s office and complain about the interest rate, he may ask you to wait a few minutes and leave the room. He’ll come back smiling and tell you he convinced the bank to charge you only nine percent. You celebrate. Meanwhile, the truth is that he just earned an additional bunch of money. The smart thing for you to do is arrange your financing yourself through your bank or credit union. You’ll save a fortune. Dealers hate that.
By the way, salesmen and finance managers avoid quoting the price of the car. Instead, they tell you what your low monthly cost is. This is sort of useful since that’s the number you have to decide if you can afford. It’s also a sneaky way to make the add-ons that are coming sound cheaper.
Next, the finance manager will try to sell you gap insurance. This is a policy that covers your loan if you total your car or if it’s stolen. Your insurance will only pay the fair market value of your car. Until you’ve paid off a good part of your loan, that won’t be enough to cover how much you will still owe the bank. The car dealer will mark up the gap insurance like crazy. For example, the dealer quoted me $900 for gap insurance (only $12 a month more–ha!). I bought it from my bank for $400.
You will get a heart-to-heart talk about the cost of fixing your car after the warranty expires. The finance manager will tell you horror stories of replacement computers, engines, etc. He will then say that for only $65 a month, you can get a protection plan from the car company that will cover you for 100,000 miles. Wow! In our case, since we had our own financing, he was forced to give us the actual price, $6,000. I turned it down.
Since our particular car is a new model with super-expensive components, I wanted the protection plan but couldn’t afford such a high price. I searched online and found that other dealers charged $3,850 for the same product. My dealer was being incredibly greedy. I let the dealer know what I had learned, and the price dropped. When the actual contract arrived, it wasn’t for the factory plan. It was an extended warranty from an insurance company that was nowhere near as good. After another angry round of calls and emails, I got what I had paid for.
The cherry on the shit cake was the maintenance agreement. This is a prepaid maintenance program. The idea is that you pay upfront for the required services for the car and save money. Wrong. The finance manager told me that I would get service every 6,000 miles or six months for 100,000 miles or eight years. The first three years of service are free; included with the car’s purchase. I asked how much each service cost and did the math. It seemed fair and I bought it.
When he emailed me the contract and I had a chance to read the owner’s manual, it turned out that we would get an oil change only once a year. Doing the math again, I learned that I would be paying $500 per oil change. Everyone else pays $200. I canceled that agreement.
The so-called finance managers receive a large commission for overcharging customers for these things. It can add up to over a thousand dollars for a single deal. Finance managers take advantage of our inability to shop for many of the things they sell.
Our ever-so-honest dealer did one other shady thing: they added on an “anti-theft” product to every car they sell. They charge $400 for this item. They put it on the car’s sticker, so it looks like an option you have to buy with the car. It isn’t. I searched Consumer Reports and learned that dealer add-ons like this aren’t the same as installed options. You don’t have to pay for them even if the dealer can’t remove them.
This so-called anti-theft package consisted of etching the VIN number on a few sheet metal parts of the car and came with an “insurance” policy that pays $5,000 if the car is stolen and not recovered. Stupid. I’m very sure the dealer pays less than $100 for this little gem. I made the dealer refund the $400. They didn’t argue with me. I think they know what they are doing is wrong.
If you have a bad experience buying a car, feel free to review it and let others know. Dealers are very sensitive about the reviews they get from consumers. If you buy a new car, you will get a survey from JD Powers to fill out. Your salesman will tell you about it and offer you free floor mats or something to give him all “excellent” marks. Dealer incentives from car companies are often based on these surveys. Needless to say, my review was less than wonderful.
I reviewed the dealership on Google, Yelp, and DealRater. I was honest and gave them two stars. Within a day, I got a call from the dealer’s general manager asking what he could do to “make things right.” He said that he wanted to make me happy so I could improve my review. OK, I told him about all of the stuff I had trouble with. He fixed every single thing. I improved my review. It turns out that customers aren’t exactly helpless, even after getting a bad deal.
