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Welcome! I’ve distilled forty years of car buying and leasing experience into this blog, and included the spreadsheets I use to model my own deals, calculate monthly payments, and verify the dealer’s numbers. Read the blog, download and familiarize yourself with the spreadsheets, and never get taken on a car deal again.

Important: The catalyst that drives the buying process outlined here and makes it so effective at getting you the deal you want is your willingness to actually buy a car if your conditions are met. I can’t overstate the significant leverage you have when the dealership understands you’re willing and able to take delivery that day. If there is ever a time that a dealer is willing to shave some profit to close an actual sale, it’s when a live, qualified buyer is right there in the building, ready to go.

 

First Things First: Learn To Use The Spreadsheet To Model Your Own Deals

Download: Car Purchase Spreadsheet

Download: Lease Deal Spreadsheet 1.1

No spreadsheet software? Download OpenOffice free here: http://www.openoffice.com/download

Something I’ve learned about the dealer’s internal lease calculations: Their system is programmed to pad the lease in ways that are not always perceptible to their employees, including the GM and Finance departments. Also, the employees are so reliant on their system they cannot calculate a lease on their own, or explain the internal calculations. They tend to stubbornly revert back to their system because they’re helpless without it.

Presuming you’ve first verified the manufacturer’s current lease residual rate and money factor, there are only 4 numbers you need to know, and only two of those are negotiable:

• Discount (if any) off of MSRP. This can be the sum of any number of sources available to reduce the sale price of the car. It can be a manufacturer’s incentive…lease cash, military discount, AARP discount, AAA discount etc, as well as dealer contributions. How they get to the discount isn’t important, just the bottom line matters since it reduces your monthly payments.
• Trade value. You’re looking for the down and dirty wholesale value of your car in “good” condition. Not because your car isn’t worth more as a private sale, but because if you trade a car at a dealer the most you’ll ever get is average good wholesale. If you think you did better in previous deals, I guarantee you they just moved money around to give you that impression.

The other two numbers, lease acquisition fee and dealer prep fee are cast in stone. Once you’ve locked down those four numbers, plus residual and money factor, you can use the Lease spreadsheet to accurately calculate your monthly payment and the amount due at signing. There’s about a 1% chance that the first time the dealer runs the lease numbers they’ll come in close to yours. His will almost always be higher due to internal padding. They may become agitated and suggest there’s something wrong with the spreadsheet.

There is nothing wrong with the spreadsheet.

They may also pull a little shell game where, in order to arrive at the same monthly payment figure, they’ll simply increase the amount of money due at signing. It may show up as a “cap cost reduction”, or “upfront fees and taxes”.

Make it clear that when you take the numbers you’ve already agreed to for the discount off MSRP, and your trade equity (or negative equity) and calculate everything else using the Lease Deal Spreadsheet 1.1 they have two options:

1. Change their internal numbers to match yours

Or

     2. Show you where your calculations are incorrect.

It’s that simple. Don’t get drawn in to a back and forth with the F&I guy in which he keeps sending you a screen grab of his system. His system is irrelevant. Your calculations are either correct or they’re not. If they are, there can be no discrepancy. If they’re not, they need to show why. Using math.

I’ve used this spreadsheet to lease a Mercedes, a BMW and a Toyota. In every case the GM and F&I guy had to “trick” their system in order to have it reflect the actual numbers. It took four hours at Mercedes, and three hours at Audi. The Toyota nonsense went on for days. When it was over, The GM congratulated me on being within .50 cents of the actual payment all along.

The BMW deal I just completed went similarly, with the exasperated sales manager eventually acting as if he did me a favor by stripping out all of the hidden profit in the deal and leasing the car at the numbers we’d already agreed to in principle:

Hey Mike,

i’m not sure where your spreadsheet is off, but we’re ALL IN at this price. It’s $598.57 plus tax

Total Cap Cost Reduction of $4051.49
Advance Payment $637.48
Pre Del Svc Charge $899
Upfront fees $450 ( Tag Fee $200 + FL Surcharge $60 + FL Tire $5 + FL ELEC FILING $185)
Upfront Taxes $337.03

Depreciation $17,5789.26
Rent/Lease Charge $3,959.28
Total of Monthly Tax $1,400.76
Total of Payments $22,949.28

MSRP $51,150
Discount $4813.25 Total ($2,813.25 + $2000 Rebate)

I’ve basically stripped this deal down to our max loss threshold on a brand new ordered unit. I hope we have demonstrated over and above efforts to help you commit to the purchase.

Kindest Regards,

That, by the way, was the 10th email back and forth between us.

Preparations

There’s some prep work to be done before ever setting foot in a dealership. The shopping and the buying process I’ve outlined here assumes you’ve downloaded and familiarized yourself with the Buying or Leasing spreadsheets. These spreadsheets allow you to calculate your own monthly payment, which is key. Most of us will finance our new car, so monthly payment is important to nail down. The spreadsheet lets you play with variables like MSRP discount, down payment, trade value, the payoff on the trade, loan term and interest rate and see instantly how those changes impact the monthly payment, all in the comfort of your own home and outside the pressures exerted on you at the dealership.

Don’t ever be a “payment buyer” at the dealership. A “payment buyer”, that is, a buyer who tells the dealership they want to be at a certain monthly payment “and not a dollar more!”, is considered the easiest mark in the industry. At the dealership, the answer to the question “Did you have a certain payment in mind?”, is “I’m not concerned with payment. Just trade value and the price of your car.” Which is absolutely true, because with that info you can model your own deal and see where it puts you on payment.

So what, exactly, is wrong with being a “payment buyer”? If you tell them your maximum payment and they agree to it, what difference does it make? First, where exactly did you get your “max payment” figure? Is it by any chance the highest car payment you’re comfortable with? Of course it is. What does your personal budget have to do with the value of a new car, or the costs associated with buying or leasing it? Nothing.

Second, regardless of how adamant you are about not exceeding your “max” figure, the dealer will always treat it as the starting point of negotiations. He immediately knows that you’ll buy the car at your number. Now he’ll try to see how much higher he can push you. Let’s say your number is $500. Your sales rep will write up a sales order that puts your payment at $500. So far, so good. Then he’ll take it to his sales manager’s office. A few minutes later he’ll return, surprisingly chipper, and show you the good news, which is, the sales manager accepted your offer!!!

Not really. That never happens. Instead, the manager has scribbled a new payment on the sales order. $742.

You, being the shrewd tactician you are, stands up, thanks the rep for his time and walks out. After all, your max is your max. But wait! If the rep could get his manager to come down, and he wants to because he likes you and he really really wants to earn your business, could you do $725

Wow, that’s really generous! They came from $742 to $725! What’s that a month? Skip a few Starbucks and you’re there. Off the rep goes again, and then he returns with “probably the best deal he’s ever seen his manager ever do”: $610.

Again, you threaten to walk. But wait! If he could pull some strings, call in a few favors, and get you to $565, would you buy the car? You would?! One more trip to the sales manager and finally you agree on a payment. Sure, you went a little over, but just LOOK at that gorgeous new car. Do you really want to drive your crappy trade home over $65 a month? Plus you negotiated HARD! You got them down from $742 to $565 and it only took two hours of your life.

All of that is true. But both your opening number and his opening number were pure fantasy. The guy who knew how to build his own deal and calculate his own payment got the same car for $450 a month, because that actually was based on a deal that represented the lowest the dealer could go and still salvage some profit.

Now there’s nothing wrong with settling on a max payment, but use it to reverse-engineer the deal to get to it. In other words, if, in order to get to a $500 a month, 48 month payment with zero down and your trade, you need say $2000 in trade equity, and you need the dealer to come off MSRP by say 10%, there’s your offer. Present it to the dealer, take it or leave it.

The Process: Lock Down The Trade-In Number First

When modeling hypothetical deals, the value to use for your trade-in is wholesale (also known as “auction” or “trade value”. ) and when using sites like KBB or NADA, be diligent about applying their criteria to accurately determine your car’s condition. I’ll get in to the rationale for this in a moment.

In a nutshell, the process is:

1. Get a firm handle on your car’s wholesale value before shopping the new car.
2. Get your trade appraised by the dealer and a hard wholesale number put on it before discussing the new car.
3. Keep discussions about financing out until the price of the new car is negotiated.
4. Use the spreadsheets to simultaneously “build” the deal as negotiations take place. See how changes to the deal affect monthly payment.
5. Know your own interest rate, or money factor, and residual percentages.
6. Use the spreadsheet to validate the dealer’s numbers before signing the loan or lease papers.

The Research & Test Drive Phase

Looking up stuff about prospective cars on the internet will only get you so far. Eventually you need to get some seat time, get a sense of which options are must-haves, which colors you like in real life, etc. This unfortunately will involve entering the lion’s den known as the dealership, and all the requisite head-games.

They can be exhausting, and if you’re not tuned into the psychology being applied to you here you will be susceptible. Look, I get that you showed up on the lot and your new best friend came bounding out to greet you, ask you your name, repeatedly refer to you by your name, and offer you a cold bottled water. I get that you wouldn’t want to be rude to your new best friend by not answering all of his questions and doing whatever he asks of you while you’re being pointlessly lead around the dealership by your nose for an hour.

Don’t be a putz. It’s an act. When you go to Disney do you believe the giant Winnie The Pooh bear walking around the park is actually a real bear? No, you believe, quite accurately, that there’s a Disney employee inside the giant Winnie The Pooh suit being paid to act like Winnie The Pooh. Same thing with salesmen. But he’s being paid to act like everybody’s new best buddy. If it helps, envision  the car salesmen you encounter as Winnie The Pooh.

If you’re still in the early stages of shopping, just test driving cars and doing research, that’s fine. Say so right up front when you’re visiting dealerships. “What brings you folks in today?” is the standard greeting. “Just looking at stuff and getting ideas.” What else are you looking at? Everything. What’s your time frame? Open. Will you be trading your present car? Possibly. Or selling it. Not sure. “Are you looking for a certain monthly payment?” Nope. Just a good deal.

Short and sweet. Give them nothing. Don’t waste their time, and don’t tolerate them wasting a minute of yours.

Typically I’ll have my wife along on the “shopping” day. I try to build in a stop for a nice lunch in there somewhere, and I also try to limit her exposure to salesmen, because she sees Winnie The Pooh and wants to send each and every one of them a Facebook “friends” request. So, to maximize the ground I can cover on a shopping day, I’m in and out long enough for the test drive, and a couple of minutes of pleasantries on each end. 

Time is money of course, so I try not to waste either the salesman’s or my own. Which brings me to the test-drive. The salesman will have a pre-determined route, over the smoothest, low speed surface streets. He’ll start by telling you that he needs to drive the car off the lot “for insurance” purposes. Obviously, if they trust you to drive the car out on public roadways, where the liability is a gabillion times greater for them, what’s so special about their parking lot? Ummm…nothing. 

Anyway, once you get the HONOR of getting in the driver’s seat, and let’s be honest, it’s a REALLY BIG DEAL, tell your salesman you’re not kidnapping him, but if he wants you to seriously consider the car, you need to drive it at highway speed, which means finding a highway. If he refuses and insists on “his” route, the drive is over. Straight back to the dealership we go. (Dealers keep very low fuel levels on lot cars for that reason, so don’t be shy about stopping and putting $5 worth of gas in it if necessary for you to get a full test drive.)

A car that seems like a kitten on surface streets can change demeanor quite a bit at 80 mph. That’s where vibrations, noise, and pulls caused by a bad alignment come to light. My one exception to the my-way-or-the-highway approach to test drives is on a brand new specialty or high performance car. The eventual buyer of that type of car expects near virginal mileage at delivery and I understand the dealer protecting the car by controlling the test drive route. Obviously this only applies to new cars. Dealer demos and used cars, all bets are off.

On the BMW deal, I experienced the most egregious use of this tactic I’ve ever encountered. The rep insisted on driving the car off the lot. When I asked why, he shared a bullshit story about how, this one time, a lady mistook the gas for the brake, and drove a new car through the showroom glass, totaling it and four other brand new cars. Setting aside the unlikely physics, it made no sense.

Once we were off the lot, the sales guy kept on driving. Finally, I presumed that he was test driving the car and I was the salesman, so I asked him if he was enjoying his test drive and did he have any questions for me. He did not. More driving. I asked if we were going to change seats soon because I wanted to get back during the current year. He explained it was just a little bit longer, because he was taking me to a deserted industrial park with lots of curvy roads that they nicknamed “The Autobahn”. Forget for the moment that the autobahn is actually quite straight, for obvious reasons, I told him I needed to drive the car in actual conditions. Now, had he initially offered me the option of my route, or a chance to drive the car on “the autobahn”, I may have taken him up on it. But now I was just pissed.

The fact was, even if I loved the car, there was no fucking way I’d buy it from him. So I took over the wheel, drove about twenty feet, and said “Nope. Not what I’m looking for”. Then we had a good fifteen minutes of awkward silence as I drove back to the dealership.

After the test drive, and parking the car, the salesman will ask you your thoughts. If it’s a contender or among your top choices say so.If not, say “It’s a nice car, but it’s not for me.”

At this point he’ll try to lead you, like a mother duck leads ducklings, back into the showroom to his little desk, to “get some information” from you. He’s not entitled to more information. He has a copy of your driver’s license and insurance card. That’s plenty.

It’s not necessary to follow him. In fact, it’s a sales ploy to see how easy you are to control. Don’t budge. Instead, extend your hand for a handshake and say, “Not necessary. But I do appreciate the test drive, and I’ll take a card if you have one.”

Dealers know that, the greater amount of time they can keep you on the property, the greater the prospect of selling you a car then and there. They will deploy, and are specifically trained to deploy, endless stall tactics to keep you where they want you. Which is right there until they can work you into turning  your research and test drive visit into a sale.

Don’t put up with it. If you sense they’re wasting your time, get up and go. Don’t be afraid of hurting anyone’s “feelings”. This is a business transaction. Save “feelings” for Dr. Phil.

If you want to see firsthand what a total joke  and abject fraud the nice-guy act is, watch how rapidly your new best friend’s disposition changes when he realizes you’re not buying the act. It’s kind of what happens to Gremlins after midnight when they get wet.

If he wants to drag you inside for the card, tell him thanks but you’ve got other stuff to look at, and leave. If he wants you to “say hello to his sales manager” (basically another crack at getting to you), tell him to tell his manager you said hello and leave. Only when you’ve found the car you want and determined which dealership has it, are you ready to put this process to work to its fullest possible effect.

Even if while doing your field research you stumble onto THE car, plan on coming back when you’ve done the prep work. Shopping days are shopping days, and the buying day is a day unto itself. You want to be fully rested and sharp when hard negotiations start.

Found “The Car”? Time To Deal.

Over the past thirty years, and dozens of deals for myself, friends and family, I’ve refined the process of car buying to make it as easy and stress free as possible, and to avoid making any costly financial mistakes in the process. That involved first learning how a car dealership operates, and creating and using spreadsheets that calculate the deal “on-the-fly” in real time, right there on the sales floor as the deal unfolds. That way I can verify that the seller is holding up his end of the deal and also determine how changes affect the monthly payment. Control the numbers and you control the sale.

Prep Work: Before Visiting The Dealer To Make The Buy…

• Work the spreadsheet so you know where you need to be on trade in value, discount off MSRP, down payment, interest rate and loan term to hit your target monthly payment.
• Clean and detail your trade inside and out. Fix any minor issues. Tires are a big deal.
• If you plan to buy, visit your credit union and have them model a hypothetical loan on a car you’re considering using your credit worthiness. Note the interest rate(s) for the available loan periods.
• If you’re planning to lease, visit http://www.edmunds.com and track down the manufacturers current residual percentage and money factor (lease interest rate)
• Note any available incentive programs that might apply to you or the car.
• Load the spreadsheet on a laptop. You’ll be bringing it into the dealership and using it to calculate your own deal break-out and monthly payment.
• Contact the dealer and set an appointment to look at and drive the new car.

Dealership Psychology 101

You’re entering a combat zone. It looks nice, and smells nice (Are those fresh baked chocolate chip cookies I smell?!)  It probably has a very pretty and uber-friendly young woman greeting the victims…er.. Guests! But it’s designed with a very specific purpose.

A dealership is set up to create a psychological environment that encourages you to commit to a purchase by flooding your senses with things that break down your physical energy and mental resistance. It’s set up to overwhelm you on two levels, first with the irrationality and emotion of a new car purchase, and then with mind numbing arcane terminology and numbers to the point your rational mind flies out the window and doesn’t return until the coupon book arrives in the mail.

Once you lose control of the numbers, you’ve lost control of the deal, and you are at their mercy. While dealerships and sales managers are not inherently evil, they do not show mercy. Ever. They will extract as much money and excess profit from you as you will tolerate before giving up and taking your business elsewhere.

Another tactic is to prey on the fact that most people are nice, and when other people are nice back to them, they’re reluctant to say or do anything that might upset the other person. Your salesman is not your friend. Period. Trust me… as chummy as he is, I guarantee he won’t be helping you make that monthly payment if you let your guard down and over-commit. He’s simply the dealer’s front line customer representative. The actual deal is orchestrated entirely by the Sales Manager.

It’s up to you to understand the psychology, recognize when it’s being applied, and dismiss it. There is a definite sequence you need to follow to control the sale, and it’s absolutely not the sequence the dealership wants you to use, or expects you to use.

Step #1: Have The Dealer Put A “Hard” Wholesale Value On Your Trade First

Dealers understand that unsophisticated buyers generally have an inflated view of what their car is worth. Owners consider a car they bought new three years ago to still be their “new” car. They tend not to see the true market value as a trade in piece, which is wholesale, not retail.  They visit valuation sites like kbb.com or nada.com, overstate the car’s condition and then become fixated on the highest retail number.

The most you’ll ever actually get for a trade is wholesale (also known as “auction” or “trade in”) value. That’s how it works: A dealer buys a car for wholesale, then reconditions and markets the product at retail. The margin is their profit.

But dealers, smart buggers they are, know a large percentage of shoppers will view the wholesale number as an insult. Instead, they offer a trade in “allowance”. The “allowance” may actually be higher than the “retail” values you found online. Wow! What great luck! You’re already starting out ahead on this thing.

You are not.

Basically they’re just moving money around, taking what might have been a discount off MSRP on the new car, or manufacturer’s cash, or both, and artificially padding the trade. The psychology here is to make your trade the subject of any further negotiations, rather than the new car.

It works because it puts you in a position of trying to defend the value of your trade, rather than trying to get them off their asking price on the new car. So later in the process, when the monthly payment is too high, you’re left trying to defend why your trade could possibly be worth so much more than the generous “allowance” they gave you.

All you ever want for your trade is fair book wholesale based on the car’s mileage and condition. (In the best case scenario that’s all you’ll ever really get anyway.)

When you arrive at the dealership, tell them you’re shopping for whatever it is that brought you in, but the first order of business is to agree on the wholesale trade number. Ask that the trade be appraised first. Dealerships are absolutely not set up to work deals this way, and your sales rep, especially if they’re green, may choke on it. Just ask for the sales manager and tell him what you’re up to. You’re a serious buyer, and you need a hard wholesale number on the trade.

MIKE5215 SAYS:

Do not divulge your target value for your trade before you get the dealership’s number. If asked what you think it’s worth, the response is “I have a number. I’m interested in hearing your number.” There is no good outcome for you in divulging this number at this moment. If they press you with “But I’d really like to know what I’m working toward”, (in other words, he’d really like to know your top end so he can come in low) the answer is “You’re working toward selling a car.”

Think about it. Your opinion on the value of the car has zero impact on their appraisal of the value.

You can simultaneously look at the new car and test drive it while the trade is being appraised but no negotiations can begin until the trade number is locked down. If their trade valuation is too low relative to your understanding of actual wholesale, don’t go any further until it’s settled. Wholesale is wholesale. Your car doesn’t come any cheaper than wholesale, and it’s hard for a dealer to argue that you have an inflated sense of your car’s value if all you’re asking for is wholesale.

If the dealer starts complaining about how much reconditioning your car needs to be made lot-ready at a retail price, remind him that that’s why you’re only asking wholesale for it. That reconditioning is part of the reason he’s later able to mark the car up for resale in the first place. If the dealer complains that your trade is so undesirable he’s just going to wholesale it at auction rather than keeping it on his lot for resale, that’s his choice, but it doesn’t alter the car’s wholesale value a bit.

Before moving forward you must settle on a wholesale price you both believe is fair. If they’re low, at this point tell them your number (let’s say it’s a hypothetical $25k) and to move forward they need to put that on the trade.

Before committing to your number, they may ask, fairly, that if they meet your number, are you prepared to buy a car today. They want to avoid you  squeezing top dollar out of them and then going down the road to another dealer and using it as leverage to see if you can do better. You can answer honestly  that if they meet your number, negotiations on the new car can move forward, and if those are satisfactory you will absolutely buy a car today.

If they decline, which is absolutely their right as a business, thank them for their time and advise that you plan on shopping the trade to other dealers to see if they’ll match your number, and if they can’t, you may be back. Dealers hate “be backs”. They’ll usually come up if they can to salvage the deal.

The conversation on trade value might go like this: “Cars like yours are going at auction for around $17,000. We can put $20,000 on it to earn your business today.”

“Yeah, my number is closer to $25,000. If you can get there we’re ready to talk about the new car. Can you find $25,000?”  (That phrasing is important. It’s not that they’re low balling you. They just need to go back and find more money)

I’m usually very blasé in this discussion. I’m not blaming them for low-balling my car or suggesting they’re being greedy at all. I’m just telling them the conditions that need to be met for the deal to proceed, and being totally understanding if they can’t pony up. Most importantly, I will actually walk. No hard feelings, but we’re all done. (Now if you hit three other dealers and you’re bumping up against the same “low” offer, reconsider your own valuation.)

Sometimes the sales guy will try to salvage the deal as you’re strolling back out to your car to leave and say something wonderful like, “Wait! What do we have to do to earn your business?!” to which I reply, “Put $25,000 on the trade.” Duh.

Often, a dealer will try to push you off of your trade number by asking you where you got it.

Hint: whatever answer you give, your source is notoriously over-valued and just plain silly and wrong. (Forget for the moment that the prices they’re asking for the used cars on their lot match up perfectly with the same sources you used to get the wholesale number on yours.)

The valuation they claim to use is then based on “Black Book”, or auction reports which conveniently are the only sources consumers cannot access or corroborate.

I’m not interested whatsoever in a discussion with a dealer about how I got my number, since it’s irrelevant. I’ll say “I’m confident $25,000 is a fair wholesale number.” and then shut up. (The next one of you who speaks loses).

Chances are the dealer will ultimately meet your trade number, or come close enough to move forward because they’re so confident in the other booby traps they’ve set to squeeze extra profit from you they presume they can make it up elsewhere. I’m never “locked” on my wholesale number, because I’m never 100% confident in the KBB or NADA values. They’re a guideline. For example, if $25,000 is the target and the dealer is at $24,000 I may  offer to split the difference.

Should I Just Sell My Car Privately For Retail?

Depends. On a purchase, you pay sales tax on the difference between the value of your car and the price of the new car. Let’s say you’re buying a $35,000 car, your trade is worth $20,000 wholesale and your state sales tax rate is 6%:

$35,000 – $20,000 = $15,000 taxable. 6% is $900 in sales tax owed.

Instead, you sell your car privately for $23,000. You now have an extra $3,000 in equity on the deal, but you owe sales tax on the entire purchase price of the new car.

$35,000 x 6% = $2,100  owed

Trading:

• $35,000 – $20,000 = $15,000 owed plus $900 in tax. Net difference of $15,900

Private Sale

• 35,000 – $23,000 = $12,000 owed plus  $2100 in tax. Net difference of $14,100

So the financial advantage of a private sale in this example is $1,800 ($15,900 – $14,100). The question is, how much bullshit are you willing to put up with trying to advertise, show, put up with Craigslist calls, and AutoTrader calls, complete the DMV paperwork and title transfer, and pay off your lienholder to save $1800?

For me, none. (On a lease deal there is no tax advantage, so the private sale makes more sense since it’s reducing the amount financed on the lease dollar for dollar)

If you have time, and you think you might actually be able to make enough extra on a private sale to make it worth the headache, list the car on AutoTrader for your dream price and see if anyone nibbles. (The first people who will nibble will be guys who want to see pictures of your engine, and then explain that they’re buying the car as a gift for a friend or their Dad, they’re going to pay full price and they’ll send a shipper to pick up the car and give you a check. These are not actual buyers, and no, a Prince in Nigeria did not leave $25M that needs to be brought into the country.)

From AutoTrader.com: Fake Shipping Scam 

An increasingly popular scam involves a potential buyer insisting he or she wants to ship a seller’s car overseas or across the country. In this scam, the buyer sends a check to the seller for more than the car’s price. The seller is supposed to send the extra money to the buyer’s shipper. But after the seller wires the money to the shipper, the check turns out to be fake — leaving the seller out whatever money he or she sent to the supposed shipper.

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The “No Haggle” or “Up-Front Pricing” Nonsense & How To Use It To Your Advantage

Let me take a moment to mention this absurd marketing ploy in which the dealership claims to be doing you a favor by posting their lowest possible price on the car “up front”, saving you the “hardship”of negotiations. There are always negotiations. But if you buy this silly ploy, you’ll have just cut yourself out of them.

I was buying my wife a new Audi. The sales manager, my wife and I, and the sales guy are in the manager’s office. He starts:

“The good news is, we’re a “no haggle” dealership, so the best possible price is right there on the windshield. We really want to save the customer the hassle of going back and forth”

“Great!”

“Great! Well then let me get someone up front to appraise your trade.”

“Oh, that won’t be necessary.”

“What won’t be necessary?”

“The appraisal. See, I have a “no haggle” price for my trade that is the best possible price. I’m just so grateful to you for sparing me from negotiations on the new car, I feel like I owe you the same courtesy. So I’ll just tell you how much my trade is worth and then you give me that much.”

The sales manager just sat their simmering and trying to smile, but the poor sales guy flat out lost it. I mean he was in tears. My wish for you is to have the same opportunity to destroy a sales manager in front of his employee.

Then you can both dispense with the “no haggle” nonsense and get to horse trading. No haggle is a myth.

Step 2: Once The Trade Value Is Locked, All That Remains Is The Price Of The New Car

Now that the new car is the only issue still subject to negotiations, and the trade value is locked rather than a floating “allowance’, the only question is how much off retail is the dealer willing to go? See how locking down wholesale on the trade up front helps you to control the sale?

Instead of them being able to beat you down on the trade…it’s not a desirable model…it’s not a desirable color…the paint is a little dull…we’re already giving you $2,000 over book retail…forcing you to defend the trade, they now have to defend their car’s price instead.

In order to have more room to sneak in some extra profit, since two main avenues have been unceremoniously shut down by you, the dealer may want to bring financing into the discussions. They may work up a deal breakout that shows various monthly payment ranges for various cash down scenarios or loan term scenarios.

If it looks like a confusing pile of horseshit, then it has served its intended purpose. It’s important to note that despite the fact you haven’t asked anyone to generate multiple scenarios and payment ranges for you here they are! It’s meant to draw you into discussions about financing whether you were prepared at this point to do so or not. Control the sale. Discuss financing when you’re ready, not before. The sale price of the new car has to be nailed down before the financing is discussed. Otherwise, what are you financing?

Since you and your spreadsheet are perfectly capable of running your own scenarios and generating your own monthly payment, that break-out sheet is irrelevant. Sometimes, you’ll ask the sales guy for the residual and money factor on a lease and he’ll come back with the stupid “scenario” sheet and none of the info you requested. Residual and money factor are not secrets. If the dealer won’t provide them, it’s time to walk.

What Is A Fair Price For The New Car?

Let me state this: Dealerships are entitled to a fair profit on a deal. They’re not in business to sell you cars at their cost, and pay you retail for your trade. I’ll show you how to strip away all of the nonsense in a trade and purchase, but at the end of the day you should expect to leave some reasonable dealer profit on the table. Back when I was greener I considered it a sacrilege to leave a penny on the table. Total scorched-earth approach to negotiations. It made for some colorful deals, like the time a guy came across his desk to throttle me and two other employees had to hold him down.(After that, my wife refused to go with me to any more deals unless I promised to play nice.)

Now, if I’m being treated fairly and honestly, I’m a pussycat, and I don’t feel like I have to totally murder every deal I do. My C Class deal was textbook clean, and I developed a nice relationship with the sales rep. I got a good discount (10%), a fair price for the trade (my wholesale number), and I presume the dealership made some reasonable profit as well.

All discussions about the new car’s price begin with MSRP, as reflected on the Mulroney Sticker.

That’s the large federally mandated window sticker that lists the vehicle, options, rated MPG etc.) Any dealer-added additional stickers for stuff like “paint protection” or “leather protection” or “pinstripes” or “rust proofing” or “adjusted market value” is a non-starter, and I’ll make it clear right out of the gate, by pointing the extra sticker out to the salesman and stating, “They know this ain’t happening, right?”. This will usually evoke a smile and that’s the end of it.

That extra sticker is a ploy to make the casual buyer feel like they got away with something by paying MSRP. Disregard it. If they argue that the junk has already been applied to the car, tell them to find one they haven’t touched or order you one.

On a new car, the starting discount is whatever sort of dealer cash or incentives the manufacturer is offering. Current incentives can be found on several websites, including Edmunds.com. My target is at least 10% off MSRP through any combination of offers and incentives. Forums are a great way to get a handle on what discounts other buyers are getting for a particular car. If another dealer offered you a deeper discount but you prefer the car at the current dealer, ask them to match.

Can I Get I Discount On An Ordered Car?

Absolutely. While you might have more leverage on an inventory car, especially a high dollar car with a floor-plan that has matured, you can ask for a discount on a build. I asked for and got a 10% discount off MSRP on my C Class build. Be prepared to leave a couple grand deposit. The rest of the info here won’t apply until it’s time to take delivery.

Once the salesman has used the agreed upon numbers and created a sales order that contains those numbers, it’s time to enter the last obstacle to a good deal, also known as the Finance & Insurance or “F&I” Guy’s office.

Most buyers mistakenly believe the hard part is over now. The F&I guy, a super friendly, fatherly sort in a pleasant shirt and tie, is here to help you sign some papers. He’s sort of a cross between a chummy DMV title clerk and a wise and prudent banker. Nothing to fear here, right? Except the F&I department is the dealerships second best profit producer. (Service Department is first). Remember back when the dealer caved and met your price on the trade, and on the discount? The F&I guy’s job is to right those “wrongs”. He’s their last line of defense and your biggest adversary. But you have a secret weapon:

The Spreadsheet! Break out your laptop and open your handy spreadsheet. Watch the facial expression. (I think it’s funny to ask the F&I guy to plug the laptop power cable in but that’s just me.)

Enter the numbers for your trade, the price of the new car, and confirm stuff like the Dealer Fee, the Tag Fee, and in the case of a lease, the acquisition fee.

The spreadsheet is key in keeping the dealer honest, because it takes all the same numbers they’ve agreed to and produces the exact monthly payment those numbers should result in for you.

If Leasing the new car, your spreadsheet needs to be populated with the following: Most of this you should have filled in in advance.

• MSRP
• Discount Off MSRP
• Trade Value
• Trade Payoff (From your lender)
• Cash down or dealer cash
• Residual Percentage (From the dealer, or Edmunds.Com)
• Money Factor (From the dealer, or Edmunds.com)
• Lease Acquisition Fee (Thru MBFS, typically $1000 +/-)
• Dealer Prep Fee ($500 – $800, varies by dealer and region)
• Tag and Title Fee
• Lease term in months
• Your State sales tax rate

The Lease Acquisition Fee, the Dealer Prep fee and the Tag fee, plus the first month’s rent and tax, are all of the upfront fees required for a lease. Be suspect of any additional large fees the dealer may try to add in.

Residual percentages vary depending on the model, how many months your’re leasing and the number of miles per year you can put on the car. The higher the residual, the lower your payments will be. The residual also represents the amount you can buy the car for at lease end if you wish.

Money factor is simply another way of calculating interest. This number is provided by the manufacturer’s financial services company, changes month to month and depends on prevailing lending rates. While dealers are allowed to mark up the rate, I won’t do a deal where the dealer pads the money factor for extra profit.

You do need to confirm that the money factor and residual figures you’re using in the spreadsheet match the dealer’s. They should, and usually the dealer is so shocked that you have them they don’t try to pad them.

When leasing, you have the option of folding stuff like the dealer fee, acquisition fee, tag fee and even the first month’s payment into the financing (Sign & Drive) or paying those fees and the first month’s rent and tax up front. The spreadsheet allows for either scenario. Just put those fees in up top for Sign and Drive, or at the bottom to handle them up front.

Any cash down (or trade equity) can be used to lower the lease payment by reducing the amount financed (called a “cap cost reduction”), or reduce the amount due at signing. Structure the deal in the way that works best for you.

If buying a new or used car:

• Sale price of car
• Trade Value
• Trade Payoff
• Your State sales tax rate
• Cash down or dealer cash
• Interest Rate (get this from your local bank or credit union before you shop)
• Loan term in months (also from your bank)
• Dealer Prep Fee
• Tag Fee

Once the spreadsheet is updated and generates the monthly payment and cash due at signing, confirm the payment number and cash down number with the F&I guy. If the numbers agree, you’re almost out the door. If they don’t, you and he need to hunt down what’s causing the discrepancy. The spreadsheet tracks the variance between the monthly payment the dealer is getting versus the one generated by the spreadsheet. It calculates the discrepancy as a monthly amount, and over the life of the loan. Look at the life of the loan variance and see if anything extra being financed into the deal matches that amount.

Usually it’s something they snuck in. On a lease, where there are so many odd terms and calculations, the most common “pad” is to enter a cap cost reduction that offsets some of the MSRP discount. This trick produces the exact same monthly payment, same trade value and same MSRP and discount, but changes the cash due at signing. For example, if your discount is $5,000, they’ll show that but put $2,000 as a cap cost reduction due at signing, reducing the actual discount to $3,000.

Dealers use the buying public’s lack of understanding about leases, or the inability to calculate their own lease payment, to pad the lease with extra profit you didn’t agree to. All of the up front fees on the lease spreadsheet are standard and fixed. There should be no other large fees. (Some states may tax the upfront payment, but it’s small potatoes).

I once had an F&I guy become so exasperated that he couldn’t find any way to pad the lease that he created an entirely new category called “Miscellaneous Upfront Fees: $1500”. I’m not kidding.

Or maybe they’ve added an $800 “protection package” onto the deal, because “everybody loves it” so they just presume you wanted it. (You don’t. And you don’t believe the story about the customer who got a stain on his leather seat and the protection package replaced all of the seats in the car.) Tell them to back it out. Which brings us to the F&I guy’s last hope:

Add Ons.

The dealership has tried (and failed) to use psychology against you throughout the process. They’re not finished. They know you’re nervous about taking on this beautiful new car and the note that comes with it. You want to protect your “investment” don’t you?

He’ll show you a laminated sheet with multiple levels of protection. Platinum/Gold/Silver whatever. You’re supposed to pick one. Each level offers stuff like “Wear & Tear Protection” (leases) or “Wheel & Tire Insurance” or “Auto Butler Paint Protection” or “Leather Bonding”.

The best news! The plans only increase your payment (er, I mean “investment”) by $50 or so. That’s nothing! (Or $2,400 over a 48 month note, most of which is pure profit).

Personally, I buy zero from the F&I guy. His products offer huge commissions to the dealership and very little actual protection. But, if you must entertain them, know this:

Nothing that’s on the laminated sheet, and nothing the F&I guy tells you, is enforceable. Each protection plan is a contract, usually in long form and tiny type. Somewhere, buried in the contract itself is a required section called “Exclusions”. This section details all of the ways they can avoid paying for stuff. This section (and every section) cannot be modified, either verbally or in writing, by either party. Before buying any protection product, ask to see the contract. Read both the section detailing Your Duties and also Exclusions. If you still think it’s a smart buy, go for it.

The protection packages are sold and underwritten by third parties, not the dealer and not the manufacturer. In the event of a dispute, you’re left fighting with some putz on a phone farm halfway across the country whose sole job is arguing with people like you all day long.

If the F&I guy wasn’t already primed to jump across the desk and throttle you, this might do it. I was recently helping my buddy and his wife lease a new Toyota mini van. I’d shepherded them through all of the other danger zones and got them a nice, clean deal, verified by the spreadsheet.

Then while in the F&I guy’s office, I had to step out and take a call. When I came back three minutes later, my buddy and the F&I guy were best friends and were making plans for a Vegas weekend, and he’d just sold them a $1,000 “Wear & Tear” package.

I asked for the contract. The guy showed me the laminated brochure. No, the actual contract.

“This is the same thing the contract says! Everything that’s in the contract is right here! They can’t say something on here and have it not be in the contract!”

“Great. So can I sign the brochure and bind the coverage”

“No. You’d have to sign the contract.” (Turns to my buddy) “It’s this long legal thing. I don’t even understand all of it.”

“Then I guess we better read it. Go get it.”

So when the F&I guy tells you the story of the guy who got curb rash on a $1,000 wheel and the plan replaced the wheel… highly unlikely and also entirely irrelevant. Either commit to reading the contract or pass on the coverage.

In the case of “Wear & Tear” insurance, it presumes you’ll turn the car in, to the manufacturer, at lease end, and that the needed excess wear and tear charges will exceed the premium for the insurance. Obviously, you may end up not turning the car in. You may decide to buy it for the residual and keep it. You may turn the car in with perfectly normal wear and tear, which is permitted under the lease agreement, and owe nothing for excessive wear and tear.

You may decide to just trade the leased car in on something else. Yes, before or at lease end you can trade in your leased Mercedes on a new Honda if you’d like. Your leased car has a loan payoff amount just as if you bought it. The payoff is equal to the total of the remaining lease payments plus the residual value. If the residual value + remaining payments is less than or equal to the car’s actual wholesale value, trade away! You are under no obligation to return a leased car to the manufacturer or dealer. You are only obligated for the lease payments plus the residual. Turning the car in after the payments have been made is one way to do it. Trading the car in and having the dealer for the new car pay off the residual is another.

W hat About Interest Rates? Am I Getting A Good Rate?

If you’re buying, well before visiting the dealership, you’ve gone to your bank or credit union. F&I guys love buyers who throw themselves on the mercy of the dealership, are clueless about the rate they qualify for, or better yet, feel fortunate that they’re able to get financed at all.

Let’s say you’ve never checked with your own lender, but you qualify for a 3% rate. The F&I guy knows he can get the loan for you from his lenders at 3%. You don’t. “Great news!” he says. “I got you approved at 4.9%!” If you bite, the dealership sells the loan to the lender at 3% and pockets 2% of the entire loan up front as a lump sum.

I prefer, for the sake of convenience, to do the financing at the dealer if possible, but they need to match my bank or credit union rate, and they usually will.

Almost there!

Congratulations. Now it’s time to sign some papers. Buried in there among a lot of dealer housekeeping and title stuff is the long form, federally mandated consumer finance agreement. Scour this thoroughly, because once it’s signed, it’s over. Confirm:

• Amount being financed
• Interest rate
• Loan/Lease term
• Residual (lease only)
• Monthly payment

Lastly, verify that they didn’t sneak a balloon payment in there (a large lump sum you owe at the end of the contract. Don’t laugh. I’ve seen it happen.)

That’s it! Sign some stuff, pay your down payment if you haven’t done so, and away you go. Don’t look in the rearview mirror as you leave the lot. The sight of the sales guy, the sales manager and the F&I guy simultaneously flipping you the bird can ruin the moment.

A little.

Don’t feel too bad though. There are a dozen unsophisticated buyers currently on the lot. They’ll more than make up for the slim margin on your deal.