Saturday, February 6, 2016

5 Things Car Dealerships Don't Want You to Know

Is it now that time when your old car is beyond repairs and you need a new four-wheeled friend? You have probably done some window shopping online to compare car models and pricing. Then you would head to a couple of car dealers to try to get the best deal for your pocket. That's where the story starts: the dealership. In this post, we are highlighting the 5 things that car dealerships don't want you to know. These 5 tips will help you when getting a good deal on a new car or used car at dealerships in Canada.


#1: Don't believe the dealer's invoice

The first quote you get at the dealership is far from true. Car dealers do set  inflated starting points so that there is more room for negotiation. Any car manufacturer gives its dealers 2 invoices: the MRSP  and the actual invoice.

MRSP or the manufacturer's suggested retail price is the price at which the manufacturer recommends that the dealer sells the product. The intention is actually to help standardize prices among locations.

The other invoice is confidential and not open to the public. That's the 1-on-1 agreement between the manufacturer and the dealership.

You would to bargain hard and arrive to the level as close to the confidential invoice as possible.

#2: "I need to speak to the manager" is actually BS

When you start negotiating the price and reach at a point when it's take it or leave it, the salesman excuses himself "to go see the manager about the price". Don't believe this excuse. The salesman is the one running the show. The price level being discussed becomes that benchmark that you are ready to pay.

The "excuse" is the pause to create an advantage for the salesman. The salesman knows that they need to break the negotiation up so that it does not go further.

#3: Buy your new car at the end of the month

This is not a myth! Planning to buy your next car at the end of the month has a number of advantages. The main one is that the price will be a little lower. Why so? Salespeople have monthly quotas and targets. At the end of the month you will have better chances to get a discount if the salesman is seeking to get to his/her monthly objective.

#4: Beware of monthly payments

Never ever allow the salesman to only focus on your monthly payments. If you are attentive, you may notice that all pricing is shifted toward monthly payments ($250, $300, etc.). The amounts seem to be so low and so affordable that we fail to see the total cost of our purchase. Stick to the full price of the vehicle and bargain from that point down.

For instance, you are about a new SUV. The salesman keeps mentioning you will be paying $350 per month. The residual value of the car is $10,000. Your lease period is 5 years. You bargain hard and get a new monthly payment of $345. You are happy! But could you have done more? Probably yes. Let's see.

With the above details (monthly payments of $350 reduced to $345), the total cost of the car was $31,000, but you managed to bring the total down to $30,700. You bargaining resulted in $300 of savings.

If you had started negotiating from $31K bring the total down by $500 or even $1,000, you would have ended up paying $333 or less per month under the same conditions (5 year lease, 10K residual value).

#5: Forget about the replacement cost insurance

After you are done with the sales person, you are directed in the financial manager's office to sign the papers. This is a dangerous area for you as the financial guy's role is to do some more profit off you by upselling insurance. The problem is that these insurance products have over 50% markups and dealerships tend to charge the full insurance amount up front.

Before you agree to this full replacement insurance from the dealer, check with your auto insurer. As a rule of thumb, your auto insurer would offer better options and better pricing with more flexible payment options.

Next time you are shopping for a new car, arm yourself with the above information and act accordingly. These 5 tips will definitely allow some important savings!

Here is a small bonus. In this 9 minute video you will find some more valuable tips to save on your new next car's purchase.


Got more tips to save money when buying a new car? Share in the comments below.