New Car Buying 101. Please Read Before Buying Your Nissan 370Z

AK370Z · 01-08-2009, 03:32 AM

Well here's a great article that will help you make a better decision when buying you 370Z.

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Negotiating 101
By Philip Reed, Senior Consumer Advice Editor

Pearl traders in Asia negotiate by sitting face to face, staring into each other's eyes. The buyer is trying to determine when he has reached the price at which the seller will part with his goods. The buyer names higher and higher prices until, when he reaches the right price, he sees the seller's pupils dilate.

That's one style of negotiating. Another style is practiced by my 10-year-old son, Tony, who is a born negotiator. A typical exchange with him goes something like this:

Me: I want you in bed at nine o'clock.

Him: Ten.

Me: No way. We'd need dynamite to get you out of the bed in the morning. Nine o'clock.

Him: Ten.

Me: Look, Tony. I make the rules around here. When I say nine, I mean nine.

Him: Nine-thirty.

Me: OK. Nine-thirty -- sharp.

Who won this negotiation? He got an extra half hour. All I got was that his bedtime was redefined as sharp -- whatever that means.

Tony, like most children, negotiates continually. At school, a child's day is filled with petty squabbles: I was in line first! No you weren't! Yes I was! See? I put my backpack there to hold my place!

Somewhere between the haggling of school and the structure of adult life, we lose our appetite for negotiating. So, when the time comes to venture into the unfamiliar territory of car-buying, we find ourselves saying, "I'm no good at negotiating."

Most people I know say they aren't good at negotiating. In fact, I'm one of those people. But I do it anyway and when things work out in my favor, I'm as happy as Tony is when he gets to stay up an extra half hour.

If you want to get motivated about negotiating, think of the money you can save. In a $20,000 car, the difference between the sticker and the invoice (dealer cost) is between $1,500 and $3,000. This is the negotiating territory. If you negotiate even a little, you can probably save $1,500 on most cars. If you negotiate actively you might save $3,000 (dealer holdbacks and rebates mean that you can sometimes buy a car for invoice or below). Think about $3,000 for a minute. Think of a thick stack of $100 bills. Or a much thicker stack of $20 bills. This savings can be yours for an hour's worth of negotiating at a dealership.

OK. You're convinced that negotiating is the way to go. How do you do it?

Step one is to know as much as possible about the dealer's cost and tailor your opening offer accordingly. Why is this important? Let me digress for a moment.

Another Edmunds.com editor, Scott Memmer, has a rule he calls "Memmer's Principle" which is based on his experience in sales. Memmer's Principle states that "the person who mentions price first, loses."

This valuable rule was dramatically proven last weekend when I went to a yard sale and spotted a table saw I wanted to buy. How much did he want for the saw? The owner looked at me and said, "Make me an offer."

Brand new, the saw was probably worth $400. But I had no idea what it was worth now. To cover my indecision, I began "inspecting" the saw. I found that a bolt holding it onto the stand was missing. I didn't say anything, but I wiggled it and looked disapproving. The figure of $50 began to form in my mind. But before I opened my mouth, my neighbor said, "How about $25?" By keeping my mouth shut, I saved $25.

Unfortunately, when you buy a car, someone has to mention price first. And you better be prepared with an offer that is as low as possible -- but still in the ballpark. That was the strategy of the pearl traders I mentioned earlier.

Edmunds.com has made this process much easier by introducing Edmunds.com True Market Value® pricing, also called TMV®. This figure, found on our new and used car pages and based on car deals across the country, is the price at which a dealer will likely sell you the car. It represents a fair deal for you and a fair profit for the dealer.

Can you do better than TMV? Possibly. Should you try? It depends on you and your desire to negotiate.

Recently, I bought a Hyundai Elantra for the Edmunds long-term test fleet. I worked with another Edmunds editor, Carmen Tellez. She told me that she had never negotiated for a car. And yet, when the time came to make the deal, she did a great job getting a low price for our company. Here's how it happened.

We went to four dealerships and asked them all for their best price. Most of the salespeople were vague. They said things like: "Come back when you're ready to buy -- we'll work out the numbers then." But one salesman told Carmen: "Are you ready for this? Five hundred dollars below invoice."

This price sounded too good to be true. And we doubted the salesman would honor the price he quoted. So instead, we returned to the dealership we liked best and told them we were ready to buy. The salesman took us into his office, and we all sat down. We said we'd shopped around and had gotten competitive bids. The salesman knew where this was leading. He said, "What's your offer?" Carmen, who had never negotiated before, calmly said, "Five hundred below invoice." After about 45 minutes of dickering we got the car at invoice.

If we had started negotiating against sticker price, which is what the dealer wants, we would have wound up at a much higher closing price. But by starting very low, they negotiated in relation to our starting price.

But many people feel uncomfortable challenging the authority of the numbers written on the window sticker. This is exactly what the dealer wants. The sticker is supposed to look official. People tend to believe things that are written down. Allen Funt, in the TV show Candid Camera, proved this by closing the state of Delaware. He put up a sign at the state line that read, "Delaware closed." Motorists stopped and angrily asked, "How can Delaware be closed?" Funt just said, "Read the sign."

So the sticker price is really a tactic to build profit into the deal. The dealership and car salespeople use many such tactics to increase the profit when you go to buy a car. But, as Herb Cohen points out in his book You Can Negotiate Anything, "a tactic perceived is no tactic." In other words, if you realize what they are doing to you with various sales ploys, these tactics will no longer work on you.

Why do many car buyers seem reluctant to make a low offer? I often hear people say they are afraid the salesperson will laugh at them. Or become angry or insulted. And yet, if you think about it, they do the same thing to you -- but in reverse. Here's what I mean.

At Edmunds, we had a writer named Chandler Phillips go undercover as a car salesman last year. As part of the training process, he was repeatedly told to quote very high prices, then come down slowly. "Hit 'em high," he was told, "then scrape them off the ceiling and make a deal." In other words, if you start very high, there is a lot of room to drop the price and still make plenty of profit.

I recommend Cohen's book on negotiating. And I highly recommend using TMV pricing. But to get a good deal on your next car, you don't have to be an ace negotiator. You just have to follow a few simple rules.

* Don't buy a car in a hurry.

* Eat before you go to the dealership -- you might be there for four hours or more, and you want to be able to think clearly.

* Check all the numbers and get as much information as you can before you begin negotiating.

* Don't enter negotiations with someone who intimidates you. It should be a win-win proposition, not a matter of one person controlling another.

* Take risks. Treat negotiating as a game -- and know that the car salespeople are doing the same.

* Always, always remember to walk out if you don't reach a deal you like.

And finally, know your style of negotiating and use your unique qualities to your advantage. After all, you won't get what you want unless you ask for it. Negotiating is just another way of asking for what you really want.

Source: http://www.edmunds.com/advice/strate...3/article.html

AK370Z · 01-08-2009, 03:44 AM

Step 1: Starting out

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These steps will help you to locate the specific car you want, and at a price that is fair to both you and the dealer. By now, you should have done plenty of research to determine which is the best car to suit your needs. And, you should have a good idea of what to pay for the car you want. Now you need to narrow the research even more. You will soon be finding the exact car you want to buy — with the options you have chosen — and then you will be determining a target price to pay. If you have done your homework, this will be a fairly easy process with no unexpected surprises.

Buying a car is a big investment, but it can be exciting and rewarding, especially if you feel like you got the right car at a fair price.

Step 2: Using incentives and rebates

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Today's new car market is crowded and competitive. Many new cars are offered for sale with attractive incentives to make you choose a particular model. In some cases, the cars with the best incentives are those that aren't selling very well on their own.

An incentive is anything that gives you an added reason to buy a particular car. Often, however, it comes in the form of a cash rebate or low-interest financing. A car might be selling for $22,000 but the manufacturer is offering $3,000 in customer cash for a final price of $19,000. In another example, a $22,000 car financed for five years at six percent would have a monthly payment of about $550. But with zero-percent financing, the payment is roughly $480. That's a huge savings to you.

Check the Edmunds.com Web site for the latest incentives and rebates available for the car you want to buy. You can also watch for TV and newspaper promotions but, remember, the incentives don't apply to all models and are not offered in all regions of the country. Furthermore, your credit must be very good to get the low-interest financing. And finally, keep in mind that there are some hidden incentives paid directly to dealers to push certain cars. Edmunds.com tracks this so-called "dealer cash" as well, and posts the information in the incentives and rebates section of our Web site.

Research what incentives, if any, are offered for the car you want to buy. Print out this information and keep it in your car-buying folder as you move to the next step.

Step 3: Pricing the car

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Car salesmen will usually point to a car's "sticker price" as the amount you have to pay. However, the price the dealership is willing to sell a car for is often well below the sticker price. How do you know what to pay? Edmunds.com has created a valuable tool for car buyers called True Market Value (TMV®) pricing. Based on actual sales figures, TMV is the average price buyers are paying (also known as the "transaction price") for a certain type of car in your area. The TMV figures, found on Edmunds.com, are adjusted for many factors including options, geographic region and color.

To calculate TMV, begin by looking up the car you want to buy on Edmunds.com. Follow the prompts to arrive at a final TMV price with options for the exact car you are buying. Keep in mind that this price includes the destination charge, which is levied by all manufacturers. (However, the invoice price might vary in certain regions where advertising costs and other fees are included. Edmunds recommends paying the fees listed on the invoice, but questioning any advertising fees that appear on the purchase contract.)

Now it's time to factor in the incentives and rebates you researched and printed in the previous step. Take the final TMV price and deduct the amount of the cash rebate. In other words, you create your best deal based on TMV, and then lower it by whatever the rebate is. If you are going to use low-interest financing, calculate your final buying price, then use our payment calculator to find your monthly payment.

Print these figures — the TMV, the incentives and the monthly payment — and carry them with you for reference as you continue the car-buying process.

Step 4: Finding the exact car you want to buy

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You should now have a very specific idea of the car you want to buy. This means you know the make, model, trim level, options and color. The more flexible you can be about these specifics, the wider the range of the cars you'll find available for sale. Ultimately, the ability to consider several versions of the same model can give you additional bargaining power. For example, a shopper might be very firm about the make, model and trim level, but could accept a variety of options and colors. If you're a shopper who definitely wants hard-to-find options and a specific color, it will be more difficult to make a great deal. Why? You have no leverage as a negotiator. You have to pay the dealer's price or try to locate another identical vehicle. Obviously, if you do find the exact car you're looking for, there's no need to volunteer this information to the dealership.

In any case, locate the exact car you want by sending e-mails to the Internet managers of dealers in your area. On Edmunds.com, you can simultaneously solicit quotes from multiple dealers. In many cases, you will have to follow up with a phone call. Say something like: "I'm looking for a 2003 Matsura Accell. I'm not too fussy about the color but I don't want black or white. I want ABS and side airbags. What do you have on your lot?" Often the salesperson will have to check his inventory and call you back. After a few phone calls you will have a good idea of how widely available the car is. If there are several dealerships offering the same car, you will be in a better position to make a good deal.

As you make phone calls and exchange e-mails, take careful notes. You should record information about each car you locate, including the color, options, and the dealership name. This will save time as you continue through the shopping process.

Step 5: Test driving the car salesman

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As you call dealerships to locate the exact car you want to buy, you can also test drive the car salesman. In other words, you can determine if this is a person you want to do business with. It's a good idea to consider this issue ahead of time, before you get to the deal-making phase of the process.

The first way to evaluate a good salesperson is to ask yourself if you feel comfortable dealing with them. Are they impatient and pushy? Or are they relaxed and open? If you asked them about a specific car's availability, did they respond to your needs? Or did they try to steer you toward another car simply because they have too many of that model in stock? Do they return your phone calls? Do they answer your questions in a straightforward manner? Or are they evasive and confusing?

By considering these issues you should have a sense of whether or not you want to buy from this salesperson. If you feel comfortable with the individual when researching by phone, and if the dealership does indeed have the car you're interested in, set up a time to test drive the car, preferably when the dealership will not be very busy, such as a weekday morning. Before heading to the car lot, review all your notes and make sure you bring your car-buying folder. This might include your checkbook, registration and proof of insurance. Keep in mind that you're bringing these items so you'll be ready to buy a car if you get a fair deal. Don't feel obligated to purchase a car simply because you have all the necessary paperwork with you or because you test drove the car.

AK370Z · 01-08-2009, 03:44 AM

Step 6: If you are trading in your old car

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If you are trading in your old car to a dealer, you will probably not get as much money toward the price of a new car as you would have if you'd sold it yourself to a private party. However, trading in offers some advantages. You can solve all of your car-buying problems in one visit to the dealer. You can unload a hard-to-sell car with no newspaper ads, DMV lines or tire-kicking buyers involved. In some states, you will even pay less sales tax on a deal that involves a trade-in.

Begin the process by looking up your car's trade-in value on Edmunds.com. The Edmunds.com True Market Value® (TMV®) Used Vehicle Appraiser will also give you trade-in values. After you plug in all of the vehicle's information (mileage, options, condition and colors) you will get a specific trade-in price. This will often be slightly different from the offers you get once you are on the car lot. At a dealership the value assigned to your trade-in varies based on the time of the month, the dealer's specific inventory and the used car manager's mood, but at least TMV will give you a rough idea of what your trade-in is worth.

If it's important to you to get the maximum value for your trade-in, you should visit several dealerships and solicit bids. Tell the salesperson that the sale of a new car will be contingent on the amount he or she will give you for your trade-in. Also, tell them you are visiting several dealerships. With a little legwork, you may be able to boost the price you get for your old car by several hundred dollars or more. Remember, the extra effort you spend in getting competitive bids is far less than what it would take to advertise, show and sell the car yourself.

Step 7: Negotiating for your lowest price

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Many buyers like to handle the question of price before they even go to the dealer. Internet salespeople are willing to discuss price over the phone — even by e-mail. This wasn't the case a few years ago when the salesperson wanted you in his office before he would get down to brass tacks and talk price.

It's quite possible that, in your calls to various Internet departments, the selling price of the car has already come up. Often Internet salespeople will volunteer the selling price of their car since they know this is the make-or-break factor in most buyers' decision making process. If the price they've quoted is at or below Edmunds.com's TMV, then you are already in the right range to buy the car. If you want to try to improve the deal, you have a few options.

Everyone has their own idea of what makes a good deal, but most people just want to know they got a fair price. Here, TMV will be your best guide. If you want to try for a rock-bottom price, start by getting bids from three local dealers. Follow this up by taking the lowest price, calling the two other dealerships and saying, "I've been offered this car at this price. If you beat it I'll buy it from you." They almost certainly will. However, keep in mind that you can't play this game forever. Eventually, they will give you a take-it-or-leave-it price. For more on getting the best price, read Negotiating 101.

Also, be warned that if you ask the dealer to cut his profit, he might try to take it back somewhere else. Remember, a good deal isn't just the lowest selling price. It's the lowest total out-the-door cost on a car that meets your needs. This means that to ensure you get a fair deal you have to be vigilant throughout the entire purchase process, even after you and the salesman agree on a price.

Step 8: Closing the deal

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If you feel good about the price you have been quoted, it's time to take a look at the big picture. Many buyers focus on the cost of the car and ignore the related expenses. Besides the cost, you will have to pay sales tax and various fees which vary from state to state. These expenses can be estimated and totaled with the Edmunds.com calculators.

The simplest way to estimate total cost is to ask the salesperson to fax you a worksheet and invoice before you go to the dealership. This way, you'll be able to review the figures in a relaxed environment. Compare the numbers from the dealership to those you have calculated and the TMV prices on Edmunds.com.

In some areas of the country, dealers have costs that don't show up on Edmunds.com invoice prices. This means the Edmunds.com invoice price of the car you are researching might not exactly match the dealer's invoice. Don't panic — and don't begin making accusations. Edmunds.com can't track all regional fees, such as advertising costs. So, as a rule of thumb, consider the charges on the dealer's invoice to be nonnegotiable. However, if extra fees are written into the contract (such as "D&H" or "Administrative Costs") which seem bogus or redundant, ask to have them removed, or say you will take your business to another dealership. For more information about this crucial point in the process read Invoice Scams and Sudden Extras.

Step 9: Reviewing and signing the paperwork

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At the dealership, you will be presented with the contract for your new car and a dizzying array of forms to sign. This might be done by the Internet salesperson you have been dealing with, or it could be done in a separate office by the finance and insurance (F&I) manager. If this happens, the F&I manager might try to sell you additional items such as extended service contracts, fabric protection, alarms or a LoJack vehicle locator. In most cases, we recommend turning down these extras — with the possible exception of the extended warranty, which provides peace of mind to some buyers. Additionally, it is worth noting that some states allow up to 60 days after purchase to cancel an extended warranty, but you should check local laws to confirm your options in your area.

To prepare yourself for the kinds of products that might be pushed on you, or inserted into the price without your knowledge, read High-Priced Dealer Add-ons.

If you have already seen a worksheet for the deal you've made, the contract should be a formality. Make sure the numbers match the worksheet and no additional charges or fees have been inserted. You will also be asked to sign various forms that register your new car and transfer ownership of your trade-in. Understand what you are signing and what it means. Ask questions if you don't understand, and don't ever feel like you have to hurry. Buying a car is a serious commitment and it's the F&I manager's job to ensure you are comfortable with every document involved. Remember, once you have signed there is no going back.

Step 10: Inspecting and taking possession of your new car

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Most dealerships detail the car and provide a full tank of gas. You will have one more chance to inspect the car before you take possession of it. Make sure you walk around the car and look for scratches in the paint and wheels or dents and dings on the body. If you are paying for floor mats make sure they are included. If anything is missing, or if any work needs to be done, ask for a "Due Bill" that puts it in writing. You will then be able to come back and get the work done later.

As you drive away inhaling that new-car smell, there is only one more thing to be done: enjoy your new car.

AK370Z · 01-08-2009, 03:53 AM

There are two entrances into today's new car dealership:

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The first entrance is the traditional one where customers walk onto the car lot, wait for a salesman to approach them, hear the sales pitch and then hash out a deal in a sales office.

The new entrance leads into the "virtual dealership." Shoppers can read car reviews, scope out photos and price their dream cars — all on the Internet.

Which of these two paths to new car ownership result in a lower price for the consumer? And, which of these two approaches will be the most pleasant buying experience for shoppers?

This article has two parts. The first will gather the opinions of several Internet car salespeople and describe the Internet sales experience for shoppers. The second article will test these opinions in real-world shopping conditions. Taken together, they should give you, the consumer, the most up-to-date information about your best way to buy your new car.

The Creation of the Internet Department

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Traditionally, dealers have sought to maximize their profit by keeping most of the figures in a deal hidden. In this way dealers charge customers whatever they can convince them to pay for a car. Because of the complexity of a transaction filled with many variables (trade-in value, interest rate, different loan terms, multiple fees) buyers often didn't even know how much they are really paying for the car.

But in the late 1990s, Web sites such as Edmunds.com began publishing the invoice prices of cars while also reaching a larger segment of the car-buying public. This neutralized the car salesman's most powerful weapon: confusion. A smart shopper could find the invoice price of the car he wanted to buy, add a 2-3 percent profit and make a take-it-or-leave-it cash offer. Car salesmen hated dealing with this type of buyer because their profit was lower.

But rather than lose this buyer all together, some dealerships began creating "Internet departments." With an Internet department, informed shoppers could bypass the traditional salespeople standing outside the dealership. (One Internet saleswoman called these salesmen "the vultures.") Instead, shoppers could contact Internet salespeople, either by phone or e-mail, and quickly get a bottom-line price. If the price was good, they bought the car. If it wasn't, they got another quote from another dealership. This reduced the haggling.

Even today, however, many people don't trust the Internet. They don't believe the car-buying process can be that easy.

Who is the Internet Saleperson?

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The Internet salesperson might have once been a traditional car salesperson, but his computer skills and ability to correspond via e-mail, monitor Web sites and grasp the psychology of on-line buyers made them a natural for this position. In other cases, the Internet sales manager might also double as the dealership's fleet manager.

For an Internet department, it is more important to sell a lot of cars than it is to maximize profit on individual cars. Therefore, the initial price quotes from an Internet sales manager are often very close to the absolute lowest selling price for a given vehicle.

A Typical Internet Experience

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Edmunds.com maintains a fleet of test cars, some of which we purchase ourselves. When shopping for a 2002 Nissan Altima, we searched for the exact car we wanted on the Internet. We located a car, with the options we wanted, at Lew Webb's Irvine Nissan and sent a request for a price quote to the dealership via e-mail.

A short time later, Internet Sales Manager Marj Aldoph wrote back, describing the options on the car and the color. She also wrote: "Your preferred Internet price is $27,417 plus tax and license." We compared the price to the Edmunds.com True Market Value® price and saw that her price quote was even lower. We bought the car at that price.

After the sale was finalized, we asked Aldoph if we could have gotten a better deal on a new car if we just walked onto the lot. "I would never walk onto a lot to buy a car," she replied. "I don't want to go through all the hassle." Besides that, she said, the sales team will start by trying to sell the car at sticker price. Plus, they will try to make more money on the back end, such as higher finance charges. "[In the Internet department] we are straightforward and disclose everything. Nothing is pushed onto a client."

Denise Justice, the Internet and client service manager for Rusnak Auto Group in Pasadena, Calif., said, "I like to be up-front with all my customers. I show them all the numbers. I don't try to hide things or put extras into the contract at the last minute. I don't want any misunderstandings."

When Rusnak wanted to develop its Internet department, it recruited Justice from Nordstrom because of that company's reputation for customer service. Now, Justice uses her skills to sell 15 to 20 cars a month (more than most car lot salespeople), often to customers who never physically come into the dealership.

"The Internet customer doesn't want the traditional sales pitch," she said. "They don't want to sit down and do the four-square [a worksheet used by salesmen for negotiating]. They won't play that game where the salesman starts high and goes low. They've already done their homework and, in some cases, they know more about the car than I do."

Justice said that women, in particular, prefer car shopping on-line because many Internet sales managers are women. "Women buy from me because I'm easy to talk to," she said. "I'm not like some men who won't give straight answers or may be intimidating."

However, the Internet can be a grind for those brave enough to work in this department. One Las Vegas Internet manager told us that he gets hundreds of e-mails a day, everyday. "They expect a reply almost instantly or you've lost their business. I spend a lot of time on-line, just going through my e-mail."

Justice said she works on salary with some commission. How much of what she makes is dependant on the scores on her "CSI" surveys (customer satisfaction index). "If I get dinged by even one person, for one point (getting a 4 out of 5 rather than a 5 out of 5) it can cost me $1,500," she said.

Moving Metal the Old Way

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The traditional car salesperson greets "ups" (customers who walk onto the lot) and personally leads them through the buying process. Car salesmen employ a variety of psychological tactics to excite the buyer, hurry them toward a commitment to buy and then sell the car at the highest possible price. Often, car salesmen are told they should "never leave any money on the table" — in other words, they should take as much money as they can from the buyer.

While the Internet clearly offers advantages to many consumers, some buyers are still more comfortable buying the traditional way. They want the sales pitch, they want to test drive the car and get a "walk around" from an experienced sales professional. Dealership sales managers still firmly believe in this approach to selling — trying to turn everyone into a "today buyer." These veterans tell trainees "the feel of the wheel will seal the deal." Their pep talks center on trying to "excite" buyers and maintain "control" over the buyer.

However, as consumers learn more about the car-buying process and our society becomes increasingly mobile, loyalties to the neighborhood dealership are disappearing. As a car buyer, knowing you got a good vehicle at a fair price — all without battling a pushy salesman for several hours — isn't asking too much. In the end, time is money and cash is king.

AK370Z · 01-08-2009, 03:53 AM

Shopping for Price

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There are two ways to buy a car from a new car dealership: through the Internet department or by walking onto the car lot. Like in a TV game show, choosing the wrong door can cost you dearly — in time, money and aggravation.

As we discussed in Part One, Internet (and fleet) salespeople make their money by selling a high volume of cars. Salespeople who are "working the floor" (the showroom floor) rely on commissions to earn a living. Therefore, they try to maximize profit on fewer deals. This means the car lot salesperson will usually attempt to squeeze out a larger amount of profit from a car buyer than the Internet salesperson.

A veteran fleet saleswoman told us she would never walk onto a car lot if she wanted to buy a car because "those guys will always start at sticker." On the other hand, the Internet salesperson will hit you with a tempting price that may leave little room — or reason — to negotiate. (In several cases, we've found the opening quote from the Internet department to be close to — and just a little under — the Edmunds.com True Market Value® price.)

We decided to test this Internet saleswoman's opinion by sending one of our editors to three dealerships, having him act as a normal buyer and getting vehicle prices from the salespeople working the lots. Afterwards our editor would telephone the Internet sales managers of those dealerships and ask for prices on the same cars that we shopped earlier.

We knew we would have difficulty even getting a car lot salesperson to quote us a price — any price. Usually they won't talk about the cost of the car until the buyer is deeply committed in the buying process. Their fear is that the buyer will take a good quote from one dealership and challenge another dealership to beat

In Defense of the Salesperson

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It's true there is more to buying a car than getting the lowest price. A good car salesperson can demonstrate the car's features and options. However, this information is readily available on Web sites such as Edmunds.com as is expert automotive advice and opinions.

We apologize in advance to the three salesmen we met during this story for taking their time without intending to buy. Furthermore, we don't encourage shoppers to test drive a car with a salesman and then buy that car through that dealership's Internet department. Internet salespeople are happy to show and demonstrate cars on their own.

Rules of the Game

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We selected three popular vehicles to shop for: a 2003 Toyota Camry LE, a 2003 Volkswagen Passat GLS and a 2002 Ford Explorer XLT 2WD. We posed as "today buyers" who were cross-shopping different brands. We assured the salespeople we were not going to "shop their prices" at another dealership of the same make. We just wanted a price — a real price — so we could make an informed comparison between cars. All our shopping was done in the Los Angeles area. The Toyota and Volkswagen dealerships were medium-size; the Ford dealership was a high-volume lot.

Scenario #1: 2003 Toyota Camry LE

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Salesman Steve got us quickly settled on a car matching our request. He gave us a full "walk around" demonstrating all the Camry's features. But when we said price would be a deciding factor, he tried to redirect our interests toward another Camry, one he called a "new car" with "only 26,000 miles on it." We declined this generous offer.

Following a test drive, we asked for the price of the car and requested a written price quote from the manager. We were escorted into a sales office where Steve wrote down our name, phone number and address on a "four-square" worksheet (used by salespeople to negotiate the four elements of a typical car deal). We repeated our request for a written price quote from the manager. Soon, Paul appeared, a short, stocky man who smelled of cigarettes. Apparently, Paul was a "closer" or assistant sales manager. After an opening sales pitch, extolling the virtues of the Camry, he said, "What if we could discount it by $500?"

"Is that your best price?" we asked.

"Well, it depends. The price isn't set by us, it's what you're willing to pay."

Paul then began firing questions at us about a possible trade-in, a down payment and monthly payments. He began crossing out numbers and writing in lower ones while asking, "Where do you want to be?"

We stopped this activity by saying, "I'm really confused now. I liked it when you said $500 off the sticker — I understood that. If that's your price, that's your price." Our editor started to leave.

Paul said, "Let me talk to my manager."

While Paul was gone, Steve again tried to sell us the "new" car with "only 26,000 miles on it." We declined a second time. "Just thought I'd ask," he said, slouching in his chair.

Paul returned with the four-square with writing on it that read, "$999 discount! Great deal if you buy now!"

When we said it was time to test drive our other possibilities, Paul's pressure to keep us there increased. We left anyway.

Time on Lot: 1 hour 10 minutes

Pressure level: Medium increasing to high

Camry Sticker Price: $20,809

Best Price Quoted: $500 discount off sticker or $20,309 (after we threatened to leave, a discount of $999 was mentioned if we bought today)

Salesman's best line: "The only difference between low-balling and lying is the way they're spelled."

Internet Experience: Five-minute phone call

Best Price Quoted: The Internet manager gave us a price on the same car of $19,310. When we inquired about additional fees he said, "I can fax you all the fees and your out-the-door cost if you like."

Savings: $999

Scenario #2: 2003 Volkswagen Passat GLS

Quote:

We were inspecting the window sticker of a silver Passat GLS when a cheerful voice greeted us. Our salesman would be "Stan," a white-haired man with dark glasses. We immediately felt at ease with Stan. We said we would be buying very soon, perhaps today, and wanted to test drive the Passat and get a price for it. "I can do that," he announced and went to fetch the keys.

"Is there anything you'd like to know about the car before we drive it?" Stan asked. We asked a few questions and Stan volunteered a brief overview of the car's features. On the test drive he controlled our route closely. At one point he urgently warned us, "Car coming! Car coming!"

Back in the car lot, we sat in the car with the engine running. We said it was time to talk price. Stan said he would give us a price when we were "ready to do something." We said we were comparing the Passat to other cars that would likely be less expensive. It would be helpful to have a number to work with. We volunteered to meet with his manager to let him know we were serious. Stan finally said he would "work from invoice" with us and give it to us for $600 over invoice, "or whatever fleet is selling them for."

Stan made no attempt to force us into a sale on the spot and cheerfully bid us farewell.

Time on Lot: 37 minutes

Pressure level: Low

Passat Sticker Price: $24,990

Best Price Quoted: $600 over invoice "or whatever fleet is selling them for." If this had been honored the selling price would have been $23,833.

Salesman's best line: "The Passat comes with a full spare. We had to go on a diet. Doctor's orders: no more doughnuts."

Internet Experience: A five-minute phone call

Best Price Quoted: The Internet manager gave us a price on the same car of $23,533 or $300 over invoice on the same car.

Savings: $300

Scenario #3: 2002 Ford Explorer XLT

Quote:

We weren't more than a dozen steps onto the Ford dealership when we were greeted by Mike, a short, round, enthusiastic man with a foreign accent. He asked if we had come from the service department. When we said we hadn't, he brightened visibly. We told him we wanted to look at the Explorer XLT with few options. He took us to a white one. The sticker had been shredded when the window was rolled down and he apologized saying, "It's not very professional." We pieced it back together and found it cost $30,060.

We said we were cross-shopping brands and wanted to know how much we would have to pay for this Explorer. Mike said he could offer us a $2,500 cash back rebate. We said that was nice, but wanted to know how much this would reduce the price. He shook his head sadly, then said, "Do your shopping first, then come back. We will beat any price out there." We said we needed a figure as a benchmark, to know how aggressive this dealership would be. We even offered to come inside and talk to the manager. Mike was still shaking his head sadly. "All I can tell you at this time is, we'll take care of you."

We left the car lot.

Time on Lot: 15 minutes

Pressure level: Medium

Explorer XLT Sticker Price: $30,060

Price Quoted: None

Salesman's best line: "We need to sell these cars. They have no nutritional value — we can't eat them."

Internet Experience: A three-minute phone call

Best Price Quoted: The Internet manager at this Ford dealership seemed more like a car lot salesman. He was vague about the selling price of the car and wanted us to come in and settle on a specific car first. We asked how close he could get to invoice. He said, "Very close, probably $500 to $600, depending on the model you choose."

Savings: Unknown

Quote:

Internet vs. Traditional Car Shopping — Conclusions

We don't consider the numbers we got from the car lot salesmen to be very firm. And more money could have been lost by making poor spur-of-the-moment decisions on financing or additional products. If we had returned to buy one of the cars at the quoted price, we probably would have had to start negotiations again. Still, we got an idea of how pricing would be handled and a rough idea of what discounts were available. On the other hand, the Internet prices were specific and realistic; we felt confident we could close the deal at that price.

This exercise showed us just how hard it is to get a real price for a new car from a traditional salesperson. The price is obviously in flux and will depend greatly on how the customer presents him or herself and handles negotiations.

When dealing with a salesman on the car lot there is the reassurance of the human contact, however. One can't help but like one salesman more than another and want to buy from them. Furthermore, the product knowledge and their advice might, in some cases, be valuable.

On the other hand, the Internet route is fast, easy and clearly saves money. It also is good for people who don't have an appetite for negotiations. Furthermore, the decision is apt to be more informed since the buyer can consider all the possibilities in a relaxed atmosphere away from the well-documented enticement of new car smell.

AK370Z · 01-08-2009, 04:04 AM

Introduction

Quote:

"Congratulations, you're getting a great deal!" the car salesman says, pumping your hand. "Let's sign the paperwork and you'll be on your way in your new car!"

At first you're relieved — the negotiating is over. But then the salesman walks you down a back hallway to a stark, cramped office with "Finance and Insurance" on the door. Inside, a man in a suit sits behind the desk. He greets you with a faint smile on his face. An hour later you walk out in a daze: The whole deal was reworked, your monthly payment soared and you bought products you didn't really want.

What happened to your great deal?

You just got hit by the "F&I Man," also called the finance officer. He waits in the back of every dealership for unsuspecting customers so he can increase the profit for the dealership and boost his commission.

In this four-part series, written by veteran auto finance manager Nick James, you will learn the F&I man's tricks and how to avoid them. When you're done, you'll be ready to safely navigate this crucial part of the car buying process, and the F&I man will never work his "magic" on you again — The Editors at Edmunds.com

Part I
From Selling Vacuum Cleaners to Selling Cars

Quote:

In the Saturday morning sales meeting, the general manager treated this F&I guy like a hero for making so much money for the dealership. But I remember sitting there, thinking, "This isn't right — he just stole $6,000 from those people."

Believe me, I never set out to be an automotive finance manager. I was just looking for a good job with decent money so I could finish my education. But thanks to a few strange twists and turns, I went from selling vacuum cleaners door to door to being a used car salesman for two months to becoming an F&I manager for six years.

In that time, I made serious money while closing 6,000 new and used car sales and leases. I sat across the desk from hundreds of people as they nervously signed the contract on their first car, or upgraded to that shiny new truck or SUV they had wanted for years. I advised them on which loans to take and persuaded them to buy extended warranties, paint protection and undercoating. While doing this, I peered into the most intimate details of their finances and their lives: their salaries, savings and investments. Their mistakes were revealed to me, too: overdue bills, bounced checks, foreclosures and repossessions. In fact, I probably knew more about my customer after 15 minutes than their friends knew about them in a lifetime.

During my time on the job, I never knowingly lied to my customers or cheated them. Of course, I did make a commission on the items I sold and the loans I wrote. And the dealership made a profit, too — what I considered a fair profit.

But I can't always say the same for the other people I worked with. There was this one guy called the "Shredder." A couple came in and wanted to use their trade-in as a down payment on a lease. They were told they were receiving an $8,000 credit for their trade-in. In actuality, they were only given $2,000. The next day, at the Saturday sales meeting, the general manager brought doughnuts, as he always did. On this day he brought a huge doughnut for the Shredder and treated him like a hero because he had made so much money for the dealership. But I remember thinking, "This isn't right — he just stole $6,000 from those people."

But the real point is simple: If you don't know what to watch out for and you run into someone like the Shredder, you can lose your shirt. If you have a complicated deal — with a trade-in, manufacturer financing and extra products — thousands of dollars are at stake. But with a little bit of knowledge and some preparation, the auto finance manager won't be able to lay a glove on you. How?

Before I get to that, I'd like to tell you a little bit about how I came to work in F&I. Then you'll have a better understanding of my world, and my advice will make a lot more sense.

The Worst Sales Job Ever

Quote:

My father runs an accounting firm in Europe, and I could have worked for him and made an easy living there. But I wanted to be a self-made man, so I moved to the United States and completed an undergraduate degree at a small college in the Midwest. Before going to grad school, I decided to get a part-time job — anything that would give me the maximum amount of money for the minimum amount of time. I began job hunting and landed a position as a vacuum cleaner salesman. I figured if I could succeed at a tough sales job like this, I could succeed at anything else I tried later in life.

I received a few days of training and then was given a demonstration model vacuum cleaner to lug from door to door. This was in the middle of winter, in the Midwest, with the temperature sometimes 20 below zero. I remember a few times that, when someone answered the door, my face was so frozen I couldn't even speak.

In my first week on the job, I was actually able to make five sales, so the company gave me my own vacuum cleaner, which they told me was a huge honor. I needed a better car to carry my samples around in, so I went to the local dealership. When I picked out a car and we reached an agreement on the price, I was told that I would be sent into the F&I office. I'd never heard of this before but I assumed this was someplace where I would sign papers.

While I was waiting, I overheard some of the car salesmen talking to each other. One guy said, "I made a grand on my last sale. That was sweet."

This was music to my ears. I mean, here I was dragging this vacuum cleaner from door to door, hoping to find buyers. But at the dealership, I realized the buyers came to you! I asked the sales manager if there were any openings at the dealership and he gave me a job in the used car side of the dealership — which was where the real money was. Most people don't realize it, but the profit is much higher in used cars than in new cars.

Ex-Con Car Salesman

Quote:

In my new job, I became a member of a four-man sales team, and made a surprising discovery about them — they were all ex-convicts. One guy robbed a bank and got arrested a few weeks later. Surprisingly, he was a really nice guy. You almost felt you could trust him with your life, which you probably could at this point because he was so afraid of going back to prison.

Another guy on the team had robbed a convenience store with two other guys. After serving four years in state prison he was left with this lingering hatred for the sound of a guard's keys jingling as he walked through the cell block. He really jumped whenever he heard that sound. That was a real problem for a guy working in a car dealership.

The last guy in my team had been in prison for making pornographic movies. Oddly enough, he was the best salesman of the group. He could walk right up to anyone on the lot, strike up a conversation and make them trust him and feel completely relaxed.

It took me a few days to finish my training and then I started selling cars. Right away, I found that my vacuum cleaner selling was good preparation for this job because I'd learned the importance of isolating objections. If a customer said, "It's too expensive," I would say, "OK. But other than the price, is there any other reason you don't want to buy it?" This approach worked really well on the car lot.

F&I First Impressions

Quote:

After I'd been selling cars for awhile, I became aware that right after I sold a car my customers disappeared into the finance and insurance offices. I began to wonder what went on in the three finance offices we had in the back hallway of our dealership. The F&I guys looked like banker types to me since they always wore nice suits. A lot of them had the condescending attitude of a loan officer interviewing a person who is probably not going to qualify for the loan.

While I was annoyed with the arrogant attitude the F&I guys had, I was kind of fascinated by what they did. It was obvious they made a lot of money because my commission slips clearly stated how much their slice of the pie was. One deal I saw had a "back-end" profit (i.e., what was made in the F&I room) of $8,000! If the F&I guy got 15 percent of that, it was $1,200 — a lot of money for a half hour of signing papers. I began to think I might angle for a job in the F&I room since I was good with numbers and my sales skills were strong.

After only two months of selling cars I heard about a position in the F&I office of another dealership nearby. It was only an assistant position, with a minimum salary. But I decided it was just what I wanted. I was young, ambitious and wanted to make as much money as I could. I applied and got the job. My first thought was, now I'll find out what goes on in the F&I room — and how auto finance managers make so much money back there.

AK370Z · 01-08-2009, 04:06 AM

Part 2
Tricks of the Trade

Quote:

F&I guys know that our customers are already in the "yes mode." They've just agreed to buy a car so it's our job to keep them saying yes to other things like extended warranties, fabric protection and additional alarm systems.

The office for my new job was in a mobile home parked at the back of the car lot. In most other dealerships where I worked the F&I room was usually in the back somewhere, away from the excitement of the showroom and the noise of the service bays. But what goes on in the F&I office is the lifeblood of the car business — deals are closed. Before you enter the finance office, a car deal has really just been a lot of talk. But in F&I, all the verbal promises are put in writing, the customer signs and the contract legally binds the buyer to make all the payments. So there's a lot of money on the line.

Dave, the guy who ran the finance office at my new job, wasn't the stereotype of the sneaky F&I guy. He had a good sense of humor and was very relaxed with his customers — a little too relaxed, I thought. If he just pushed a little harder it seemed he could've sold a lot more products. I was anxious to finish my training and be in charge so I could do things my way. And see how much more money I could make.

In the beginning, I just sat in the back of the room while Dave handled the customers. He usually introduced me to the people by saying, "This is James. I'm training him for this position. Do you mind if he sits in with us?" No one ever objected, and soon they forgot I was there. Meanwhile, I got to observe Dave's sales techniques, such as the way he started the F&I process.

Setting the Tone

Quote:

Dave would casually glance down at the contract and then look up at the people as if he was surprised and say, "Oh! So you're the folks who bought that black Suburban. Man, that's such an awesome car! You're going to have a great time taking it on vacation this summer. And the four-wheel drive is good in the snow, too." What he was doing was showing the customer that he cared about their purchase and shared their excitement, like they were on the same team.

This opening set the right tone, which was important since most of the customers we got were pretty worn out by this point. Often they had been test-driving and negotiating all afternoon and, basically, they just wanted to get the hell out of there. Dave had to get them refocused on the excitement of the new car because he was about to try to sell them a whole slew of additional things.

Most salesmen know that once a customer starts saying yes, it's easy to keep them saying yes to other things. The customers we got in the F&I room had just agreed to buy a car. So there was a good chance they would keep saying yes to other add-ons. We called this being in the "yes mode," and we tried our best to exploit it.

Here's how Dave did it. He would start by asking the customer a question he knew they would say yes to. So he'd say, "Do you like this car?"

Obviously, they would say yes since they had just agreed to buy it.

"I bet you'll really enjoy taking this car on vacation."

Of course they said, "Yes."

So then he'd ask, "So I'm sure you'll want to buy an extended warranty to protect your investment?"

And they often said, "Yes."

Sitting in the back of that room I took a lot of notes, wrote out lists of forms that were needed and details I had to complete. Dave taught me the tricks of the trade mainly by just letting me observe how he worked with the customers. It was a psychological game that was partly a carefully scripted technique and partly just plain old salesman's intuition.

Running F&I on My Own

Quote:

After only 10 days of training me, Dave went on vacation and I was left in complete charge of all the finance work for the entire dealership. I was excited to know I could do things my way. But there was a problem that worried me, a secret that only I knew. Sure, I was good with numbers. And by now I was a pretty good salesman. But I'm not detail-oriented. And this was a job that definitely needed strict attention to the fine points. It wasn't unusual for a car deal to involve as many as a dozen different documents, all of which needed to be signed in multiple places in just the right way. Plus, the dealership could get really busy; sometimes we sold a dozen cars on a Saturday afternoon. A straight cash deal could be wrapped up in only 15 minutes. But other transactions, particularly leases, could take an hour or more. If you didn't get everything right it would be rejected by the DMV.

Naturally, I didn't admit my lack of attention to detail. Instead, I made endless checklists to remind me to dot all the i's and cross the t's. But as I gained experience I became more confident. I even decorated my office to make customers more comfortable. I put up pictures of the beach and some inspirational sayings — fun stuff to relax people.

The Flow of the Deal

Quote:

The F&I process actually started before I even met the customer. I would be given the credit application to run while they were still negotiating with the salesman. At this point, I'd go out and take a look at the people to get a feel for them. That way, when I met them in the F&I room I could break the ice by making some small talk. For example, if I saw one of them wearing a Green Bay Packers hat, the first thing I'd say to them was, "How about those Packers?" In my time in F&I I talked about all kinds of things I had no real interest in: deer hunting, football, hockey — even cooking.

If the customer's credit score came back over 700, we wanted to make sure they bought a car as quickly as possible and got them out of there. We would tell the salesman to "spot them" — let them take delivery on the spot — before their loan was even formally approved by the bank.

On the other hand, if the customer was a "deadbeat," meaning that they had really bad credit, we knew there was no way we could sell them a car. So the two ends of the spectrum — the really good and the really bad — were easy to deal with. But the vast majority of customers fell somewhere in between, and it required a lot of work to get them financed.

Dealership Financing

Quote:

I'd say that three out of four people wanted to finance their car by taking out a loan or leasing it. The dealership had access to wholesale lending rates, called the "buy rate" and loaned this money to the customer at a few percentage points higher, which we called the "sell rate." This was a huge source of revenue for the dealership and it amounted to about 50 percent of the commissions I earned. So the incentive was high to inflate the interest rate and get the customer to agree to the loan at that rate.

Padding the interest rate was usually very easy to do because most of our customers had no idea what rate they qualified for. If I sensed that they were uninformed about their credit score, I knew I could offer them, say, two points over and they would agree to it. The customers I looked for were people who had good credit but didn't know it. Then I could say, "We ran your credit report and, well, we both know you've had a few problems. But you're nice people so here's what we're going to do for you."

A Lucrative Sales Pitch

Quote:

After the loan was arranged and agreed to by the customer, I began to sell them an assortment of extra products and services. This was a grueling process but it was where a lot of my commissions came from so I had to summon my energy and give it my best shot. The biggest item for me to sell was the extended warranty.

Usually, I'd begin by asking, "How long do you folks plan on keeping your new car?" The answer I wanted was: "I'm going to keep it until the wheels fall off." If I heard this I knew I could easily sell them an extended warranty. But if they said they always traded in after three years I was pretty well screwed. Still, most people said "Five years plus."

I was reading an F&I magazine one day and I found a little detail that helped me make tens of thousands of dollars selling extended warranties. Here's how it worked. If the customer said they were going to keep their car a long time, I'd say, "Did you know that your new car has more computer chips in it than the first spaceship that went to the moon?" This had an amazing effect on people — they got goose bumps and leaned forward wanting to hear more.

Then I'd continue, "It's a sophisticated piece of machinery and it's expensive to repair. To give you an idea, a transmission problem could be $3,000 or higher. So if something were to go wrong — which we hope it doesn't — it could be very expensive to repair. Now, you have your factory warranty and then everything that happens after that is your responsibility.

By this point, a lot of people would be listening carefully, following along as I outlined the different warranty plans. I had a 50 percent sales record with extended warranties which was nice because the markup (the profit made by the dealer that contributed to my commission) was nearly double the actual cost of the warranty. The other thing that sold people on the extended warranty was when I told them, "It's cheaper if you buy it now and you can always cancel it if you change your mind. So you see there's really no risk." Of course, if they cancelled it, it became a "charge back" for me in my next month's paycheck, so I really hoped they didn't do this. But plenty of people never cancel something like an extended warranty once they buy it, often because they simply forget about it.

Shady Practices

Quote:

After about a year at this dealership I began to see something that really made me mad. Every month we got a statement that showed how much we made in the F&I office. And it also showed how many charge backs we had, which were things customers had purchased but then cancelled. Anything that we sold could be cancelled except for "hard-adds," things that were physically attached to the car like running boards or upgraded stereos.

The accounting was done by this weasely guy who worked in a dingy, windowless office in the back of the dealership. His desk was a complete mess, with papers strewn all over the place. I had no idea how he could find anything in there. But he generated a monthly report that showed how much was made in the F&I room. And he also reported the number of charge backs that were deducted from our commissions.

After awhile, I noticed that on the months that I sold a lot of add-ons there also tended to be a lot of charge backs. It was like having my paycheck cut in half. Was he ripping me off? I couldn't prove it. But I knew I would never make the kind of money I wanted working there. Not only that, but the owner's son had taken over running the place and I just didn't see eye to eye with him.

In retrospect, the way it turned out was a blessing in disguise. I heard about an opening at a larger dealership across town. I landed a job there and hit the F&I jackpot.

AK370Z · 01-08-2009, 04:10 AM

Part 3
Lessons From the Other Side of the Desk

Quote:

Most people had no idea what they should be paying for a car, except that maybe their cousin had bought the same car and they knew what he paid. And that was exactly where the dealership wanted you.

At my new dealership, I started to make some serious money — six figures — which went a long way in the Midwest where you could buy a mansion on a lake for a $100 grand. I was still pretty young and yet I was advising people on loans, looking into their finances and working with large sums of money. I have to admit I was proud of what I did and it gave me a feeling of power.

And then I made a change that doubled my income. It had to do with a new sales technique, a method called "menu selling."

The Joy of "Menu Selling"

Quote:

The way I had been selling F&I products was to roll out the items one by one, pitching the advantages and features of them. It was a long, grueling process for me and the customer. Menu selling revolutionized all that.

What I did was group all the products I sold into packages and give them fancy names like the Platinum, Gold or Bronze package. If the salesman had quoted a $400 payment, I would begin my pitch by saying to the customer, "I understand your salesman quoted you a payment of $400 a month. That will take the car today. But, let me take five minutes to go through a few options, and you can choose which one works best for you."

Then I'd say, "The first option is the Platinum plan, a five-year loan at 8 percent, which has a seven-year, 70,000-mile extended warranty, which more than doubles the factory warranty. It includes life and disability insurance; it also offers paint protection and undercoating. The payment for that is $480 a month." Then I'd describe the Gold Package which would have a payment of $440, and the Bronze at $420.

Here's the funny thing: half of all customers would pick one of the plans without asking any further questions. That means I just sold three things with a five-minute spiel whereas previously it took half an hour and I wound up sounding like a broken-down vacuum cleaner salesman.

The power of menu selling is that you are asking people to choose which of three things they want. Their focus is on selecting one of the three things, not realizing that they don't have to choose any of them. Choosing one of these packages was a big mistake for some customers. But it wasn't the only mistake they'd make.

Wrong Price Point

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After a few years of closing deals in the finance and insurance office, I began to realize that 90 percent of my customers made the same mistakes when buying a new car. Because of this, I realized I could make even more profit than I chose to. In a way, I had to be self-regulated — I decided what a fair profit was and consequently what my commission would be. It was often hard because it was like a baseball home-run hitter passing up a fat pitch — I knew if I wanted to I could make more money and be the hero of the dealership for the next week. But I didn't want to hurt the customer, this person I had gotten to know and whose trust I had won.

Not all F&I guys felt this way. Some went for maximum profit on all deals and applied all kinds of pressure to the poor customer to achieve this. Some F&I managers were bullies who just wouldn't take no for an answer. And they made outrageous claims to back up their sales pitches. For example, when presenting the extended warranty, they might tell their customer that the financing that was being offered required them to buy the extended warranty. This was a lie. But how was the customer to know?

It sounds really basic, but the biggest mistake customers made was not knowing the price they should be paying for the car itself. And that was exactly where the dealership wanted them. Maybe their cousin had bought the same car and they knew what he paid, but they rarely did any more research than that. As the Internet has come of age, there are all kinds of ways to research price, including Edmunds.com True Market Value ® (TMV) pricing and forums where buyers share pricing information. If a buyer knows the invoice price of the car, as well as any incentives available at the time and allows the dealer a profit above that, they can estimate what they should pay. But even today most buyers don't take the time to do this. And they overpay as a result.

Packing Payments

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Another big mistake I saw customers make was agreeing to be a "monthly payment buyer." The majority of car buyers are going to finance the car (instead of paying cash) and they want a payment that will fit in their budget. The salesman knows this and works in league with the sales manager and F&I guy to leverage their power against the customer. Here's how this tag team works.

Car salesman: What kind of monthly payment are you folks looking for?
Customer: About $400 a month.
Car salesman: Up to...?
Customer: Um, well, no more than $450.
Car salesman: Well, that's kind of low for a great car like this. But I'll see what I can do. I'll be right back. (The salesman leaves and goes into the sales office to huddle with the F&I guy and the sales manager.)
Sales manager (to F&I guy): How's their credit?
F&I guy: Over 700.
Sales manager: Awesome. (To salesman): OK, tell Mr. Customer that $500 will make a deal. (The salesman returns to the customer holding the sales deal sheet with the managers' scribbling on it.)
Salesman: Good news, folks. We can make a deal today for $500 a month.

What's just happened? Well, the sales office is preparing to pack the payments. We'll say that they could actually sell the car for $450 a month but they got the customer to agree to an extra $50 on the payment. That $50 a month "bump," extended over a five-year contract, is an extra $3,000.

Now, when I got the deal in the F&I room, I knew all I needed to do was find products and services to fill up that extra $50. In a way, the customer had already bought the things I was selling. All I needed to do was justify the extra expense. This was easy since I could sell them an extended warranty, inflate the interest rate or juggle the numbers to add up to the total payment.

The Most Dreaded Phone Call

Quote:

I don't want to imply that things always went smoothly in the F&I room or that the customers were easy to deal with. Sometimes married couples got into fights right in front of me — he wanted to buy the car but she didn't — and they treated me like a marriage counselor. Also, since I worked in a small town, everyone knew each other. So if people got mad at me it was really uncomfortable. If they felt they were cheated or lied to, sometimes it escalated to a physical level. And believe me, in a small town they know where to find you.

There was one type of scenario I always dreaded because it led to some horrible situations.

As I mentioned earlier, we had some customers whose credit was weak but who might still qualify for financing. However, it could easily take a few days to shop all the banks and get a solid answer. We didn't want to let this customer get away (we stood to make a lot on their financing) so we would let them drive off in the car while we continued shopping for a loan. But if we were unsuccessful, things got sticky.

We had to call the customer and tell them to bring the car back to us. If they protested, we told them that they had signed a form for "acknowledgment of conditional delivery." This was a document we always had customers sign that said if we couldn't get the car financed at the terms we agreed on, then they would bring the car back. The customer usually said, "Sure, sure, whatever" and signed it, but later they seemed to forget about this form.

The most dreaded phone call in my business was when you had to call the customer and tell them to bring the car back. The F&I guys tried to push this off on the salesman, and they pushed it back on us. Sometimes I called the customer and said something vague like, "There are a few changes we need to make to the contract so we need you to bring your paperwork and the car back to the dealership." Other times, I was more direct: "We weren't able to get the loan financed so we need you to come back so we can discuss other options."

Customers often became really emotional when they had to return the car. They had already shown the car to their friends and family and had developed an attachment to it. Now the dealership was taking it away from them. It was an unintentional form of public humiliation.

In one case, I was dealing with this young hotheaded guy who had bought a pickup truck, and we had to call him back in. I had a feeling there might be trouble so I brought my sales manager into the meeting with me. When we told this guy we were taking his truck back, he actually jumped over the desk, grabbed the sales manager by the throat and started strangling him. We had to call the police and the guy was taken away in handcuffs. It was sad because he had his little boy with him and he saw the whole thing.

10 Things Not To Do in F&I

Quote:

Over the years I put together advice for my friends and family when they were going to buy a car. In most cases, my advice was simply what not to do! Here is my Top 10 list that should get you in and out of the F&I room unscathed.

1. Don't agree to be a monthly payment buyer. If you do, you'll quickly lose control of negotiations as they pack payments and hide the real cost of the car.

2. Don't buy a car without first checking pricing guides such as Edmunds.com's TMV. Print out this information and take it with you to the dealership.

3. Don't buy the extended warranty. The bumper-to-bumper warranty will last for at least three years/36,000 miles. The powertrain warranty will then cover all the things that make the car go down the road, often for up to 75,000 miles.

4. Don't buy the extended warranty (if you really want it) for the first price they offer. Mark-up is about 100 percent, so there is plenty of room for negotiating.

5. Don't enter the F&I room unless you have independent financing or you have recently checked your credit report and investigated what your bank or credit union will offer for a rate. Otherwise, how will you know what interest rate you deserve?

6. Don't buy paint protection (it's just a glorified wax job) or fabric protection or VIN etching or LoJack (unless you have an irreplaceable collector's car). These are high-profit items for the dealership and can always be purchased somewhere else if you decide you really want them.

7. Don't pass up gap insurance if you're leasing (unless it's already in the contract).

8. Don't forget to run your monthly payment numbers using an online computer to get a rough idea of what your car payment will be.

9. Don't believe that the F&I guy is really your friend, even though he acts like it.

10. Don't believe the F&I guy if he tells you that you have to buy the extended warranty to qualify for low or no-interest financing. I've used this line a few times before. And it's not true.

Getting out of the Business

Quote:

I never really planned to make a career out of being an auto finance manager, so after about six years I became restless and was looking for a change. I still wanted to finish my graduate degree. My sister had moved to the West Coast and I was tired of being landlocked in the Midwest. I quit my job and moved to the Los Angeles area. Initially, I went back to working in F&I but I found out that the job was much different there. The sales manager called all the shots and the F&I guy was nothing more than a glorified salesman hawking products. I missed the financial advisor aspect of the job. So I left the business altogether.

Looking back, I don't have any regrets about what I did. I helped people buy cars and I got them loans that enabled them to do that. But I do feel funny about all the mistakes I saw my customers make, mistakes they made that stretched their household budgets thin and put stress on their lives and relationships. While it struck me that the F&I office is a necessary part of dealerships, it's up to car buyers to educate themselves about how to safely navigate the tricks and sales pitches they'll encounter.

The final part of this series will cover a few more points and the dealer's side of the story. But for now, I hope my story has better prepared you for your next car-buying experience. And if the F&I guy questions your decisions, just tell him you got your information from an inside source.

AK370Z · 01-08-2009, 04:12 AM

Everything they sell there (in the F&I office) has a benefit to it — at the right price. The problem is that most people don't have the facts to negotiate intelligently for these products, so it becomes a guessing game. — Oren Weintraub, car buying specialist and former car dealer

Quote:

While interviewing Nick James for the first three articles in this series, I often found myself wondering why car buyers even tolerate the finance and insurance process. It's time-consuming, frustrating and often costly. I kept thinking that F&I could be eliminated and the car salesmen could just draw up the contracts themselves. Customers would certainly prefer to deal with one person throughout the whole process.

After talking to industry experts I learned that the answer is twofold. Preparing contracts and arranging loans is best left to a financial expert. Secondly, as the contract is prepared, the consumer is in an excellent position to be sold additional products and services. They are, as Nick James put it, "in the 'yes' mode." And the money made in the F&I office is essential to the dealership and the salespeople.

As profit is squeezed out of the front end of the deal (many cars now sell close to the invoice price) and profit margins shrink (from about 6.5 percent gross profit on a new car in 1998 to 5 percent in 2007), revenue generated in the finance office is more important than ever before. The National Automobile Dealers Association (NADA) estimates that new cars are often sold at a loss now, with dealerships making money on used car sales, F&I products, parts and service.

F&I's "Vital" Statistics

Quote:

According to 2007 statistics from NADA, 28.5 percent of the profit made from selling a new or used vehicle was generated by the finance and insurance office. This rose slightly from the previous year "partly from a renewed focus on F&I," a NADA report stated. The money made in F&I comes mainly from arranging loans but also from selling extended warranties and other products and services.

How much money is made on a typical sale? According to F&I Magazine, an average of $947 is contributed by the F&I officer selling dealer financing, and an extended warranty typically adds $795 in profit. Another $438 can be generated by selling gap insurance, which covers a financed car that's been lost or stolen beyond what regular insurance covers.

While most people aren't even aware they will visit the F&I office while car shopping, they'll spend at least 30 minutes there out of the 123 total minutes typically spent buying a car. Another 48 minutes are spent in the sales office and the rest is spent in the showroom, F&I Magazine reported.

Financing is the most often accepted product offered in F&I, with some 58 percent of customers agreeing to take dealer-arranged loans. The next most purchased offering is the extended warranty, with 30 percent of customers saying yes to this. Gap insurance, prepaid maintenance plans and theft deterrent systems are also commonly purchased by customers prior to signing their car contracts.

The Human Side of F&I

Quote:

From these statistics, it's easy to see why the finance and insurance office is viewed as a profit center for dealerships in increasingly hard times. But what do customers think of their F&I experience?

"They hate it," said Oren Weintraub, a former dealer in the Los Angeles area for many years and now president of Authority Car Buying Specialists. "[The customer] spends all this time negotiating for a car and they're exhausted. Then, along comes this guy asking if he can sell you something extra for another $15 a month."

To be fair, he added that good F&I officers can alert customers to other financial safeguards such as gap insurance, which is increasingly important as car buyers tend to be more upside-down on their loans.

What about the value of the products sold in F&I? "Everything they sell there [in the F&I office] has a benefit to it — at the right price," Weintraub said. "The problem is, most people don't have the facts to negotiate intelligently for these products so it becomes a guessing game."

On the Front Lines of F&I

Quote:

For another point of view I contacted Jon Garcia, an auto finance manager at Hesser Toyota in Janesville, Wisconsin. He has worked in the F&I office for the past four years following six years of selling cars. He said that he believes his knowledge of loan financing can "save money for the customer and still make money for the store [the dealership].

"I want my customers to go away happy," Garcia said. "If they don't, they might shop for a better rate and cancel the loan I sold them."

Still, Garcia acknowledges that there are abuses in the business. "There is a fine line," he said. "There are managers out there that are on a different pay plan. They will take a $2,000 profit on [an extended] warranty. But if you are planning on staying with the dealership long-term you don't do that."

A Changing Landscape

Quote:

Customer complaints about rip-offs in F&I have led to increased regulations. In recent years, legislation has been passed that prohibits payment packing. As Nick James described in Part 3 of this series, packing payments means that the customer is persuaded to agree to a higher-than-needed monthly payment. The extra wiggle room created is then filled with products and services sold in F&I.

I called NADA's Washington D.C.-area office and a spokesman asked me to submit a list of questions about the abuses in the F&I industry, including payment packing. I received this answer via e-mail from Paul D. Metrey, NADA's director of regulatory affairs: "Unlawful practices have no place in our industry and need to be discouraged at every opportunity. NADA stresses this point in its Code of Ethics, speeches to industry groups, training material and through numerous workshops at its annual convention and presentations to dealers and dealer managers around the country."

Metrey's e-mail went on to say that NADA works with government agencies such as the Federal Trade Commission to educate dealers and eliminate unlawful practices. He added: "The overwhelming number of franchised dealers recognize the need to both reinforce these key compliance messages and ensure they are a central part of their employee training programs."

In other words, good dealers don't break the law. Specifically, good F&I officers, like Jon Garcia, want their customers to "go away happy" because he wants to stay in the business long-term. A friend of mine recently bought a new luxury SUV and said it was "by far the best car buying experience I ever had." And what happened in F&I? "He didn't even bring up the extended warranty," my friend said.

Still, unsuspecting customers are walking into F&I rooms unaware every day. I recently bought a car from a Los Angeles area domestic car dealership. My salesman drew up the contracts and presented them to me himself saying, "If I sent you into F&I here, you'd hate me. These guys won't take no for an answer." They are what are known in the business as "heavy hitters."

What is the average consumer to do to prepare for an encounter with a "heavy hitter" or even just a silver-tongued salesperson with a carefully crafted sales pitch?

Metrey wrote a response to this question: "We strongly encourage consumers to educate themselves about the financing process just as they do with the vehicle purchasing process." NADA has created AWARE to provide consumers with car financing tips and information in English and Spanish through an interactive Web site. Dealers have also stepped up training for their employees to enhance transparency in the auto finance department.

While the official message from the top is that consumer education is encouraged, Nick James said during our interviews that the informed customer was the one most hated by F&I officers. And every car salesman in the world has at one time or another scolded his customers by saying, "Just trust me."

What's a Car Buyer To Do?

Quote:

The more I thought about the F&I office, the more I felt there was no easy resolution to its problems. While customers hate it, the dealer's existence depends on it, particularly in hard times. Furthermore, having an expert handle loans and contracts makes sense and allows the salesman more time and freedom with the customer.

Bottom line: When the F&I process is done right, and the customer is informed, it works.

I have one final piece of advice that will head off all other problems. While being educated on the process is important, it's also essential to pick your dealership and salesman carefully and pay close attention as your F&I officer presents your contracts. There are good people in the car industry. Find them and give them your business.

AK370Z · 01-08-2009, 04:13 AM

I just want you guys to get the BEST deal possible on the new 370Z. Knowledge is power. The more you know, the better deal you're going to get. Some of you guys are blessed with a good dealership while some are NOT. Know your stuff before walking into a dealership. Good luck on purchasing your next Z car.

AK370Z · 01-08-2009, 04:13 AM

Reserved for future article(s)

AK370Z · 01-08-2009, 04:13 AM

Reserved for future article(s) .

AK370Z · 01-08-2009, 04:14 AM

Reserved for future article(s) .

AK370Z · 01-08-2009, 04:14 AM

Reserved for future article(s) ,

miguez · 04-07-2009, 07:02 AM

Thanks AK, awesome info.

01-08-2009, 04:13 AM	#10 (permalink)
AK370Z Administrator Join Date: Sep 2008 Location: NJ Posts: 9,930 Drives: 09 370Z MB Sports M6 Rep Power: 10	I just want you guys to get the BEST deal possible on the new 370Z. Knowledge is power. The more you know, the better deal you're going to get. Some of you guys are blessed with a good dealership while some are NOT. Know your stuff before walking into a dealership. Good luck on purchasing your next Z car. diala4asian likes this. __________________ The370Z Signature Pictures ll Want to rock our forum decals on your car? Then click here! ll How to Embed YouTube Videos In a Post STOP! (Hammertime) ll Become a Premium Member Click HERE ll F.A.Q. Are You a Nissan Dealer? Click Here to Become A "Supporting Dealer" and Start Listing Your 370Zs In Our Inventory Section My Monterey Blue Z ll My Exhaust --> My Intake --> G3 Nissan's Official Response Regarding Oil Temp Issue: CLICK HERE Need a Set of Cheap Winter wheels /Tires? Then Visit The Banner Link Below and Place Your Order. You'll Help Keep The370Z Alive.

01-08-2009, 04:13 AM	#11 (permalink)
AK370Z Administrator Join Date: Sep 2008 Location: NJ Posts: 9,930 Drives: 09 370Z MB Sports M6 Rep Power: 10	Reserved for future article(s) __________________ The370Z Signature Pictures ll Want to rock our forum decals on your car? Then click here! ll How to Embed YouTube Videos In a Post STOP! (Hammertime) ll Become a Premium Member Click HERE ll F.A.Q. Are You a Nissan Dealer? Click Here to Become A "Supporting Dealer" and Start Listing Your 370Zs In Our Inventory Section My Monterey Blue Z ll My Exhaust --> My Intake --> G3 Nissan's Official Response Regarding Oil Temp Issue: CLICK HERE Need a Set of Cheap Winter wheels /Tires? Then Visit The Banner Link Below and Place Your Order. You'll Help Keep The370Z Alive.

01-08-2009, 04:13 AM	#12 (permalink)
AK370Z Administrator Join Date: Sep 2008 Location: NJ Posts: 9,930 Drives: 09 370Z MB Sports M6 Rep Power: 10	Reserved for future article(s) . __________________ The370Z Signature Pictures ll Want to rock our forum decals on your car? Then click here! ll How to Embed YouTube Videos In a Post STOP! (Hammertime) ll Become a Premium Member Click HERE ll F.A.Q. Are You a Nissan Dealer? Click Here to Become A "Supporting Dealer" and Start Listing Your 370Zs In Our Inventory Section My Monterey Blue Z ll My Exhaust --> My Intake --> G3 Nissan's Official Response Regarding Oil Temp Issue: CLICK HERE Need a Set of Cheap Winter wheels /Tires? Then Visit The Banner Link Below and Place Your Order. You'll Help Keep The370Z Alive.

01-08-2009, 04:14 AM	#13 (permalink)
AK370Z Administrator Join Date: Sep 2008 Location: NJ Posts: 9,930 Drives: 09 370Z MB Sports M6 Rep Power: 10	Reserved for future article(s) . __________________ The370Z Signature Pictures ll Want to rock our forum decals on your car? Then click here! ll How to Embed YouTube Videos In a Post STOP! (Hammertime) ll Become a Premium Member Click HERE ll F.A.Q. Are You a Nissan Dealer? Click Here to Become A "Supporting Dealer" and Start Listing Your 370Zs In Our Inventory Section My Monterey Blue Z ll My Exhaust --> My Intake --> G3 Nissan's Official Response Regarding Oil Temp Issue: CLICK HERE Need a Set of Cheap Winter wheels /Tires? Then Visit The Banner Link Below and Place Your Order. You'll Help Keep The370Z Alive.

01-08-2009, 04:14 AM	#14 (permalink)
AK370Z Administrator Join Date: Sep 2008 Location: NJ Posts: 9,930 Drives: 09 370Z MB Sports M6 Rep Power: 10	Reserved for future article(s) , __________________ The370Z Signature Pictures ll Want to rock our forum decals on your car? Then click here! ll How to Embed YouTube Videos In a Post STOP! (Hammertime) ll Become a Premium Member Click HERE ll F.A.Q. Are You a Nissan Dealer? Click Here to Become A "Supporting Dealer" and Start Listing Your 370Zs In Our Inventory Section My Monterey Blue Z ll My Exhaust --> My Intake --> G3 Nissan's Official Response Regarding Oil Temp Issue: CLICK HERE Need a Set of Cheap Winter wheels /Tires? Then Visit The Banner Link Below and Place Your Order. You'll Help Keep The370Z Alive.

04-07-2009, 07:02 AM	#15 (permalink)
miguez Enthusiast Member Join Date: Apr 2009 Location: Columbus, Ohio Posts: 359 Drives: '04 Cavalier Rep Power: 181	Thanks AK, awesome info.

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