5 Fatal Car Buying Mistakes (How to Avoid Them)
- Dennis Walsh @lawjolla
- Owner, Crosscut
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We pull back the dealership curtain and help you buy from anyone or anywhere.
You want the best car value but car buyers often say the wrong things and cost themselves thousands. We want you to make the best buy even if you don’t buy from us. So with that, don’t ever say the following 5 things!
“I’m paying cash!”
The buyer makes this proclamation like he’s a porn star arriving at a nudist colony. But sadly, no one’s impressed. And even worse, you just cost yourself more of your cash with that announcement.
Cash purchasing was a good strategy 20 years ago but times have changed. Back then, most dealerships ran “in house” financing. They had large credit lines (typically several million dollars) with banks and floated your purchase.
But if you paid cash, they didn’t need to worry about repossessions. They could take the profit from the sale and move on. For that quick win they could drop the price.
However, over time cars became more reliable so the average price of a used car skyrocketed. Dealerships today need tens of millions to write their own loans and the banks aren’t willing to pony up that kind of credit line.
Instead of using their money or bank credit lines, the dealership is an indirect lender that works with a third party primary lender. That lender pays the dealership “in cash.” So if it’s your cash or the lender’s cash, it doesn’t really matter. The dealership is getting paid and repos are the lender's problem.
But it gets worse. That lender always pays the dealer a portion of the loan. Depending on the vehicle, the dealer may lose money without financing.
And to top it all off, some dealers have a cash buying fee! This Honda dealer charges $1500!
Don’t tell the dealer you’re a cash buyer. When it comes to payment, tell them you aren’t sure and would like to see their financing options. (Some of them can be very good and even Bill Gates would be foolish to pay cash!)
“I want my payment to be…”
This is red meat to a car salesman.
You’ve stopped considering the price of the car once you’ve declared your payment target. Financing can work all sorts of tricks to hit your payment goal -- loan term length, interest rate, add ons, etc.
But once you’re talking about payments, you’re no longer discussing what actually matters -- the price of the car. Rest assured the price of the car isn’t changing once you give them your target payment.
Always negotiate the price of the car, not your payment.
Customers often stick on “it’s just a monthly payment” and “if I can afford it, who cares about the price?” Kind of true… until you want to sell it. Then your poor negotiating kills.
For instance, say you overpay $1000 for a $10,000 car because it’s just an extra 3 Starbucks a month. True. But the $1000 loss crushes your checkbook when it’s time for you to sell. You’ll need to pay that extra $1000 to sell the car if you have negative equity (“upside down”). Or you won’t get that $1000 extra equity on sale. At some point it becomes real money.
Do your homework beforehand. Start with a car loan calculator and see what loan amount corresponds to your monthly payment budget. Generally for a 5 year loan every $5000 is $100/month. Know your budget and roughly what each price and rate changes will do to your payments, but please, please, at all times, focus on price.
“I’m only negotiating in person! How do I know what it is if I can’t see it first!?”
“Of course sir, only a moron would discuss price without seeing it. How soon can you be here!? Be sure to ask for Tito... Tito Sarduci!”
This one is counter intuitive. How could it be to your advantage to discuss price on something you’ve never seen? It’s because you have seen it (news flash... the manufacturer made 100,000 other copies) and negotiation is about leverage -- the power one side has to influence the other. Negotiating in person reduces that leverage. Here’s how.
People perceive value in time. People feel more invested in the outcome the longer a process takes to get there. Therefore, once started, the longer the process the more willing he/she is to see a task through to completion.
Dealerships understand how you perceive your sunk time cost and they will do anything to waste your time. Most people dread the car dealership because it takes half a day to buy a car. (Actually, it doesn’t… at Crosscut it takes under 7 minutes in person!) You’re likely to spend more money and not consider alternatives the longer you wait.
Don’t believe me? Here’s an anecdote…
At Crosscut, we insist on negotiating the price before a test drive. We will drag you kicking and screaming through the gates of success!
But a few years ago, we got a customer who insisted that he “wasn’t an idiot” who would fall for “such tactics.” “Only an idiot would discuss price without seeing it!”
Typically I’d dismiss such a buyer, but I felt a little salty and ready to prove my point so I agreed. Come on down Mr. "Not an Idiot".
He drove 300 miles and spent 2 hours with the vehicle. He wanted it. Guess how much I came off the price? You guessed it-- full price, no discount. Had he pre-negotiated, he would have saved thousands. But now I got him… I know he's not going home empty handed. He's put too much into this to walk away. And yes, he bought it... full price.
So how do you negotiate when you’ve never seen the car? First, the manufacturer made tens of thousands of copies -- go find one and make sure you like that particular year, make, and model.
Then ask the seller what’s wrong with the car. We’ll cover this part more in an upcoming blog, but you want to know “what repairs have you made, are you selling it with any known issues, and is there any cosmetic damage or repainted panels?
Finally, make your offer. Here’s the part most buyers miss… you can renegotiate in person if any of the representations weren’t accurate.
However, many dealers only discuss price in person. They’ll use excuses like “we want to ‘build a relationship’ first”. Uh huh. The only thing they want to build is their checking account. Find another dealer.
“What’s my trade worth?”
The correct answer is “who cares?” What matters is the difference between the new car and your trade in.
However, dealers know that buyers get hung up on the value of their car and feel like they’re personally valued by proxy to their car's value.
Worse, if the dealer knows you’re shopping for other cars, they will overvalue your trade knowing no other dealer will match it and you’ll come back to them. Of course, overvaluing your trade means the dealer significantly overvalues their vehicle. You’ll end up in a worse spot but feel good that they’re “giving you so much.”
Don’t fall for it. Always focus on the difference between the values. Before shopping, get a purchase offer from another dealer without buying one of theirs. I recommend Carmax. Then you’ll know, roughly, what your trade is worth and you can evaluate the level of pricing shenanigans. And who knows, maybe Carmax will offer the best deal -- they routinely overpay.
“What’s the least you’ll take?”
Buyers think they’re savvy with this one, but more often than not, it ends up costing you the vehicle. War game this out and you’ll see why.
Say that a dealer offers a vehicle for $15,000. They think it’s worth $13,500 and you’d love to pay $13,500. You give them the “what’s the least you’ll take” zinger while patting yourself on the back for your expert negotiation skills. How should the seller reply?
First, most sellers will not negotiate with themselves. They’re asking $15,000 or best offer… so, make an offer. By the textbook rules of negotiation, they are right to insist that you go next -- never concede twice in a row when negotiating.
But say they aren’t steeped in best practices and respond. What do they do? They know if they say $13,500, they’ll likely get countered. You’ll probably get a response of $14,000.
You respond, “come on now, it’s only worth $13,000.” Now the seller is in a bind. They can either stick to their “lowest you’ll take” offer or they can be liars and drop their price. Normally they’ll feel compelled to stay close to their “lowest” offer. Expect a counter of $13,800 “and that’s really the best we can do.”
Now what? You’re either walking or paying too much. And if you pay the $13,800, you’re questioning the seller’s honesty -- their lowest price wasn’t actually their lowest price. This deal went south quickly.
Contrast that “I’ll offer $13,000.” Human nature is to split the middle. Textbook negotiation says to never split the middle, but good dealers want the customer to feel they made a good buy, so they’ll break some rules. In this case, they’re likely to counter at $14,000.
“I’ll tell you what, I think $13,000 is fair, but meet me in the middle at $13,500 and it’s done.” They already split the middle once… think they’ll do it again? Yes. But this time they’re not burdened by the “lowest price” stigma and negotiating against themselves. They can meet your counteroffer. $300 saved.
At Crosscut, we want to drag you kicking and screaming through the gates of success
We custom coded our own website to cut out all of this nonsense. You know the car from our 15 minute test drive video, 80+ pictures and full inspection report. Then we negotiate the entire thing online. From there, you can sign and pay online or come test drive in person. And we always welcome cash buyers.
But above all, we want to help you make the best deal possible. If you got any value from this, we’d greatly appreciate a social media share. It helps us, and, if this post helped you, it’ll probably help your friends and family too!
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