Confessions of a Car Salesman
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I've always wondered what it would be like to be car salesman. What goes through their minds as soon as a potential customer enters the lot? Do they see the new comer as fresh meat while anticipating the kill (sale). Do they profile the customer based on the car that they drive and clothes that they wear? I came across an article on edmunds.com that answers all these questions (and more).
The article is called "Confessions of a Car Salesman" and it's a report of how an edmunds.com reporter went undercover and found a job as a car salesman. The article is quite long, so I took the helpful tidbits that may be useful the next time you decide to purchase a car.
… process begins by asking the customer how much they want for a monthly payment. Usually, they say, about $300. "Then, you just say, '$300… up to?' And they'll say, 'Well, $350.' Now they've just bumped themselves $50 a month. That's huge." You then fill in $350 under the monthly payment box.
… you could use the "up to" trick with the down payment too. "If Mr. Customer says he wants to put down $2000, you say, "Up to?" And he'll probably bump himself up to $2500." Michael then wrote $2,500 in the down payment box of the 4-square worksheet.
This is called the "up to" technique/trick. A small $50 raise in the monthly payment may not seem like a lot, but it ends up being $3,000 extra at the end of a 5 year term.
Lesson: Negotiate the final selling price (even for a lease) instead of monthly payments.
The final box on the 4-square was for the trade-in. This was where the most profit could be made. Buyers are so eager to get out of their old car and into a new one, they overlook the true value of the trade-in. The dealership is well aware of this weakness and exploits it.
Car dealerships can make a killing on trade in's and usually look to low ball the offer since it's your "old car".
Lesson: Look up the value of your trade-in before you go car shopping. Also, don't mention a trade-in until after you have negotiated your purchasing price.
"But here's the beauty of this system," Michael said, "these numbers aren't coming from you — you're still the good guy. They're coming from someone on the other end of the phone. The enemy."
This reminded Michael of something and he laughed. "Here's another thing. Never give the customer even numbers. Then it looks like you just made them up. So don't say their monthly payment is going to be $400. Say it will be $427. Or, if you want to have some fun, say it will be $427.33."
So what you do is this," Michael pretended to pick up the phone again, "you ask the desk, 'What did we get for the last three Tauruses at auction?' Then they'll give you some figures — they'll say, $1,923, $2,197 and $1,309. You don't have to say anything to the customer. But he sees you writing this down! And he's going, 'Holy crap! I thought my trade was worth $6,000.' Now it's easy to get it for $3,000. That's a grand extra in profit. And it's front-end money too!" (I later learned that front-end money was what our commissions were based on. Back-end money was made on interest, holdbacks and other elements of the deal.)
These are some examples of sales tactics that car dealerships use. The good cop, bad cop routine (using the phone), and pricing strategies.
Lesson: Be aware of the number games that car sales people can pull.
..whenever someone failed to accept the "first pencil" (the high numbers they begin with) Michael would always have "an idea" or "remember" a rebate or special interest rate program. This avoided the head-to-head confrontation. It also promoted the sense that we were working in the customer's best interest.
The dealership can always go lower than the sticker price.
Lesson: Always ask for a better price!
If the minivan was selling for a sticker price of about $24,000 with options and tax, a 60-month loan at 9 percent interest would be $475 a month. However, I later checked Edmunds.com True Market Value prices and saw that this van should have been discounted about $1,700 from the sticker price. Then, monthly payments at 9 percent would have been $430 a month. Over the life of the loan this was a $2,520 difference.
This goes to show that a little pricing research can go a long way when purchasing a new vehicle. In the states, edmunds.com is popular. Here in Canada, I've read that CarCostCanada is popular.
Lesson: Buying a car is just like buying any other big ticket item, research and due diligence is required!
From my commission check it was clear that the minivan couple could have made a better deal and saved several thousand dollars. So where did they go wrong? Well, first of all, they negotiated as monthly payment buyers, rather than bargaining on the purchase price of the vehicle. When you agree to be a "monthly payment buyer" several variables are introduced that are harder to keep track of: the term of the loan can be extended up to 72 months (six years!) without your awareness and the interest rate can be raised. When you bargain on purchase price, it is a cleaner, simpler way of negotiating.
In Summary:
- Car sales people commissions are based on the profit that they bring in. That's probably the reason why they always push for rust protection, scotch guard, extended warranties.
- If you're set on purchasing a car, tell the sales person that you're going to pay cash. That way, you can negotiate a final purchase price instead of discussing monthly payments.
- If you have a trade-in, don't mention it until you've negotiated your final purchase price.
- The more educated you are about the market value of a vehicle (along with the trade-in), the better the deal you're going to get.
- Never feel pressured to buy a vehicle. The whole meeting with a car sales person is designed to make you feel "rushed" into buying.
- When negotiating on the price of the vehicle, always be prepared to leave the table.
You can read the whole story Confessions of a Car Salesman. Make sure you get comfortable though as it's a pretty long article but a great read none the less.
Do you have any tips when purchasing a new/used car?
Read about how about MDJ reader got a great deal when buying a new car.
Update: If you're interested in joining Car Cost Canada, find out how you can save 10% off the membership fees.
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45 Comments, Comment or Ping
2. 10KPortfolio
Nice Post! The one thing I would like to add is to try to sell your car vs. trading it in. You will get be able to sell it for way above the trade in value most of the time.
Nov 29th, 2007 @ 6:44 am
3. FourPillars
You might try practicing the negotiation - not sure with who though.
When I bought my car a few years ago (new) I was quite prepared - I was paying cash (borrowed elsewhere), knew the dealer cost. Planned to negotiate on the final price including taxes etc. I felt confident!
I started off ok with the negotiation but by the end, we added a couple of features (which I wanted) and I have to admit I kind of got confused (she was good) and wasn’t sure which way I was going by the end of it. I was however happy with the final price in the end because I I got the car for about $500 over cost and the extra two options I got were negotiated down (not sure how much of a deal I got on those).
Nov 29th, 2007 @ 9:42 am
4. FrugalTrader
I think the key is to do your own research, stick to what you’re willing to pay, and be willing to walk away from the table.
I’m interested in hearing from others who have attempted to negotiate for their car purchase.
Nov 29th, 2007 @ 11:21 am
5. Plan Your Escape
Great post FT! I’m going to be in the market for a new car in the new future and these tips will help a lot. Thanks for taking the time to distill everything down to the key points.
Nov 29th, 2007 @ 12:23 pm
6. FrugalTrader
Hey Plan Your Escape, if you could report back here on your experiences with the sales people, that would be great!
Nov 29th, 2007 @ 12:31 pm
7. Frugal Geek
Thank you very much for this article.
Nov 29th, 2007 @ 12:43 pm
8. Telly
Interesting post.
I’m hoping not to be in the market for a new car anytime soon but I am starting to get the itch for automatic windows. :)
The rule about negotiating the final price and NOT monthly payments is incredibly important but also seems pretty basic. Oddly enough though, we don’t think that way when it comes to buying homes. We got to the bank and figure out what monthly payments we can afford and then look for houses at or near that peak based on the interest rate we locked in at during pre-approval.
If it doesn’t make sense for a $20k car, why does it make sense for a $300k house?
Nov 29th, 2007 @ 1:01 pm
9. FourPillars
Two more things to add:
The day I bought my car, I had not intended to buy that day - I was still undecided whether to buy new or used and I want to shop around and wanted to be patient (ie take my time). I’m not sure if it was the salesperson or my lack of patience but once we got going with the negotiation I just decided to go ahead with it. It wasn’t necessarily a mistake but it wasn’t what I had planned.
The other thing is that at some point early in the negotiation they asked for my credit card so they could run a deposit. I was quite surprised and agreed to it - I wouldn’t do that again. The CC and deposit stayed with the “manager” in a different room.
The idea is that with the credit card deposit they have the final trigger on the deal (although you can always use right of recission to back out). The offers went back and forth so they would offer a price and then I would counter-offer, then they would come back with another offer and I would counter-offer. Each time I made a new offer the agent would go to the other room to present to the manager and then would come back with the new offer or the acceptance. At any time I could have accepted their offer or at any time they could accept my offer without giving me the opportunity to back out at the last minute. In the end they took one of my offers so the deal got done.
I don’t think the credit card thing affected my situation but I would suggest saying “no” if they do it to you.
Nov 29th, 2007 @ 1:05 pm
10. FrugalTrader
Telly, still got the old roll up windows hey? :) You make an interesting point about homes and how people see how much they can afford based on mortgage payments. I personally purchase homes based on purchase price relative to market value of other homes in the neighborhood. But maybe that’s just the investor in me.
FP, i’d say the sales lady had you in her scope the minute you entered the lot! I would say that getting your credit card deposit was all part of the strategic sales process.
Nov 29th, 2007 @ 1:17 pm
11. Mike
My wife and I bought a new car last year. I could write an entire blog post on the process but for now I’ll have to settle for one of my ‘tricks’.
We bought a GM vehicle and GM offers a deal to students. The GM definition of student includes part time university students. My wife is taking correspondence courses to complete her degree so this qualified. They also include anyone who has graduated in the last 4 years.
GM will make the first two payments under the student program (up to $600 x 2 = $1200 max). The cost of a course could be as little as $300 and that tuition fee is tax deductible (plus you get other deductions as a student). Even if you never complete the course there is a huge savings to be had. We saved over $1000. Another benefit of the GM student program is a reduction on the cost of an extended warranty (normally I would not touch these). The 2 year extension was supposed to be $2350 and we were charged $637.
Look at other car companies to see if they have similar programs.
Nov 29th, 2007 @ 1:18 pm
12. FourPillars
FT - you got that right. I was however a very willing “victim” since I did want to buy the car. My main concern was getting a reasonably good deal which I think (hope?) I got.
Another story - my Dad bought a new car last year and he just phoned 3 or 4 dealerships and asked for a quote and took the best one. Seemed like a good strategy.
Nov 29th, 2007 @ 1:23 pm
13. Telly
FT, the roll up windows are a real pain, mostly in the summer. Not long ago, a friend of mine was in the lane next to me (to my left) at the border and put down his window to say something. I had to unbuckle my seat belt, put the car in park and lean over to roll down the window. :(
I remember reading once (on Edmund’s I believe) that one should be able to get employee pricing on many new vehicles. This is more likely to happen if you’re looking at one of the domestic automakers as they tend to give bigger discounts. Also, purchasing at the end of the year or early in the New Year can score you better deals. It’s a time of year when not many people are buying and the last of the late model years are left, before the new models arrive.
Nov 29th, 2007 @ 3:22 pm
14. FrugalTrader
Telly, I remember you commenting in the past that you favor domestic used vehicles over imported vehicles. What is your rationale behind this? Maybe that domestics depreciate faster thus getting a better used price?
Nov 29th, 2007 @ 3:29 pm
15. Plan Your Escape
FT: Yes, I will check in again to let you know how things worked out.
Nov 29th, 2007 @ 4:47 pm
16. Telly
Yep, that’s definitely the case (depreciation) when looking at used vehicles. A lot of people are still stuck in the 80’s and 90’s and think that Toyota & Honda have much better quality & reliability than the domestic automakers, but that’s a thing of the past. Perception is BY FAR the domestic automakers biggest weakness right now, and thus the reason both Ford and Chrysler have “stolen” Marketing execs from Toyota.
Would I pay $10k for a 2000 Honda Civic over $5k for a 2000 Ford Focus? Nope.
Even new - I recently saw an ad in the paper the other day for a brand new 2007 Focus for $13k with 0% financing for 36 months. You can’t find a deal like that with Honda or Toyota and if you’re going to drive the car into the ground, why should you overpay if you really don’t care about resale value? You’ll get $500 for your heap of junk regardless of what make it is.
Nov 29th, 2007 @ 5:13 pm
17. Gates VP
I’d like to add another lesson if I may FT.
Don’t negotiate!
You probably don’t know how. If you think that you know how, you’re probably not very good at it.
That said it’s a shitty rule, b/c obviously FP pulled it off, but in general, you are dealing with professional negotiators. This is most of their job. Good salespeople are there to connect the right people with the right stuff. But the average car salesperson doesn’t know enough about what’s “right” for you. Most people are just self-selecting, they already come in with a car in mind.
So this is important to remember, if you’ve already made a purchasing decision, the salesperson really isn’t doing very much for you that you haven’t done for yourself. So once you sit down, the biggest thing left is that his job is now to extract as much money as possible from you.
Yeah that’s right, that’s what he’s getting paid for. He’s a professional negotiator, he probably knows less about the cars he sells than what’s written in the brochure, he’s just there to fill out forms for you and try to lead you into spending more money.
My favorite car buying story comes from my boss, he walked into a dealership, asked for and outfitted a vehicle and then kept asking for a lower price until the manager asked him to leave. (he’d warned his wife that they were getting kicked out) They then proceeded to the next dealer and offered that dealer the “kick-out” value, b/c he knew he’d hit near the low point, he took it on the spot.
So as always, it’s the poor decision makers vs. the good decision makers, the informed vs. the uninformed.
Here’s my personal foil: when the salesperson goes to visit the manager for the 3rd time, ask them to come back with manager and then leave you alone. Tell them that if they can’t make the decisions on price, that you need someone who can b/c they’re wasting your time.
Of course, if you don’t think that you have the balls to do that or to get kicked out like my boss did, then don’t negotiate! Listen to Lemonaid and do it simply. Arrange for outside financing and pick your car by surfing the web or by grabbing an info guide from a dealer. Pick your options in advance and then fax/e-mail all of the appropriate dealers in the city/region.
On the fax/e-mail you put your car, your options, your contact info, your offer price and a line indicating that you have sent this to several other dealers and that your money is available on a “first-come, first-served” basis. And of course, make sure that your offer is reasonably below the list price.
Note that this likely will not get you the best possible price, but it will get you price you’re asking for (and can likely afford). It will also avoid the hassles and headaches of negotiations or wasted time in the “back room”.
Of course YMMV
Nov 29th, 2007 @ 8:00 pm
18. Jeff English
I got linked into this website through a google search for the Smith manoeuvre and I am intrigued by your quest and have spent the last hour pouring through it. Great blog - unfortunately - I didn’t know where to post this completely unrelated to cars question as I haven’t figured out how to navigate the blog completely.
Anyways, my question is simply this - is your quest for a million dollars for yourself or for you and your wife, because theoretically - you only own half of the assets. So should the Million Dollar Journey be more of a Journey for two - or is it really a Two Million Dollar journey?
And on car sales - I’ve always found that you go to someone that you can trust ( I know that’s an oxymoron with car salesman but everyone should know at least one or two car salesmen) - and pay a reasonable amount because they have to eat too - and you won’t get a lemon. Of course - do some research beforehand too.
I think the fear of getting a lemon overrides any goal of beating a couple of hundred out of salesman.
You get what you pay for.
Nov 29th, 2007 @ 11:29 pm
19. TKO from Ontario
Opinions about buying cars are like belly buttons, everybody has one.
Some are better than others though.
Here’s mine: Don’t listen to amatours, do your own research. Go to the library, borrow a copy of Lemon Aid for free. Straight advice from a professional on car buying process. Enjoy and save money.
http://apa.ca/template.asp?lang=english
Ps. Ford Focus is still crap, no matter the year.
One of the most recalled cars in history.
Nov 30th, 2007 @ 5:08 pm
20. telly
2006 Vehicles With Most Recalls
Year Make Model No. of Recalls
2006 Chevrolet Silverado 1500 SS 4
2006 Dodge Durango 4
2006 Hyundai Sonata 4
2006 Land Rover Range Rover Sport 4
2006 Chevrolet Express 3
2006 Ford Expedition 3
2006 GMC Savana 3
2006 Honda Accord 3
2006 Honda Civic 3
2006 Land Rover LR3 3
2006 Lincoln Navigator 3
2006 Toyota Tacoma 3
No sign of the Focus. It’s not in the 2007 list either. It may have had a lot of recalls in the 1st couple model years when it 1st came out (2000 I believe), but so do all vehicles. I would never buy a vehicle in it’s 1st year or two of production. I guess I thought that was common knowledge.
The Focus replaced the Escort. Mine is in it’s 9th year with 200k km. No recalls and no complaints (minus the manual windows). I would have no qualms with buying a Focus, but then I don’t like to spend much on a vehicle. Is there a better option? Sure. But not for that price.
Nov 30th, 2007 @ 7:11 pm
22. SmartBoy
I bought my car 2 years ago when I moved out west, and my process was pretty straightforward. I decided which car I wanted (pretty much the hardest part), then went to CarCostCanada.com and got the dealer price + current incentives (say, around $17K). This cost around $20. Then, from the comfort of home, I basically phoned every Chevrolet dealer in Edmonton and told them what I wanted, how much it cost them, and how much I was willing to pay for it. Nobody ever questioned me.
I started by being willing to give them around 3.5% extra for the car (~$17.6K), and then once I had a quote I would call the next dealer and tell them that if they could beat the best price I currently had I would strongly consider buying it from them. I kept going and going until I managed to get the final price down to near cost, maybe around $100-150 more. Took maybe 1.5 hours at most. Once I had a price that I liked with people that I liked, I told them to fax me the quote and that I’d sign it and fax it back to them. Done deal. No fuss, no hassle, no nonsense, no face-to-face dealing and stupid mind games.
Only when I came in to get the car did I tell them that I also got the university rebate (first two payments on them) and that I also had a $2000 GM Card balance to use. 0% financing made the deal even better.
With all that said, I’ve had some problems with this car which I never had with my old Toyota. When it comes time to go car shopping again, I’ll probably go for a slightly used car to maximize my dollars, and probably look at Japanese models again.
Dec 1st, 2007 @ 6:50 pm
32. Dividends4Life
Wow, that was an excellent article! Thanks for sharing it. I hate buying a car more than buying a house. I plan to include your article in my weekly carnival review this Friday.
Best Wishes,
D4L
Dec 17th, 2007 @ 10:26 pm
35. Destiny
Did you ever think that maybe some car salesman are not like that? They don’t judge by the clothes you wear, they are there to sell cars to put food on the table for their families and make a living just like everyone else.
Jan 4th, 2008 @ 7:18 pm
36. Salesman
My father and I run a used car dealership. We have a very differnt mantality than most car dealers. Heres why. Number 1 we don’t wear suits. Number two we have very low overhead, less than $1000 a month. Number 3 we undercut or are at par with every other dealers prices within a 50 km radius. Number 4 we have a no warranty policy and we inform the customer of this very clearly but if a car has major problems within the first month or 2 we will help out by getting it fixed(by our prefered machinic not the customers), if the customer goes elsewhere to get it fixed we pay 50% or less(Some machinics are way worst than car dealers with the price uping). Number 5 we sell cars between $2000 & $5000. Number 6 50% or more of our customers are return or referal & we have been at our current location for less than 2 years. At our old location of 10 years the percentage was much higher. Number 7 if we don’t sell a car in stock within one month we sell it at a wholesale auction win or lose. Number 8 all cars are windsheild priced and I’m uasully always willing to go down. Number 9 I don’t go for the test drive with most customers, I tell the customer to shop around, i tell the customer to think it over, I am in no rush to sell cars! The best year of cars sales with this formula was about 3 years ago when we sold 280 cars. I d also like to go into 1 more thing when you tell someone your a used car salesman they ither hate your guts or there your new best friend, people are funny like that! I am very happy with my career choice Im the only one in my family to continue the 4 generation tradition!
Jan 6th, 2008 @ 1:54 am
37. FrugalTrader
Hey Salesman and Destiny, yes you are both right, not ALL salesman are the same. The article points out the experience that a reporter had while working as a car salesman at 2 different dealerships. I’m not saying that car salesman are “bad”, the article simply points out the strategies that they use to sell cars.
Jan 6th, 2008 @ 10:22 am
41. Shane
I am a salesman and the problem with customers that dont mention their trade until the final price is agreed on isa lot of times there is a big difference in what we can buy the trade for and what they owe on it. Unfortunately people dont get a true value on their vehicle by using sources such as Kelly Blue Book or N.A.D.A. I know the sources we use for appraising vehicles is a national accounting of what vehicles are selling for at wholesale auctions. We recondition most of our preowned vehicles and Warranty them for 2 months or 2000 miles. Most vehicles are also not in Excellent condition. Fair trade value is usually the closest we can get. Some of the sources that people use to price new vehicles from do not include some of the charges dealers incur in obtaining a vehicle. Dealers are in business to make money. Salespeople make a living this way. We have cars that there is no more than 500 in markup. Most salespeople get paid on the profit from markup. It is a percentage of that. If we could sell cars for what people wanted to pay and keep the doors open we would. Wal Mart cant sell merchandise for less than what they have in it. Profit is not a crime. You have to have it to keep in business. Negotiation is fine. Be Reasonable.
Feb 26th, 2008 @ 6:03 pm
43. Dividendgrowth
That’s a great article. Thanks for sharing it!
Mar 13th, 2008 @ 4:07 pm
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