When I watched this video of $15 million worth of exotic cars totally smashed up (hopefully all the drivers are ok), I kept thinking that I would be really bummed if I was the owner that had to walk into a dealer and buy the same car again.  What would it mean if the owners (or should I say previous owners?) of these cars bought them using Carsala? If you’re unfamiliar with Carsala, it’s a used car buying service that finds the used car you are looking for, negotiates with dealers for you, and saves you 25% off of Blue Book (on average).  The owners could buy a two year old version of the same car, use Carsala, and save $2.25 million!  That’s savings to hang your hat on.  Here’s the very, very, sad video of many beautiful cars that have seen better days.

In case you’re wondering, here’s how I calculated $2.25 million in savings.  The video featured $15 million worth of exotic cars.  Used cars tend to be only worth 60% of their new value after only 2 years.  Carsala saves used cars buyers 25% off of Blue Book on average.  So….  $15M x 60% x 25% = $2.25 million.  As an end note, Carsala doesn’t actually deal with truly exotic used cars, but it sure did work when I bought a 2007 Honda Civic!

If I was a car dealer and reading some posts on this blog, I might be pretty upset.  It’s almost too easy to write callous comments about dealers, their sales techniques, and what extents they will go to when trying to sell a car.  In the name of objectivity, here’s my headline story for today: CAR DEALERS GET A REALLY BAD RAP.

The only difference between a car dealer and almost every other business you deal with is that car dealers often have a single day, or even a single hour, to sell a car when other businesses take their good ol’ sweet time.  Other businesses have months and sometimes years to do the same thing.  To make the point, here’s a comparison of some car sales techniques with techniques used by some very well known businesses:

Low-Balling

• For cars this is the practice of quoting an unrealistic price and then unexpectedly changing that price. The whole point of low balling is to get you, the consumer, mentally committed to buying a car. Once you’re committed to buying the car, you will agree to just about anything because not buying the car is inconsistent with your previous decision to buy the car. McDonalds is reported to also be in the business of low balling. Apparently McDonalds low balls the calorie and fat content of some foods by using unrealistic serving sizes. So if you have been eating a lot of their soft serve cones because you thought they only had 150 calories and 3 grams of fat, you might be surprised to find that they have around 225 calories and 4.5 grams of fat. Are you going to stop eating those cones? No, I didn’t think so…

Selling Add Ons

• If you dread buying a car because of all of those add-ons you’ll be asked to buy, sit down in front of a mirror and practice saying, “no… no thank you… no… no thank you.” This will be valuable not only when buying a car, but also when buying a lot of other things. Computers and computer companies for example – we all have our favorite. However, computer companies aren’t really different than a car dealer. The “special prices” we are quoted often don’t seem that special after we get a hard drive upgrade, RAM increase, service plan, better processor, and software additions for the extra cost of $500 to $1000. Are you going to speak poorly of your favorite computer company now? No, I didn’t think so.

Promoting the Benefits

• Car dealers know how to promote all the benefits of their cars. Performance, comfort, reliability, price – they have a sound bite for everything. My personal favorite was from an Infiniti dealer that was promoting the FX35 (small SUV) by calling it a “sports car with a back pack.” As you can see, I’m still thinking about it and writing about it today. However, this idea of promoting the benefits is used by all businesses, but we choose to see other businesses differently. Remember that desperately average entree or bottle of wine you had at dinner because your waitperson said it was wonderful and gave an amazing description? Well, it’s not any different than a car dealer. When you go out, will you tell your friends a story about what the car dealer said or what the waitperson said? Neither is really that funny or interesting, but I’m betting you’ll talk about the car dealer.

This list could go on and on, but I’ll end it here and leave it up to readers to comment and debate my claim that CAR DEALERS GET A REALLY BAD RAP.

When stocks are really risky and buying a house is a mine field, what should you do?  Buy a car!  You think I’m crazy? Let’s start with some of the evidence that there’s a slump in car sales, making it a great time to buy a car:

For more “normal” products like TVs, this might not be such a big deal.  If you’re selling TVs and your demand goes down, you stop making so many TVs and try to stop prices from falling through the floor.

In the used car industry, you can’t just “stop” the supply of used cars like you can with TVs.  Lease deals were made years ago and there’s no way to turn back time an undo this.  Leases that are ending right now have another problem – car dealers overestimated the residual value (end value) of leased cars so there should be a lot of people choosing not to buy back their leased cars.

I’m encouraged by the amazingly low wholesale car prices.  Put this in perspective, these are the lowest since 1994.  What were you doing in 199$?   The flip side is that car dealers may be willing to try every sales tactic they know in order to sell a car and maximize profit.

If you’ve read my previous blogs, you can guess that I’m going to tell you to be smart and use Carsala to buy your used car.  Check out my other post, if you need a refresher as to why Carsala actually loses money when you pay more for your car.

Have fun deciding what car you want to buy next and come here to share your car buying experience!

1984 Dodge Colt Vista looks like a "crossover" to me

What in the world is a family car?  If you check out Wikipedia’s definition, you get some weird Euro concept that doesn’t quite fit into an American’s idea of a family car. After all, family cars have been sedans, station wagons, mini vans, SUVs, and now “crossovers”.  That’s pretty diverse.

While I was stuck on figuring out what is a family car, it suddenly hit me – today’s family car doesn’t exist!  By now your thinking I’m completely off my rocker, but start by putting together a list of what an average family is looking for in a car:

• Enough space for five people and their luggage
• A car that makes it relatively easy for adults and kids to get in and out
• An option for four wheel drive
• Moderate sexiness so you don’t cringe when you see it after two years
• An affordable price
• Good gas mileage

It is the last item in this list that has literally changed today’s family car.  With Americans suddenly concerned about gas prices, a surplus in housing, and a lot of jobs at risk, families are looking to save money by not spending their paychecks on gas.  To get good gas mileage, car makers have commonly sacrificed either the sexiness or the price of the car.  Note that I am considering “good gas mileage” to mean 30 mpg or better.

If you’re currently looking to buy a family car, you probably have a car that’s five years old.  Five years ago, your family car probably got 20 mpg.  If you want to save some money it needs to be substantially better than this.  A quick analysis shows that if you spend $2 per gallon and drive 15,000 miles per year, an upgrade to 30 mpg would reduce your annual gas costs by $500.  This kind of savings is meaningful.

Many people claim that the crossover is the “new family car” but I feel like car makers got out their Legos and tried to come with something new using Legos from last Christmas.  To put “new” into the title, I believe you have to redefine the genre in some way – and a significant improvement in fuel efficiency is enough to pull this off.

MSN has on their website a list of what they consider to be the “Top 11 Crossover Vehicles.” I would be happy, if not elated, to drive many of these crossovers – but they’re not true family cars to me.  Let me dissect a sampling of the cars to show why they don’t fit into my family car definition:

• Cadillac SRX - low gas mileage (20 mpg), not affordable
• Ford Edge - low gas mileage (20 mpg), too small
• Honda CRV – low gas mileage (23.5 mpg) , too small, limited sexiness
• Mercedes R Class – low gas mileage (18.5 mpg), not affordable, limited sexiness
• Subaru Forrester - low gas mileage (25.5 mpg), no sexiness
• Volvo XC 90 – low gas mileage (19.5 mpg), not affordable

2008 Toyota Highlander

There are some cars that are coming closer to being the new family car.  The new Toyota Highlander Hybrid has a huge interior and looks great.  However, it’s too expensive and gas mileage (26 mpg) is good but still lacking.  Maybe Toyota will finally seal the deal when they incorporate the new hybrid technology coming out in the 2010 Prius into the Highlander.  A used Highlander is a better new family car because you can easily save $10 thousand dollars if you can give up the new car smell.

Do you think I’m wrong or missing something in the definition of a family car?  Share your thoughts and insights!

Top ten lists are great!  They’re funny, entertaining, and take our minds off the daily humdrum.  Here’s an unusual top ten list because it will leave you feeling knowledgeable and empowered if you’re considering walking into a car dealer – the Top Ten Things a Dealer Absolutely Won’t Tell You.

1.       “I buy my inventory for a lot less than you think.”

• Haggling over price has always been difficult, but with the Internet, things have become a lot easier: Car buying sites like CarsDirect.com will tell you a car’s invoice; the web site Edmunds.com even lists the invoice price of options. At last, we can know what dealers really pay for vehicles. Or so we think.  In reality, a practice called “holdback” allows dealers to pay 1% to 3% below invoice for vehicles. Dealers buy cars at the invoice price and after the car is sold, the dealer gets a reimbursement for holding the car in inventory for 90 days. When a dealer sells the car faster than that, part of the holdback payment becomes pure profit, even if the car is sold at invoice price. “You’ll never get holdback money back from a dealer,” says Burke Leon, author of “The Insider’s Guide to Buying a New or Used Car,” but just knowing about it can help when a dealer whines about meeting your price.

2.       “Our lenders aren’t as tough as I make them seem.”

• Car dealers will sometimes do anything to pass the buck regarding pricing and sales. One common trick? Blame everything on the lender. For example, some dealers will say that the leasing company requires deals to be based on the sticker price, says Mark Eskeldson, a consumer advocate who runs the watchdog Web site CarInfo.com. This probably isn’t the case, since lenders can’t control a car’s price. Likewise, some dealers will claim the lender requires an extended warranty. Don’t be fooled, warns the Federal Trade Commission in its online FTC Facts for Consumers report on auto-service contracts, adding that you should contact the lender to check this out yourself.

3.       “State lawmakers are in my back pocket.”

• Since auto dealers deliver huge sums in sales taxes to state coffers, they have powerful local and state lobbies and have succeeded in pushing through a lot of legislation to protect their interests. One of their biggest targets is direct sales over the Internet. Most states’ franchise laws make it illegal to sell cars in a particular state without a bricks-and-mortar dealership there, and the dealer lobby has been particularly effective at suppressing auto makers’ attempts to sell over the Web. In 1998 Ford began a program in which car buyers could choose from used Fords online at no-haggle prices, then complete the purchase at a local dealership. A year later, Texas regulators filed a complaint against Ford for acting as a dealer without a franchisee’s license. Ford sued, claiming that Texas law favors local dealerships, discriminating against interstate commerce. A district judge ruled against it.

4.       “The bait-and-switch is alive and well.”

• You walk onto the car lot set on a certain model, but immediately the dealer starts ticking off all the reasons why that car simply isn’t good enough for you. Before you know it, you’ve signed on for a car that’s bigger, better, and more expensive. When you show up armed with all sorts of information you’ve gotten online, the dealer’s best defense is steering you into unfamiliar territory, says Phil Reed, a car-buying consultant at Edmunds.com. That’s exactly what happened to Christine Kemp, a junior high school teacher who got sucked into leasing a $40,690 Toyota 4Runner Limited, despite researching lower priced models for over a year. The salesperson focused on the better towing capabilities of the more expensive model. The dealer steered Kemp toward the Limited for a test-drive, and talked up its perks (to great effect) even though the four-cylinder base model was strong enough to tow Kemp’s jet skis.

5.        ”I’ll give you a great price – and then lowball your trade-in…”

• If you’re trading in an old car, explains Leon, the dealer’s greatest potential for profit is in giving you a low value on your trade-in. How come? Most people have no idea what their car is worth, and besides, you’re less likely to play hardball on this point when that new car is much more interesting. Leon recommends always settling on a trade-in price before even considering a new or used car. Last year, Reed went undercover as a salesman and then wrote about it for Edmunds.com. One day, he met a man that had gotten $5,000 for his used Chevy Cavalier, but a week later it was on the lot with an asking price of $12,000.

6.        ”…and you won’t know, since the Blue Book favors me.”

• To help prevent a trade-in disaster, some consumers try to learn their old car’s worth by looking at the Kelley Blue Book (KBB), long held as the gold standard for used-car prices. But both Leon and Spinella warn that those numbers aren’t gospel. Here’s why: KBB publishes two different guides, one for dealers, which prints wholesale prices, and one for consumers, which has retail prices (and is therefore of little help in determining what your car is worth to the dealer). Plus, at KBB’s Web site, you can look up trade-in figures that, even for a car in excellent shape, are below the dealer’s lowest figure (the wholesale price). So even if the dealer gives you the best KBB value for a trade-in, there’s a built-in profit if he turns around and sells the car for wholesale.

7.        ”The car you’re buying was totaled last month.”

• The advocacy group Consumers for Auto Reliability and Safety estimates that one in nine used cars sold has hidden damage, including more than a million cars each year that are totaled, rebuilt and often sold as if free of damage. How do some dealers get away with it? Titling laws vary enough from state to state that a totaled car can be “cleansed” of its salvage brand by being retitled in a new state. Such cars are often shuffled around the country through auctions, and while the final dealer may make a legal claim that he didn’t know about any damage, Brown says that it’s a case of see-no-evil. “Dealers know what they’re buying at these auctions,” he says. One common way to check if there has been any major damage to a car is get a car history report from a service like CARFAX or AutoCheck.

8.       “Your loan puts cash in my pocket.”

• Ever wonder why that dealer is so keen on finding you an auto loan, even when you offer cash? When dealers set up loans, they commonly take the rate offered by the lender, then tack up to two percentage points on top. All or part of that so-called dealer markup is given to the dealer. And dealers aren’t required by law to disclose the practice. The National Automobile Dealers Association (NADA), says that dealers are entitled to a markup for arranging financing. “Because dealers buy credit in bulk and provide the retail infrastructure for serving individual customers, they get lower rates than a consumer,” says a NADA spokesman in a written statement. The problem says attorney Aurora Dawn Harris is that they, “pretend that they’re providing you a free service. And sometimes they’re making most of their profit on it.”

9.       “Our ‘new and improved’ customer service is a farce.”

• After years of having the worst of all possible raps, car dealers now insist that they’ve cleaned up their act. In a speech last year, NADA Chairman Harold Wells proudly cited a 1998 Gallup poll showing that 76% of Americans who bought cars were satisfied with their experience. Too bad he left out the rest of the picture. For one, franchised auto dealers still top the Better Business Bureau’s list of businesses receiving the most complaints – by a long shot. In 1999 auto dealers were the source of 17,686 complaints compared with 9,538 complaints for the No. 2 business, computer dealers.

10.   “A lease is a great deal…for me.”

• You may have noticed that many dealers would rather you lease than buy. The reason is simple: Leases generally bring dealerships more profit than sales, even for the exact same car. Why? Well, consumers tend to know less about leasing than buying. So, while 80% of car buyers haggle over the car’s purchase price, only 10% of leasing customers do, according to Spinella. Plus, lease customers tend to choose more expensive cars. So be extra wary if your dealer does whatever possible to steer you into a lease. One common tactic, says Eskeldson, is to give customers an “apples-to-oranges” chart comparing payments on a lease vs. a loan – quoting a low interest rate on the lease and a high one on the sale. Says Eskeldson, “If the consumer doesn’t know how to calculate his own lease payment, he is ripe for a rip-off.”

This list is primarily from an original article written for SmartMoney.  Write a comment and share your own inside information about the things that dealers won’t tell you!