10 MISTAKES THAT CAR BUYERS MAKE
Driving a brand-new car can be one of the great experiences of life. I remember the day that I got my first new car – when I started as a salesman at Torque Ford back in 1978. The best feeling was getting into it, smelling THE smell and then having it start the first time and driving away – amazing.
Walking into a car dealer and buying one, on the other hand, ranks up there with public speaking and visits to the dentist atop most people’s lists of Oh My God experiences. But it doesn’t have to be that intimidating if you prepare well and are knowledgeable. Then you can go straight into that dealership informed, head held high, confident, and in control of the whole process. I’ll help give you that confidence by helping you avoid the ten mistakes people often make when they’re on the journey to buy their next new car.
1) Not knowing what you’re after
Shopping for a car isn’t like looking for a new pair of shoes, dress or even a smartphone. Inexperienced car buyers enter the dealer’s world with only vague notions that they need a new car and how much cash they can spare or how much they can afford to pay every month. They’re ripe for a smart sales pitch from a well-trained salesperson that sees most people driving away in a new car from the first dealership they visit.
The showroom floor isn’t the place to practice the art of car buying.
Informed car buyers start with hours of online research at sites like carsales.com.au, caradvice.com.au and carsguide.com.au. On these sites, you can learn what’s available, compare costs and features, and read expert reviews and road tests and estimate financing costs. More and more dealerships in Australia are setting up sales departments that allow buyers to compare what’s available and even start the negotiation process before ever driving into their car park.
2) Not taking a test drive
According to statistics from the USA, one in six buyers didn’t even drive the new car they were considering before they bought. Another third took a short round the block 10-minute drive in the passenger seat with the salesperson driving in one car. Not a clever thing to do.
While you’ll learn a lot online, you can only take in so much. You wouldn’t buy a pair of shoes or an item of clothing before trying it on, so why would you even consider a significant purchase without trying it on. I’ve personally had situations where I’ve insisted a customer drive a car before signing a contract.
Before ultimately selecting the ‘right one’ you need to inspect competitor brands too. If you’ve been driving your current car for a long while, any new car will feel great. And remember the smell – it will get you every time.
Visit at least four dealers and drive anywhere from four to eight cars to get a basis for comparison. Many dealers will try to limit your opportunity to drive various cars – if they do, walk away. If not, make the test drive thorough. Take control and insist that you want to drive the car and drive it where you want to. If you’re doing highway driving, take it out on the highway. If you’re doing mostly city driving, try to drive it in heavy traffic. Also, be sure to drive the cars that you’re considering, not the higher spec model. Remember the shoes? It’s way beyond the capacity of most buyers to return a car that turns out to be a bad fit.
3) Negotiating from RRP
The Manufacturer’s Recommended Retail Price (RRP) displayed on the window sticker is not a good starting point for a price discussion. It may seem like a great deal if the salesperson offers to “knock $3000 off the price” but maybe not. Numerous websites online start at a much lower price than RRP. In Australia, we don’t get to see the factory invoice prices too often, but even if a salesperson offers to sell you a car at factory Invoice Price, don’t be fooled. Dealers have thousands of dollars margin left at invoice price, let alone the margin they make from Dealer Delivery and Handling, sometimes called Pre Delivery.
Why? Because there are other elements of the transaction—dealers also get a “holdback allowance” from the carmaker and may get incentives on a slow-selling model (paid to the dealer only, aside from any rebate offered to the consumer)
4) Expecting to use dealer financing
While 0% finance is prolific in the USA; we’ve only just seen this type of marketing introduced into Australia. Sure, the ads offer rates as low as zero percent, but the fine print says that’s only on the RRP price of the car. Last month they advertised a drive away discounted price, this month it’s 1.9%. If you’re confused at the offer, don’t feel alone. Even dealers get confused at the marketing offers from their manufacturers.
Better to shop your financing separately. See your bank or credit union first and, if possible, get preapproval on a car loan. Then you have something to compare against the dealer’s financing options. Sometimes, the dealer really can make you a better offer, but there’s no way to know that—or make it a negotiating point—if you have a comparable financing offer.
5) Shopping a monthly payment
Buyers should know how much they can budget monthly, but resist the temptation to make that the basis of the negotiation and especially don’t share that number with the sales staff. Instead, negotiate the actual sales price of the new car first, independent of down payment, trade-in, and financing arrangements. Handy online calculators (including one at the esanda.com.au) and phone apps will convert loan balance, term, and interest rate into a monthly payment for you. A dealer who knows you’ll buy at a certain amount may offer tempting financing deals with payments stretched out over a longer term, but you’ll end up paying more overall.
6) Discussing trade-in too early
It’s almost always possible—with time and effort—to sell your old car privately for more than a dealer will offer as a trade-in. Many buyers, however, find the ease of driving their old car in and their new one away compelling. If that’s what you want to do, research the value of your existing car online at sites such as http://www.carsales.com.au/car-valuations/?csn_tn=true. You’ll need to remember that dealers will want to make a profit on the sale of your vehicle, but you MUST decline offers that are too low. Typically dealers want to make around $2750 so calculate that in when you try to work out the real value of your current car. And if you struggle, don’t worry. Even experienced dealers need advice as to the value of any car.
If it turns out that you have a minus equity in your car (where the finance payout is higher than the real value) you really shouldn’t be in the dealership. You should try to sell the car privately and achieve at least the payout value. Don’t let the dealer add your minus equity to your new car – dangerous thing to do which will cause you a lot of financial pain down the road.
7) Not being prepared to walk away
No new-car deal is too good to walk away from. Dealers hate seeing the back of a real buyer, and that’s your strongest negotiating tool.
Don’t accept, “this deal is only good today” or till Saturday or something like this. If anything feels not just right, suspicious, or you, don’t understand what’s going on just say “I’m not sure about this, and I want to talk to a friend”. This can be hard to do if you need the new car quickly. Don’t get emotional about it – it’s only a car, and there are many other dealers with the same brand who want to offer you their price.
Dealers want you to think with your heart, not your head. Walk away. Only inexperienced buyers are astounded when the dealer calls a day or two later and offers a better deal. If that call doesn’t come, there are other dealerships and plenty of other cars.
8) Shopping only one dealer
Forty percent of buyers have visited only a single dealership, says DME Automotive. Many of those will be loyalists who’ve found a dealer and brand they trust, and they’re happy to keep going back. Even they, however, would benefit from having a look around, if only to make sure that their trusted dealer isn’t taking advantage of the relationship. Those who’ve decided on a make and model would do well to look at the internet sales departments on the sites of several nearby stores to see if there’s a better price on the desired car. If so, that’s, at least, a negotiating point for dealing with the nearer or more familiar outlet for that brand.
9) Forgetting about insurance and other expenses
Quite often a new car buyer finds they’ve got a great deal on their new car only to find that this car has a different insurance rating than their old car. And it’s more important where you’ve worked a budget to include their new car. Different cars and more particularly brands have different categories from different insurers. Many customers get insurance shock when they find out that the premium for their new ride is hundreds or thousands (in some cases) more than their old vehicle.
It should form part of the research before you go car shopping. A whole of life analysis will assist car buyers to determine the cost of the car to them over a longer term than just today. Things like service costs, fuel economy, roadside assistance costs, insurance, and even down to environmental considerations are important to look at
10) Not questioning extras at close
When you finally sit down to sign the deal, invariably you’ll be introduced to the customer care manager, delivery coordinator or aftermarket person. Get ready to say no a lot.
This is when the dealer tries to sell things like fabric protection, extended warranties, or accessories that are either unnecessary or far more expensive than if bought elsewhere. Make sure you’re not charged extra for things you negotiated up front with the salesperson, as a full tank of fuel, a third key or a full-size spare tire. Yes, the dealer can fold those costs into the deal, so they’re financed, but no one wants to pay interest on the labour to “install” some spray-on coating. Be prepared to pay legitimate costs like registration costs, transfer fees but don’t pay an admin fee in addition to the exorbitant pre-delivery fees.
Even consider paying for any extras that you do purchase on a separate invoice. Every time you add $100 to the total, stamp duty of between $3 and $3.50 (in most Australian states) is added to the total invoice.
And if you’re buying a car over the luxury tax limit, you’ll be charged $33 for every 1000 dollars spent. So if you’re thinking bull bars, tow bars, roof racks or those aftermarket extras on a car over $63184 (2015-16) do yourself a favour and buy it after delivery.
It’s ok to go car shopping alone. It can be fun when you’re fully armed with all the information needed. But in most cases, a car buyer’s advocate will do a much better job for you than you can do yourself. That’s where I come in. With over 35 years of experience in the car industry as a dealer, I know the tricks, traps, potholes and speed bumps that you will go through on your own.
Yesterday (14th March 2016) I delivered a vehicle to a local retiree where he said I saved him over $5000. Don’t be embarrassed to reach out for assistance. If I can save you serious money I earn my fee, don’t I?
Contact me, Bob Aldons on 0418 748 498 or you can email me at email@example.com for a confidential no obligation chat and more information.