The Car Buying Process

In most cases, car buyers are so overwhelmed by the complexity of the buying process that they just let the salesman tell them what they should or should not do. But it does not have to be this way. Yes, buying a car is complex, but it doesn't mean that you are no longer in charge.

The system is designed to make it hard, confusing and drawn-out for you, and profitable for the car company. The whole process is set up to extract the most cash from you by confusing you, tempting you, and in the end wearing you out.

It is true that there are many items to decide upon, but making these decisions easy for you is not high on the dealer's list of priorities. In short, there are many ways where both the salesman and dealer can add to their profit at the moment of sale.

You may be asking yourself, "Why does car buying take so long? Why can't it be as simple as doing your grocery shopping?" You see what you like, pay for a fair price, and go home. But buying a car is very different from this standard retail procedure. Here are the reasons why.

• First, most people do not know what they want to buy when they set foot on the lot, or even if they can afford a car or not. Therefore, it is easy for a dealer to take advantage of these buyers.
• Most people do not know what their trade-in is worth - and most dealers depend on that to get the most money from your old car - money which they put toward buying more new and used cars to sell.
• Most buyers do not know which model and which extras they want. Evaluating and deciding on options can take a very long time.
• All salespeople have more patience than buyers, so they can easily wait the customer out.
• Financing the vehicle is not always easy, even with good credit. Calculating the amount of down payment, cash back, etc. takes a long time even under the best of circumstances.
• Finally, doing all the paperwork and explaining all the legalities takes time as well.

The average buyer has to go through all six of these steps before he drives off with a new set of wheels. And he has to follow these steps well to get what he wants with the minimum of grief. This is where the buyer needs to be a skilled negotiator.

The problem, however, is that most of us are not trained to negotiate. Most find negotiating uncomfortable and unfamiliar. We merely buy what we like, at the price stated on the sticker.

There are two exceptions to this rule: purchasing a vehicle and buying a home. On the whole, you are better protected when you buy a home than when you buy a car. When you buy a house, you don't have to present the bid face-to-face. You present it through a third party (the Realtor) who conveys your bid to the seller, and then brings back the seller's response (and so forth until you reach a mutually agreed upon price). When it is time to sign, your lawyer is there to protect your best interests. The home - buying process is designed to be impersonal - in order to keep the buyer and seller apart and to leave the deal-making up to the professionals. Purchasing a vehicle is an entirely different process. You (an amateur) go head-to-head in a small room with a practiced professional whose main goal is to pressure you into buying a car - immediately. There is no one there protecting your interests. In fact, most of the others salespeople in the room tell you what a good deal you're getting and that you should hurry up and sign - but just the opposite is the truth. Most people find negotiating for a car so distasteful that they to sign on the dotted line and end up paying a lot more than they should - just to get the whole thing over with.

At this stage, you may be asking how much money a dealer makes on a car. Here is a good rule of thumb: The more expensive a car, the more profit is built into it. As a result, you have more leeway for getting a good deal. So how do you find out what you should allow the dealer for his profit? Below is a realistic guide you can follow:

Car Price	Profit to Allow the Dealer
Less than $10,000	$200 - $300
$10,000 - $14,000	$300 - $500
$14,000 - $19,000	$400 - $600
$19,000 - $23,000	$600 - $700

 

Try to stick to this chart as much as possible to secure the best deal.

Your first encounter when you buy a car is the salesperson. Remember, the salesperson is working on commission. This means that he earns a percentage of the dealer's profits. The higher price you pay, the more expensive car you buy, and the more options the salesperson sells, the more money he makes. The salesperson must also meet a weekly quota. His job is at stake. No wonder the pressure is so high on a car lot. In addition, the finance and insurance (F&I) staff are paid a percentage of the amount the salesperson makes on the "back end," or financing, part of the sale. This is why it is not surprising that the salesperson works so hard to sell you an upgraded stereo system, long-term warranty, or anti-theft package. Many are paid whenever a car is sold - just not the dealer.

The salesperson also knows that if the sale is not closed today, he probably will not get another chance. You won't be back tomorrow, no matter how sincerely you try to convince him that you "need more time to think it over." Statistically, only 3 to 6 percent of car customers return to the same salesperson, and he knows it. This increases the pressure on him tremendously.

Now, should you buy a used car or a new one? There are advantages to both scenarios. But there are some great deals to unearth in used cars as compared to new cars. The ideal type of used car to buy is one that is just over one year old, with between 12,000 and 18,000 miles. In this case, you would own a nearly-new car at a much lower price, because new cars can drop 40 percent in value in their first year of operation.

This great loss of value immediately after purchase is a strong reason to consider buying a low mileage, used car as the best of all possible deals. An even better option is to buy a low mileage, used car at a dealers-only auction. You should only consider purchasing a new vehicle when your present car is worth very little and is too expensive to repair. Cars from the 1970s and 1980s were useful for around four years / and 60,000 miles. New cars are fine for a longer period of time, and with the long-term warranties on power trains and engines, they will serve you much longer. There is also the question of leasing . Most experts cannot say if leasing is a better deal than installment buying. Everyone agrees, however, that leasing is an impressive marketing tool. In general, leasing is a better choice if the buyer doesn't have enough money for a large down payment and he wants lower monthly payments. For this reason, it is an easier sale. Sales staff often stresses the lower monthly payments, yet fail to tell you that it is still possible for you to negotiate for various options - exactly as you would when buying the same car. Typically, both the payment and the down payment are lower in a lease. Because of this, the salesperson experiences less sales resistance, even though the customer is getting a worse deal.

The bottom line? Car dealers find it easier to make larger profits within a three year lease, compared to an average of a five-year installment buy. This means that car shoppers will need to search for new cars two years earlier if they lease. This two-year difference in turnaround awards more sales to the car manufacturers.

There is yet another factor to consider when you lease: Most problems arise at the end of the lease, yet on a cash or installment buy, the problems are accounted for in the beginning. In a lease, you must pay for extra mileage and any damage, such as cracked glass, ripped seats, etcetera, and a variety of end-of-the-lease fees when the car is turned in. In a purchase, all extra costs are disclosed on the front end of the deal, so you know the damages immediately rather than being surprised at the end.

Most people choose to lease because they think it's easier than buying. If you are exchanging one lease for another, there is little hassle over trade-in prices, which is typically the worst part of a car purchase. Also, since there is no ownership in leasing, there are fewer worries about purchasing a "lemon". You don't need to worry about the hassle of selling your car because you never own it in the first place.

Leasing has so many "good" points in terms of convenience and simplicity that people are willing to pay way too much for a leased car. Why? The costs aren’t apparent until the end, there are no trade-in issues, and both the monthly and down payments are smaller.

In the end, the customer pays less to purchase, but may experience more complications in the front end of the purchase than at the front end of leasing.

One more thing before we move on: Does a salesperson have the authority to make sales without the approval of his manager? The answer is no, and for a good reason. Salespeople come and go and often are not highly regarded by their superiors. The real power in the dealership is the Closer or the Sales Manager. They have the ability to approve or disapprove the deal. The best a salesperson can do is to sell the car at the sticker price. His real job is to wear you down until the Closer finishes the deal.