Navigating Pricing and Payments When Buying a Car

November 15th, 2018 | Posted by admin in Uncategorized

Price, price, price! Everywhere we look, we see services promising to find us the lowest price on our next car. We see it at wholesale clubs, consumer reporting services, financial services websites, on TV, and on billboards spread across town. Why you might ask? Because buyers distracted by the low prices usually end up paying more in the end. You see, in a vehicle transaction, price typically accounts for the smallest amount of the profit.

If you call five dealers to compare the price of a particular vehicle, you’re likely to be given a lower price with each subsequent call. Why? Because if a dealer gives you a higher price, chances are you won’t visit them. Once you’re in the dealership, the advertising has paid for itself, and the dealer has a captive audience with which to maximize profits (and more profit is made after the purchase).

What about these one-price stores?

The same thing holds true with the trend toward no-haggle pricing in dealerships. Also known as “one-price” or “pure price” dealerships that are popping up. Who remembers General Motors experiment with Saturn? The underlying concept with Saturn was the no-haggle pricing philosophy. And many consumers who flocked to Saturn to avoid the price haggling actually helped generate higher profits than GM was seeing from Chevrolet, Buick, Pontiac and Oldsmobile. While it sounds good in theory, you may be at a disadvantage with a one-price store- you’re still negotiating trade values, financing, fees & add-ons, all while you can’t negotiate the price!

Why does the lowest price not define the best deal?

What if a dealer is offering to sell you a vehicle for $500 less than a nearby dealer, if they give you $1,000 less for your trade? That’s one example of where lowest price is not the best deal.

Then there’s the financing, where the dealer will do everything in their power to get you to finance through their sources. Enabling them to raise the interest rate, so you pay more in finance charges (which the dealer gets). And, when you finance through the dealer, it’s easy to add other things to the loan, which you will be paying off for 5, 6, or even 7 years. On top of that, extending the term to meet or lower the monthly payment still costs you more. Keep in mind that the average car loan term nationwide is about 71 months.

One of the biggest costs (and contributing factors determining a good from not-so-good deal) is the extended warranty. Have you ever heard, “Do you know this vehicle has more computers than the Apollo space craft that landed on the moon?” I love that! Like life insurance, extended warranties can be a good thing – if you use them. It’s just important to confirm:

  • Does the coverage match my driving habits?
  • Is the coverage comprehensive?
  • Is the price right?
  • Will I sleep more comfortably knowing I have it?

Our Auto Advisors are here to help members evaluate the need and value.

Are there after-market add-on’s?

Add-on’s is where a dealer may add something that you perceive as having value, while in reality it can be generating significant incremental profit for the dealer. When considering these add-ons, you may hear “Oh, the difference in payment would be only the price of a cup of coffee a day.” Take a minute to consider that. Assuming the average cup of joe costs $2.50, and you buy a cup a day. 30 days at $2.50 per = $75 per month. So, on the average loan, that $2.50 a day will add about $5,000 over the term of the loan. And, guess what; you’ll likely still buy the coffee!

Focus on the total cost.

Rather than price, our Auto Advisors focus on total cost, which is calculated as follows:  Price – trade value + financing + fees + warranty and after-market sales = Total Cost. In fact, I recently spoke with a dealer who told me that, while the average profit on the sale of the vehicle was -$400 (that’s a $400 loss), the “back-end” profit was closer to $2,000.

Again, while there’s a certain appeal with no-haggle pricing, it may actually turn into a disadvantage for you.  You get worked on your trade, financing, warranty and after-market sales, yet you can’t negotiate the price!

Remember one important point; the more you borrow today, the more you may owe when you trade in that car. That’s why about 1 of 3 borrowers owes more than their car is worth and, when trading in, they need to roll over negative equity into the new loan.

The big print giveth while the small print taketh away.

How many times have you seen advertised prices or payments too good to be true? Well, you know what they say!:

  • “Your configured vehicle may not be available.”
  • “Prices include all rebates to dealer” (often including rebates you may not qualify for).
  • “Vehicle must be paid same day” (so you can’t “shop the deal)
  • “With approved financing”, etc.

This is where you may find it beneficial to bring our Auto Advisors along, to help decipher the small print advertising and guide the conversation towards to better deal for YOU and NOT THE DEALER.

To make an appointment with the Align Auto Advisors please call (800) 942-9575 or email autoadvisor@AlignCU.com.

~David Brown, Align Auto Advisor

autoadvisor@AlignCU.com

You can follow any responses to this entry through the RSS 2.0 You can skip to the end and leave a response. Pinging is currently not allowed.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>