Ask Bark: Where Is The Dealer Screwing Me The Most?

Kori writes:

Hey, Bark! I’m a 37-year-old woman with a couple of financial degrees and a decade of experience in the world of money, yet I still dread going to the dealership. I know that they’re screwing me but I just don’t know how, and that’s the worst part. I don’t object to the dealer making his fair share of money (I’m a capitalist after all), but I just wish that there was a way to know how they were making that money, and where.

In your experience, where do most customers get the shaft in a car deal, and how can it be avoided?

Thanks for your question, Kori. Most customers feel uneasy about the whole purchase experience for this very reason. Let me see if I can help you feel a little better about it by breaking down the various money aspects.

The most tried-and-true methodology of any dealership is the “Foursquare.” We’ve talked a little bit about this before, but in the old days, dealers would use a little worksheet divided into four different boxes, each one representing one of the following categories:

1. Trade-in value of your car
2. Selling price of their car (including any dealer add-ons)
3. Down Payment
4. Monthly Payment

The whole purpose of this worksheet was (and is, to the stone-agers who still use it) to see which number was most important to the customer. They’ll artificially inflate both the down payment and the monthly payment, so that you can feel good when you object to the ridiculously high number. They’ll go ask the manager for a “better deal,” then come back with a slightly less outrageous payment. Why anybody thinks insulting and enraging the customer is a good idea is beyond me, but this is the way these people have done business for decades, and some of them just can’t get off the crack.

After they’ve calmed down, most customers will focus on the monthly payment, which is music to the ears of any dealer. They can stack allllllll sorts of things into the paperwork of a deal without disclosing it to the customer as long as the payment looks good. The selling price of the car often has no relationship whatsoever to the payment number that the customer agrees to, but people are often so excited to get a payment that they can afford that they don’t realize that 72 x 500 for a $27,000 car is a terrifyingly high sum.

So, yes, payment buyers (i.e. people who respond with a monthly payment when you ask them how much they want to spend, rather than a purchase price) are prone to getting screwed by dealers. They’ll add in additional dealer markup, they’ll bump up the interest rate on a loan, they’ll throw in gap insurance — as long as it’s under the payment that the customer feels comfortable with, it’s all fair game.

How can you avoid this? Don’t ever, ever, not never tell the dealership what payment you’d be comfortable with. When they ask you, simply say, “I’m not concerned with the monthly payment. Let’s get the purchase price of the car right — if we do that, the payment will take care of itself.” Trust me, that won’t be the only time that they ask you, so you’ll have to repeat yourself several times. “I’m not worried about the payment.”

The other way they hose you is on your trade-in. Car dealers will tell you that they make money on acquiring inventory, not selling it. What they mean by this is that if they can buy their used inventory for low prices, they can make more money when they sell it — it’s not rocket science.

This is not entirely true, but it’s pretty close. The trade-in is the lifeblood of any dealer. In fact, many larger market dealers will simply give away new cars so that they can acquire more trade-ins. Trades are always better for a dealer than buying inventory at the auction. Auction inventory is either something that failed to sell at another lot or is coming directly from a rental car company — not always desirable stuff. When I talk to dealers after they’ve returned from the auction, the feeling is almost always one of despair. “Nothing good at the auction today,” they’ll complain.

So they need your trade-in. Desperately. But, in true knuckle-dragging fashion, they’ll still try to screw you on it. The most typical way it’s done nowadays is called the “walkaround.” It used to be that you’d hand your keys to your salesman, who would then take them to the used car manager, who would then drive your car around the block for five minutes and pull a number out of his head. No longer. Most dealers use pricing software now that tells them the recommended value of the car relative to the market, mileage, and condition of the car. In order for the number to be as accurate as possible, the software requires the dealer to fill out a walkaround form for the car.

The dealer will then take his iPad out to the lot and walk around the car with the customer, pointing out every single scratch, scrape, and ding. He’ll mention the tires. He’ll talk about the interior condition. He’ll say that you don’t have a very popular color. All of this is intended to devalue the car in your mind, so when the software spits out a number that’s about 85 percent of market value, you’re more likely to accept it. In fact, over 60 percent of customers who are given a trade-in offer from a very highly respected piece of software from a company widely known by a three-letter acronym with a blue-and-yellow logo just accept the offer. (Don’t ask me how I know this.) This means they’ve instantly given up 15 percent or more of their cars value.

This number that the dealer gives you is intended, once again, to be a starting point for negotiation, not a concrete offer. Don’t be afraid to stick to your guns on your trade-in — it’s the most valuable part of the transaction for the dealer, especially if you’re trading in your car on a new car (meaning new, not just new-to-you used). If they refuse to budge on your trade, walk. You’ll get a call back with ten percent more money in about thirty minutes, guaranteed.

There are other ways that dealers will get you, too, but manipulating the payment and the trade offer are the two biggies. Ignore the payment, stand firm on the trade, and you can likely walk out knowing that you at least held your own.

Bark M. has visited over 2,000 dealers in 44 states. Let him put that knowledge to work for you! Send him your questions at barkm302@gmail.com or follow him on the social media platform of your choice.