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| 1) Do your homework. |
| Study the make, model, options, and price of the vehicle you are interested.
Magazines are good source although rarely say anything really negative
about cars they are writing about. Consumer Report magazine publishes their
yearly report card on all models. |
| 2) Determine what car you want !!!! |
| It's very important that you know what you want. Too many people go to
dealer showrooms not knowing and let the salesperson decide it for you.
(on their merit) Make a check list of purpose of your new car, such as
commute, taking kids to school, pleasure, impressing a friend, etc. Also
make a list of necessary options you really need, such as automatic transmission,
air-conditioning, radio, CD, power windows, power locks, sun roof, etc.
Remember more options you want higher the price of the car. |
| 3) Ｖｉｓｉｔ several dealerships several dealerships |
| Never bring your checkbook while visiting dealerships to collect information.
At the dealership, let the sales person know you are not there to buy a
car that day. (be aware that salesperson will still try to sell you a car
and many succeed) a: While visiting dealerships, be sure to compare vehicles
with exact same options and equipment. A difference in one option could
mean more than few hundred dollars. b: Never make a decision at the first
dealership you visit. The salesperson will try very hard to persuade you
not to go to other dealerships. If they are so confident with their price
and service, what's there to worry ? |
| 4) Do not make a decision to buy your car because the salesperson is nice or kind.
They are always nice and kind before you buy!! |
| 5) When negotiating price, request the salesperson to give you the quote in writing.
If they don't, you should write them down as you negotiate and show it
to the salesperson to confirm what he or she says. This will prevent the
salesperson from saying "Oh, you've misunderstood what I said"
routine. This should include vehicle model, model year, options, selling
price, documentation fee, taxes, and DMV fees and used car trade-in if
you have one. a: If they do not give you a detailed quote - - stop!!! A
statement such as "We can work something out" or "We can
do about $X,XXX" is not a firm price. Especially if they say the above
phrase over the phone, they mean nothing!! It's to get you to the showroom!
b: If the salesperson don't give you the exact price, ask the person if
they would accept your check for "ABOUT something. Certainly they
would want the check with the exact amount !. |
| 6) If you are bringing your car for trade-in, bring an extra set of keys. After
checking value of your car, mysterious disappearance of the key is known
to happen. (it usually re-appears after you buy a new car) If this happens,
use your spare key and drive away! There have been reports of not just
missing used car persons or keys, but the whole car unaccountable at the
dealership. If the salesperson tells you they cannot find your trade-in
car for some reason, just ask them for a phone and call local police! (this
will get their attention immediately) |
| 7) Refuse any demand for a deposit. Once they have your check, regardless of what
the salesperson says, it will be difficult to get your check returned without
further negotiations. |
| 8) Before signing the contract, check and verify all the figures. If the figures
differ from what you've discussed, go back to your notes and ask them why
until you understand completely. |
| 9) Remember you have the biggest power of all. You can WALK AWAY at any time. The salesperson cannot. Anytime you feel the salesperson is not truthful or fair, just walk away. Often times, they will come after you to the parking area asking you to re-consider. Salesperson knows once you walk away there is less than 5% chance of you coming back again. That's why they always want you to buy that day! Use that knowledge to your advantage.The single most important thing to remember when you go to the dealership is not to get yourself cornered into buying a car. Purchasing a car is not only a financial decision, it's also emotional. A salesperson will play on that emotion and make you; |
a: FEEL bad not buying a car from such a nice person - they are always nice before you buy a car. b: FEEL obligated to buy a car after spending over 2 hours negotiating and feel bad turning down their counter offer - think real hard! You were actually ready to leave 2 hours earlier. Then the sales person asked your price range. Just to make this person go away you gave them price. They countered the price but that's a lot higher than your price. You should not feel any obligation at all. c: FEEL that you are not intelligent if you did not understand the "nice" salesperson's pitch. You can save $400 on a particular option, such as mud guards, pinstripes and undercoating. They say the price is $300 instead of $700. And to prove them that you are intelligent, you must buy a car. - you are not saving anything because you didn't plan on buying these options in the first place. You are spending an additional $300. ] d: FEEL that you've lost your integrity because you did not buy the car at their "reasonable" counter offer. Remember, its your money and they are not selling a car at your price so you have not lost anything. The salesperson is trained to make you feel these things. They will do their best to make you feel one, a combination, or all of the above so that you will buy a car from them. So if you start to feel obligated because of the salesperson, and NOT because of the car or price, admit that the salesperson is good and watch out. They are not more intelligent than you are. Do you think they can handle your job? Don't let pride or ego get in the way of making the right decision. You are going to keep this expensive investment for several years. How long is "losing face" or "wounded pride" going to last? 2 minutes? 2 hours at the most! |
 TYPICAL SCENARIO AT DEALERSHIPSAsk anybody who has purchased a car recently about the following statements. Most people remember them and thought or still think that the situation was true and unique. If it's so unique how come everybody else has had similar experiences? |
| 1) "This is the only car with these options so you'd better buy it today" Each manufacturer builds various selections for each model. Unless the
vehicle is an exotic car, there will always be another one. The dealership
always wants you to buy what is in stock. |
| 2) "There is another deal on this car but if you would like to buy it
today, I'll get permission from our manager to secure it for you." There is never a deal on a car until the car is driven off the lot. For
some reason you will hear this quote often even when you don't see any
other customers at the dealership. |
| 3) As soon as you step off your car outside the showroom, one or several
salespersons will jump on you and say "Hi, folks how are you today?
This is a nice looking car, don't you agree? Now HOW MUCH WOULD YOU LIKE TO PAY FOR THIS? or HOW MUCH IS THIS CAR WORTH
TO YOU ? - what kind of a silly question is that ? Has anybody asked you something
like that when you are buying groceries or a T.V? And just to make the
person shut up, you give them a price. Then they would say, "You are
going to buy today at that price, right? I think we can do that....let
me talk to my manager" Watch out. You are in for a long day. The salesperson
will disappear into an office or lounge. Follow them. Instead of discussing
the matter with the manager, they may be having a cup of coffee instead.
Upon return, they will ask you for your help as the price was too low and
the manager was not happy. It will become obvious that they never intended
to sell the car at that first price. Keep in mind that if the salesperson
has been properly trained, they should know the cost of the vehicle. Part
of this silliness is to make you feel that you've accomplished a successful
negotiation. If you enjoy this type of game as some people do when purchasing
a car, then enjoy it but watch out. Otherwise you may have better things
to do with your time. |
 KNOW HOW TO READ ADS |
1) Most ads explicitly list attractive points. However upon reading the fine print it states "only one at this price" or "plus dealer added options". These units are "leaders" to lead you to a particular dealership. The vehicle may be an odd color or demo unit. Quite often, these units are "sold just before you arrived". However they are always willing to give you a great deal on a similar unit except the "deal" is not as good as the one advertised. |
| 2) Most ads mention some of the equipment that is included with the car. Never assume
that an ad car has all the options you desire. If it doesn't list "auto"
or "AT", the car has a manual transmission. If it doesn't state
"AC", the car does not have Air-conditioning. When you add these
options and other extras, the cost of the car you desire will become a
lot more than what the ad states. |
| AUTO LEASING - Are they as simple as ads say they are ? |
| Why is Auto Leasing so popular? One of the reasons is simply the high cost
of new cars. Leasing used to be for high priced cars. However because of
increase of car prices in past several years, a simple mid-sized 4 door
sedan with automatic transmission now would cost somewhere around $19,000.
Using a conventional bank loan with 20% downpayment, you would have to
pay around $3,600 downpayment and $460 for 36 months. With that figure,
dealers and manufacturers are finding it increasingly difficult to sell
new vehicles so they are now promoting auto leases. |
Be careful for lease/loan programs that advertise very low monthly payments. Read the newspaper ads carefully again. You will see words such as "OAC". What is O.A.C.? It means "on approved credit". In other words, these special prices are for people whose credit is super good and it may not include you. The sales person never discusses if you qualify for the loan or leasing program, and tries to get you sold on the car first. Then the finance person will input your credit information into their computer and find out you don't qualify. But they are nice enough to come up with a different program - and they are always a bit more expensive than those in the ad. What happens is that by the time you go to the finance person, you are sold on the car, and when you are told that you do not qualify for the leasing/finance program, you feel embarrassed. And it so happens that the finance person will give you the way out, to save your face, by showing you a loan or leasing program for which you would qualify. Although it is going to cost you a little more, you would say to yourself "but what is an extra $50 a month. Sure I can handle that. I am embarrassed enough for the day." Does this sound familiar ? It's all in the scenario. |
 MECHANICS OF LEASING |
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| A lease formula consists of the following factors (simplified) | ||||
| 1) MSRP | = | Cost of a car | ||
| 2) Dealer discount | = | Dealer deduction | ||
| 3) Cap Cost Reduction | = | Downpayment | ||
| 4) Capitalized Cost | = | (1) minus (2) & (3) | ||
| 5) Residual | = | Projected resale value at lease end | ||
| 6) Depreciation | = | (1) minus (5) | ||
| 7) Lease Term | = | Lease period (months) | ||
| 8) Monthly payment | = | Payment | ||
| 9) Money Factor | = | Interest | ||
| 10）Wear & Tear adjustment | = | Additional charge at the end of term | ||
Unlike conventional Auto Loan where you finance whole amount of the car, Lease contract is designed so that you would pay for the usage only. The Lease contract first estimates the value of the car at the end of lease, say 36 months from now. Then deduct it (called Residual Value) from MSRP and finance the balance (depreciation) through the period of the contract. It allows the financed amount substantially smaller than conventional auto loan. |
 SUBVENTED/SUBSIDIZED LEASE |
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| The lowest monthly payment seems to be the ones offered by manufacturers.
They are so-called subvented or subsidized lease as they use a below market
interest rate to make the monthly payment lower. They can also set a residual
figure higher and amount of finance less so as to achieve lower monthly
fee. However you have to be careful and ask yourself. "Why is the
manufacturer offering 2.9% interest while the prime rate is at 8%?"
Perhaps the manufacturer is having a difficulty selling a particular model???
Usually the car offered in special program is not the one you would want
to buy. For instance, an imported mid-size 4dr sedan was offered at $189/month.
It turns out it was only the base model with 4 speed manual transmission
and no options. The car you would want, such as an automatic transmission,
air-conditioning, radio with CD was not offered at the same rate. So if
you need a wheel to get you from Point A to Point B at lowest monthly payment
and don't care too much about options, go with the manufacturer's' subsidized
program. |
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| IS LEASE A BETTER DEAL? Well, you'll have to determine what's important to you. There is no tax advantage, although business use may have some advantage over personal use. The advantage of Lease is a smaller monthly payment. Many ads say no downpayment, however most of lease (particularly low monthly payment) require so called "CAP REDUCTION" which is no different from a downpayment. Many ads for leases indicate "DRIVE OFF" charge of $3-5000 which usually includes $2-3,000 CAP REDUCTION. At the end of the contract, if its a closed end lease, you can pretty much walk away and return the vehicle to the dealer for a small fee. It means you can drive a new car every 2 or 3 years. Do you want to change your car that often? In other words do you want to deal with a car salesperson every 2 - 3 years? Most of vehicles sold currently are fairly well made and can last almost 8 to 10 years. So if you buy it with an auto loan, you will have the car for several years without further payment. If your choice of a car is offered by manufacturers subvented lease program, then go for it. |
 SPECIAL ITEMS OF CAUTION |
Warranty - Never lease a car longer than its factory warranty period. You don't want to spend money to repair something that is not even yours. |
Excess Mileage - Each lease contract specifically states how many miles you are allowed to drive without penalty. Check your recent history of how many miles you drive every year. Usually its around 15,000 miles per year. So if you know you are going to drive at least 15,000 miles or more, and if the lease is based on 12,000 miles per year, your penalty at the end of 36 months lease is 9,000 miles. At @15 cents/mile, the penalty will be $1,350 or $37.5 per month. So now the lease quote of $30 lower than other car does not seem so great. In case of sales people who typically drive over 30,000 miles per year, the penalty could be quite substantial. |
Return Procedure - Check what you are supposed to do at the end of lease. Few years ago, many lease programs allowed dealers and finical institutions to charge balloon payment at the lease end. It was charged based on "Wear & Tear Clause" to make up for lower monthly payment. We don't hear too much about it lately but make sure lease contract spells out what your obligation is at the end of term. Many leases now states disposition fee of $3-400 on the contract. Any visible damages to both outside and inside of the vehicle are subject to surcharge. |
Early Termination - Check also the procedure for an early termination. Leasing companies usually do not like early termination. They will often ask for full payment of reminder of the contract. Or they charge difference between its re-sale value and remaining value of the contract. Almost every case, you cannot walk away without paying some penalty. |
 KNOW WHO UNDERWRITES THE LEASE |
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| - Manufacturers such as GMAC, Ford Credit, Honda Finance, Toyota Finance
etc. - Financial Institutions such as Wells Fargo Bank, City Bank, Bank of America, etc. These financial institutions do not usually offer subvented or subsidized lease programs. |
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| Do not mention Lease while negotiating a price. Negotiate the price of the vehicle first
then ask salesperson to give you monthly lease figure based on the price
(CAP COST). Although many lease contracts do not show CAP COST, you should
ask what the cap cost is. |
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| Why do some lease transactions seem unclear? The job of a salesperson is to
sell cars. They get their commissions by selling cars. The dealerships
expect them to sell so many cars per person and often lose sight of how
its done. In case of leasing, the salesperson's job is to make you sign
the contract. Once you sign the paper, incidentally the contract is usually
by the financial institution and almost always not by the dealer, the salesperson's
job is over. In many states CAP COST disclosure is not required. In other
words, they do not have to state the price of the car for which lease figure
is based on. So they only tell you what the monthly payment is and you
never know if you had a good deal. You should however demand to know what
the CAP COST is. It will be very difficult to bring any kind of complaints
at later dates as contract is with the financial institutions and not the
dealership. The salesperson is only an agent for a finance company. Once
you are out of the dealership further contact will be with the finance
company and they have no knowledge of what conversation may have taken
place during negotiation. They will only refer to what's written on the
contract. So if you go with leasing, know what you are getting into. Make
sure all the details are spelled out in the contract. The bottom line is
if you see a super good deal that looks unreal, IT PROBABLY IS UNREAL.
On the other hand you can't always blame the sellers either because the
buyer may have unrealistic desires to drive something he/she cannot afford
in the first place. The fact is if you cannot afford to get a loan for
a particular car, you probably cannot afford to lease it either. Nobody
is going to give a car away at a loss. So be realistic and be aware. Remember
leasing does not give you the legal title of the vehicle. So at the end
of the term you will have nothing. Nothing to trade in for your next car.
Once you lease a car you will have to keep leasing for a long time. |
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| Speaking of what you can afford, make sure you figure ALL the cost of owning a car
when you purchase or lease a new car. If you are single, under 25 years
old and male, your insurance premium is going to be very high. The premium
also depends on what type of car it is. A sporty car with large horsepower
normally has a high premium rating. |
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| Other areas to consider before deciding on a car is maintenance cost. Imported cars'
parts and repairs can be more expensive than domestic cars. Parts and repair
on European cars are more expensive than Japanese. But then American made
cars tend to break down more often than imported. And how many American
Cars are actually made in the U.S ? (some are made in Canada, Mexico, Japan,
Korea etc.) or do you know how many Japanese and German cars are actually
made in the U.S ? Well this is a whole new subject by itself.. ... |
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| BE CAREFUL AND BE AWARE !! | |
* Tad Endo is the founder and president of San Francisco Fleet & Leasing, a discount automobile sales and leasing service company. Send comment by e-mail to : endo@sffl.com |
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