Consumer Car Buying Advice Blog

The Memorial Day weekend is behind us and even though the temperature in metro Detroit is more conducive to the Stanley Cup Playoffs than sunning ourselves on Lake St. Clair, it still means that the summer car buying season is here. Now might be a good time to take a look at some of the “creative” advertising practices of car dealers. For help with this, we will turn to the good people at the FTC.

Comparison shop and read the fine print

All of us at Auto Credit Express have seen the ads. Many of them tie in with the auto manufacturers programs. Special interest rates and lease programs (to qualified buyers), $2.99 per gallon gas and model-specific rebates are all legitimate programs that are backed by the auto companies. But many dealers take things a step further and promise even lower interest rates along with higher trade-in values and free options such as upgraded sound systems and sunroofs.

It’s a fact that the manufacturer charges all dealers the same amount of money for the same car. While there may be incentives based on volume, this is not always the case and even when it is, the smaller dealers have lower sales targets, while the high volume dealers have to sell more cars to reach their incentive targets. So if every dealer pays the same for a car, how can one dealer offer you down payment assistance, more for a trade-in or throw in a sunroof for free?

Interest rates – how low can you go?

As stated previously, manufacturers often offer low interest rates and the qualifications for these programs can be found at their consumer web sites. To build on this, many dealers offer their own special programs. But are these programs legitimate? According to the Federal Trade Commission, you should be prepared to ask these questions:

•    Will you be charged a higher price for the car to qualify for the low-rate financing? Would the price be lower if you paid cash, or supplied your own financing from your bank or credit union?
•    Does the financing require a larger-than-usual down payment? Perhaps 25 or 30 percent?
•    Are there limits on the length of the loan? Are you required to repay the loan in a condensed period of time, say 24 or 36 months?
•    Is there a significant balloon payment —possibly several thousand dollars — due at the end of the loan?
•    Do you have to buy special or extra merchandise or services such as rust proofing, an extended warranty, or a service contract to qualify for a low-interest loan?
•    Is the financing available for a limited time only? Some merchants limit special deals to a few days or require that you take delivery by a certain date.
•    Does the low rate apply to all cars in stock or only to certain models?
•    Are you required to give the dealer the manufacturer’s rebate to qualify for financing?

What about special deals other than financing?

If you’ve ever been to a carnival and watched the shell game in action, you know that it involves moving 3 shells around with one of them hiding a pea. No matter how the shells are moved, the pea is always somewhere. The same holds true for the price of a new car. No matter how many things you get for “free”, the price of the car has to change to account for the additional options. Somehow, somewhere, you’re going to pay for the sunroof or the leather interior.

I remember an actual incident a number of years ago. I had spent a great deal of time with a customer regarding the price of the vehicle and the value of his trade in. I even discussed the “difference” price with him, but he was sure he could get more for his trade. Two weeks later, he came by with his new car – which he hadn’t purchased from me. The reason he bought the car at the other dealer? They gave him $500 more for his trade - and he showed me the paperwork to prove it. They did give him $500 more for his trade, but they also charged him $700 more for the new car!

According to the FTC, these are the things that you need to know about before signing on the dotted line:

•    Does the advertised trade-in allowance apply to all cars, regardless of their condition? Are there any deductions for high mileage, dents, or rust?
•    Does the larger trade-in allowance make the cost of the new car higher than it would be without the trade-in? You might be giving back the big trade-in allowance by paying more for the new car.
•    Is the dealer who offers a high trade-in allowance and free or low-cost options giving you a better price on the car than another dealer who doesn’t offer promotions?
•    Does the “dealer’s invoice” reflect the actual amount that the dealer pays the manufacturer? You can consult consumer or automotive publications for information about what the dealer pays.
•    Does the “dealer’s invoice” include the cost of options, such as rust proofing or waterproofing, that already have been added to the car? Is one dealer charging more for these options than others?
•    Does the dealer have cars in stock that have no expensive options? If not, will the dealer order one for you?
•    Are the special offers available if you order a car instead of buying one off the lot?
•    Can you take advantage of all special offers simultaneously?

The Bottom Line

As with any important financial transaction, you should read the buyers order and the bank contract to make sure that it corresponds to the terms that you agreed to with the dealer. Any discrepancies should be in writing before you sign any paperwork. Take a look at the entire transaction to determine the real, bottom line price and base your decision on that.

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