Note: Not every car dealer uses the tactics described below. There are several that are upfront and honest.
How Dealers Sell Cars
To fully appreciate the tricks used by dealers, we must understand how dealers sell cars.
Car dealers do not want to give quotes. If they give you a quote, they know you will take it to another dealer and get him to beat it. And the next dealer knows that he's in the same position. Their only hope of selling you a car is by getting you to commit to buying the car before you get the final price. This is very irritating and frustrating for customers, but entirely understandable if you look at it from a dealer point of view. They have two choices: Get you a quote and see you walk out the door, or try to get you to enter negotiations.
This leaves the customer with two choices:
Wear the dealer down to the point where a quote is produced. Repeat this a sufficient number of times at different dealers so as to feel comfortable that the price is competitive. This will take the average person about 2 weeks and dozens of phone calls. It will also likely end in being "sprayed" by an unsuccessful dealer (see table below for meaning).
Commit to buy and start negotiating with the dealer. It comes down to how lucky you are on the day (or if you believe you're a better negotiator than the dealer). You'll be unlikely to know with any certainty whether you paid too much. The general rule is this: The happier you are about buying the car, the more you have paid. It sounds counter-intuitive, but most people who have a reasonably pleasant experience do pay more. 20 years of experience has shown this.
Loss Leader Advertising
Very common, and very time consuming for customers. A dealer will identify one or two cars of a particular model. These will be the "worst" cars (i.e. the build date is very old - the car has been sitting in the yard for a very long time. They are also likely to be the least popular colour and with no options.). The dealer will then run a large advertising campaign based on these cars, and the price is (for example) $200 below cost. When the customers rush in from all around town, they are promptly "switch sold" to another car. All the salesman has to do is to point out why the car is undesirable, and then get the customer to pay more for a better car.
This practice has become even more common with the growth in internet advertising, and it seems this electronic media has emboldened unscrupulous dealers to take this a couple of steps further. We regularly see manual transmission cars advertised as automatics , 'phantom cars' that probably never existed in the first place, but certainly never exist by the time you walk through the gates of the dealership. "Sorry - that was a one-off and we haven't updated the website..." Remember: The goal here is to bring you into the dealership so they can sell you face-to-face. How do we know they are phantom cars? Because our contacts in the dealership tell us. The phantom cars are there for the 'benefit' of regular buyers - not us.
Low balling works as follows: The dealer will give you a verbal price that is lower than any dealer can sell it for. He/she might even say something like "We should be able to do it for $xyz" or "Don't spend any more than $zyx" and encourage you to go shopping around. The buyer heads off to the next dealership, where - after considerable effort - he extracts a price that is higher than $xyz. On to the next dealer! After many hours of dealership visits (remembering that sales professionals are trained to keep buyers for at least an hour), the buyer is getting tired and disillusioned.
... so back to the original dealer who quoted $xyz...
Now the strategy calls for wearing the buyer down for at least 90 minutes without talking about the price. The more coffee/soft drink the better. It starts with "How about another test drive?" and gradually progresses to a deep friendship with the sales professional (as "we have to wait for the manager to get back"). The sales professional will be using techniques such as "pacing" (which means to copy the buyer's speech patterns, body movements and finding common ground). Gradually building up with many small agreements ("Wasn't it great to see [insert some positive current event here]? Yes it was") towards one big YES in the end.
... and finally the time comes: The manager is back! And - shock and surprise - the $xyz you thought was quoted was not right! It excluded on road costs, or GST, or it was a mistake or whatever. The point is that we can't do that price. Then ask: "What is the best price you have from another dealer? Oh, $xyy? SO if we can match that price, are you ready to buy?" Grab the credit card and "go see the manager". Let the buyer sweat for 10 minutes while the sales professional reads a magazine in the managers office. Then go back with the bad news: "Sorry - we need your help to put this deal together. Another $700 should do it".
And here it is: Well over 80% of buyers give up at this point and buy the car! Just too worn out, tired and hungry.
The Lap Dog Trick
When a customer leaves a dealership and says to the dealer they'll look around for other prices, the dealer tells him/her to come back once the "best price" has been obtained. The dealer will then either match the price, or try to increase it slightly by taking advantage of the fact that the customer is sick and tired shopping and is itching to buy the car. This trick is very common and works very well for most dealers. It relies mainly on getting the customer to feel obliged.
Offering an excessive price for your trade in. Some customers are attracted by this as they think they are getting one over on the dealer. Rest assured, however, that you'll pay for it in the end, when the dealer charges too much for your new car.
Bouncing the trade in
Every once in a while, a sales person will have a go at this. He'll contact you before the new car is delivered and say there's an issue with the trade in. They will ask you to bring it back to the yard for an inspection and claim to have found it's really only worth $500 less than what they have offered for it. If you fall for it, the sales person gets another $500 in his pocket.
Also known as "throwing a hand grenade". Dealers will pursue a potential customer until he buys. If the client ends up buying from a different dealer, the sales person that missed out on the deal rings you to get the bad news. When you tell him you bought elsewhere (at a very good price of $35,000) he says: "I sure hope you didn't pay more than $33,000 for it!". This is designed to make the customer feel as bad as the salesman. It also highlights just how nasty some people can be.
Some customers choose to avoid being sprayed by not giving out their phone number (e.g. saying it's a silent number, doesn't have a mobile and can't leave a work number). At the test drive, they "accidentally" give the wrong phone number.
Time of the month
No matter when you walk into a dealership, there's a reason to feel "lucky" according to the enthusiastic sales person. Early in the month, they will say they missed the target last month and are desperate to make it up. During the middle of the month, "the boss has told us to push out more cars or we'll never reach the target this month". The most common, however, is the end of the month trick. Here's the problem: Dealerships DO have targets and they WILL offer extra discounts to meet them when they need to. But - as most buyers are only in the market every few years, and do not have any trustworthy dealership contacts, it is impossible to know whether any given dealer is genuinely under pressure, or just telling fibs to try and get the sale. (This is where using CarBroker.com.au is useful too, as we always know which dealers are doing it tough, and we "help" them reach their targets by selling cars very cheaply.)
By allowing a customer to take a car home overnight or to work for a day, the sales person is trying to get him/her to "fall in love with the car". Not very underhanded, perhaps, but considering the dealer will initiate this in some cases by asking for a "trade-in assessment", you need to recognise it's definitely a trick. A trade in assessment should take about 10 minutes. A half hour at most.
A dealer may tell you he's reached the "limit" as to what he can do with the price, but he can give you a "special deal" on the finance. He will tell you the normal rate is x% and then say: "...but you can have it for y%" (slightly less). Unless you're aware of current interest rates, you can easily pay too high a rate.
A small increase in the repayments will equal a large increase in the total amount the customer pays for the new car. Dealers use this to great advantage in order to divert focus from the total price paid.
Also known as "ankle tapping". This is when the dealer offers you less than market value for your trade in. The idea is to conceal a profit from the customer by lowering the allowance for the trade in. If it succeeds, the dealer can offer the customer an unrealistically low price for the new car.
Extremely common trick. If the dealer does give a price, he will try to make the customer believe that it is only valid right now. An obvious ploy to force the customer to make up his/her mind on the spot. The amazing thing is the number of customers that fall for it.
There are various methods of stalling. The purpose of the stalling trick is to tire out the customer, and to reduce the time available to him to shop around for a better price. Some common stalling tricks are:
Misplace the keys to the trade in.
Block the customers car.
Taking excessive time to assess the trade in. There is always a valuer on site at a dealership, and a valuation takes no more than 15 minutes.
Amazingly, no matter what car the customer wants, it's always "very sought after" and/or "hard to find".
My Wife Drives One
A classic trick designed to make the customer think the car is "so good that my wife even drives one". If it happens that she really does, then it's because her husband works at the dealership and gets it as part of his salary package.
A good sales person will search hard to find common interests with the customer. The purpose of this is to make the customer identify with the sales person. This, in turn, leads to the customer feeling bad if he/she lets down the sales person by not buying from him. Failing to buy from your "friend" also sets you up for a greater chance of a "spraying".
Throwing in Extras
Offering "extras" such as carpet mats, window tinting, and other items serves two purposes:
It draws a line that makes the customer believe that the dollar amount is not further negotiable. If, for example, the bottom line on the car is $30,000, the dealer may stop at $35,000 and start adding "extras". The extras may only add up to less than $500 by the time the dealer has managed to convince the customer that negotiations are finished.
It slows down negotiations, and diverts focus from the dollar amount.
Read more about paint protection here. Most people who have bought a new car will have heard the following line from the aftermarket lady: "Paint protection can only be applied before the car is delivered". Makes no sense at all., and is not true.
Referred by Friend
Being referred by a friend means the customer is more likely to trust the sales person. Trust is money. The more trust given, the more the customer will pay for the car.
Also known as a wood duck. This is a person who walks in and, putting total trust in the sales person, believes the sales person is actually helping to get the best deal for the customer. It's a salesmans' dream because full retail price will be paid.
CarBroker.com.au works for you because:
The emotional element is removed from negotiations as we are acting on behalf of the client.
We already know what the price of the car is likely to be, because we probably negotiated one recently.
We have good relationships with dealers. The sales they get through us are free of overheads and salesperson commissions.