Going to the Dealership

    Negotiating a fair and equitable transaction on the purchase of your next new or pre-owned vehicle necessitates taking a proactive stance. We highly recommend pre-qualifying for your vehicle loan and conducting preliminary research prior to going to the dealership. Entering the showroom as a pre-qualified, well-informed consumer will empower you to direct the sales process from a cash buyer perspective and enable you to ultimately acquire the best available sales price on your vehicle.

    By securing your financing prior to visiting the dealership, you will know precisely what type of vehicle and price range are within your realm of possibility. Having your loan prearranged will provide you with the edge needed to begin the negotiation process. This knowledgebase will enable you to engage in meaningful negotiations revolving around the sales price of your vehicle rather than the payment - thus eliminating the vulnerability associated with having limited control over the sales process.

    Working with a company such as LenderStore will provide you with direct access to many of the nation's premier lending institutions, as well as their full spectrum of consumer loan products and ancillary services. Our streamlined, pre-qualification loan process will enable you to save an inordinate amount of time, in addition to circumventing the dickering over finance terms at the dealership.

The following are several good recommendations to consider when you visit the dealership:

1. Sales Price - Dealers typically pay the vehicle manufacturers -- such as Ford, General Motors, and Toyota -- a set price for their vehicles. This price is known as the "invoice" price. Whatever amount they receive over the vehicle's invoice price is considered profit for the dealer. This is not the same as the MSRP or "sticker" or "window" price. That price is the retail price, or the price at which the dealer is willing to sell the vehicle in order to realize a profit.
   
   
2. Additional Fees - Dealers frequently charge a dealer handling fee and/or a documentary fee. These operational or clerical fees are in addition to the sales price, and they are paid as a courtesy to you, the consumer.
   
   
3. Additional Products - Dealers can increase their earnings capacity appreciably by selling ancillary products. Similar to the sales price, the prices on these items are typically marked up as well. These products may include warranties, insurance, after market add-ons such as alarms and paint sealers, etc.
   
   
4. Trade-in Value - If you intend to trade in a vehicle, dealers will determine the "trade-in value" based on the vehicle's current condition - ranging from fair to excellent condition. The values contained in trade publications such as Kelley Blue Book, NADA, and Black Book are widely used by dealers as a preliminary gauge for estimating a vehicle's value. The vehicle's current condition, costs associated with restoring it to the manufacturer's specifications, and mandatory safety requirements to ensure the vehicle is ready for resale are the bases for determining the trade-in value. The trade-in value is different than both the wholesale value term used in the industry and the retail value term generally referring to a vehicle in excellent condition and prepared for sale to the general public.
   
   If you have no outstanding balance due on your trade-in, you will realize the full offer price from the dealer as a down payment. If your outstanding balance due is less than what the dealer offers, they will pay off your existing loan and apply the difference toward your down payment. If your outstanding balance due exceeds what the dealer offers, that is referred to as negative equity, or you are "upside down." This amount can be offset in one of two ways. You can either pay additional cash down to zero out the negative amount, or they will increase the price they offer you for your trade-in, and increase your sales price accordingly. The drawback to the latter option is that since your sales price has increased, you will have to borrow more and ultimately pay a higher sales tax. Nevertheless, if you do not have the available cash to pay the difference, this may provide you with an option.
   
   
5. Financing - Why do dealers try so hard to persuade you to entrust them with the financing on the vehicle you purchase? Dealers frequently increase their profit margin by marking up the interest rate. When providing the financing, a dealer receives a "buy rate" from the lender approving the loan. This buy rate is the actual rate charged by the lender. The dealer then increases the rate, often by as much as 2% to 3%, and closes the transaction with the consumer at the higher rate. Then the dealer has the option to either keep the entire amount or split the profit with the lender. This is known as the "participation" or "reserve" amount.

Listed below are several questions that are frequently asked by the dealer and the rationale behind each:

1. "Do you have a specific vehicle in mind?" - Your response to this conveys to the dealer your level of awareness and whether or not you are a serious buyer. Do not concern yourself with this particular area. The dealer is the vehicle specialist, so feel free to discuss vehicle-related issues at length.
   
   
2. "How do you plan to pay for the vehicle?" - The dealer is interested in persuading you to entrust him with the financing on your vehicle, a source of increasing his profit margin, as well as gauging how informed you are. If you have already secured your financing prior to going to the dealership, then he assumes you are at least marginally informed.
   
   
3. "What type of a monthly payment do you have in mind?" - This not only informs the dealer how you plan to pay for the vehicle, it also communicates your level of expertise. Resist the impulse to shop payments. Be aware of what the payment encompasses. The payment is affected by the sales price, down payment, sales tax, additional fees and products, interest rate, loan term, etc. Although you may receive the payment you requested, the loan terms may be less than attractive, resulting in your paying more than necessary. A good way to respond to this might be, "We can discuss this further when we have settled on the right vehicle at the best price."
   
   
4. "How much of a down payment do you have?" - The down payment and the rebate, if one exists, are used by the dealer as tools to negotiate the sales price. In this instance, a good response might be, "We can re-visit this topic after we have settled on the right vehicle at the best price." Negotiate your best price before the down payment and any rebate are addressed.

    The first individual with whom you will conduct your preliminary discussions at the dealership will be the salesperson. This individual is the car specialist who will show you the vehicles and escort you on a test drive. All of your questions relative to vehicle features, safety issues, performance standards, etc. should be directed towards your salesperson. Keep the focus of your conversation on the vehicle. While this individual may not be the one to conduct the final negotiations, he will communicate anything you say to the "closer." By maintaining your focus strictly on "talking vehicle" with your salesperson, you will limit the ammunition to be used against you later. The salesperson is typically paid on a commission basis for the vehicles he sells. So in essence, you are paying him to address your inquiries and usher you on a test drive.

    After you have made your vehicle selection, the salesperson will typically escort you into an office near the dealer showroom. He will then approach either his sales manager or the F&I (finance and insurance) manager and provide that individual with the specifics regarding your preliminary discussions. The manager will calculate your options and, depending on his assessment of the salesperson's rapport with you and the level of negotiation he feels is warranted, the salesperson may return with a quotation.

    At this stage of the process, your focus should be solely on the sales price. Ask to see the invoice and the MSRP or "sticker price." An honest dealer has nothing to dread by showing you the original invoice. Ensure the invoice reflects the exact vehicle you have selected. This can be verified by comparing the Vehicle Identification Number (VIN) on the vehicle with the VIN on the invoice. The invoice itemizes all of the equipment included on the vehicle, as well as the actual dealer cost. Your negotiations with the dealer should range between the dealer invoice price and the dealer MSRP or "sticker price." During negotiations, consider the supply and demand issue with respect to your vehicle selection. You will pay more for a popular model versus one of which the dealership has a surplus.

    If you feel you have negotiated a fair and equitable transaction, make sure you inquire about factory rebates, and then discuss your trade-in. As a precaution, avoid being too easily influenced by low interest rates. Typically, low interest rate transactions require shorter terms, which result in higher payments. Furthermore, it is generally an either-or situation - you have the option to either accept the lower interest rate or a cash rebate. By selecting the cash rebate and applying it toward your down payment, you will lower the amount of your loan, resulting in a lower monthly payment. While a lower interest rate can also reduce your monthly payment, the shorter term will typically mean higher payments. Unless the rate is exceptionally low, i.e., 1.9% or 0.9%, and you can afford substantial payments for a shorter term, it is generally advantageous to take the cash rebate and apply it toward your down payment.