Monday, 21 October 2019

How Car Dealerships Rip You Off

Car Loan

In this article, I am going to talk about how car dealerships rip you off using the Foursquare method. There is nothing wrong with selling cars, as a professional you can make a lot of money, but I did learn a lot of valuable tactics and valuable skills that the dealerships use when trying to make money off of people.

If you've ever bought a car you may have seen this before

Car Loan

That is what they call the Foursquare.

  • Trade-in Value: The car you are trade-in
  • Price: The price of the vehicle that you are buying
  • Down Payment: There you have your down payment, meaning the money that you are putting down towards the car if you are not paying cash.
  • Monthly Payment: If you are financing the vehicle these will be your monthly payments.

Up there you have your trade-in value, that is the car you are trading in. Over there you have the price of the vehicle that you are buying. Down there you have your down payment, meaning the money that you are putting down towards the car if you are not paying cash. You have the monthly payment down there, meaning if you are financing the vehicle these will be your monthly payments.

Silently Devalue Your Trade-In.

Let's say, for example, you are trading in a 2006 Chevy Impala, you want to get a new one, so you have a 2006 Impala with 8 million miles on it, what the actual car manager or the salesperson will do is, in front of you they will "Silently Devalue Your Trade-In"

That is what they call it, devalue your trade-in. While you are talking and he's asking you questions about the car, he will touch a little chip on the car, a little dent on the car, and notice that the wheels are scuffed, it's all subconscious. It's telling you that he knows that your car is a piece of junk.

Right away he's actually silently devaluing your vehicle. 

The Foursquare

  • Trade-in Value: let's just say he wants to give you $4,000 for your piece of junk.

  • Price: They are going to have the price of the car, let's just say you are buying a new Impala and we will call this 24:9, these are all just hypothetical numbers.

  • Down Payment: This is the money that they want you to put down, let's just say $4,000

  • Monthly Payment: They will sketch out three different scenarios 
  • $500 at 60 months
  • $475 at 70 months
  • $450 at 84 months

When they come back to you with this foursquare, it's essentially a piece of paper with these four squares. These are all meant to be negotiation pieces, the dealership is really making their money on the down payment and monthly payment.

Financing is by far the most profitable center within the whole dealership, so when you go to the guys in the back to do paperwork and they are selling you rim insurance, warranties, and all that stuff, that is all junk for the most part. That is the highest margin in the dealership.

Lastly, new cars are the least profitable area of the dealership. Think about it logically, if you are a Chevy dealership and you get brand-new Chevry's, what do you think of brand-new Chevy's going to cost, it's going to cost the same in Ohio, as it does in Florida, as it does in California, in Alaska, it's a brand new car with an MSRP.

These dealerships are getting them for relatively the same price, they can only mark up new cars so much, the new car sale is the least profitable center for the dealership, remember that.

Used cars are way more profitable than the new car and you will see why. That is exactly from this foursquare. 

What Happen At The Dealership When Getting A New Car

What will happen is you are negotiating on a car, you pick out a car you like, you test-drive it, you like it, you smell it, you touch it, yeah, you are in love. 

They sit you down at the table, what they do they come back with this four square, this piece of paper that has these numbers on it and the number are meant to offend you, they are meant to get you into like, oh my god, these are so high what is this, this is crazy.

Because what they want to do is they want you to beat them up too, so you feel like you got a deal, it's all perception. And perceptions are a reality, so the salesperson is going to say okay, I am going to go through the foursquare below

Car Loan

They are going to say okay if these numbers work for you just (sign here, I will take this car home today). There you go. 

The signature is very important, normally when will sign thing we are committing our word or trust. when you sign this piece of paper and take it back to the manager or salesperson, you just bought a new car, congratulation, even if the terms aren't exactly what you wanted, you feel bad about signing and going back on your word. I know that is long-winded but it's very important.

The salesperson is going to say ok where do we have to work with you to take home this car. Most people that have a half brain will say every square, but some of these people don't understand numbers, so they are going to go straight to their down payment.

They are going to think about the cash that they have or in this case, don't have, a lot of people that are buying these kinds of cars are not very mathematically savvy or they are also broke, to be honest with you.

They're going to say, you know what, I need to lower my downpayment, I don't really have $4,000 with me right now, is there anyway we can go a little bit lower, and the salesperson will put on an act and say, oh, you know, if you lower the down payment these monthly payments are going to go up, blah blah blah.

But we will see what we can do here, we will try and move this to $3,000, but the monthly payment might go up a little, and that is when they start talking about payments, they want to keep the conversation on the down payment and monthly payment. Payment is most important to them.

If the person says you know what, I think those payments were high, to begin with, I told you I need to be around $350 to $300 a month. People have needed to be $300 a month for the last 20-years. That is where everyone wants to be.

The salesperson is going to say well, you know I moved a little bit on the down payment for you, it's going to be really hard to get you $350, but I will see what I can do. They will turn the $450 at 84 months, to $375 at 84 months.

The Salesperson who say, what I will do is I am going to take this back to my manager, if I can get you at $3,000 down payment and at $375 monthly payment, will you sign here and take the car home today, you are going to sign that because you are an idiot.

Most people won't sign that but they will say hey, go take it to your manager, let's see what we can do.

Salesperson Never Want To Talk On Trade-in and Price

Even if they do get to that point it's all a game, they know how much, or how much they can sell your trade-in for, and they will wiggle on it, but they won't wiggle on the price and if they do wiggle on the price, they won't budge on the trade.

The trade comes in exponentially lower than what it's really worth, its all about those margins.

When the salesperson comes back with a big smile on his face and says, you know what, Jim, I was able to get you down to $3,000 and we can get you into those payments. But we won't be able to do $375 but I can do $389, is that okay for you? And you are going to say well, it's still a little bit high, but you know, it's close enough, thanks a lot and you are going to sign there.

What he just did was he bumped this payment up roughly $14 to $15, over the course of 84 months, that just made the dealership over $15,000 easily in interest.

They All Have Relationships With Local Banks 

How do you think auto financing works, GM, Lexus credit, Toyota credit, etc, that is where they make their money it's in the financing, they don't make money selling cars. That is the smallest portion of the profit for these dealerships and also for the manufacturers.

Next Time You Want To Buy A Car, Go With Your Financing Already In Place

Talks to a local credit union, show them the car that you want to buy or you are interested in, get pre-approved or even get a certified check or a loan for that amount. That way your interest is fixed and it's lower than what it would be at the dealership.

Don't tell them you have a trade, when you go to a dealership do not tell them you have a trade, negotiate the car that you really like, act as if you don't have a trade and then bring it up at the last second. They will give you a ridiculously low number, but at the end of the day, it's worth doing because you are negotiating on price. You are not negotiating on the price of your trade-in, I hope that makes sense. 

Hopefully, this article was valuable to you.

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