by Michelle Singletary
WASHINGTON – At the beginning of the year, Edmunds.com, an online resource for automotive information, reported that the average sticker price for a new car or light truck was more than $30,000 ($30,481 to be exact).
Now, $30,000 isn't actually what consumers actually paid, Edmunds.com reported. The net new car price – after rebates, discounts and haggling – came to about $26,000.
For most consumers, not getting stuck with paying sticker price is easy. All you have to do is some research. With that in mind, the Color of Money Book Club selection for May is “Strategies for Smart Car Buyers” by the editors at Edmunds.com and Philip Reed, the consumer advice editor for the online publisher ($14.95, Edmunds.com).
You can get a lot of the information in this book on the Internet for free, but I recommended it because it's like a workbook. It has a sample script you can use when negotiating for a car and checklists. And let me tell you this book includes a section that makes it well worth the $15.
Aside from the usual good car buying-advice – how to begin your car-buying search, how much should you pay, selling your old car, leasing and insuring your car – this book has a bonus section called “Confessions of a Car Salesman,” which was written by Reed, who went undercover to sell cars.
That's the section I immediately went for. I wanted to know what really goes on when the car salesman says: “Let me take this deal to my sales manager.” I've always thought the person was back in some office drinking coffee and trying to make me sweat (I was close).
I wanted to know what car salesmen (and women) think about car buyers? I wanted to know if they feel bad about padding the price of cars (no surprise there, really).
Reed was asked by Edmunds.com to get a job at two types of car dealerships to learn from the inside the strategies the sales forces used to boost profit. Reed worked for the two dealerships for three months. He first went to work at a high-pressure, high-volume dealership that sold Japanese cars. Then Reed got a job at a smaller lot that sold domestic cars using a no-haggle sales approach.
The stories Reed recounts should be mandatory reading before anybody walks onto a dealer's lot. You'll see how consumers pay too much because they get seduced.
It was fascinating to read how car salespeople love it when customers focus only on the monthly payment. Inside the salesperson's head is a sound going “cha-ching, cha-ching.”
For example, if a potential buyer says he wants to keep his monthly payment at a certain amount, the salesman and his manager will try to offer less than a fair price on a trade-in or bump up the interest rate.
If a customer is focused on getting the full value of her trade-in, then the sales person would try to get more profit by increasing the price of the car. The point is if you're buying a car, have a trade-in and plan to use dealer financing, you need to negotiate all three deals separately.
In the end, “Confessions of a Car Salesman” wasn't a complete indictment on the car-selling process. After reading about Reed's experiences, I had some sympathy for the people who sell cars for a living.
“I don't think I'll ever be able to make sweeping generalizations like I once did, by declaring, ‘Car salesmen are scum!’” Reed wrote. “I knew a lot of salesmen whose skills I admired. Besides that, it's a tough life. The hours stink and you live or die by your ability to sell dreams and move cars.”
Reed concluded that rather than direct all our disgust at car salespeople, we should leave plenty of room for the dealership management.
“While salesmen play people games with the customer, the guys in the tower work the numbers with computers, their eyes fixed on the bottom line,” Reed wrote. “They bully the sales staff, encouraging them to manipulate, control and intimidate customers while they take the lion's share of the profit.”
After you read the confessions section of the book, go back and start at the beginning. I particularly like the short but important sections on “The 20 Percent Rule” and “How Much Can You Afford?”
The editors suggest that your car payment should be no more than 20 percent of your take-home pay. If you have two cars, the total monthly payment for both should still be 20 percent of your pay.
Even more important, before you buy a car, crunch some numbers, the editors advise. And the numbers you should look at don't involve the price of the car. If you don't realistically look at what you can afford, you'll end up putting a high priority on the look and style of the car you drive and allocating too much of your household finances toward a new car, the editors caution.
“While working as a car salesman, I became impressed with the damage a bad car deal can do to the budget of an ordinary person,” Reed said.
Look, if you're going to spend tens of thousands of dollars on a car – used or new – spend a little money buying the information that will help you get a good deal.