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Why Car Dealers Make Us Hot Under The Hood

By Michelle Singletary

I recently received an e-mail from Ryan Bachman, an operations manager at an automobile dealership in Louisville, Ky., who sincerely wanted to know the answer to some questions about car buyers.

Bachman, who hopes to become a fourth-generation car dealership owner, wondered why the relationship between car buyers and car sellers is so adversarial.

For example, he was annoyed at me for encouraging consumers to demand to see the invoice for the car they want to buy.

“It bugs me that consumers feel it's their right to see the invoice price and to know exactly what profit you are making,” said Bachman, who works at his father's dealership. “If we sell every car at invoice or under invoice, we obviously would not be able to stay in business.”

Bachman then asked three questions that I think deserve an answer:
  • Is there any other retail industry where customers know (or even care) how much profit the business is making on their purchase? Imagine purchasing a house or a TV or a gallon of milk and demanding to know what the seller paid for the commodity.

  • Why is the perception of the car industry so different?

  • Why does the word “profit” carry such a negative connotation?
These are good questions. But first let me say this. Not everyone who sells a used or new car is an agent of Satan. There are many honest, hardworking people in the industry.

Yet it is also true that there are lots of tricks to this trade and an uninformed consumer can end up paying hundreds of dollars more for a car than is necessary.

Having said that, let me address the first two questions, which really ask the same thing.

Of course there are other industries where consumers want to know the baseline cost of an item they are purchasing. The home-buying market comes to mind. With just a minimal amount of digging, anyone can find out how much someone paid for a house that is up for sale.

Even so, Bachman is right that we don't search the Internet or buy books to find out the cost to produce most consumer items.

However, there is a huge difference between buying a car and a gallon of milk.

Consumers aren't demanding to know how much a dairy farmer makes on that gallon because it won't take them four, five or six years to pay off the container of milk. Because most consumers have to borrow money to buy a car, it is completely reasonable for them to use whatever means necessary – including asking for a car's invoice – to negotiate the lowest price possible.

“I'd turn the question around to ask, why hasn't the industry been more active in realizing it can't charge 10 different prices to 10 different customers?” said Mike Hudson, co-author of Edmunds.com's “Strategies for Smart Car Buyers.”

“With greater competition, people know generally how much VCRs, TVs, GameCubes, dishwashers and so on should cost. A car is no different. It has a fixed cost of production. Why shouldn't everyone pay the same price?”

And truth be told, with some research consumers will find that the invoice doesn't necessarily tell the whole pricing and profit story anyway. Dealers routinely get rebates and cash incentives from manufactures, which can boost their profits, Hudson said. Edmunds.com and other online auto research services post information about dealer incentives and rebates on their Web sites.

Now for the final question: “Why does the word ‘profit’ carry such negative connotation?”

“Car dealers do go through a lot of grief for this and it is unfair,” Hudson said. “They deserve to make a living. But at the same time, why should a person have to spend any more of their hard-earned paycheck to get the same vehicle sold to someone else for $1,000 less.”

And there is this matter of profits gained from deception.

For example, here is one trick of the trade that Consumer Reports says car buyers should be on the lookout for. It's the false credit score. This is how it works: A salesperson checks your credit report, then lies about your credit score. He or she tells you your score is lower than it really is, and that you therefore don't qualify for the low-interest car loan that may have drawn you to the dealership. As a result, you end up paying a higher interest rate, thus earning more profit for the dealership.

So you see, it's the subterfuge that gets us hot under the hood. (A word to the wise: Get your credit report and at least one of your credit scores before going car shopping.)

But I do understand Bachman's frustration. The car buying process does not have to be adversarial. With some research, you can tell the honest dealers from the deceptive ones. In that case, it's possible to drive away from a car deal feeling good about the experience.
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