In the new car buying process, new car dealers are going to try to make as much money as possible from each sale, and this is only reasonable as they are in business to make money. But too often consumers wind up paying way too much. There is nothing wrong with allowing the dealer to make a fair profit, but these five methods are regularly used by new car dealers to inflate their profits considerably and you should be aware of them in advance.
1. Leasing is an increasingly attractive option to many new car buyers and they often think that the lease payments are set in stone for each car, but that simply isn't true. Lease payments are most often calculated using the MSRP, or retail price, of the vehicle as a starting point. So if you accept the lease offered without actually dickering on the sale price of the vehicle, you are most likely losing lots of money in the lease payments that you make each month. You can also negotiate the down payment, the mileage allowed under the lease and other options too.
2. Dealers try to make lots of profit by combining the sale, trade-in, and financing into one big package. This is an excellent way to hide actual figures and amounts from each segment of the deal. The best deal for you will be had if you settle on a sale price for the new car first and independent of all other considerations. It helps if you do your homework here and know what a dealer typically pays for that vehicle by consulting a reputable source like Consumer Reports in advance. Then you can start from that figure and adjust upward to allow the dealer to make a fair and reasonable profit. Then only after getting the true sales figure of the new vehicle, should you begin the trade-in negotiations. This keeps both the amount of the new car and the trade-in amount out in the open where you can more easily see exactly what deal you are being offered.
3. Dealer financing is another area where a new car dealer can make exorbitant amounts of money, sometimes more than the profit on the sale of the car itself. To take this advantage away from the dealer simply arrange for your own financing beforehand. This puts you in the driver's seat by allowing you to negotiate what amounts to a cash deal on the price of the new vehicle and protects you against interest rate and financing markups added in by the dealer to pump up their own profits at your expense. Of course, you can always allow them to try to beat the financing that you already have in place, because competition is a good thing for the consumer.
4. Added accessories and options that are marked up many times over to the consumer is another way for a dealer to make money. They will try to sell you all sorts of extras like rustproofing, paint sealant, alarms, and more to add on to the deal. Just be sure that you know what they are charging for each option and that is a fair price. Do not allow them to tack on outrageously expensive options just to inflate their profits.
5. Dealers will often try to sell an extended warranty at the sale of a new vehicle, but consider how long you plan on keeping the vehicle first. Most factory warranties cover everything that you need for the life of the coverage period. If you will be selling the car before the warranty expires there is no need for an extended warranty, and would often be an unnecessary expense.
A new car costs enough without having to pay extra for things that you don't need or having charges tacked on that you aren't fully aware of. So do your homework and don't allow yourself to pay more for any new car than you should.
Jim Johnson writes on many consumer related topics including autos. You can find out more about new car buying tips and a how to buy a new car by visiting our Auto Review website.
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