Sunday, October 25, 2015

Car Dealer Games (and the gullible young)

You can't win at his game, unless you refuse to play.

The games of car salesmen haven't changed much in 50 years or more.   But young folks still fall for their antics, on a regular basis.

On reddit "personal finance" (home of some of the worst financial advice on earth) this plea:
I bought a Toyota Coralla 2009 in 2012 for 13k. It now has 80k miles and is in very good shape and totally paid off. Only debts are mortgage and wife's car (Camry, almost paid off)

The dealership has called me a few times, which I finally answered last night and they are saying they're low on inventory and are willing to pay retail, as long as it's still in good condition.

We've been talking about upgrading to an SUV or mid size pick up truck, since we've started a family and are having a tough time fitting in the car. We were planning on waiting about a year to do this, but I feel tempted to make the jump if we can get a fair amount for the car.

Questions are: Is this a dealership style scam? Is it even worth checking into or would we be best just sticking to the plan?
Well, duh.   It is a scam - designed to get you into the showroom so they can bend you over a new Tacoma and then have the entire dealership staff gang-bang you.

No, they are not "short" on used cars to sell.  And no, no one is dying to get into a 2009 "Coralla" [sic] as it is a mass-produced car and they are available anywhere and hardly in short supply.

And no, the dealer is not going to take a loss on the deal by paying you more for the car than they can get selling it.   Frankly, a 2009 model Corolla would likely be wholesaled.  Dealers, particularly new car dealers, only want very good late-model (less than three years old) cars on their used-car lot.

No, what is really happening here is cold-calling.  A new salesman is going through old sales records to find a "lead" and he found you.  The goal is to get you into the dealership and sell you a new car.   And they will play all sorts of games, including the "inflated trade" game (where the new car price is padded to allow them to appear to be giving you more money for your old car).

I need the fucking leads!

These tactics are as old as the hills - some a Century old.  I am sure they were using them to sell horses and buggies back in the day.   "Say, I had a guy in  here looking for a 1898 Studebaker wagon, just like yours!  I can give you a good deal on a new one and a good trade price for your old one!"

Some salesmen are ballsy enough to do that - they will claim that "a guy" came into the dealership wanting a car just like yours, "uh, a 2009 Corolla, right?"    What are the odds?   A billion to one.  The "guy" doesn't exist.  It is just a gambit.  They know your buying habits and know you might be ready to trade, so they come up with a story and a bit of bait to get you in.

This Jam Handy video from the 1940's entitled "Hired!" illustrates how dealer games are played and how leads are "played" - although they don't tip their hand too obviously in the video:

We don't have many '39 Plymouths on the lot!  Say, I know a prospect who has one!   Sure you do...

Getting people to trade in their cars is hard.   It has been shown that psychologically, people tend to over-value what they own and under-value what others have.  So they think their old Hupmobile is worth tens of thousands of dollars, when at most it might fetch a few hundred at auction.   But if they can tell you they are paying you a lot for it you may be more inclined to part with the car - thinking you got "good value" for the vehicle.

This Ford video entitled "Trader Thorne" is even more illuminating.  "Bird Dogs" and of course the "I've got a buyer for a car just like yours" gag.  It also illustrates how cold-calling works.

These car salesmen tactics are nothing new - they are decades old.   Car salesmen don't view them as deceptive, either!  Harmless lies used to get you to buy a car - something they think (probably correctly) you want to do anyway, are acceptable.   It is like persuading someone to have sex.  They want to, you just has to seduce them, first.   If they have regrets later, too bad for them!

Of course, once they have you in the dealership, well the real fun begins.   Here we have a young man who has only vague ideas of maybe trading in his car for an SUV or pickup truck (because low gas prices are here to stay forever, man!) and has no idea what his car is worth or what kind of car he'd like to get or what a reasonable price is for such a car.   In other words, he is ripe for the picking.

The "I'll go talk to my manager" gambit.

They keep you at the dealership for hours.  Why?  To wear you down.   You beg and plead and try to negotiate, but you really have no bargaining power, since you did no pricing research first, or thought about what make, model, and options you wanted, or even tried to use a pre-purchase plan, or shopped between multiple dealers.

Chevy Chase falls for the "stolen trade-in" gambit.

Even if you try to back out of the deal, they will say your trade-in was taken to a remote lot.  They will blame the car jockey, who will be brought in all contrite and say, "Oh, sorry, I thought you were trading it in, right?"   And they will tell you the car is locked up for the night, but why not put temp tags on this new SUV and take it home to show the neighbors?

Oh, and that "good faith deposit check" you gave them to have the deal considered by the manager?   That's locked up in the safe, overnight, as well.   We'll get that right back to you, first thing in the morning!  But of course, you have to go to work, and the check is locked up tight all right - in the night deposit box at the dealer's bank.   It has already been deposited, chump!

UPDATE:  A reader writes that he doesn't believe this is possible.  After all, it is illegal!  This reminds me of the law student who said my posting about inheritance rip-offs was untrue as the real-life scenarios would be "illegal"   Are young people that naive?  You betcha!  You cannot sue to collect damages for less than $20,000 or so, as the cost of the lawsuit would exceed the damages.   So anyone can rip you for for five grand and smile in your face, and there ain't much you can do about it.  This is reality - deal with it, or get burned!

Q:  How do you tell if a car salesman is lying?
A:   His lips are moving.
There have been articles galore on this stuff.   Books written about it.  The gags are old and well known.   Good salesmen are good psychologists, as the Ford video above illustrates.   They know how to manipulate people.  Keep someone around long enough, and low blood sugar and dehydration will make them sign.   If they have fussy, whiny kids, so much the better.   Separate the husband and wife so they can't compare notes.  Insinuate the husband is a "wuss" if he says he has to check with his spouse before signing.   Do whatever you have to do to get them to pay - far over what they should pay - for the car.

And yet, people still fall for these age-old gags, over and over again.   Young people in particular think that they can go in and "get a good deal" on a car simply by being a "tough negotiator."  I know this because it is what I thought when I was 25.    And many of them leave the dealership thinking they got a good deal, but in fact were screwed royally.

How can you avoid this?   Well, don't go to a dealer for starters.  If you can buy a car from an individual, you can save a lot of money - and your negotiation skill level is equal with his.   That is, of course, unless you have a "dreamer" who thinks he is some sort of sharp operator, or is really not interested in selling his car.  Just walk away from people like that, they are not hard to spot.

But what about dealers?   Well, you will pay a lot more money for the same car at any dealer - new or used - that you would from an individual.   But there are some "tips" if you want to buy a car from a dealer.

1.  Separate Transactions:   If you are "trading in" your existing car, expect to get hosed.   The more complicated you can make any financial transaction, the easier it is to fleece the consumer.   And when you have two car sales (the new car sale and the trade-in) tied together, they have double the opportunity to screw Joe Customer.    If you want to buy a car, make it a "clean" simple deal - just the purchase of the car.  Sell your old car separately - put it on eBay or whatever (I have had very good luck there myself).  But more about that, later.

2.  Do the Research:   We have so many tools and databases at our disposal today to research car prices.   Edmunds has a very good site which not only gives realistic used car prices, but also what you should expect to pay as a reasonable price on a new car.

3.  Pick the Car, First:   My neighbor went into a car dealer once to buy a Volvo convertible and came home - eight hours later - with a station wagon instead.  He didn't do any research first, didn't comparison shop, and when he went to make the deal, the salesman talked him into an entirely different car.   Not surprisingly, he went to a busy dealership on the weekend with his young children in tow.  Pick the make, model, and even trim level and options you want, up front.   If you try to compare different makes and models, you lose track of what is a fair value and end up at a data disadvantage.

4.  Negotiate the Price First:   I've been able to negotiate a price over the phone (which in the old days was nearly impossible to do) and then buy a car at the negotiated price, which was close to, or below the Edmunds TMV price.  This saves a lot of time and hassle, and gives you an "out" once you get to the dealer (if they raise the price, you simply leave).

5. Don't Be Afraid To Leave - Quickly:  You can't salvage a bad deal, and if the salesman lies to you even once, leave.   We went to a dealer once to look at a blue car.  He said he had it in stock.   We got there and he tried to sell us a black one, as he had lied to us - he didn't have the blue car at all.   We left - immediately.   Trying to "salvage" a bad deal or trying to deal with someone who has lied to your face is just idiotic.

6.  Be Old And White:   Seriously, car salesmen are the biggest misogynists and racists around.  As the Edmunds article illustrates, they have stereotypes about what certain age groups, genders, and races will buy, and how much they will pay.   It had been documented that African-Americans end up being offered higher prices on cars than white folks.    A young male coming into a dealership thinks he is "lucky" to get a loan - and to get a car.   A middle-aged white guy like me, with an 800 credit score and a checkbook to pay cash with is in a different negotiating position.   Salesman will try to screw the young guy, as they assume he is inexperienced (and in the scenario at the top of the this posting, he clearly is).   With older folks, they try less (but they still try!).  It is sad, and it begs the question as to why the Saturn "flat price" deal isn't the norm in the industry.

* * *

My advice for this young man?   Keep the Corolla.   Why?  A Toyota Corolla is a 150,000 mile car, and his is only about six years old.  They could easily keep it another five years, at which point its resale value would be de minimus.   It is a lot easier to sell a car at that point, as you don't feel you have a lot of equity in it and thus are not worried about "getting a good price" for it.  Hell, you could afford to give away the car at that point.

Second, you've cut your transportation costs in half by keeping the old car.   The new SUV or pickup truck, in addition to getting much worse mileage (20 instead of 30) will also have a horrific depreciation curve.   If you trade every 3-5 years, you are just jumping from one high depreciation curve to the next.

It also means that you will have perpetual car payments.   Some folks think this is "normal" and that having a $500 a month car payment for their entire lives is just something you have to live with.   But with cars today lasting so much longer than before, there is no reason anyone should have to live that way.   And $500 a month in your retirement plan adds up very quickly!

There are also hidden costs, as I have noted before.  Here in Georgia, there is a one-time 7% title tax, which means if you trade every few years, you are paying $1000 to $2000 for every trade.   It makes sense, in the long haul, to keep the car you have.

Not only that, but trading in wasn't his idea.   So he is totally unprepared for the deal, which is ideal for the salesman, but not ideal for him.

This is, of course, not to say you should keep your car "forever".   Again, I hate it when people take a piece of advice and then turn it on its head with straw-man arguments.   When a car gets to a certain age, the cost of repairs exceed the value of the car.   Even putting new tires on some cars may exceed the resale value.  And no, not everyone is going to get 300,000 miles out of their car, unless they drive 30,000 miles a year.  There comes a point when it is time to sell.   But after three years and 50,000 miles, that seems a bit soon.

So yes, you will have to buy a new or newer car, eventually.   And over your lifetime, you will buy a few cars .   But it pays to do the research and make sure the car you buy is really the one you want, and not just what some salesman sold you.   Because you should keep a car a good long time, and if it isn't what works for you, it isn't a very good deal at any price.   And if you keep trading in, again and again, every few years, you can bankrupt yourself in short order.

The road to middle-class poverty is paved with new-car payments.