Car Buying Scams, Auto Dealer Executive Breaks Code of Silence!

Transcription

1 Car Buying Scams, Auto Dealer Executive Breaks Code of Silence! Complete Mind Numbing, Shocking Exposé on Every Psychological Trick, Scam, and Take Money Out of Your Wallet Scheme That Goes on at Your Local Car Dealership! Never before has such a high ranking insider a General Manager confessed to the sleazy tactics used by car dealers and made them public! 1

2 Table of Contents Introduction Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 The fastest & easiest way to purchase an automobile! Skip the slick car salesman! How to find Invoice, Hold Back, Rebates, Dealer Cash and all the good stuff! How to get the most $$$ for your trade in and how dealers appraise your car! How to cut thru the bull! What happens to buyers who shop thru the sales department! Don t buy a lemon! Everything you need to know when purchasing a used car! Car dealer sales scams! The Art of Psychological Warfare from the dealer s perspective! Finance scams! The truth about what happens inside the Finance Managers office! More red hot car dealership scams! The simple facts about auto leasing! The software you need if you re going to lease an automobile! The cold hard facts about bad credit! How to buy a car without the dealer knowing your credit rating! Hush-hush secrets of the car business! How car dealers rip off their own employees and how they are set up internally! Your express Action Guide. The car buying process laid out fast and simple! Video Links are located on page 4 This e-book MAY NOT be copied, sold or distributed without prior written consent from the author. This e-book is copyrighted material. Anyone who attempts to copy, sell or distribute in any way, shape or form will be prosecuted! Peter M. Humleker Jr All Rights Reserved 2

3 Introduction Inside this manual you will find information that has never been made public until now. You are about to embark into a world that is like nothing you have ever read about before. Yes, there are plenty of books about the car shopping experience and how to buy a car, etc. However, this book will go behind the scenes and strip away the veil that is shown to the public. It will reveal what is actually going on behind all the closed doors and whispers inside auto dealerships! The industry of the car business is like an island unto itself. The inner workings are things that are never spoken about to the public. This book goes against the grain and exposes everything under the sun when it comes to auto dealers and their practices. You will learn everything you need to know about auto dealerships as well as everything you need to know about how to purchase an automobile for the least amount of money. Not to mention you will also find out everything you need to know about what to do before you buy and after, as well as all the information you need regarding the aftermarket products such as extended service contracts, GAP insurance etc. Don t be surprised that you won t find this book being advertised on radio or TV. Why? You ask. Good question. You see auto dealerships are the biggest advertisers in local newspapers across the United States. They also are the biggest advertisers on radio and television as well. The actual car manufacturers are also one of the biggest advertisers on TV and print. What does all this equate to? When a consumer advocate, especially an auto consumer advocate, comes on the radio for an interview, the local dealerships get very upset. They simply apply pressure to the radio stations and threaten to pull advertising. Of course, the radio stations listen to their top sponsors. Needless to say, you don t hear many auto industry consumer advocates on the radio being interviewed. 3

4 When the writer was living on the West Coast, there was a lawsuit brought against the biggest and most well-known auto dealer in the state. It was huge news, because it involved racial epithets and several of his employees suing him. However, the problem was that this particular car dealer was the #1 biggest advertiser in the local paper. Needless to say, the paper never even ran a story until after one small outlying newspaper already blew the lid off of the entire ordeal. Then they finally ran a very small story and buried it in the back of the paper. That s a picture of the power of advertising, at least the power of the one paying for the advertising that is! If you hear about this book either by the radio, TV or print then you know that the source is unbiased and consumer-oriented. I hope you enjoy my book, and it is my wish that you will save a great deal of money the next time you purchase an automobile! Sincerely, Peter M. Humleker Jr. Consumer Advocate Video Links When you click on a video link, if the audio starts playing before the actual video don t freak out! Simply wait for the video to load and then click on the button going across the bottom of screen and move it to the beginning and the video will start again in full. This video is on finding incentives and rebates: This video is on finding out the invoice price and true market value: This video is about the Educated fax: This video is about determining your used car value: 4

5 Car Coaching Program Congratulations and thank you for making a wise decision in investing in this e- book. I hope that you will pass my web site along to your family, friends, and colleagues. If you have not done so yet, be sure to sign up for my newsletter, because I will keep you informed of all updates to the e-book as well as answer your questions about the car buying experience and the auto industry. I also send out information from other consumer advocates and their products as well. This insures that you will always have the chance to educate yourself and never be a victim again of fraud, deceit or rip-off practices and scams. To subscribe to my newsletter The Scam Alert News simply go to My newsletter is free, and you can always unsubscribe at any time! I doubt you would want to with all the important advice you are going to receive on scams from many different industries. Some of the industries we will keep you up to date on are: auto industry scams, mortgage scams, furniture scams, credit card scams, auction scams, and many other areas that will affect your life in one way or another. When you have a question, send it to mailto:[email protected]. Many times I can answer the directly, and if not I will answer it in my newsletter. Do not forget that you have six-months membership to my car buying coaching program. It starts on the date that you purchased this e-book. When you have a question about your car buying process then it to mailto:[email protected] The car buying coaching program works as follows: If you have a question about your car buying experience then me at the private address of mailto:[email protected]. I will answer your questions as fast as possible. I can only answer questions about the car buying process. I cannot give you advice on what kind of car you should buy or whether or not you should get a van or SUV. These are questions that are a personal choice that only you can answer. Hot Tip: When you read this e-book, do it with your Internet browser open so that when you click on one of the links in the book, it can take you directly to that web site. Then you can bookmark it into your favorites and go back to it later. I look forward to helping you the best I can! 5

6 Disclaimer: I give many examples of fraud, deceit, and different examples of stories of what goes on in auto dealers today. This book is from my own observations while working in the automobile business for 6 years, the last 4 1/2 in management. Is every single dealer in America doing the practices that I explain about in this book? Of course not. If you search hard enough you will find a few honest ones out there. Just like there are some honest sales consultants and managers in the car business. The point I am making is don t throw the baby out with the bathwater. In every profession there are always the few, the proud, the Marines! Oops, I got carried away. (I did my time, U.S.M.C ). What I meant is that there are always a few good people in any organization or profession that has a reputation for being crooked or dishonest. The problem lies in finding those few people. ABC Motors is a fictitious name. Peter M. Humleker Jr. Consumer Advocate Version 6 6

7 CHAPTER ONE The word Fleet may or may not sound familiar to you. This first chapter is about the Fleet Department that large dealerships have and how it can save you massive amounts of time and energy. Basically it boils down to this: The fleet department in an auto dealership is set up to only sell to businesses that purchase vehicles in bulk and typically they buy the cars at invoice. For example, when your local city wants to purchase ten brand new trucks they do not deal with a car salesman like the public. Instead they call directly to the fleet department and get a bid in writing for the trucks. They deal directly with a fleet manager, and he does all of the paper work involved for the entire transaction. The fleet department also sells to other businesses that purchase vehicles either one at a time or several. Here is the real kicker! You do not have to have or own a business to buy from the fleet department! They also sell to individuals at the same discounted prices; it s just that not too many people know this information. Anyone can purchase from the fleet department, but not every dealership has a fleet department. If you live in a city with a population of over about 25,000 people, chances are that your local auto dealer will have at least one person assigned as the fleet manager. If you live in a large metropolitan city, basically every dealer will have several fleet managers who can assist you. Purchasing from the fleet department is by far the easiest way to buy a vehicle and bypass the salesperson! When you go online to inquire about purchasing a vehicle or you speak with your local auto broker, who do you think they purchase your vehicle from? Yes, you re right! It s from the fleet department in the nearest city to where you live. Why is buying from the fleet department far less expensive than buying from the sales department? The fleet managers are paid differently than the sales consultants. They are paid from true dealer cost. There is very little if any advertising budget for fleet departments. Fleet managers work on a higher volume and less profit plan of action. They are the wholesalers in the auto industry. The Educated Fax Assault One way to go about getting your price quotes from the fleet department is to fax them your price quote request. Some people (not in the car business) think this is the best way to get price quotes from the dealers. I can tell you as an insider it is not. 7

8 Here is why. When a fleet manager or sales manager gets your fax they automatically assume you are faxing to 20 different dealers. They don t give the fax request the highest priority, simply because they figure some other fleet manager will fax you back a price $50 lower than what they quote you. Therefore, your fax gets thrown on their desk and buried under paper work, and many times no response will be sent. However, there is a way to make this method the very best way to get the best deal and that is to follow up the fax with a phone call! If you want to use this method, type up a fax describing the exact car with the options and colors that you want. Then fax it to the attention: Fleet Manager. Request their best price. I call this method the Educated Fax Assault, because when they get your fax they know you have educated yourself in the car buying process. This is the beautiful thing about buying a car by going through the fleet department. You never have to set foot into the dealership until you have gotten the best price on the vehicle you want to purchase. Let me go back to what I said earlier about the Educated Fax Assault. If you just blast out a fax to ten different dealers and do nothing else, you re not going to get the best deal. You need to combine this method with a phone call! You also need to make your fax very detailed in the type of automobile you want with all the options, color, etc. It s a complete waste of time to send out a fax and expect to get the lowest quote when you don t even have the model number, and proper options. If each dealership has the exact same information then you can compare oranges with oranges and not apples to limes. After you fax the dealerships then you follow up each fax with a phone call to the fleet department. Why do you have to follow up each fax with a phone call? Because the fleet manager feels that the person who calls is more serious and gives him or her a higher priority. It also gives you a chance to smooze with the fleet manager a little bit and tell him or her exactly what you re looking for. Let him or her know that you already have your own financing set up. Ask them what rebates they have on the vehicle that you wish to purchase. When you reach the fleet manager, tell him or her that you sent them a fax with exactly the vehicle you are looking for and do they have what you want on the lot available? If so, get the best price quote. After that, call the next dealership and do the same thing until you have your lowest quote on the vehicle that you wish to purchase. 8

9 You always want the fleet manager to know that you are getting several quotes. Be very kind and considerate. People shopping prices on cars with negative attitudes rarely get what they want, because they act like they have a chip on their shoulder. The fleet manager may not be able to give you a quote right away but make sure that you tell him or her that he or she can call you with a quote. If you want to buy a Chevrolet for example, some large cities will have 8 to15 different Chevrolet dealerships within short driving distance from your house. Depending on the vehicle you want to purchase, you should be able to buy one for invoice or less. Step-by-Step Educated Fax Example Here is the very best #1 way to purchase a vehicle, get the best price and not have to go into a car dealership and deal with sales people: Go to and bring up the exact car you want to purchase. On Edmunds you can type in the vehicle you want, and it will ask you what options you want on that car. There is a button that says Price with Options. You can then check each option you want on your car. You punch in all the options you want, color, etc. The next button you will click after you check the options you want is the TMV Pricing Report button. This will give you the invoice price of the car with the options. Now this part is very important. You want to copy and paste the vehicle information into your fax, so that each fleet manager knows exactly what type of vehicle you want with the exact options! Here is a sample fax that I have made, and I used a 2006 Subaru Legacy as my example: I went to and did what I described above and got the car I am interested in with the exact options I want on the vehicle. Below on the next page is a sample fax that you can use as a guide for your own fax. Notice that I copied and pasted the options into my fax. 9

10 Attention Fleet Manager To: ABC Subaru Fleet Manager From: Your First and Last Name Date: Subject: Vehicle Price Quote Dear Fleet Manager, I am contacting several fleet managers and requesting your best price quote on the vehicle below. We are looking to buy within the next week so please get back to me quickly. I want to purchase a brand new 06 Subaru Legacy with 2.5 GT Ltd. 4dr. Sedan AWD w/navi, Black Int. (2.5L 4cyl Turbo 5A) with the following options: L9S Appearance Group 1E S5L Spoiler - Obsidian Black Pearl L6F Popular Equipment Group 1A K5G Auto-Dimming Mirror and Compass w/homelink J4C Shift Knob - Momo LWI Moonroof Air Deflector P5E Hood Protector - Turbo B5A All-Weather Floor Mats MSV Wheel Locks - Alloy Wheels Color: Obsidian Black Pearl The price should include all applicable rebates, dealer cash shared, etc. We are looking for the very best deal possible and in return we will give very high marks for the dealerships CSI or Customer Service Survey. We will be paying cash for the vehicle. Thank you very much, and I look forward to hearing from you! Your Name Here P.S. The best way to reach me is my cell phone or my address your @yourhost.com. I will also follow up with a phone call. ********************************************************************************** 10

11 Notice some of the things I wrote in my fax which are very important. The first thing is that I let the fleet manager know that I was getting several quotes. This is so he or she knows that there is going to be competitive bids on the vehicle that I am shopping for. The second thing I did was let them know I wanted to buy within a week. This way they do not waste time in getting back to me, and they know that I am a serious buyer. The third thing I wrote is the exact type of vehicle I want with the exact options I want. This assures them that I have done my homework and know exactly what I want. The fourth thing I told them is that the price should include all rebates and dealer cash shared. This lets the fleet manager know that I am an educated car buyer and that I expect to get all applicable rebates for the vehicle and also some of the dealer cash. These terms are explained in detail later on in this book. Why should they give me a great price? The reason is the fifth item I discussed in the fax and that is the customer survey from the manufacture that is sent out to each new car buyer. It is very important for dealerships to get good customer satisfaction surveys from customers. Customer satisfaction is now a very big decision factor when manufacturers decide on whether or not to give a dealership more franchises. Therefore it s important to get high scores for the dealership. Last but not least, I let the fleet manager know that I would be paying cash and my contact information. I also said I would follow up with a phone call so he or she knows that they need to get cracking on my price quote, because I am a serious buyer. After the faxes are sent out, wait about an hour and call every fleet manager, so you can introduce yourself and find out who is working on your quote. If you re confused about some of the terms such as rebates, dealer cash, etc. don t worry. Everything is explained in detail later on in the book. Why those Internet sites with the free car buying information will end up costing you thousands of dollars! Let me explain something that probably 90% of the people surfing the Internet don t realize. When you go to a web site that gives you lots of free car buying information, they are not doing it in your best interest! 11

12 The sites I am talking about are not listed in this e-book. I don t want to give them any more publicity than they deserve, so I will not mention them by name. What they purport to do is give you a lot of advice on how to get the best deal on a car and where to get the best warranty deal, etc. Do you notice that none of them tell you about the fleet department? That is because they don t get paid for telling you about the fleet manager. They only tell you to get price quotes from the Internet sites. The reason is because they get paid for every person that they send from their web site who goes and gets a price quote. The same thing with warranties. They don t tell you what the difference between the different warranties is or how to buy one etc. They just guide you to a warranty web site, so that they can make money when you buy one. This is why these sites can cost car buyers thousands of dollars, because those car buyers are not getting true information. They are just being led around like sheep to different companies that pay them money. The companies mentioned on their web site pay them to send them customers. That is why you won t find the information in this e-book on those types of web sites. Most of them are not even owned by former car industry veterans. Those web sites are geared strictly to making a profit and not geared to giving you the real insider information such as is provided in this publication. What about this e-book? Do I get money when people click on the links in this e- book? Some of them I do. Most of them I do not. The difference is that the companies in this publication are not my source of income. The price you paid for this e-book is. If I recommend a company in this e-book, it s because I have researched that company for you. If they send me a couple bucks, because you clicked on their link then its just a little bonus. If you want, you are more than free to not click on any link and manually type it into your browser. Internet Car Buying Sites The other thing you want to do in conjunction with getting quotes from your local fleet managers is get quotes on the car you want to buy from the Internet brokers. You want to do this, so that you can compare them with the quotes you get from the fleet managers. In the event that you get a lower price quote from one of the Internet sites then you can use that as leverage. See if the fleet dealer will match that price if his or hers is higher than the Internet quote. 12

13 I am going to give you the best ones that I have found on the Internet and you can check them out for yourself. Invoicedealers has my highest recommendation. They are at The other site I recommend is In fact you can get quotes when you re doing vehicle research for your Educated Fax Assault. These sites will ask you for your zip code and get you quotes from dealers in your area. These sites will also have reviews and research information on them as well as giving you price quotes. Recap: Let s recap this first chapter on what you have learned so far: You can skip going through a salesperson by calling the fleet department at the auto dealership directly. You can get the best price by purchasing through the fleet department and comparing with other dealers and price quotes via the Internet. You learned how to do the Educated Fax Assault. You found out how the so-called free car buying sites are actually costing car buyers money instead of saving them money. I am sure you have other questions and they will be answered in the following chapters. In the next chapter, we will learn all about Invoice pricing, Dealer Hold Back, Rebates, etc. Keep reading my friend. There is lots more to learn. 13

14 CHAPTER TWO Invoice Let s talk about Invoice pricing for those people who may not know what I mean. Every new car comes with an invoice from the manufacturer for that specific vehicle. The basic information on an invoice will state the vehicle identification number (VIN for short), the make and model, dealership name, and the MSRP (Manufacturers Suggested Retail Price), the invoice price, holdback, and some other insignificant information. The invoice price is what the dealer pays for the vehicle less the holdback dollar amount. For example an invoice might show an MSRP amount of $23,274 with an invoice amount of $21,365 plus a holdback amount of $445. In this example the true dealer cost is $21,365 minus $445 equals: $20,920. Typically the more expensive a vehicle, the greater the difference between MSRP and invoice then the greater amount the holdback will be. Negotiating: I have actually read that some people tell you to negotiate the price you pay for a car from MSRP on down. Nothing could be further from the truth! You always negotiate from cost up! So the question is, what is a fair mark-up to pay the dealer. How do we find out what the invoice amount is, so that we can even begin to find out what we should be paying for the vehicle we want to purchase? Let s start with finding out what the invoice price is on the car you want to buy. You have two choices. Ask the fleet manager to show you the invoice, which they will. Or go to the Internet and find out. The fleet manager will gladly show you the invoice, because they are accustomed to dealing straight up with customers and selling the vehicles at invoice cost or slightly over cost. They get paid differently than sales people who work on the floor of the dealership. Fleet managers get paid from the true cost of the vehicle, which as we know, is Invoice minus the Holdback amount. Hot tip: Fleet managers can also sell used cars! If you see a used car you like at a dealership, make an appointment with the fleet manager. Have him or her show you the car and sell it to you. The Internet, as you know, is a place to find out just about anything on any subject. There are many web sites that you could visit and just click in the type of vehicle you are looking for with the options that you want. The web site will give you the MSRP and Invoice amount, and some will also give you the Holdback amount. I have listed three here for a reference for you to check out: 14

15 I believe these Internet sites to be the very best sites on the Internet for you to go to and get all the information you need in regards to car research, used car research, forums, price quotes on cars, auto insurance quotes, etc. Warning: When you get an invoice amount on a vehicle from an Internet site, always assume that it may be off by several hundred to several thousand dollars! Usually the amounts are very close. However, when making an offer for a new car, you must always make an offer based on the actual Invoice of the car that the dealership has. For example, if you were making an offer on a car of $200 over invoice then make that clear to the fleet manager. Tell him or her that you need to see the actual manufacturer s invoice, and that you will pay them $200 over that amount. Never make a dollar amount figure offer such as $21,543 because if the Invoice amount that you took from an Internet site is wrong, you could end up paying too much for the car. Important Government/Nonprofit Related Car Sites. Investigate These Sites Before You Purchase! There are a couple of other sites that you will want to be familiar with because they have information that is of the utmost of importance. Let s visit a couple of these sites right now, so you have an idea what kind of information they provide. is the site for the National Highway Traffic Safety Administration and gives lots of great information such as child safety seat reports, crash test reports, rollover consumer information, and tons of great safety related information. When you re at the site click on the link in the middle called, Recalls Search From Office of Defects Investigation. This is a site where if you were shopping for a used car, you can input the type of car, make, model, year and then see what recalls were done. Then if you buy the car you could call the local dealer, give them the vehicle identification number of the car, and see if any recalls need to be done. Now go visit because they have additional information on safety, auto defects, fuel economy, lemon laws, etc. If you want to know what the safest vehicles are, go to for total crash test ratings. 15

16 Does this next site need any introduction? The following site can give you lots of information on any car you want as well as objective information on hundreds of other product recommendations. Go to Market Values At an Internet site like Edmunds and Kelley Blue Book above, there is a nice feature that when you type in your information on the type of new car you are looking for, it gives you the MSRP and Invoice price, as well as a third number which is what that particular car has been selling for on average according to their sites statistics. On Edmunds this feature is called True Market Value and on KBB it s called New Car Blue Book. This is a nice feature because it gives you an idea of how much that car is selling for on average over the Invoice amount. Now remember that the selling figure these two sites will give you is just an average. You could end up buying the car for less money than what the sites average selling price gives you. Regarding how much you should pay for a new car from your fleet manager or salesperson, it really boils down to the type of car and the demand for the car. That is why the above features that I mentioned, True Market Value and New Car Blue Book, are such great price numbers to know when you re doing your research. By using the True Market Value and the New Car Blue Book features, you can easily see that if your quotes from the fleet managers are less than the prices you got from the Internet sites, you should feel confident that you are getting a good deal. You can also take your best two quotes and play them against the fleet managers and continue to negotiate for a better price than what was first quoted. Speaking of Internet sites, what is the deal with all those price quote sites on the Internet? It s really simple, actually. Those sites take the information you give them in regards to the kind of automobile you want to buy with all the options you want, and they in turn get price quotes from the fleet managers. When they get the cheapest price quote, they you with the price, and either: A) mark the price up for their profit or B) they keep the price the same as what they were quoted from the fleet manager. After you purchase the car, the dealership then pays the auto broker a fee. This is usually $100-$500 dollars per car. 16

17 You could also get price quotes from some of these car sites just to make sure your fleet manager is giving you the lowest price. If the Internet quote is less than your fleet manager s, then use it as leverage to get your fleet manager to match the price. If he or she does not match it, then purchase through the Internet site that gave you the lowest quote. Keep in mind they will simply tell you which dealership to go to in order to purchase your vehicle for the agreed upon price. Most people, of course, want to purchase a vehicle for as little as possible, which means at Invoice price or less. Do some research on the web sites I listed above. Find out how much the car you want to buy is selling for on average. Now find out what the Invoice amount is, and you will be light years ahead of the average car buyer. Most cars can be bought at Invoice price with the exception of higher-line cars and cars that are in greater demand. Remember when Chrysler came out with the PT Cruiser and dealerships were selling that car for $2,000-$5,000 over MSRP during its first year? My advice is never buy a new car when it s in its first year of production. There is a greater demand therefore higher price and not all of the bugs are worked out of it yet. So why not wait a year or two and get it much cheaper and without the typical first year bugs? Many people ask me about Holdback and can they purchase a vehicle for less than Invoice. Rarely can you purchase a brand new car for less than Invoice unless that car has been on the dealership lot for an extended period of time or the dealerships are getting rid of last year s model, because the new year models are arriving. Keep in mind that I am not including rebates or dealer cash when I say that rarely can you buy under invoice. With rebates and or dealer cash then of course you can purchase a car for below Invoice pricing. Rebates: The one sure way to purchase a vehicle for less than Invoice is to purchase that vehicle at Invoice price, plus take any available rebates off of that amount. I told you how to go about getting the best price on the car you want to buy from the fleet manager. I need to add a few things that you need to know that are very important to your saving money. Of course the goal of buying a new car is to get the car at Invoice price or less, which is possible. Once you have received your best price from your price quotes via the local fleet managers and the Internet, then the last thing to top off your purchase is to see what the factory rebates are for the vehicle you want to purchase. You can use 17

18 the same three Internet sites I gave you earlier, and Hot Tip: Sometimes these sites may not have updated information. Therefore simply go to the manufacture s site of the car you want to purchase. They will list the very latest financing incentives such as rebates and factory interest rates. The best way to avoid this problem is to always buy your vehicle at the end of the month. Sales consultants and sales managers are trying to get their sales quotas and bonuses. Also the web sites are updated for sure at the end of the month. When you hear rates like 0%, 1.9% or any other super-low interest rates, those are from the manufacturer and are called subvented interest rates. It just means that the manufacturer is picking up the tab, and they are financing your loan instead of a conventional bank or credit union loan. Sometimes the manufactures will offer a rebate or subvented interest rates for you to choose or sometimes they offer both a rebate and subvented interest rate. Scam Alert! Rebates do not cost the dealer one penny. They only cost the manufacturer money! Therefore, when you get your price quote make sure that the rebate is subtracted from the price quote. If a fleet manager quotes you the Invoice price then you subtract the rebate amount from the Invoice amount. This is one of the ways to purchase an automobile for less than Holdback. Do not fall for the scam where the rebate is $2,000 for example, and the dealer adds that to the invoice amount and then tells you you re getting the car for Invoice! Some people fall for this scam and the dealer loves it. Whatever price you negotiate you always subtract the Rebate from it! Let s keep moving. Dealer Cash: Dealer Cash is money that goes directly to the auto dealer from the manufacturer when he or she sells the car. It is really the same as a rebate to the customer but instead the dealer gets the money. When you are checking for rebates on the car you want to purchase, you also want to see if the manufacturer is getting any dealer cash for that car. If they are then you want to negotiate to get some or all of that money off of the final price of the car. You can check to see if there is Dealer Cash available by going to and looking under incentives. You will see a category called Marketing Support which means Dealer Cash. If there is Dealer Cash, then you want to negotiate for as much as you can get. Usually there is only Dealer Cash available on slower selling vehicle models, and that is why the manufacturers offer it to the dealerships. 18

19 Typically in September, dealerships start getting in the new year model cars and it would be possible to offer the dealer the Invoice minus Holdback. Realize the dealership is not making any money by doing this. Now you may think, Hey, I don t care if the dealer makes any money. In fact I hope they don t make any money off of me! This, my friend, is a terrible attitude to have towards any business. Let alone an auto dealer. Let me explain why. Every business has a cost associated with every product, auto dealers included. So if you buy a car at Invoice price and the dealer only makes say $400 in Holdback, that means that he paid on average of $100 to the fleet manager for his commission which gives the dealer $300 left minus advertising cost, flooring (interest paid to the bank on the vehicles on the lot), rent, and the usual expenses related to any business. Actually, the dealer ended up making very little profit depending on how much Holdback was on the particular vehicle sold. The dealer will make money selling at Invoice and also because manufacturers sometimes have incentive programs on different cars relating to the total amount sold for the year. The point I am trying to make is it will do you absolutely no good to cop an attitude at your dealership and tell your fleet manager or sales person that you don t care if he or she makes a profit. I can t tell you how many customers I myself have kicked out of the dealership for that kind of attitude. Getting back to offering to purchase the dealer s car at Invoice minus Holdback. In other words, zero profit to the dealership. This can be done, but usually the dealer will only do it when you are making the offer on a vehicle that is a leftover such as a 2004 model on his lot. The 2005 models are already selling on his or her lot. Now the dealer is desperate to get rid of the older model cars. If you have the opportunity to purchase an automobile at less than invoice, yes car dealers do advertise new cars at less than invoice. Then you re getting a great deal! Every Saturday you can see cars advertised for less than Invoice. These are called Loss Leaders in the auto biz and are designed to bring customers in to the dealership. Then they try to switch them to a better car that the dealer can make money on. Loss leaders are cars that have been on the dealership lot way too long and have not sold for one reason or another. Maybe the color is terrible or it does not have basic options like air conditioning, so the vehicle has not sold. Dealers will advertise it at a loss to get rid of it. Contrary to popular belief, auto dealers do lose money on some vehicles. Used cars as well will be advertised in the paper for less than the dealer paid for it. The reason is because if they can sell it to a customer, it is cheaper than taking it to the auction where they will lose much more money. 19

20 With that all being said, you don t have to feel sorry for car dealers who may lose money selling you a particular vehicle. Believe me, they will make up the loss on the next customer. The one who comes in and did not educate themselves like you were smart enough to have done. One thing before I forget. If there are not any fleet managers at your local dealer s then you can do the exact same techniques we spoke about with the sales manager. Every dealer has a Sales Manager, and they will help you out the same as a Fleet Manager would. Simply tell the Sales Manager when you call that you want to deal with him or her directly. If the sales managers don t help you or cop an attitude, simply call the owner. This will get everyone s attention! Do not forget there are also the Internet sites that quote you low prices, and you can arrange everything through them as well. Hot Tip: Customer Satisfaction - Otherwise known as CSI, CSS or some other alphabet soup acronym. Each manufacturer has their own acronym for the Customer Satisfaction Survey that the auto manufacturers send out to all buyers of their new automobiles. The auto manufacturers put a great deal of pressure on their dealers to have a good customer satisfaction rating. Here is how you use this valuable piece of information. When talking to the Fleet Manager tell him or her that you will give them a score of 100% on the customer satisfaction survey. Let them know that you expect the lowest price possible and that you will without a doubt give them a 100% score on the survey. This does two things: A) It makes the fleet manager aware of the fact that you know about the survey. B) The fleet manager will usually go the extra mile to give you the very best service and deal possible. When the survey comes then keep your promise! Buyer s Remorse! Let s face it. Anyone can get buyer s remorse after they just made a huge purchase. The question is how do you get out of the car deal that you just purchased yesterday? The answer is this. Never take or drive the car off of the dealership lot the day you purchase it. The reason is because even though you signed a contract, that contract is usually not valid until you physically take delivery of the vehicle. That means you drive it off the lot. 20

21 Now please remember that I am not an attorney, so the law may be different in the state that you live in. However where I am from, unless the customer physically drove the car off the lot after signing their paper work, the deal was not consummated. So if you are at all skeptical about your purchase, then do not drive the car off the lot. If you do take possession of the car you purchased and then change your mind a day or two later, then basically you are at the mercy of the dealership as far as seeing if they are willing to unwind the car deal. Some small town dealers will for fear of getting bad mouthed by the customer in town. The big city dealers are a whole other story. They will simply tell you that you are an owner! There is another way of getting out of a contract. That is if you financed the vehicle through the dealership, and they call you back to re-sign the contract because of an error or mistake. If the contract is in error, then they do not have a valid contract, and you could technically give them back the keys and walk away from the deal. This usually only happens in cases where the dealer is selling the car to a customer with bad credit. Sometimes the dealer has to re-sign the customer, because they signed the customer at the wrong interest rate or sold them a warranty and the bank will not agree to the warranty being sold. Scam Alert: When a car dealer calls you back and wants you to resign your contract, pay very close attention to what is different about the contract. Sometimes they sold you an extended warranty, but the bank does not approve of the warranty, so they have to call you back and take it off of the contract. Of course the dealer does not want to lose that profit so they will usually try to raise the interest rate on you. Do not let them raise the interest rate! Canadian Buyers: Where would we be without our friends to the North? ;-) After getting a couple s from Canadian buyers of this book, I decided I better do some research and see how I can better serve them in their own neck of the woods. So the following is what I found. There are several great web sites for Canadian car buyers to do research on and find out a great deal of information. The first site I want to mention is located at This site is probably best compared to the Edmunds site here in America. You can find out a great deal of information at this site in regards to car purchasing. The one big difference between this site and Edmunds is that if you want Invoice information on different cars, you have to subscribe to their service. This will cost you some money. Check under the heading Get Canadian Car Prices for the exact cost of this service. 21

22 I believe that Canada pays the same prices for cars from the manufacturer that the United States does. Of course you have different import taxes and that stuff, but realistically the pricing should be about the same as American Invoice amounts. The reason I mention this is because if you follow the techniques I gave in this chapter for car buying, you should be able to do the following. Go to and research the Invoice amount on the car you want to purchase. Then convert that amount into Canadian dollars. Then when you are speaking with the fleet manager or sales manager, you of course ask them to show you the actual Invoice for the car. Base your offer on that information. Just because you re in Canada does not alter the car buying process. You still get different quotes for the car, and you still make your offer based on the actual Invoice amount. I have been around the world and lived in several different countries. I can tell you the car buying process is still pretty much the same no matter what country you are in. Every country still works on the negotiation system of selling cars. So no matter where you live you re still going to do the same basic principles I taught you in this first chapter. The principles boil down to doing your research on the car you want to purchase and getting quotes. You then make your offer based on the actual factory invoice. Any auto dealer that does not want to show you the actual factory Invoice is simply trying to hide something from you. What they are hiding is too much profit. Another good Canadian web site for research is This site is also accessible from web site. This site will give you all the different car research that you need and also has a lot of great articles about cars, car buying, leasing, etc. One more site that is interesting is an article written by a journalist comparing some of the Canadian web sites and it is located at If you re looking for car insurance in Canada you can get free quotes from different Canadian car insurance companies at That is all the information you need if you live in Canada. Remember that all the car buying principles I teach can be used in Canada. Do your homework then deal directly with the Sales Manager or Fleet Manager. Always buy and make your offer based on the actual factory Invoice. 22

23 Recap: Let s recap this second chapter on what you have learned so far: You can use the Internet to tell you the Invoice price, Rebates, Dealer Cash and what the average selling price is for the vehicle you desire to purchase. You can also use those same Internet sites to find out how much used vehicles should be priced as well. You know that by far the easiest and most painless way to purchase an automobile is through the fleet department. You learned how to prevent buyer s remorse. You learned how to buy if you re in Canada. I am sure you have other questions, and they will be answered in the following chapters. Keep reading my friend, there is lots more to learn. 23

24 CHAPTER THREE In this third chapter, I want to cover some topics such as your trade vehicle and selling it yourself or trading it in. Most people don t go to the trouble to find out how much their car is worth, and also they don t go to the trouble of selling it themselves. Let me say this. If you want the most money out of the vehicle you want to trade, then SELL IT YOURSELF! I hope my shouting didn t impair your hearing. :-) Yes, it s a lot of work to sell it yourself. You have to make your phone number public in the paper and have people call you at all times of the day and night. You have to take the time to show them the vehicle and answer their questions. You have to hope they can get a loan for your car, and you have to get a cashier s check from them. It takes work to sell your car yourself, so if you trade the vehicle in don t expect to get as much as if you sold it yourself! Common sense isn t it? Hot tip: If you re selling a car yourself, meet the potential buyer at a public parking lot not your house! This is especially true for single women. You don t want to sell your car and have the buyer know where you live. If there are problems with the car, the buyer could make problems for you. Obviously, if you are a single woman, you don t want some strange man coming to your house. Arrange to meet the buyer at a public parking lot such as a restaurant and bring a male friend with you. Before you sell or trade in your car, you need to do several things. First, go to and and see what your car is worth. Some states go by the Kelley Blue Book and some states go by the NADA book. Just call up your local bank and they will be able to tell you which guide is used in your state. Both guides will be different in valuing your vehicle, so you will want to know which one the auto dealers use in your state. On NADA there will be an average trade-in and average retail price when you type in your automobile. On Kelley Blue Book you will see Trade-In Value and Used Car Retail Value. You will have to enter your car in both sections to find out the value for both trade-in and retail. Most people think their car is worth more than it really is. Now let me ask you a question. You were smart enough to invest in this book to find out how you could save the most money purchasing a vehicle, find out the tricks auto dealers use (still coming later), and basically educate yourself on how not to get ripped off purchasing or selling your next vehicle. Most people will see a retail value on their trade-in car and want to get that amount for selling or trading their car. 24

25 Here then is my question. Would you pay retail price for a used car? Of course not! You want to buy a new car at invoice or less, so why would you want to pay retail for a used one? Why do so many people think they are going to get retail price out of their car if they put it in the paper? The cold hard fact is they are not! The point I am trying to make is you need to get realistic on what you can sell your trade-in car for. If it s in perfect condition, then you should price it at the price that is between tradein value and retail value. Even at this price most people will offer you less than you re asking. There are some exceptions such as when you have a very nice car that is in hot demand such as a Honda, Toyota or diesel truck. These kinds of vehicles with low miles and great condition will command more money. In regards to pricing your car to sell, here is practical advice. You can always start at retail and go down. If you re in a hurry to sell your car, then price it lower. My suggestion is that you should try to sell your car yourself first, and if you don t succeed then trade it in. Hot tip: Always have your car professionally detailed before you sell it yourself or trade it in! This will get you far more money for your car than what you spend on getting it detailed! If you have small door dings that can be taken out inexpensively then have them taken out. Check your local Yellow Pages for Dent Doctors and those kinds of businesses that will come straight to your house to take the dings out. The two things that absolutely KILL your resale value on your automobiles: Smoking in your car! Transporting your dog in your car! If you ever expect to get any kind of resale value out of your vehicle, then don t do those two things! When evaluating the condition of your own car you really have to see your car through someone else s eyes. If your car is not in showroom condition then don t expect to get anywhere near retail price for your car. Let me add one more thing that people do not like to see on cars bumper stickers! No one cares what your political stances are or what or who you believe in. If you want people to know all that stuff, then build a web site but don t put bumper stickers on your car. They degrade with weather and time and do not help your resale value one iota. 25

26 When selling your car yourself, have your research printed out to show the potential buyer. Let them see what the Kelley Blue Book is (retail value) or what NADA says your car is worth. Have all the receipts from your oil changes and work that you have had done to the car. This will build value in your vehicle and get you more money for it. It also gives you ammunition when the buyer tries to low-ball you on your price. If they do this, simply ask them where they got their offer. Did they do any kind of research to substantiate their offer or are they just pulling their offer out of their (you know what). One other thing that is important to have if you are selling your car yourself is a CarFax Report which you can get free for at This lets your potential buyer know that your car has not been wrecked, salvage title, or the odometer rolled back. It s just one more weapon for your ammunition pile. ;-) You will learn more about Carfax later on in this book. It s imperative when buying a used car! I have found that one of the best ways to sell your car yourself is to list it with They have a magazine that comes out once a week with pictures of the cars for sale by dealers and private party. Another great feature about Auto Trader is you can go to their web site as a car buyer and find the kind of car you are looking for by make and model and price! If there is no Auto Trader in your area try the classified ads in your local paper. Make an ad that stands out from the rest with a bold face headline such as: Super Clean, Low Mileage, 99 Honda Accord, fully loaded with AM/FM/CD, one owner and all service records available. $12,997 firm. Call George@ between 9am - 7 pm. Do not put or best offer in your ad. It makes you appear less confident in your price. I hope this goes without saying, but never take anything but cash or cashier s check for your car. Check with your local Department of Motor Vehicles (DMV) and ask them what the exact procedure is in your state on selling your car yourself. They are all basically pretty simple. Now let s talk about trading in your car. Let me back up a minute and say that when purchasing a car from the dealer, negotiate the price of the car you re buying first! Then when you have established that, negotiate on what the dealer is going to give you on your trade-in car. This goes for whether you purchase through the fleet department or from the sales department! 26

27 ACV = Actual Cash Value. This is the amount that your trade-in car is worth to the auto dealer. Of course this amount is less than what you could sell the car for yourself. Why is the ACV less than what you could sell the car for yourself? Because the ACV is what the dealer is going to value your trade in vehicle for on the dealership s books. In other words, you might think your vehicle is worth $15,000, but to the dealership it is only worth $11,000. The dealership is always going to value your trade-in vehicle for what they could buy that car at the auction for themselves. If your car is selling at the auction for around $11,000 then that is what your vehicle is going to be ACV d at. Keep in mind that the dealer will also subtract from the going ACV such things that your car needs to be fixed with new tires, dent fixed, new windshield, etc. So if the car is selling at the auction for $11,000, and your car needs a new windshield, then they will usually subtract the cost of replacing the windshield from the ACV amount. So if a windshield cost the dealer $150 to replace, they will ACV the car for $10,850 instead of $11,000. That my friend is the actual cash value of your trade-in. Why is this? The dealership is not going to ACV your trade-in at a higher figure, because keep in mind that they will put that vehicle through their service department and fix what ever is wrong with the vehicle (at least the reputable franchise dealers do). They also are going to have the additional cost of detailing the vehicle, advertising, etc. Also keep in mind that cars are like bad stocks in the sense that they only go down in value never up! So if the dealer is stuck with your car over 90 days and can t sell it, then they have to advertise it at cost or maybe lower than what they own the vehicle for. They may have to take it to the auction where they will surely lose money. This is why the dealer tries to protect themselves and ACV the vehicle for what it is currently going for at the auction. This subject of ACV is probably the number one problem consumers have in dealing with dealerships. You as the consumer want the most money for your trade. Of course this is understandable. The dealer wants to give you the least amount of money on your trade. This of course from the dealer s standpoint is also understandable. There are two ways that the dealer is going to show you what they give you for trade-in value on your vehicle. I am going to explain them now, so that you can understand the true value of your trade-in vehicle and how the system works. If you come to an agreement with the dealer to purchase their vehicle at Invoice cost, the most they are going to show you for your trade-in vehicle is the Actual Cash Value (ACV) of your trade. Let s say you talk with a fleet manager and he sells you a vehicle at Invoice of $21,567. The dealership is already at their bottom-line figure, so the most they 27

28 are going to give you for your car is the ACV amount. If your car is ACV d at the dealership for $5,000 for example, then how can they give you more than that unless they are giving you some of the Holdback amount? If there is a Holdback amount of $400, and he or she gives you $5,200 for your car, the dealer just made $200 instead of the $400. Most dealers will not do this unless, of course the vehicle you are buying is old age or a model that is turning one-year-old. Which they are getting in the 2005 models, and they are trying to get rid of the 2004 models. Now let s use the same scenario and say they are selling you the car at MSRP of $23,567. Now the dealer has $2,000 that he or she can play with to show you more for your trade-in than the $5,000 ACV. The dealer can now show/give you $6,000 for your trade and actually make more money this way, because he or she is making an extra $1,000. The dealer had a $2,000 markup between Invoice and MSRP, and he or she used only $1,000 of the markup and gave it to you on your trade-in car. So in this scenario, the dealer made $1,000 over Invoice price plus the Holdback. This is how dealers prefer to work car deals. The uneducated buyer thinks he or she got more for his or her car. But in reality they did not get as good a deal as the first scenario we discussed (the person who bought at Invoice). This is why you always negotiate the price you re buying the car for first, then negotiate on what you can get for your trade-in vehicle! The only question left in regards to trading in your car is how do you find out or know what your car s actual cash value (ACV) is. This is the single most difficult question to answer and find out as a consumer. For the auto dealer, it s simple. They all have a Used Car Manager that goes to the car auctions every week or two, so that person usually sets the ACV s on cars. They also go to a site called which is a huge auction site, and if you re a dealer then you can get the average price that any make or model and year of car is selling for all over the country at auctions. As a consumer you cannot log on to the Manheim web site, because you have to be a registered auto dealer. As a consumer, unless you have a friend or relative who is in management at a car dealership that can give you an estimate of what your trade-in car s ACV is, you only have one option: First, find out what your state uses as far as Kelley Blue Book or NADA. Call a dealership or call your local bank to find out which one they use. Then go to the Internet site that we spoke about earlier. Either or and see what your car is worth. On Kelley Blue Book go to trade-in value and book your car according to the condition. They give you four choices of either, Poor, Fair, Good or Excellent. The site will give you a description for each of the four categories. 28

29 Typically if your car is in great shape then book it as fair. That will be a close number to what the car will ACV for. Remember, just because your car is in good or excellent condition does not mean it is worth what the web site appraisal number gives you. At least not to an auto dealer who can buy the same car for less money at the auto auctions. On the NADA web site you can type in the kind of car you have and get an average trade-in value and retail value for your car. The ACV will almost always be less than the average trade-in value shown. For most cars the ACV will be one thousand to several thousand below that figure. Most people have a very hard time accepting what their car is really worth from a dealership s standpoint. This is one reason I tell you if at all possible, sell the car yourself! Hot tip: Ask the fleet manager what your car s ACV is when you talk with him or her on the phone. This will automatically make the fleet manager know that you were not born yesterday, and you understand car lingo. It also lets the fleet manager know that you are very educated as far as car buying goes and most likely they will give you the true ACV amount for your trade-in vehicle. When trading in your car and buying a vehicle at Invoice, for example, the fleet manager may try to make an extra $500-$1,000 by giving you less than ACV amount for your trade-in car. Here is how it works. Let s say that you agree on buying the dealer s car for Invoice price and you set an appointment with the fleet manager to pick up your car and sign paper work. You tell the fleet manager you want to know what they would give you for your car as a trade-in. The Fleet Manager has the car appraised by the Used Car Manager, and the Used Car Manager tells the Fleet Manager that the car s ACV is $12,000. Now the Fleet Manager goes back to his or her office and tells you that he or she can give you $11,500 for your car on trade-in. As you can see from this scenario the fleet manager just made an extra $500 over invoice if you accepted the ACV amount of $11,500. This is why I cannot emphasize enough the importance of selling your car yourself in order to get the maximum amount of money for it! If you re OK at getting only ACV for your trade-in, then you could make several appointments with different fleet managers to find out who will give you the most for your tradein vehicle against Invoice for theirs. This takes more time of course, because they will want to physically see your vehicle, but no more time than it would take for you to sell your car yourself! This 29

30 is also the only way to get the most money for your trade-in vehicle from a dealership! Paying off your trade-in: When you trade your vehicle in at the car dealership while still owing money on the car, the dealership must pay off your car for the full amount. This will entitle them to receive the title from the bank where the car is financed. Usually, if possible, the dealership will get what is called a 10-day pay-off amount from your bank, so that they know what the exact amount left owing on your car. Most states have a law that says the dealership has only ten days to pay your trade vehicle off to the bank. You want to make sure that when you trade a vehicle in, the dealership pays it off immediately. If they do not pay it off within ten days, then you could end up having a late payment to your bank. The dealership was lax in paying off your trade. Remember that until the dealer pays off your trade, in the eyes of your bank the car is still yours! How do you go about making sure they pay your trade off quickly? After five days have passed since you purchased your car, call the dealership and request to talk to the person in charge of writing the checks to pay off trade vehicles. When you speak with them, give them your name and type of vehicle you traded in, and ask them if they sent a check to your bank or credit union. If they say yes then call your bank and ask them to verify with you when they receive the check, and the vehicle is paid in full. If they say they have not sent the check in, then tell the person at the dealership that you want the check sent out immediately. If it s not in your bank or credit unions possession with in ten days from the day you purchased your vehicle, you will file complaints with the Department of Motor Vehicles and also the Office of the Attorney General. Believe me, when you mention these two offices, they will get the check in the mail ASAP! Dealerships are scared to death of the Attorney General s Office and DMV! Recap: Let s recap this third chapter on what you have learned so far: Kelley Blue Book & NADA can tell you how much our car is worth. The best way to sell your car yourself. How car dealers appraise vehicles. What Actual Cash Value (ACV) means and how it s determined. 30

31 What to do to your car before you sell or trade it in. What kills resale value on your car. Negotiate price first then trade in value. How to get the most money for your trade-in from the dealer. Make sure your car actually gets paid off in time when trading it in. There is more to learn my friend. We are just getting started! At the end of this course I am going to put everything together for you in a step-by-step process that you can follow to a T when purchasing your next vehicle! 31

32 CHAPTER FOUR So far you have learned about buying a vehicle the easiest way through the fleet department. Also what to do with your trade-in vehicle regarding selling it yourself or trading that car in. In this fourth chapter, I m going to discuss what happens at the dealership when you buy your car through the sales department and not going through the fleet department. Hark unto these wise words my friend. Never ever, ever, purchase your vehicle through the sales department if at all possible! Always go through the fleet department, and if they do not have one, then deal directly with the sales manager by doing what we discussed in Chapter One. For those individuals who enjoy playing the game at auto dealerships, then this chapter is for you! I will discuss what happens at the car dealership and explain how to overcome this situation and still come out on top. Hot Tip: Don t skip this section! Even if you plan on skipping the car salesperson, still read this chapter because we will be covering new information! Let s start with a typical story from most car buyers, and I will give you commentary and solutions to the different tricks, scams and psychological mind games that go on at the auto dealership. After each paragraph or two, I will give you my commentary on what you, as the buyer should do. My commentary will be between these two symbols < >. Let s get started. You re driving down the street and spot a nice, shiny new car sitting by the curb at your local car dealership. You think to yourself, Wow, that s nice, I ll just swing in to look at it. < The first thing you should never do is stop at a car dealership unprepared. You will get frustrated and stressed out. If you re in the market to purchase a vehicle, ask your self what you want and need in a vehicle. Basically the first four choices are car, truck, van or SUV. Let s assume you want a car. So do you need a two-door, four-door, automatic, stick shift, fully-loaded or semi-loaded? If you re smart enough to have bought my e-book, then you are smart enough to figure out what kind of vehicle suits your needs and desires. So I am not going to waste a bunch of time on the subject of choosing your vehicle. Let s assume that you decided on a four-door car. Now comes what I call the Prep Homework Phase. This is the stuff you must do before even visiting a dealership. These are also the same things you need to do if you were purchasing from the fleet department as well. 32

33 Before you step foot into a dealership, go online to the auto manufacturers web sites and look and study the different models of cars. You can also see what the current financial rebates and incentives are. Go to and read the different reviews on the cars that you like the most. Just by studying the different manufacturers web sites and reading the different reviews on the cars you should be able to narrow your list of cars you are very interested in down to two or three cars. Now go to and and get the Invoice amount on the car or cars that you want and also see how much they are selling for on average. Now that you have educated yourself on the car you want to buy, do the same thing we spoke about in Chapter Three and see how much your trade-in car is worth. Now get your car professionally detailed. For our example, we will assume that you did not want to hassle with selling the car yourself and you want to trade it in. You now know what Invoice is on the car you want to buy and what your car is worth. Your car is now detailed and looks good. Let s move on. The next thing you need to do is go to and get a copy of your credit report. Buy the report that gives you all three reports. That way you can see if there are any mistakes on your other credit reports. This same site will also explain any questions you have about your credit report and how to read your credit rating. If you already know your credit is good, then call your local credit union and see what their rates are on new cars and the terms of the loan, etc. It s always best to get pre-qualified and approved for a loan at your own bank or credit union than going through the dealership. This takes away power from the dealership in trying to get you thinking about payments instead of different prices. It also prevents the dealer from trying to play tricks with you about the actual car payment. Even if you decide to go with one of the manufacturers subvented rates such as 0%, you will still want to know what your credit rating is to make sure you qualify for the rates from the manufacturer. If your credit score is over 650, you should qualify for the subvented rates from the manufacturer if you want to use them. Keep in mind that the low-interest rates from the manufacturers are usually for short terms such as 36, 48, or 60 months. You may want to go through your own bank at a low interest rate for 72 months to keep your payment lower. Let s assume you have your own financing secured through your credit union and that is what you are going to use for your car loan. In the event that you do not want to go through your own bank or credit union, you could also apply for a loan 33

34 online at They have very low interest rates to take advantage of. > As you pull into the dealer, several salesmen are standing around smoking and joking and one puts out his cigarette to come speak with you. In car lingo it s called up-ing the customer. You get out of your car and he greets you with his smile and says Welcome to ABC Motors. My name is Joe, and you are? You, of course, give him your name feeling compelled to. Joe asks, Are you re looking for a new or used vehicle? < Are you catching what s happened so far? Joe, the professionally trained salesperson, immediately took control of the situation by asking you a closed ended question, which you could only answer with your name. He then asked you an either or question to find out if you were going to look at a new or used vehicle. > You only have one of two replies: new or used. Therefore, you say New, but I am only looking. I m not buying today. Joe smiles again, Of course, no problem. Then Joe asks, Were you looking for a car, truck, van or SUV? Wow, this time Joe actually gave you four different choices. He s still controlling the conversation. You then point to the nice new 4-door sedan you pulled in to see, and Joe walks you over to it, expressing what a nice jacket, dress, or something else you have on. < At this point there is no harm in letting the car salesman think he or she is in control. Let the salesperson show you the car and tell you all about the features and benefits of the automobile. > Joe unlocks the car and in split seconds he s got every door open and the hood of the car up. He guides you to the front of the car and explains the features and benefits of the motor, how easy it is to find the oil and check the fluids. He then moves you to the driver s side of the car and towards the trunk of the car. All the while Joe is explaining the features and benefits of this car. He then smoothly maneuvers you to the passenger side of the car and says, Sit down here, and I ll show you a few things on the inside. < Joe thinks he has complete control of you, and he has done it by leading the conversation, asking questions, and getting you involved in the car. At this point let Joe, our salesman, think he has control. We do not want to tip our hand, and let him know we are an educated buyer yet! Keep reading. > As you sit down in the passenger side, Joe closes your door and runs to the driver s side, sits down, closes his door, starts the motor and starts driving out of the dealership and down the street! Joe thinks he s got control! 34

35 He pulls over into a parking lot 200 yards down the road and says, Your turn. As he s getting out to get in on the passenger side forcing you to drive. You get out and figure What the heck. I ve gone this far so I might as well drive it. Joe smiles as you get in the driver s side. < Test driving a vehicle before you buy is a must! You need to feel how the vehicle reacts and if it performs to your satisfaction. If you are not 100% thrilled with the car, you should test drive the other cars that you like as well until you have found the perfect car for you! If you don t like the car after the test drive, simply thank your salesperson for their time and immediately leave the dealership. Do not give your last name or phone number! For the sake of our story let s assume that the car you are on the test drive with is the one that you want. > While driving for 10 to 20 minutes you notice, Joe has switched from telling you about the car to asking you all kinds of questions. Joe asks questions such as: What do you do for a living? Where do you work? How many kids do you have, their names? Where do you live? Oh, I bet your mortgage is pretty high there? He also asks you a number of yes questions such as: Don t those seats feel great? Does the steering wheel feel good? Don t you think you look good in this car? < Are you catching this yet? I know you are because you re a smart cookie. Joe is bonding with his customer, and pre-qualifying you at the same time. He s finding out how much you make roughly, are you a homeowner, is there a possible co-signer if needed, etc. It s OK to keep Joe in the dark as far as how educated you are. Answer the questions you feel comfortable answering and be friendly. Remember this, Joe thinks he is in control, but he is about to get his world rocked. All this time you thought Joe was just being kind and sincere. Never forget: Joe is a professionally trained car salesman! He sells and negotiates for a living! > Ok, let s keep moving. Joe guides you back to the dealership and you begin to park the car back into the slot that it came out of. Joe quickly says, Just pull it into the sold line over there, pointing towards the front of the building. Joe s using assumptive closes on you now. You say Oh, I m not buying today. Joe just smiles and says No problem. 35

36 You two get out of the car and Joe says If we could fit this in your budget, we could send you home in it right? Joe has just set the first hook into your mouth by planting that little seed in your mind about payment only thinking. You reply, Well I can only afford $350 a month, and this car would surely be more than that. Joe smiles again, If we could keep your payments at or under $350, we could send you home in this beauty, right? Car salesmen are trained to ask you at least 5 times for the sale! You nod your head thinking what the heck, if they can keep me at $350 a month why wouldn t I buy this awesome car? < At this point, Joe does not know that you already have your financing in order. He also does not know that you have copies of the Invoice of the car you want to buy with you or the copies of what your trade-in car is worth. When Joe said to, Park the car in the sold line, he was using a tactic used by car salesmen to get you to take mental ownership of the vehicle. There really is no such thing as a sold line. The salesperson is hoping you park where they said so that they can get a feel for whether or not you want the car. > Joe leads you inside the lion s den (showroom) where the real psychological warfare begins. You sit down at the first table you see but then Joe says, Oh wait I need you to move over to this table and sit here. You get up and move over to the other table. You notice a couple of car salesmen begin to chuckle and laugh. You assume someone told a joke that you didn t hear, but here s the truth. They were laughing at you because, Joe did a control trick for his friends to see and marvel at. He waited for you to sit down then made you get up and move for no reason. Just to remain in control and show his buddies how much control he had over his customer! That s you! This is one of the little games that are played at car dealerships everyday for their amusement! Keep reading. < Here is how you avoid this situation with Joe trying to control you inside the showroom. At this point you want to give Joe the courtesy of asking him before you sit down anywhere, Joe where would you like me to sit? Do you have your own desk or favorite table? This throws Joe off a little bit, because now he thinks he really has control because you re even asking him where to sit. Joe will tell you where he wants you to sit, thereby giving up his right to try and move you to a different desk or table for his friends amusement! At this point Joe feels he has complete control of you. This is great because you are about to completely turn the tables on Joe, and let him know who really is in control. > Joe has you fill out a credit application and then goes and gets information on your trade-in. He then goes to the back office where the sales manager is and gets a hit figure on your trade vehicle. The hit figure is a super low-ball offer on your trade-in car to try and get your thinking down on what your car is really 36

37 worth. When you re done with your application, he looks it over and then whips out a piece of paper with what looks like four squares on it. < This is why it s always best to get your own financing lined up. You do not need to fill out a complete credit application. Only put your name, address and phone number at this point. They do not need to pull your credit, because you have your own financing. At this point, Joe may take you outside to look at your trade vehicle with him. The purpose of this is so that he can do what is called a silent walk around on your vehicle running his finger over every little scratch and dent or imperfection on your car. They do this so that they can try and devalue your trade-in car. You, however, were smart and had it professionally detailed, and it looks great. > The price of the vehicle, $19,995, is on one corner and then Joe says, Well, last week we took a car in on trade just like yours except it had a few more miles on it. We gave them $2,000 for it. That s what you were thinking isn t it? Your jaw drops down to the floor. You were thinking at least $6,000 from a dealer on trade-in value. You tell Joe you would need at least $6,000. Joe bounces back at What if I could get you $2,500 that would work, wouldn t it? You say No, I need at least $5,000 for my car. It s in great shape. Joe says, Well, gee I m on your side but we should be realistic here. What if I could get you $3,000 for your car? You say, No less than $4,500. Joe circles $4,500 in that second square and sheepishly says, Wow, that s a lot of money on your trade, but hey, I m on your side, and then moves down to the third square. < Did you catch all that? Joe just got you to accept less for your car, because he started out giving you such a low figure! Do you know what your car s actual cash value (ACV) is to the dealership? Do you know how much you should really get for your vehicle? Did you notice the little seed of doubt Joe planted in your thinking as he moves on to the third square? Are you ready for a metamorphous? It is at this point that we are going to turn from a lamb into a lion! As soon as Joe gives you his line about your trade-in car, you are going to say, Joe, I am not sure I am going to trade my car in. I may keep it. You then take out your Internet copy of the invoice price and tell Joe, I am prepared to pay no more than Invoice for the vehicle. I will be paying cash for the vehicle if they want to sell it for Invoice. I am in a hurry, so I don t have all day to play the back-and-forth game. 37

38 You re still friendly with Joe but firm. You are letting him know that you don t have time to waste, and that your offer is to pay Invoice and to take the offer to his Sales Manager. You also say, Joe I realize you probably have a closer who you may want to turn me to, but I don t have time to waste. Just tell your Sales Manager my offer, and if you guys can t sell it for that, no problem. Because I am sure your competitor down the street will. By telling Joe you don t want to be turned to his closer, you are letting him know that you are very educated about the car buying process. He knows that you even know what his Assistant Sales Manager is called (closer) in the auto business, and that you know about getting turned to another dealer employee. Getting turned means that your salesman got another employee involved in the deal or discussion, and the other employee is usually another salesperson or his assistant Sales Manager or Sales Manager. At this point, Joe s world is coming apart. He thought he was leading a lamb to the slaughter, but now he realizes that he is dealing with a real pro when it comes to buying a vehicle. He no longer has control. He no longer is going to be getting a huge fat commission check off of you, and he is shocked that you actually know what you re talking about. Joe s world just got rocked! You have taken the power and control from Joe and put it back in your corner. Joe, our salesman, is now in the sales office with his Sales Manager. What goes on in there while you re sitting in the showroom? Normally, if you had a trade-in vehicle, the Sales Manager would book out your trade. This means he would go online to and see what your vehicle is going for at the auction. Then he would look it up in Kelley Blue Book or NADA and put an ACV on your trade-in car. This of course is done after he or she has test driven your vehicle and looked at its condition. The Sales Manager then gives the salesman what is called a hit figure on your trade-in car. That means if the ACV on your car is $8,000 for example, he will tell the salesman to hit you at $6,000 trade-in value for your car. Since your car is ACV d at $8,000 and he can get you to accept $6,000, then the salesman just made an extra $2,000 profit for the dealership! The Sales Manager is also coaching the salesman on what to say to the customer. They are telling the salesman how to overcome your objections, how better to get control of their customer, and how to set up the customer for more profit. If the customer is financing the car, the Sales Manager is also pulling their credit report and deciding which bank is the best one to put the customer with and make the most money. They are also loading the deal into a computer, so that 38

39 they can give the payments to the customer. Of course if you re a smart customer who is only willing to pay Invoice price, then they are calling you names and cursing usually. This is done in the sales office of course, and not in public. They are not happy, because they are not going to make any money from you. Don t worry. They can make it up on the next guy who buys a car from them who wasn t smart enough to buy this e-book like you were. At this point Joe s manager will probably come out to meet you and go for a bump. This means the manager will speak with you and try to see if you are willing to pay $300-$500 over Invoice and get the deal wrapped up quick-like. Just stick to your guns and tell him, I would only pay Invoice but I appreciate your time. Then start to get up to leave. Nine times out of ten the manager will say, Hold on a minute. Let me make a phone call. This is just a cover up, so that he can go back inside the office and check with the General Sales Manager to see if he can sell the car at Invoice. Tell him you are in a hurry and that you want to see the actual factory Invoice if you buy the car. The reason you want to see the actual Invoice copy is because the one you got off the Internet could be off by several hundred dollars. Perhaps it was missing an option on the car you want to buy or maybe it added an option that the car you want to purchase does not have. In this case you would be paying more for the car than you have to. This is why you always offer to pay Invoice amount or a certain dollar amount over Invoice. That way, when you see the actual Invoice you know you are not getting ripped off. Never accept a computer generated Invoice copy! This is another dealership scam with a false Invoice amount. Make sure you get to see a copy of the actual factory Invoice. Every dealership will have 3-ring binders with the copies of the manufacturers Invoice in them. Let s assume they are willing to sell you the car at Invoice. Now tell them that if they want your car as a trade-in then you need XYZ amount for your car. They will then counter back with a lower amount. You can bluff and say you will keep your car or you can try to go down some and see if you can agree to a mutual dollar amount for your trade-in car. You are the only one who can decide if you want to accept the amount of money they are giving you for your trade-in car. You need to decide if the amount of money the dealership is offering you for your car is enough for you to accept. Or is it worth it for you to keep it and then sell it yourself? Are you going to get a lot 39

40 more for it selling it yourself? Perhaps it is worth it to just not hassle with it and trade it in. If you feel you are getting a fair trade in market value, then trade it in. Since you are paying cash, because you were smart enough to get your own financing setup and not play the payment game, down payment is not an issue as far as the dealer is concerned. Let s continue on with our story. > Joe moves to the third square and says, Are you going to put down $6,000 because the banks like to see about one-third down payment. What about my trade as my down payment? You ask as your eyes bug out of your skull in shock. Well the banks like to see actual cash participation, Joe adds. You reply, I ll just put $1,000 down. Joe says, Could you do closer to $5,000? Well I could probably do $1,500. Joe being the professional says, $1,500 or up to...? You begrudgingly say, $1,700. Could you do at least $3,000? Joe says with as much conviction as he can possibly convey. You stick to your guns and repeat, Just $1,700. Joe writes down $1,700 in the third square and moves to the fourth square, which is the payment per month square. Joe says, Well I m no rocket scientist, but you re probably talking about $600 per month. Is that what you were thinking? Your veins start to bulge out the sides of your neck. Apparently, Joe forgot that you did not want to go over $350 per month. You repeat to Joe, I said I could only afford $350 per month. Joe shoots back with, I thought maybe you were going to give more of a down payment. What is the closest you could do to $600. You say, $350. Joe looks at you like you re from outer space. Joe gives his famous quote, $350 or up to You think back to how good that test drive felt and how good you looked in that new car and the excitement starts to build up again and you say, Well probably $400. Joe smiles and circles $400 in the last square and has you sign the bottom of the paper that reads, I will buy and drive this vehicle NOW for terms above. Joe is thinking to himself that he should get nominated for an Oscar the way his acting and skills have improved so much. Ten minutes later Joe s closer comes out to meet you. He smiles and lays down the same four-square piece of paper with black felt tip pen written on it. The price is written again, $19,995, with $2,000 for your trade, $6,000 down payment and only $500 a month for 72 months! You go back and forth a little bit with the closer and finally settle on $3,000 for your car, $2,300 for down payment, and only $397 per month car payments for 40

41 72 months that s (6) years! Joe and the closer say, Congratulations on your new car! < As we said before, you have your own financing lined up, but let s assume that you did not have financing lined up, and you were going to finance through the dealership. When it comes to down payment, that is only going to do one thing. That is lower your payment. If you have good credit, you don t have to put any money down regardless of what the dealership says! The only time you may be required to put money down is if you do not have very good credit or you have too much negative equity on your trade-in vehicle. Negative equity means you owe more on your trade vehicle than it is worth. In this case, you may be required to put money down because the banks will only finance a certain percentage over invoice on a new car. Remember that if you owe $10,000 on your trade-in car, and the dealer only gives you $8,000 then the extra $2,000 is going to be tacked on to the car that you are purchasing. This is another area where people get in trouble. They continue to buy a different car every couple of years and therefore they keep adding on their negative equity to their new purchase and owe more and more on their car. It s a vicious circle that needs to stop if you re currently doing this. If you want to drive a new car every couple of years, then read my section on leasing later on in this course. Packed Payment Scam: Let s get back to the payment game at the dealership. When the closer or salesman comes back to the table with huge payments, it is because the payments are packed. What a packed payment means is that the payment has included in it the extended service contract, life and disability insurance, GAP insurance, and whatever else they want to add into the payment, so that it is easier to sell it to you in the Finance Office. Your payment might really be $357 but they tell you it is $397. What they don t tell you is the payment of $397 has the extra back-end products added to it. If you agree to the payment, when you get in the Finance Office and find out that it includes the extras, it is much easier for the customer to agree to buy the extra back-end products. Dealers make lots of extra money packing payments. Giving a packed payment is illegal in most states, but car dealers continue to do it. In the example above, the difference between $357 and $397 is $40. This means that the Finance Manager just got what is called in the business as $40 in leg. The Sales Manager packed the payment $40 and therefore gave his Finance Manager $40 in leg to work with in order to sell the customer the back-end products. 41

42 There are two ways a dealership makes money off of the customer buying a car. The front-end of the car deal and the back-end of the car deal. The front-end is how much the dealership made selling the car only. In other words, if the dealership owned the car for $20,000 and sold it for $23,000 then the front-end of that car deal was $3,000. The back-end of the car deal is what the dealership made in the back-end products which are the extended service contract, GAP insurance, life and disability insurance, exterior and interior protection for the car, alarm systems, interest rates, etc. If the dealership bought the interest rate on your car for 5% and sold it to you for 7%, the dealer just made about 70% of the difference on the 2% markup. In other words, if the bank has a rate of 5% and the dealer sells you a car and you finance through them and they give you 7% then the dealer made money selling you the inflated interest of 7%. Typically in this scenario the bank that the dealer financed you through would keep 30% of the additional markup (2%), and the dealer would keep the other 70%. As you can imagine, a 2% markup on a $30,000 vehicle over 72 months is a lot of extra money! This is why I implore you to check into getting your own financing through your credit union or bank. Hot Tip: Nine times out of ten, credit unions have lower rates than banks on used vehicles! If you purchased an extended service contract and the markup was $1,000 and that was all you purchased from the finance manager, then the store made $3,000 off of you on the front-end of the car deal plus $1,000 on the extended service contract or the back-end, the dealership made a total of $4,000 profit from you and your check book! I will explain more about the back-end products later on in this e-book and tell you the good, the bad, and the ugly about them. Let s finish the story and see what happens with a packed payment. > Twenty minutes later you re sitting in the Finance Manager s office getting ready to sign your motor vehicle papers and your contract. The Finance Manager says, Hey, did they tell you your payment of $397 included the extended warranty and life, accident, and health insurance? You say, No, they didn t but is my payment still $397? The Finance Manager says, Yes, of course, isn t that great news? You say Yes, that s awesome. 42

43 The Finance Manager begins to tell you the benefits of what a maintenance contract is and defines their paint, interior, and undercoating program. It only raises your payment $12 per month, so you decide to take the package. You leave the dealership and do not realize how much you just got taken to the cleaners until you invested in my e-book, Car Buying Scams, Auto Dealer Executive Breaks Code of Silence! Recap: Let s recap what you learned so far in Chapter 4: Always do your homework before going into a dealership. Always get your own financing lined up and know your credit. Make your offer with facts to back you up. You know what Invoice is and fair market value on your car. Use their own car lingo with them to express the fact that you are an educated buyer and won t be taken advantage of. Always ask to see the actual factory Invoice when you make a deal to purchase a vehicle. Our next chapter deals with buying a used car from the dealership and a private party. 43

44 CHAPTER FIVE This next chapter will discuss buying a used car from the dealership and private party. First let s start with buying a used vehicle from the dealership. Did you know that dealerships on average sell more used cars than new? They also make more money selling used cars than new cars. The reason is pretty simple. Dealers buy cars at the auction for several thousand dollars less than book value. Of course there are the few exceptions like nice diesel trucks or a nice Honda or Toyota. When a dealer takes a car in on trade they can put their own value amount on that car as well. This means that dealerships are typically sitting pretty well as far as what they own used cars for. The rule of thumb in the car business is that they only keep a used car on their lot or inventory for no more than 45 to 60 days max! The reason is simple, and that is that cars are losing value every single month. They re like a falling stock that is never going to go up in value. Therefore, the key is to sell them quickly, so that they do not have to send them to the auction and take a loss. Every dealership has what is called wholesale loss, and this is the account that represents the amount of loss the dealership takes every month on used cars. If they own a vehicle for $15,000 and don t sell it for 90 days, they still own the car for $15,000. But the wholesale and retail value of that car has gone down three times, because every month the book value goes down on used cars. Smart dealership owners sell their used cars before they get to the 45-day-old mark. If they are not sold, they take them to the auction and take a small to medium loss. The idiot dealership owners will hold on to their used cars for as long as it takes to sell the car, even if it takes over a year to sell. Of course the value of the car is far less than what the dealer owns it for. They end up selling the car for 3 to 4 times the loss they would have taken had they taken it to the auction at the 45 to 60 day mark. Naturally, these dealers have a much higher wholesale loss. Now you re probably wondering what all this has to do with you buying a used car? I tell you this for two reasons: 1. So that you know more about how the car business operates. 2. Because regardless of how much the dealership owns the car for that you want to buy, it does not change the car s value or worth. 44

45 A vehicle is worth what it is worth, regardless of how long the dealership has owned it. Many times consumers will make a fair offer on a used vehicle from a dealership and the sales manager s reaction will be, I can t sell it for that, because I own it for more than what you offered. Your reply should always be, I am offering fair market value, it is not my fault you own the car for too much money. OK, now that you have that short education on used cars, how do you buy one without getting ripped off? It is basically the same as a new car purchase discussed in Chapter One and Two, except with a few changes. Let s say that you found a nice used car at a dealership. Take a piece of paper and write down the vehicle identification number located on the driver s side front corner dash. Then write down what kind of car it is with all of the options. The next thing you want to do is go to and enter the vehicle identification number (VIN) so that you can find out if the car is a lemon or has been wrecked and the title marked. Never buy a car that has a marked or damaged title to it! That means that the car has been in a severe wreck and the frame has been damaged. The car is not worth buying unless the price is about 25% of what normal market value would be if it were not damaged. At this point in your car shopping, you should already be pre-approved and you have your financing arranged. After you go to and have done your research there, go to and see what trade-in value is on the vehicle and also retail value. After you have done that, go to and do the same thing. Your local bank should be able to tell you which one they use in determining car loans, and they will tell you either Kelley Blue Book or NADA. With this information, you should be able to have an excellent idea of the wholesale and retail value on the vehicle. Now, simply call the fleet manager, describe the car to him that is on his lot. Ask him or her what his very best price to you would be. It should be somewhere near the wholesale value that you got from the Internet. If the price he or she gives you is near what you think the car is really worth, make an appointment with the fleet manager and take the car for a test drive. 45

46 After the test drive is over and you like the car, you want to ask the fleet manager if you can have it for a couple of hours, so your mechanic can check it out for you. The fleet manager may hem and haw a little bit, but most dealerships will allow you to have a used car checked out by your mechanic before you agree to buy. If they don t, then do not buy the vehicle from them! Usually, you can find a professional mechanic to inspect a vehicle for about $40. Trust me. It is well worth the money spent. The reason is that whatever the mechanic finds wrong with the car, such as, maybe the A/C does not blow cold, radiator has a small leak, etc., can be used as negotiating power when you make your final offer to the fleet manager. Give the fleet manager a copy of the inspection report from the mechanic with the estimate of repairs and consider the estimate when making your offer to him or her. Start with an offer that is at least $1,000 to $2,000 below wholesale value. Also, deduct the amount that it will cost you to get the car fixed from the mechanic s estimate. On domestic made vehicles, start at about $2,500 below wholesale value and work up from there. Bear in mind that cars with high demand will naturally have a higher value and for those kinds of cars, offer wholesale value and work up from there. The bottom line is this: If you negotiate with the fleet manager in a professional manner and have facts to back you up, you should be able to come to a price that is satisfactory to you as well as the dealer. If the dealership will not budge below a certain price, you must decide if you feel the car is worth that amount of money based on the homework that you did. This is where the mechanic s report comes in so handy. This is your weapon and tool that allows you to devalue the car you want to buy. Just as the dealership will try and devalue your trade-in for those unfortunate enough not to sell them on their own. You must use the same tactic on the fleet manager regarding their car. Keep pointing out what the mechanics report says is wrong with the car, and how much it is going to cost you to get it fixed. When you make your offer to the fleet manager and they do not accept, it is perfectly all right to get up and walk out. When customers start to walk out of dealerships, prices start to fall! In the car business, when a sales manager allows a customer to walk out of the dealership, many times he or she will send the sales person out to catch the customer at the curb and accept their offer. 46

47 This is another sales tactic to see how serious the customer is about not budging anymore on the price that he or she is willing to pay. If you walk away from the deal you can always call the fleet manager the next day and make another offer. Many times he or she will call you back with a better offer. Another way to make a deal with the fleet manager is instead of doing the mechanical inspection before you make an offer, negotiate the best deal first with the fleet manager. Then tell him or her that you want to have the car inspected before you buy. After the car has been inspected by your mechanic negotiate reduction of the price of the car to match the cost of repairs from the mechanics estimate. Remember this because it will save you from a lot of headaches. If you found the car you love, it checks out good mechanically, the price you and the dealer have come to is at the most just between retail value and wholesale value, and you can afford the car then buy it. Don t stress out over a few hundred dollars. I have seen more people take months to buy a used car, because they thought the dealer should have given them a better deal by a few hundred dollars. Is it worth it to go to six different car dealers, pay to have six different cars checked out, plus give up all that free time to worry about a few hundred dollars? Sometimes people are so paranoid about getting ripped off that they induce their own stress over something as stupid as buying a new or used car. I have seen people drive 240 miles plus spend the money to get there for gas and food so that they could get a better deal on a new car by only a $100. Does that make sense? Drive for hours, spend money on gas and food, and waste your day off from work in order to save $100. After expenses, how much did you really save? How much is your valuable time off per hour worth? Don t be like the person with a 160 IQ but does not have the common sense of a 5-year-old. Don t let buying a car rule your life. It s really not that big of a deal. On the other hand: Paying way too much for the car plus getting ripped off on your trade-in car Putting negative equity from the trade onto your new loan Paying way too much for an extended service contract 47

48 Getting an interest rate 3 points higher than you should have That is stuff to get stressed out about. Thank God you bought this book and don t have to worry about that kind of nonsense. Aren t you glad you have a high IQ and common sense? Take heed, if someone tries to get you to pay retail Kelley or NADA book value for a vehicle. Run for the hills! No vehicle is worth retail book with the exception of collectibles. A good rule of thumb is what I stated above and that is this: The very most you should pay for a vehicle is the average between wholesale and retail value for the car. This is taking into consideration that the car is in perfect working order with good tires, paint, interior condition, etc. Remember that this is a worst-case scenario. Always try to get the vehicle for around the wholesale amount. Remember the dealership will own the car for less than wholesale. If they own the car for more than wholesale, that is because they have had the car too long on their lot. It is not your fault the dealership can t sell the car. If the fleet manager or sales manager tries to tell you they own the car for more than wholesale book value, tell them they better sell it to you right away for your offer. Otherwise, they will lose thousands at the auction. I strongly recommend getting an extended service contract, especially on used cars. Having the car checked out by a mechanic is not a full-guarantee that the car will not crap out on you three months down the road. Check out for the best warranties and if you re not putting very much money as a down payment then check out for some GAP insurance. Keep your mechanical inspection sheet, because the warranty company may want a copy of it. This is very important in order for you to get an extended service contract for used vehicles. When my father bought his truck down in Arizona, all he had to do was send me his mechanical inspection sheet. I was able to sell him an extended service contract at cost from the dealership I worked at. Hot Tip: Many books or companies will say not to purchase an extended service contract. This is wrong! What should be said and adhered to is, don t get ripped off buying an extended service contract. If you can get a good one at a good price, then get it. Remember, your uncle Billy Bob who says not to get one, is he going to pay for your repair bill when your car does break down? 48

49 What about the financing? For medium to good credit go to to find out what your best interest rate will be. If your credit is edgy, go to or Private Party Sales Let s talk a minute about buying a car from a private party instead of a dealership. When you see an advertisement in the paper for a vehicle you are interested in, call the owner up and ask them the following questions: What is the vehicle identification number (VIN)? What is the condition of exterior, paint, dents, tires, etc? What is the condition of interior, rips, tears, etc? Are you a smoker? Do you have the maintenance records? Are they up-to-date? What are all the options on the car? Do you have the title to the car? Is the title free and clear and not a salvaged or marked title? These questions start to get the owner thinking of the negative things about their own car. Make an appointment to view and drive the vehicle. Make an appointment in a public place such as a supermarket parking lot. After you get off of the phone go to and enter in the vehicle identification number (VIN) and make sure it is not a marked title vehicle. Also go to and and find out the wholesale and retail value of the car. On kbb.com go to trade-in value and print out the trade-in value of the car with average condition and good condition. When you meet the seller of the car, do what is called a silent walk around the car. This means that you lightly run your finger or hand over every scratch, flaw, and ding. This devalues the car in front of the owner. If the car needs new tires, point that out to the owner along with any other flaws. Then ask the owner, (if you like the car), what is his or her best price they would let the car go for and be done with the whole car selling experience. The problem with people selling their car via private party is they always think their car is worth much more than it really is. When they give you their price it will typically be too high. According to the condition of the car, whether or not it is average or good condition, take your print out of the trade-in value and offer the seller the price of the trade-in amount from the print out. Let the seller know that this is more than the dealer would give them on trade-in because the dealership still has to detail the car, put it through the shop, and get it ready to sell on their lot. At this point, the seller should start to negotiate a lower price for you. Come to a price that you feel is fair, according to your 49

50 research. If you do, ask the seller if you can have the car checked out mechanically before you purchase. After the car has been checked out, start renegotiating with the customer to deduct the amount of repairs that the mechanic said it needed. Perhaps they will take off the full amount or half. Since you have done your homework, you should know whether or not the car is worth the final price you have negotiated from seller. Get an extended warranty on the car at Keep the mechanic s inspection sheet, because the warranty company may want a copy of it. I hope this goes without saying. Never hand over your cash for a used car from a private party person unless you are getting the title to the car right then and there! Look over the title and make sure that it does not say that it is a damaged, salvaged, or marked title! What about the financing? For medium to good credit go to to find out what your best interest rate will be. If your credit is edgy go to or Don t forget GAP Insurance at Let s recap: In Chapter 5 we went over purchasing a used vehicle from a dealer and private party sales. You learned what wholesale loss is to a dealership. What research and Internet sites are available to educate yourself about the car you want to purchase. How to make an offer on a used car. How to use a mechanical inspection as your negotiating tool. How to negotiate and buy from private party sellers. Stay tuned because in Chapter 6 I m going to discuss the Art of Psychological Warfare! Car dealer sales scams! 50

51 CHAPTER SIX The Art of Psychological Warfare inside the auto dealership! In this chapter I m going to cover some of the tactics used by many auto dealerships throughout the country and the world for that matter. Going onto a car dealer s lot is the beginning of psychological warfare. Auto dealers spend tens of thousands of dollars trying to get just the right type of atmosphere. They want to put you, the consumer, in what is called the buying mood. Not just auto dealers, but many other businesses as well i.e., malls, theaters, grocery stores, furniture stores, etc. The list could go on forever. From the moment you drive onto the dealer s parking lot, the cars are arranged in a specific order, so that they are more inviting. Did you ever notice why the used cars are usually the most visible from the street while driving by? This is because used cars are purchased more on an impulse, and that is why car dealers put them out in front to be more visible than the new cars. If you re a franchise dealer, customers already know what kind of new cars you carry. A customer is kind of thinking that someday they would like to have a 1998 Nissan Maxima, because they have always liked that body style. One day they are driving down the street past the Ford dealer, and there in plain site is a beautiful 1998 Nissan Maxima! That person is going to pull into the lot to check out that car! Now it is up to the salesman to convince the customer why he or she should purchase that Nissan now before someone else does! Dealers will also use balloons, and large inflatable figures to get your attention while driving by. People don t pay much attention to these but what do balloons remind you of? Perhaps as a child you had balloons at your birthday party. When you went to the fair and carnivals, they always had balloons there as well. Balloons in general put people in a great mood. It goes without saying that all kids love balloons. As you can see even before you go inside a dealership, they are already capturing your attention and trying to put you in a good buying mood. When you go inside the showroom, you will notice that you don t see many computers. This is because they don t want customers reminded of the Internet and asking questions such as, What does that used car book out for on Kelley or NADA? What does my trade-in book for? What is invoice on your new car? This is why most dealerships have plain looking tables with just chairs. You also never see calculators. The showrooms are usually very clean and sparse except for plenty of brochures and coffee. 51

52 The salesmen are typically dressed in ties and white shirts. Never black shirts. Black shirts represent bad guys. Television sets are also never in a showroom. This serves two purposes. To keep the salespeople from watching TV and keep them watching for customers driving onto the lot instead. They also don t want some other car dealers commercial being broadcast on their showroom floor. As far as radio goes, the smart dealers have satellite commercial-free music playing on their speakers. Nothing is more embarrassing for a car dealer than to have a competitor s commercial playing while they are trying to put a car deal together. Now let s talk about the way car dealers work car deals. Typically they have the Salesperson and the Assistant Sales Manager, called a Closer, and the Sales Manager who is behind the scenes in an office over looking the showroom. The sales person s job is to get the customer to fall in love with a vehicle and set them up for payment thinking. The salesperson also writes up the deal and brings it to the Sales Manager. The Sales Manager fills out the four corners of the four squares and gives it to the Closer to go out and speak with the customer and handle their objections. The Closer is the mouthpiece for the Sales Manager, also known as the Desk Manager. You may ask yourself, as do many customers, Why can t I just negotiate with the Sales Manager myself instead of going back and forth with this guy (the Closer)? The reason is because by the Desk Manager having a go between he or she is at an advantage. The Desk Manager will lie to the Closer and tell him or her that he or she is working on a small deal, and that the closer needs to get the customer to accept less for their trade-in car. The Closer, thinking he or she needs to work harder, gets the customer to accept less for their car and gets the customer thinking about payments instead of price difference. The Sales Manager works the Assistant Sales Manager, who in turn works the customer for more money. Negotiating using a middle man works better for the car dealer because the Desk Manager is not getting emotionally involved with the customer and therefore makes better decisions regarding making more money for the dealership. He or she forces the Closer to work harder at getting the customer to pay more money. Every dealer will always try to get you thinking of the payments instead of the difference amount. This is the worst thing you as a consumer could do. Never negotiate by payment! Always negotiate on how much you are going to pay for the vehicle and then negotiate on how much you want to get for your trade-in vehicle. 52

53 The main job of the Assistant Sales Manager, (the Closer), is to get the customer to pay more money per month, take less for their trade-in car, and pay more for the vehicle they want to purchase. The Closer will constantly try to get you only focused on the payment and nothing else. Sale Promotion Scams Let s talk about auto dealer promotions and the psychological effect they have on unsuspecting customers. There are many different kinds of sales auto dealers perform. A few of the different types are the Super Sale; Credit Union Sale; Slasher Sale; Push, Pull & Drag Sale; $29 Acquisition Sale; the Pre-Approved Sale; recent Bankruptcy Sale; Give-Away-a-Gift Sale; and the list could go on for many more. As sales go, you would think if you went to one you would be saving money. When it comes to auto dealers, nothing could be further from the truth. Never waste your time going to a sale from an auto dealer. Let me give you a brief description of how some of these sales work, and you will see why you won t be saving any money at them. The Super Sale: This is a relatively new kind of sale that started several years ago. Usually what happens is an auto dealer will hire an outside group sales team to come to the dealership and conduct the entire sale. The company hired to perform and conduct the Super Sale will come to the dealership with extra sales people, a finance manager, two or three closers, and of course a desk manager. The sales plan will include the dealership spending about $10,000 in advertising, which mostly consists of a flyer that will be inserted in all the surrounding local newspapers, as well as radio ads, and an editorial-looking newspaper ad in the paper. The outside company will typically add $5,000 to the cost of each vehicle and then figure payments based on the longest term possible and only $29 down payment. They will then put the payments in each vehicle on the lot hanging from the mirror on a hang tag advertising pick a payment, pick a vehicle. As you can see there is no discount. The public thinks there is a sale, and that they are going to get this great deal, but in reality if they fall for the payment only thinking. They will end up paying way too much for the vehicle. The real price of the vehicle is never displayed at these kinds of sales. Only the payment. Dealerships, during these Super Sales, will make from 50% to 100% of what they normally would make in a month in only a four-day sale period! Needless to say, it is one of the most profitable sales for an auto dealership to conduct. 53

54 The dealership must pay the outside company between 20% to 28% of the gross profit from the sale. Therefore, if the outside company made the dealership $100,000 in a 4 day sale, the dealership would pay them $20,000 to $28,000 for that sales event. There is a saying among car dealers that goes like this, A sale is only a perception. It goes hand-in-hand with another car dealer saying, A good deal is a state of mind. There are people who pay a huge profit to the dealership, and they are the happiest people on earth because the dealership did a great job of making them think they got a great deal! These are the kind of customers car dealers love. Those people who focus on payment only and are oblivious to anything else. They don t pay attention to how much they really paid for the car or how much they received for their trade-in car. These are the people who cause auto dealers and commission-oriented sales people to thrive. The Push, Pull & Drag Sale: This is when the dealership sends out flyers in newspapers or direct mail and advertises that they will give a minimum of $1,500 trade-in value on any car, whether it runs or not. So if you drag or tow your junker car to the dealership, they will give you a minimum of $1,500 dollars off of the price of their vehicle. Even if your trade-in car is only worth ten dollars. Basically, if they have a $4,000 to $6,000 dollar markup on their car, you re only getting $1,500 off of asking price. Once again paying too much for the car. The Slasher Sale: This is when the dealership will have a manager outside in the parking lot and he will slash the price of the car down several thousand dollars. Of course if the beginning asking price is over inflated, they are still making a huge amount of money from that car. The manager will take a paint stick and write the new slashed price of the car on the windshield. There is always a lot of hype surrounding all of these sales the dealerships put on, but the end result is the uneducated consumer getting ripped off! The Pre-Approval sale: This is geared towards people with poor credit. The dealership hires an outside marketing company that will send thousands of letters out to people according to their beacon score. Your beacon score is your credit rating. Usually the beacon scores will be between 500 and 650. The letter will come to the consumer and will have a check attached to it saying the customer is pre-approved for a loan amount of $19,995 for example, and they need to call ABC Motors immediately to lock in their loan approval. Sometimes there will be a hook involved in the letter such as a free gift for coming into the dealership. These sales are also very profitable, because the dealership personnel will totally control the customer and basically tell them what kind of car they can buy. They will stuff the customer in whatever car provides the dealer with the most profit as 54

55 well as con the customer into thinking he or she have to buy the back-end products like an extended service contract, life, accident and health insurance (LAHA), etc. This sale works the same for fresh bankruptcy customers. Bankruptcy is a matter of public record and dealerships love to target fresh bankruptcy customers. There are many companies who specialize in bankruptcy lists and sell them to the dealerships. These people just went through a bankruptcy and are most likely embarrassed, depressed, feeling completely inadequate, and are desperate to start over and re-establish their credit. Car dealers love to take advantage of fresh bankruptcy customers. I will explain more about bankruptcy in a later chapter of this book as well as bad credit and what to do about it. Let s discuss one more type of sale, and that is the Credit Union Sale. This sale is also very profitable because it involves a level of trust between the customer and his credit union. A dealership will approach a local credit union about using their customer list as a mailing list and do a combined sale. The dealer gets to mail to the credit union customers and the credit union gets all of the financed contracts from the sale. It s a win-win for both parties. The credit union will send a letter out to their customer base explaining how they have teamed up with ABC Motors to do a sale. Usually the letter is written by the dealership, but it is made to look like it came from the credit union branch president. It is signed by the branch president and gives the dealership strong credibility. In essence, the credit union is really endorsing the dealership and implying to the customer that they are safe to buy a car from the sale. Remember what I told you earlier: A sale is only a perception! Trust to a seller is like gold bars! If your customers are predisposed to trust you, you can automatically make more money from them. This is why the credit union sale is also such a good sale for the dealer. Speaking of trust, there is another saying in the car business that goes like this, If you can t gross your friends and family, who can you gross? The word gross in the business means profit. Therefore the saying means If you can t make money off of your friends and family then who can you? It is much easier to make money off of friends and family, because they naturally trust you to give them a good deal. I personally have never made money from my friends or relatives, but I have seen lots of other people in the car business that made lots of profit from their family and friends. I think it is disgusting to rip off friends and family or anyone 55

56 for that matter, but I have personally seen people do it. Their greed overcomes them. The Web site $1,000 Free Gift Certificate Scam is one of the newest ones out there. You won t even find these sales descriptions on any of the popular car sites, because they don t know about them. This one is where you will receive a postcard or letter from the local car dealership that basically invites you to the dealership to look at their cars. Just for coming in, they will give you a gift certificate worth $1,000 in free merchandise. You simply go to the web site which is on the certificate they give you, and you can choose from many different types of merchandise such as electronics, camping equipment, kitchen, sporting goods, etc. The scam is that the equipment is grossly overpriced along with the shipping charges. The actual shipping charges cost more than the product, and that is how the web site makes its profit. Of course the consumer thinks the products are free but they still have to pay the shipping charges. If you picked out $1,000 worth of products from the web site, it would cost you about three hundred dollars in shipping for the products that are really worth about $150 to $200 in real money. This scam brings in lots of people to the dealership. But the fact is most of the people are those with bad or challenged credit, and of course if they buy a vehicle they get taken advantage of the most. Auto Dealer Advertising Gimmicks! Let s talk a little bit about advertising by car dealers in the newspapers and flyers. You may have seen the One Year Free Gas! with every purchase claim. This is simply the dealership offering you a pre-determined amount of money off. It is not a one year use as much fuel as you want to type deal. I am looking at a car dealer s ad in the paper right now, and when you read the small print about the One Year Free Gas! it says, Based on 12K miles per year at $2.70 per gallon. Not to exceed $ So as you can see it really boils down to just a $ rebate and not a true year s worth of gas. How about this one, We ll pay off your trade no matter how much you owe! The bottom line is they have to pay off your trade. Otherwise they would not be able to get the title to the car so that they can resell it. What about No Application Refused! That one always cracks me up, because it s so ridiculous. They try to make you think that everyone is approved 56

57 but all the ad is really saying is that anyone can fill out an application. It does not say everyone is approved for a car loan. Here is another one, Bank Representatives will be on hand to process your credit immediately. The so-called Bank Representatives are just the finance managers of the dealership. Government Repossession and Bank Repo Sale! All the used cars come from either trade-in vehicles or the auction. There are no special vehicles. Repossessed vehicles go to the auction, and then the auto dealers purchase cars from the auction houses. $69.00 Down and only $79.00 per month! If you read the fine print at the bottom of the advertisement, you will see that this usually applies to only one car and it will usually be a $2, junker car. Remember this: Nothing is free and always read the fine print! Getting customers into the auto dealerships has become an art form in trickery, deceit, and the latest techniques in psychological button pushing. It plays on peoples need for something for free. Auto dealers use televisions, bicycles, sporting goods, gift certificates, and anything else they think will get you into their showroom floor. Whatever they are giving away for free you are ultimately paying for in the car deal. The bottom line is you don t need to go to a special sale in order to get a good deal. Car sales are designed to rip you off, not give you a great deal. Stay away from them and like I said at the beginning of this book, buy from the fleet department. If they don t have one, deal directly with the sales manager or go online and get a quote on the Internet. In this day and age no one should have to subject themselves to the psychological tricks, mind games, back and forth garbage, and take-no-prisoners attitude at most auto dealers. Recap: Let s recap what you learned so far in Chapter 6: Never fall into the trap of payment only thinking. Never go to the big sale at auto dealers. Don t trust anyone in the auto business. 57

58 Always do your own research. The closers job is to get you to pay more money. The next chapter deals with the scams in the Finance Department and what you need to know in order to come out on top! 58

59 CHAPTER SEVEN In this chapter I m going to discuss what happens many times in the finance office, and what to watch out for and avoid. The finance office is where you go after you purchase a vehicle. This is where the department of motor vehicle paper work is done. It is also where the finance manager is going to try and sell you all of the aftermarket products and create additional dealer profit. Remember earlier in Chapter Four, I said there were two ways car dealers made a profit on a car deal: one was the front-end and the other was the back-end. Well, the finance department is the back-end. In some dealerships they also call the finance department the business office. The finance manager is called the business manager. Don t let the titles fool you, because they are identical. Earlier I spoke about what a packed payment was and how this is called leg to the finance manager. If the finance manager was given any leg, this is where they will try to use it to sell you their wares. This is where he or she is going to try and sell you an extended service contract, GAP insurance, life and disability insurance, paint and interior protection, maintenance program, car alarms, etc. When you buy through the fleet department, usually the fleet manager will also do the paper work, and you won t even have to see the finance manager. If the fleet manager does not do the paper work, you will still have to go through the finance manager s office to complete your transaction. I am going to give you a simple explanation for each type of product the finance manager will try and sell you, and you can make your own decision on whether or not you would want that product. If you do decide you want the product, I have provided web sites that you can visit and get the product you want much cheaper than buying it at the dealership. When we are done with the product section on this chapter, I will tell you what to do in order to protect yourself from the scams in the finance department! So let s get moving. EXTENDED SERVICE CONTRACTS Every new car comes with at least a 36-month bumper-to-bumper warranty. Some manufacturers even have longer ones. They are usually longer warranties on just the powertrain components of 5 to 10 years. 59

60 Warranties and Extended Service Contracts: What is the difference? The warranty comes with a brand new car when you buy it. The warranty is from the manufacturer of that automobile. An extended service contract is different from a warranty in the fact that the coverage can be different, and it is an aftermarket item. Meaning it is purchased in addition to the automobile, new or used. The extended service contract extends out the original warranty from the manufacturer in the event you buy the car new. If you re buying a used car, it starts the day you purchase the car. Some people or places will still call an extended service contract a warranty, so don t get confused by this. To keep it simple remember this: A warranty is what comes with the car when new, for free, from the manufacturer of that automobile. Anything you purchase extra for coverage on that automobile is an extended service contract. There are basically three different types of coverage for extended service contracts. There will be a basic one known as a powertrain service contract. This is the least expensive type of coverage for your automobile and also it covers the least. It usually just covers the transmission and some basic components of the engine. The second type is known as an inclusive service contract that will cover much more than the powertrain. It is known as an inclusive contract, because it will literally list the exact components of your automobile that will be covered in the event of a break down. It will list all the components in the engine that are covered, the transmission parts, the interior parts such as power windows, stereo, power seat motors, etc. It will have a complete list of only those items that are covered. If your item that broke is not on the list of covered parts, it s not covered. The third type is the exclusive service contract which is the best type. It will cover everything on your automobile except that which is listed in one paragraph on the contract. This is the closest to bumper-to-bumper coverage that you can buy. If an item on your car breaks that is not included as an uncovered part, then it is in fact, covered by the service contract. One other main thing that sets extended service contracts apart is called wear and tear damage. What that means is that many service contracts will not cover normal wear-and-tear damage to your vehicle. So if you purchased a 100,000- mile service contract (non wear-and-tear) and your pistons gave out due to wear and tear at the 89,000 mile mark, they would not be covered under your service contract. However, if you had purchased a service contract that included wearand-tear, then the pistons would be covered under the service contract. 60

61 I myself am a fan of extended service contracts when you can buy them at a fair price and get one with wear-and-tear coverage included! When I sold my mom her car it was still under factory warranty, because it only had 9,000 miles on it. I still made her get an extended service contract, so she would not have to worry about problems later on if they came up. I like having extended service contracts because they give me peace of mind, and they also raise perceived resale value. Because the future buyer of your car will assume everything works because if it did not, then you would have had it fixed via your extended service contract. You can also transfer most extended service contracts to the buyer of your car, if you sell it. Therefore, you could charge a little bit more for your car when you sell it. Usually there is a small fee of around $50.00 to transfer an extended service contract to the new buyer of the car. On new cars, the manufacturer s warranty automatically carries over to the new buyer, if you sell the car. Hot Tip: If you buy an extended service contract, never buy one that does not have wear-and-tear coverage! If you buy one, always get the third type I spoke about, the exclusive type coverage. This one is closest to bumper-to-bumper type coverage. If you re buying a new car, this type of coverage is available. If you re buying a used car, you may not be able to get this one if there are too many miles on the car you are buying. Check with the service contract company to see if your car qualifies. If the car does not qualify for that coverage, you would get the inclusive coverage. I have searched high and low all over the Internet to find the very best extended service contract company that also provides wear and tear coverage for you. The site is They will give you the very best warranty coverage for the least amount of money. Go there now and get your quote because I am confident it will be less expensive than what the finance manager quotes you for theirs. It s not rocket science to figure that one out! The finance manager will offer you an extended service contract when you are in his or her office. Since you should already know the price of what it will cost you from you can decide if the dealership s extended service contract is less expensive. Don t be fooled by the finance manager. Make him or her show you in black and white that the contract includes wear and tear and is the same coverage. Can the finance manager beat your price? If he or she offers to beat the price can you be sure that they won t do a switch and actually sell you a different extended service contract than what he or she showed you? 61

62 These things do happen at car dealerships! I have worked with many finance managers who in the past routinely told customers they were selling them exclusive bumper-to-bumper extended service contracts. Later on when something broke on the car, the customer finds out that what they really paid for was just a powertrain service contract at the price of the more expensive extended service contract! It is shocking and appalling, but it happens everyday at auto dealerships around the country. You think you are getting a rock solid extended service contract but what you really bought was a cheap powertrain warranty that hardly covers anything on your car. Of course, you were charged $2,000 for the expensive service contract! Buyers beware!!! The best approach is to just tell the finance manager that you do not want an extended service contract. This prevents any kind of future problems. If you want an extended service contract go to Hot Tip: How to get work done after your factory warranty runs out? COMPLAIN TO THE MANUFACTURER! Have you ever heard the saying the squeaky wheel gets the oil? What I am talking about here is the factory warranty that comes with the vehicle that you purchased. Most come with the 36,000-mile or 3 years which ever comes first. Usually most manufacturers have a separate, longer warranty on the powertrain. Let s say for example, that your motor blew up at 40,000 miles, yet you have all your records for the maintenance that you have had done on your vehicle and there is no reason for the motor to blow up at 40,000 miles. If you re an idiot and did not change your oil for the past 8,000 miles, this is not going to help you. I am assuming you can t be an idiot, because you bought this book. So let s assume that you maintained your vehicle according to the manufacturer s recommendations. When your motor blows up as in our example, go to the service department where you bought the car and ask to speak with the service manager. Tell him or her you expect the manufacturer to cover the entire cost of repair, because the car just came out of its warranty period and should not have any problems. You maintained it perfectly through ownership. The key is to get the service manager on your side! Appeal to his or her sense of fairness and he or she will go to bat for you with the manufacturer. The service manager will call the manufacturer directly and ask for an exception for your vehicle. 62

63 I can tell you from past experience that many times the manufacturer will still honor the warranty and fix your car for free! It really depends on how far out of factory warranty you are when the car breaks. GAP INSURANCE GAP insurance is great cheap insurance to have if you do not put at least 25% down payment on your auto loan. What GAP insurance does is pay the difference on what you owe the bank on your car and what the insurance company gives you for your car if it is totaled in a wreck. In other words, if you wreck your car and still owe $21,000 on it and your insurance company tells you that they are only going to give you $17,000 for your car, you would still owe your bank $4,000 to pay off your car in full. If you have GAP insurance, the GAP insurance would pay the $4,000 difference on your loan. This way it does not come out of your pocket and you can immediately go out and get yourself a new car since yours was wrecked. Now paid off in full thanks to GAP insurance. Because GAP is insurance, it is regulated by each state. That means each state sets its own price for GAP insurance and not the dealerships. They set a max price and the dealerships sell it for the max price that the state regulators allow. Cars depreciate rapidly. That is why I say if you re not putting at least 25% cash down or have that much in trade equity, I highly recommend GAP insurance. GAP insurance is cheap! Once again, I have searched the Internet high and low so that you would not have to, and found a web site that will give you the best deal on GAP insurance. I m a pretty nice guy, aren t I? Go to and buy your GAP insurance there and save money. The other advantage besides getting the products for less money in buying the back-end products online, is that you won t have to pay interest on these items. You can put them on your credit card and pay them off quickly instead of over a 72-month period. It also gives the finance manager less of an opportunity to rip you off! LIFE, ACCIDENT AND HEALTH INSURANCE Next on the list: Life, Accident and Health Insurance. These are two kinds of insurance sold by the finance managers. Life insurance means that if you die, the insurance will pay off the remaining car loan and your spouse or estate would get the vehicle free and clear. Accident & Health Insurance means if you got into an accident on or off the job and could not work, the insurance would make your car payments for you until 63

64 you got back to work. So if you went skiing and broke your leg and could not work for four months, the insurance company would make your car payments for you. Life, Accident and Health Insurance, also known as LAHA for short, is also regulated by each state as far as the price goes. The dealer does not set the price. It is expensive insurance, and if you have great life insurance from your insurance agent already, then you really don t need the additional life insurance for your automobile. As far as the Accident and Health Insurance goes, it really depends on how active you are and what kind of job you have. Can you do your job if you were injured? Do you have a job that pays your full income even if you re not at work? For example, if you are in the military as I once was (U.S.M.C.) if you got injured, you would still receive your full paycheck. Therefore Accident and Health Insurance for your car would be a complete waste of money. I myself would not get either one of these, but your situation is different than mine. Maybe you see more value in these than I do. You could also get these same services from your car or homeowner s insurance agent. If you are interested in these, I would check with your insurance agent. If you are co-signing a loan for someone, which I recommend you never do, the life insurance might be worth checking out. Because if you both are making half of the car payments and one of you dies, the other one is going to be stuck making the full payment. If you have Joint Life Insurance on the car loan then the car would be paid off if one of the co-signers died. It s something for you to think about. Speaking of co-signing for loans, I am going to address this issue later on in this book. I have never seen any information spoken about on this subject at any of the free sites on the Internet, and I have important information you need to know about this subject. If you do not read what I share with you on this subject you could very easily end up in one of your worst nightmares. Look for this subject later on in the book. PAINT, INTERIOR AND UNDERCOATING PROTECTION This package sold to the public by auto dealers is a huge profit center for the finance department. It consists of a paint protection for the exterior of your car, a protection package for the interior of your car, and an undercoating for the chassis of your car. Let me give you a brief explanation of each one. Paint protection is a clear coating that goes over the paint job on your car. It will protect your car from being easily damaged from such things as bird droppings, 64

65 acid rain, tree sap, and other harsh or environmentally caused misfortunes. Paint has pores in it, just like your skin does. Because it has pores, they easily attract and imbed dirt in them. For example, take a cotton swab and put rubbing alcohol on it and run it over your nose and cheeks. As you can see, there is dirt on the cotton. This is because unless you just got out of the shower, your face and pores are going to collect small particles of dirt. When you put a special clear coat over the paint it fills up these pores and dirt cannot get in them. It also puts a smooth protective layer over the paint. One of the reasons cars lose their luster and brightness in the paint job is because of the dirt in the pores of the paint. When you have a patented, specially formulated clear coat over your paint, you won t lose the brilliant shine it originally came with. You also do not need to wax the car, because you will always have the waxed look without the waxing. Usually a superb clear coat will last about five years before needing to be reapplied. Imagine, never having to wax your car again! The interior protection is pretty much the same as what you could buy in the store such as Scotch Guard. It is sprayed all over the interior of your car on the seats, headliner, inside doors, and carpeting. It protects the interior from spills such as coffee, soda pop, food stains, and basically any spill that is oil based. The protection is for either leather or fabric interiors. The undercoating is just a tar-like substance that is sprayed underneath the vehicle on the chassis to help protect it from rust. They can also spray it under the wheel wells, and it will help slightly with road noise. It costs the average dealership in real dollars about $75.00 tops to put all three of these on your car. That includes the cost of material and paying an employee to apply all three. They will try to sell this package to you for anywhere from $400 to $1,600 dollars! Lift your jaw back up and keep reading. Sometimes it is much less than $75.00, because the dealership will use really cheap chemicals. Here is my recommendation: First of all, don t buy any of this from the dealer, except possibly the undercoating. I would only buy that if I lived in a state where they really salted the streets in the wintertime to help with the ice. If you do buy the undercoating, don t pay more than $100 for it. Otherwise tell them to pound sand. When it comes to the paint protection, I feel it is a very good investment. But only if you buy one particular type which is known as the very best paint protection in the world. In fact, it is so good that the U.S. Navy uses it to protect communication equipment on their ships. You can get it at and it is a great product and far cheaper than what the car dealers want to rip 65

66 you off for. I am a big fan of 5starshine, and they are the only company that I recommend for paint sealant. Bonus: If you click on this link it will take you to a special web page that I have arranged for you to get a $10.00 discount on the product. I worked this out with the owner of 5 Star Shine, and it s good for any order over $ Look for the Customer Code box and enter TENOFF. As far as the interior protection, I would go to your local auto parts store and get the same thing in a can. Follow the directions and apply it liberally. Make sure you get the interior protection that matches either leather or cloth according to your own car of course. MAINTENANCE PACKAGE The maintenance package is another rip-off item the finance department will try to pawn off on you. What they are trying to do is sell you a pre-paid maintenance program so that if your car needs its oil changed, you won t have to pay for it. Because you already paid for it in advance when you bought the car. Skip this item all together! Why pay for maintenance and have it combined into your car loan and pay interest for it? You never know when your situation may change and you drive much fewer miles and do not even need as many oil changes as you thought you might. Take my advice and pay for your oil changes and maintenance as you go along. ETCH Etch is one of the biggest rip-offs in the finance department to date! Here is how it works. The dealer etches onto the car on the windows, doorframes, and also under the hood of the car an etch number. Then the finance manager will try and sell it to you for whatever he or she can get away with usually $200 to $1,000 dollars. The benefit is if your car is stolen and not recovered within 30 days, you would receive $2,500. If you have car insurance and GAP insurance, why do you need Etch? You do not need Etch! Do you know how much Etch costs the dealer? About $10 dollars! Usually, new car dealers will etch every single new car in inventory and then try to stuff it into your contract, and you don t even know you paid for it! Do not buy Etch! 66

67 Alarms and the Others Some of the other items the finance department may try and sell you are car alarms, auto starts, towing/lockout/gas type of service, upgraded stereo systems, accessories from the parts department at the dealership, etc. Here is what your answer should be, No thank you. Simple, isn t it? These items are all grossly overpriced and you can always get them cheaper somewhere else. Finance Manager Scams Let s go over some finance manager scams of which you need to be aware. They happen every day at dealerships across America. The first one I briefly touched on is selling you an extended service contract, which you think is really good coverage for your car, but what happens is you end up getting the cheap powertrain service contract instead. This is the old switch-a-roo. The finance manager tells you about the great coverage you will get with the service contract he or she is trying to sell you and then when you say yes and decide to buy it, he or she does a switch of contracts. He or she really sells you the much less expensive service contract, does not tell you about it, and makes a much bigger profit for himself or herself and the dealership. This is outright fraud and it s a shame that it happens, but some people have no conscience. It is for this main reason and also because you can buy an extended service contract much cheaper at that I advise you never to buy an extended service contract from a dealership. The interest rate scam is classic and usually affects those people who do not have perfect credit. Every auto dealer sets up financing through banks and shares in the profit on any extra interest that is higher than the rate the bank sells to the dealer. If the dealer has a buy rate of say 7% they will try and get the customer to sign up for 10% and then make usually 70% to100% of the difference in the 3-point markup of the interest rate. This is another reason you should always get your own financing lined up first before you go car shopping! If you want the best rates and terms check out the site at The other way for the dealer to scam you in regards to interest rates is telling you that you do not qualify for the low-factory interest rate such as 0% for example, so that they can try to make rate on you going through a conventional bank and marking up the interest rate. This is why it is important to know your credit rating before you go loan shopping. You can get your credit report by going to 67

68 Hot Tip: If your credit score is 675 or higher you should qualify for the special interest rates published by the car manufacturers. Even if your score is sometimes as low as 650 to 660 you can qualify if the dealer really tries for you with the manufacturer. If you re buying the car at less than invoice, which you should be if you followed my advice in previous chapters, the dealer should be able to pressure the manufacturer into giving you the low-interest rate. You are borrowing less money than the new car is worth, and therefore the bank is in a good position. If you really want the low 0% or 2.9% or whatever low rate the car manufacturer is advertising, tell the dealer after you make the deal to buy the car that you will not purchase the car unless they can get you the low factory interest rate. This will get them working on your behalf to get you the lowest rate. Leave the dealership and tell them to call you the next day if they got you the interest rate, and you will come in and buy the car. If they cannot get you the interest rate pay cash for the car by borrowing the money from your credit union or one of the internet sites we spoke about earlier. Many times you will qualify for the factory/manufacturers low interest rate, because of the structure of the car deal. The better the structure, the better your chances of qualifying for the low rate. Hot Tip: Many times the car manufacturer s web site will have a spot where you can enter in your credit information, and they will pre-approve you for a loan through them right there on their web site! Your credit application is another area where if the finance manager does not think you make enough money to qualify for the loan, they will many times add to your income. Sometimes they will ask your permission to make your income bigger than it really is and sometimes they won t ask and just do it anyway. This is fraud! Do not lie on your credit applications, and do not let them change your application! The 5-finger sign-up. This is where the finance manager will try to stuff things on your contract without your knowledge. Remember when we spoke about leg earlier? If the finance manager does not think he can sell you anything with the leg then he or she will keep his or her mouth shut and put stuff into your contract without your knowledge. Then when you sign the contract, he or she puts their hand over the Truth in Lending Disclosures box and gets you to sign the contract without telling you how much you re financing or your interest rate, etc. 68

69 This of course, is highly illegal on the part of the finance manager. You must always read your retail installment contract carefully! Retail Installment Contract This is the contract you sign when you purchase a vehicle and finance it. This is the contract that you need to pay attention to when purchasing your vehicle, especially if you finance it through the dealership and not through an outside bank or credit union. On every retail installment contract there is a box called the Truth in Lending Disclosure. This box has 5 separate boxes which are your annual percentage rate, finance charge, amount financed, total payments, and total sale price. I will explain each one for you so that you know what to look for when signing. One of the biggest reasons people get ripped off is by not knowing what this Truth in Lending Disclosure box is. The first box is going to be your annual percentage rate. The second box is the total finance charge. This is the total of interest over your loan term. Keep in mind if you make extra payments, your total finance charge will be less. The third box is the amount you are financing. The cost of the vehicle, title and license fees, the documentation fee the dealer is charging you, and any extras that you have chosen to purchase. This is the box you really need to pay attention to the most. If the finance manager is trying to slip something in like Etch or something else, then you will know it here. Because what you are buying will not add up properly with the amount to finance in this box. Ask the finance manager to show you on the contract the price you re being charged for the vehicle. It goes without saying this amount should be the amount you agreed to with the fleet manager or whoever you were dealing with on the vehicle. Then have him or her show you the license and title transfer fees, the documentation fee, tax if applicable in your state, how much they are giving you for your trade-in car, the pay-off amount, and any extras you decided to purchase. Make sure everything adds up perfectly in this third box! There should be no extra hidden charges! 69

70 The fourth box is the total of monthly payments you will have made after the term of the loan is finished. If your monthly payments are $200 for 60 months then the number in this box would be $12,000. The fifth box is the total cost of your purchase including your down payment and all interest charges totaled over the term of the loan. Just below the Truth in Lending Disclosure boxes you will find your payment schedule. It should list how many payments you are going to make, 36, 48, 60, 72, etc. depending on the term length of the loan. Next to the Number of Payments is the amount of payments. This is the monthly payment you are obligating yourself to make every month. If you feel uncomfortable with this payment then do not buy the car! It sucks having a really nice car, but not being able to afford to put gas in it or afford the insurance. Next to the Amount of Payments box is the box that tells you on what day your payments are due to the bank. If you pay close attention to what I just talked about, then you should not have any problems with getting charged for items you did not want. If the third box does not add up properly with what you wanted, then you know there is a problem with the finance manager trying to stuff something into your contract. Documentation Fee The documentation fee or doc is a fee that dealers charge people on every vehicle purchased. It is a charge for doing the Department of Motor Vehicle (DMV) paper work. In other words it s just pure profit for the dealerships. The doc fee can range from $35 to $200 depending on which state you live in. The best way to avoid this is to pay cash for the car, and tell the dealership you will do the motor vehicle paper work yourself. Go to get approved for a loan and give the dealership a cashier check to pay for the vehicle. Tell the dealership you won t pay the doc fee because you are going to do the paper work directly with the Department of Motor Vehicles (DMV). If you are financing the car through the dealership then they will charge you for the doc fee. However if the fee is ridiculously high, negotiate to pay a smaller fee, especially if the doc fee is over $70. There is a reason I keep harping about not having a trade-in car when you buy one and also telling you to pay cash or get pre-approved from a bank or credit union to pay for your vehicle. If you sell your trade-in car yourself you won t get ripped off from the dealer. If you pay cash for the vehicle they can t try to add on 70

71 additional junk that you do not want to pay for, i.e., overpriced warranties, doc fees, chemical packages, etc. Recap: Let s recap what was covered in Chapter 7: I discussed the different types of extended service contracts and warranties. Never buy an extended service contract without wear-andtear coverage! You learned about different products the finance manager will try and sell you and where to get them cheaper and better. Get them on the Internet sites I told you about for less money, and you won t have to pay interest on your loan for the product you purchase. The different scams that can happen inside the finance manager s office. What to look for in your retail installment contract. Remember to pay close attention to the Truth in Lending Disclosure boxes! The doc fee and how to avoid paying it. In the next chapter, I ll tell you about different scams that go on in the dealerships and how to avoid them. 71

72 CHAPTER EIGHT As you no doubt have seen on different television news programs, one of the hottest topics in the news these days is auto dealership scams. I like to call it The Fleecing of America by Auto Dealers. Unlike the average consumer, I see these shows from a little bit different perspective, because I also look at them as an insider from the auto industry. Typically, they do a great job of exposing the scams, but there is one area that gets exposed as a scam that really should not be labeled as one. Let me explain why and which scam I am referring to. The interest rate scam that I explained in the previous chapter is what I am talking about. I am talking about marking up the interest rate, not about lying about whether or not a person qualifies for the manufacturer s interest rates. These are two separate issues. I am strictly talking about marking up the interest rate from say 7% for example to 10%. There is nothing illegal about selling money at higher interest rates. If you are a lazy person and do not go about getting your own car loan at the lowest rate possible, then of course the car dealers are going to arrange financing for you at a markup! Do you really believe that when you have perfect credit and you go to a major department store to buy a lawn mower, when they ask you if you would like to apply for and put the purchase on their company credit card for about 21%, (last time I checked), that the store is buying the money for 21%? Of course not! They are buying the money for less than the percentage rate they charge you. It s another profit center for them. Just like the many furniture stores, jewelry stores, mortgage brokers or car dealers who offer credit. The point I am trying to make is selling money is commonplace in the retail industry. Always arrange your own financing for whatever item you decide to purchase. Whether it is cars, furniture, tools, jewelry, etc., paying cash of course, is always the best route. Regarding lying to customers about what interest rate they qualify for or telling them they don t qualify for the 0% interest rate, is highly illegal. These are both reasons for knowing what your credit rating is before you go car shopping or bank loan shopping at I am going to explain some further scams at auto dealers, but bear in mind not all 72

73 scams are illegal. Some are outright illegal and others are just plain rip-offs. Additional Dealer Markup (ADM) scam is when the dealership places an additional sticker next to the MSRP on the vehicle window and adds an additional amount of money to the price of the vehicle. This could range from a couple of hundred dollars to ten thousand dollars or more, depending on the type of car. This scam is not illegal. However, if there is no ADM sticker on the car, and they try to add additional fees to the price of the car, then this is illegal. This scam is strictly for suckers who blindly do not pay attention and pay way, way, way too much for the vehicle. Simply ignore this sticker and do not let the dealership add any extras to the price of the vehicle, unless he really is adding additional equipment to the car. The additional dealer markup is just a way to get the public to think they are getting a good deal if they pay MSRP for the vehicle. The dealer prep fee scam is also the same as the above additional dealer markup fee. It is bogus! The dealer is supposed to take off the plastic when the car arrives at the dealership as well as top off the fluids, attach hub caps and do the insignificant details to get the vehicle ready for the lot to sell. Do not pay one red cent for this service. The You have to get this scam is when the finance manager or sales manager tells you that you have to buy something extra in order to get financed. This trick is usually reserved for people with bad credit. They tell you or strongly give you the impression that you have to get an extended warranty or Life, Accident and Health insurance (LAHA) in order to qualify for the loan from the bank. This is not only a scam, but also illegal. No one can force you to purchase additional items just to qualify for financing! I will explain more about this in the chapter dealing with bad credit and what you need to know. The trade pay-off scam is not illegal but it is simply a play-on-words on what the dealership must do according to the law, if you trade in a vehicle. Usually you will see the words in bold in car dealer advertisements that says, We ll pay off your trade no matter how much you owe! Of course they will. They have to in order to get the title to your trade-in car, so that they can sell it. It does not mean that they will give you whatever amount you owe on your trade in. If you owe $10,000 on your trade-in and the dealer only gives you $8,000, where do you think the other $2,000 is going? Yep, you guessed it! Right on top of the price of the car you are buying! The only way to get rid of that $2,000 negative equity is to put down at least $2,

74 The customer statement or credit application scam is when the dealer wants you to fill out a credit application, also referred to as a customer statement, in order to pull your credit. First off, if you get prior financing lined up like I have been preaching about, there is no reason for the dealer to ask for or get your social security number so that they can check your credit. You should be paying for the vehicle with the cashier s check you got from the bank or credit union that is financing your loan. Therefore, the only information the dealer needs is your name, address, telephone number, insurance carrier, and copy of your driver s license. Many dealers will want to check your credit if you are paying with a personal check. To avoid this, always pay with a cashier check. Constantly having your credit checked lowers your beacon score needlessly! If you are going to be financed through the dealership, they will check your credit. The only time you should get financing through the dealership is: A) You are going with one of the subvented rate programs that are offered from the car manufacturer such as 0%. B) You have bad credit and cannot get financed through one of the sources I referenced you to in the chapter on Bad Credit in this book. If you do not fall into category A or B, you should be getting your own financing and paying with a cashier check. Between this chapter and the other chapters in this book, I think I have covered all the major scams out there in the dealerships. To keep updated on the latest and newest scams on the market as well as stay updated on what is going on in the auto industry, make sure you sign up for my free newsletter. If you have not done so, please go to and sign up for it. You will also be kept up on other scams outside of the auto industry as well as updates to this book. In each newsletter, I answer questions from readers related to the car buying experience and give valuable advice and tips. Since we are on the subject of scams, I wanted to mention the two words that scare the heck out of auto dealers: Attorney General Those two simple words will always get the attention of your salesperson or manager. The Attorney Generals office in every state is the one that deals directly with complaints about auto dealers. There is nothing worse than getting 74

75 a letter from the Attorney General stating that a complaint has been brought to their attention from a customer. The dealer has to answer the complaint and fix it accordingly, if the customer is in the right, of course. Naturally too many complaints about one certain dealership to the Attorney General s office is not good for that particular auto dealer and it puts them in the bulls-eye of the Attorney General for follow up investigations, etc. You do not want to throw the name Attorney General around of course, because that will make the dealer suspicious of you. They may decide not to sell you a vehicle, thinking they are avoiding any problems from you or the Attorney Generals office. If the dealer is trying to do something illegal on your paper work or in your dealings with them, you should request that they fix the scam or problem immediately or you are going to call the Attorney Generals office and complain. Using these two words will usually get the problem fixed ASAP, if indeed the auto dealership is in the wrong. You can find lots of great information at your state Attorney General s office web site. To find your own state s web site go to any search engine I prefer Yahoo or Google and type in Attorney General New York or whatever state you want, and the web site should come up very easily for you to find. Many times you can file a complaint right there on the web site. Recap: Let s recap what you learned in Chapter 8: You learned about more scams that take place in auto dealerships everyday. You learned about where to lodge complaints about auto dealers. In the next chapter, you are going to learn about leases. As you will see, auto leases are not rocket science, and you will find out if leasing is for you or if you should stick to purchasing your automobile. 75

76 CHAPTER NINE In this chapter I want to tell you a little bit about leasing, some common terms you need to know, and what are the advantage and disadvantages to leasing, as well as the difference between leasing and purchasing. Unlike purchasing a vehicle and owning it, if you paid cash for it, leasing is pretty much the same as renting a car. Remember that if you purchased a vehicle and financed it, you really do not own that vehicle until you pay off the bank that is carrying the note on the vehicle. When you pay the bank off in full, then they mail you the title. In leasing, you are really just renting the vehicle and paying the depreciation on that vehicle. The only way you could own the leased vehicle is if you paid it off in full, which is not likely, as most leased vehicles are worth less than their pay-off. If you decide to lease a vehicle, remember that you still negotiate the price of the vehicle, the same as you would a purchase. That part does not change. Of course the lower the price of the vehicle, the lower the payment will be for the lease the same as it is for a purchase. I want to start by giving you some basic lease terminology, so that you understand the basics of how a lease works. Afterwards, I will put it together for you so that it all makes sense. Here is some of the terminology you should be familiar with if you re going to lease a vehicle: Lessee: The person leasing a vehicle. Lessor: The dealership you re purchasing the car from. Gross Capitalized Cost: The agreed upon value of the vehicle and any items you pay over the Lease Term such as service contracts, insurance, and any outstanding prior credit or lease balance. Capitalized Cost Reduction: The amount of any net trade-in allowance, rebate, non-cash credit, or cash you pay that reduces the Gross Capitalized Cost. Adjusted Capitalized Cost: The amount used in calculating your Base Monthly Payment. Residual Value: The value of the vehicle at the end of the lease used in calculating your Base Monthly Payment. 76

77 Depreciation and Any Amortized Amounts: The amount charged for the vehicle s decline in value through normal use and for other items paid over the lease term. Rent Charge: The amount charged in addition to the depreciation and any amortized amounts. Total of Base Monthly Payments: The depreciation and any amortized amounts plus the rent charge. Lease Payments: The number of payments in your lease. This is also the number of months in your lease term. Early Termination: You may have to pay a substantial charge if you end the lease early. The charge may be up to several thousand dollars. The actual charge will depend on when the lease is terminated. The earlier you end the lease, the greater this charge is likely to be. Security Deposit: This is an amount, usually within $50 of the actual payment. They collect it to use against any charges they levy against you when you return the car. If you have good credit, meaning a beacon score of 700 or above, the security deposit can be waived. Excessive Wear and Use: You may be charged for excessive wear based on our standards for normal use and for mileage in excess of miles per year at the rate of per mile (Excess Mileage Charge). Excess Mileage: Typically on leases, there are three kinds of mileage. The mileage is based on 10,000, 12,000 or 15,000 miles per year. If you go over the miles at the end of the lease, you will end up paying usually 12 to 15 cents per mile. If you are under the mileage great, but don t expect the lease company to cut you a check for being under the mileage. Calculate your yearly mileage and base your decision on that. Closed End Lease: This is the only kind of lease you want to get into, if you decide to lease. It means that the residual value is guaranteed, and you can walk away from the lease at the end of its term. Subvented Lease: This is the kind of lease that is actually through the car manufacturer and not a bank. It means they have supplied the lessee with a lowmoney factor to induce them into leasing the vehicle. It s the same as when the manufacturers give 0% percent financing or very low interest rates thru them, only they are doing the same thing for someone who wants to lease. Acquisition Fee: This is a fee charged by the leasing company and is usually between $200 and $600. You can pay it up front or have it included in your 77

78 monthly lease payments. This fee is nonnegotiable from the bank and therefore the dealer will not negotiate with the buyer. It s a worthless fee tacked on by the banks and sometimes the dealer can tack on an extra couple of hundred dollars for his additional profit. Disposition Fee: This is a bogus fee that the dealer or the lease company may try to get you to pay. Usually they will tell you that the fee is to cover the cost associated with getting the vehicle ready to resell after you turn it back in to the lease company. Most leases do not have this fee. Refuse to sign any lease if this fee is included. As you can probably tell, most of those terms are from different lease contracts. If you choose to lease a vehicle you will see most of them on your contract. Do you remember when I explained some of the different things on your retail contract to pay attention to? The main one was the Truth in Lending Disclosures box. On a lease, there is a box called the Federal Consumer Leasing Act Disclosures which is somewhat similar to the Truth in Lending Disclosure box on a retail contract. There will be four separate boxes: Amount Due at Lease Signing or Delivery: This is usually your first month s payment, plus your down payment and any Department of Motor Vehicle fees and or taxes. (It s possible to put your title fees and taxes into your monthly payments). Monthly Payments: This is your monthly payment and the day of the month that it is due on every month. Other Charges: Usually there is a Disposition Fee if you do not elect to purchase the vehicle at the end of the lease term. Hot Tip: Never pay a Disposition Fee and always make sure your lease does not have one in this box! Most leases do not have a Disposition Fee. Total of Payments: The amount you will have paid by the end of the lease. OK, now that we have the basic terminology taken care of, let us see how it pertains to you in real life. On a normal retail contract a person is charged interest over the life of the loan. In a lease there is no interest, but don t think you re getting something free, because they still charge you for the money. In a lease it s called the money factor. For all intents and purposes, it really is the same as interest, but instead it s called a money factor. Remember earlier, I said leasing a vehicle was pretty 78

79 much the same as renting the vehicle. The best way to look at the money factor is to figure it as the rental charge fee. Here is what I do not like about leases. The Money Factor is not disclosed like the interest on a retail contract. In order to find out what they are charging you for a Money Factor, you would have to do a mathematical equation to find out whether or not the dealership was ripping you off. Let s assume, for example, that you negotiated the price of the car and you wanted to lease it. You asked the dealer what they were using for the Money Factor. The dealer responds, We re using All you have to do is whip out your calculator and multiply by 2400 and you would see that your money factor was equal to 5.85%. The money factor after you convert it to interest, should be the same or less than an interest payment you would normally qualify for, if you were purchasing the vehicle. If you have excellent credit and your conversion of the money factor results in something like 10% on a new car, you know the dealer is ripping you off on the Money Factor. They can add to the money factor just like they do the interest rates for purchases. Money Factor Formula: money factor x 2400 = interest rate When leasing a vehicle, there are three components that make up and determine your monthly payment. The monthly depreciation fee, the finance fee, and your state tax rate. Monthly Depreciation Fee: This is how much the vehicle is predicted to fall in value over the term of the lease. This is why cars like Honda and Toyota have higher residuals than their counter parts. The higher resale value of a car means it will naturally have a higher residual value. The Monthly Depreciation fee is determined by subtracting the car s Residual Value from the Net Cap Cost then dividing that number by the lease term months. The Net Cap Cost is the price you negotiated minus any rebates, down payment or trade in equity. If your net cap cost is $25,000 and your residual value after a 36-month lease was $15,000, you would divide 10,000 by the lease term of 36 months and you would have a monthly depreciation charge of $ Monthly Depreciation Fee Formula: Net Cap Cost - Residual Value Lease Term 79

80 Finance Fee: This is the other component, and is simply a fancy term for the interest or rent charge. The way this is figured is the leasing company takes the Net Cap Cost plus the Residual Value and multiplies that amount by the Money Factor. In our example above, the Net Cap Cost is $25,000 plus the Residual Value of $15,000 times the Money Factor of equals a finance fee of $97.60 per month. Finance Fee Formula: Net Cap Cost + Residual x Money Factor In our example of the 36-month lease, your payment would be $ plus $97.60 equals a payment of $ The last component would be your state tax if applicable. If your state tax is 6% then you would add 6% of $ which is $22.52 for a grand total payment of $ There are two different sites that I want you to visit if you re really serious about leasing a vehicle. Both sites sell leasing software, so that you can always know you are getting a good deal. They also have a lot more information on leasing than what I am going to include in this chapter. They can give you lease quotes and software that will figure out your lease payments for you and tell you which banks are giving the best deals. If you are without a doubt going to lease a vehicle then do not, I repeat do not, lease a vehicle without going to these two sites and taking advantage of what they have to offer you. GAP Insurance: I already explained GAP insurance in a previous chapter so I will keep this short. If you forget everything I have talked to you about in this chapter on leasing, do not forget this most important item. Drum roll please...do NOT LEASE WITHOUT GETTING GAP INSURANCE!!! If you lease a vehicle and get into a wreck, God forbid, and you do not have GAP insurance you are *%$#@! You will be responsible for the rest of the payments and the residual value, which I guarantee you, will be a lot higher than what your insurance company is going to pay you for the vehicle. Many leases already have GAP insurance included in them. Make sure you ask the finance manager or fleet manager if the lease includes GAP insurance. If he or she says yes then make him or her point it out on the lease contract, so you know without a doubt that you have it. If the lease does not include GAP insurance, go to and buy it! 80

81 Let s go over some of the pros and cons of leasing versus buying the vehicle. Ownership LEASING: You do not own the vehicle. You get to use it, but must return it at the end of the lease unless you choose to buy it. Up-front costs LEASING: Up-front costs may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees, and other charges. Monthly payments LEASING: Monthly lease payments are usually lower than monthly loan payments, because you are paying only for the vehicle's depreciation during the lease term, plus rent charges (like interest), taxes, and fees. Early termination LEASING: You are responsible for any early termination charges if you end the lease early. Vehicle return LEASING: You may return the vehicle at lease-end, pay any endof-lease costs, and "walk away." Future value LEASING: The lessor has the risk of the future market value of the vehicle. Mileage LEASING: Most leases limit the number of miles you may drive BUYING: You own the vehicle and get to keep it at the end of the financing term. BUYING: Up-front costs include the cash price or a down payment, taxes, registration and other fees, and other charges. BUYING: Monthly loan payments are usually higher than monthly lease payments, because you are paying for the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees. BUYING: You are responsible for any pay-off amount if you end the loan early. BUYING: You may have to sell or trade the vehicle when you decide you want a different vehicle. BUYING: You have the risk of the vehicle's market value when you trade or sell it. BUYING: You may drive as many miles as you want, but 81

82 (often 12,000-15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding those limits if you return the vehicle. Excessive wear LEASING: Most leases limit wear to the vehicle during the lease term. You will likely have to pay extra charges for exceeding those limits if you return the vehicle. End of term LEASING: At the end of the lease (typically 2-4 years), you may have a new payment either to finance the purchase of the existing vehicle or to lease another vehicle. higher mileage will lower the vehicle's trade-in or resale value. BUYING: There are no limits or charges for excessive wear to the vehicle, but excessive wear will lower the vehicle's trade-in or resale value. BUYING: At the end of the loan term (typically 4-6 years), you have no further loan payments. To tell you the truth, I am not a big fan of leasing. I have leased just one vehicle in my life. I ended up paying for extra miles, which cost me about $450, if I remember correctly, plus my dog chewed up part of the vehicle. Needless to say, I never lease anymore. Some people like it because they can drive more car than they could afford to if they purchased the vehicle. A few other reasons I don t recommend leasing: 1) You usually, 9 times out of 10 times, have to pay the Acquisition Fee. 2) You are capped on mileage. 3) The Money Factor is not disclosed. 4) You must adhere strictly to the maintenance policy. 5) You are responsible for any damage and excessive wear and tear when returning the vehicle. Your situation is probably different than mine, so maybe leasing is for you. If you drive low miles, don t travel with pets, don t smoke, and maintain your vehicles perfectly (i.e. you don t have kids), then perhaps leasing is for you. 82

83 Direct Leasing Company Here is a unique site that allows you to lease directly through them instead of going through the middlemen. Visitors benefit by dealing directly with the lease company, thus eliminating the hassles, rip-offs, and markups from the dealer. All of their leasing company partners have agreed in writing to FULL DISCLOSURE of Money Factor, rate, and fees. They are a direct leasing company, and you can find them at The main things you want to keep in mind so that your payment is as low as possible when leasing, is to get a money factor as low as possible, get a residual value as high as possible, get the price of the vehicle as low as possible, and make sure your contract does not include things such as a Disposition Fee or a high Acquisition Fee. When at all possible, try to lease a vehicle from a manufacturer that is supplying a subvented lease rate. When car manufacturers put out subvented interest rates or lease rates, the dealership is not allowed to add to them and make a profit from the interest or money factor rate. It is also important when leasing to lease a car that has good resale value. Cars with good resale value also have higher residual values. The higher the residual value, the lower the payment is, because there will be less depreciation on that vehicle. This is why cars like Honda, Toyota, Mercedes, and Lexus, for example, lease well. Have you ever wondered who calculates the residual values of the entire vehicles out there? The company responsible for the majority of lease residuals is Automotive Lease Guide and you can find them at They have leasing information you might find interesting as well as two other sites that have more information on leasing at: and Super Hot Tip: One thing that will be very beneficial for you to look at is an actual lease contract example, which is on the web site that I just mentioned (federalreserve.gov). The address is You can click on it, and then click on the different circles and get the definition of that area on the lease contract. This is a very nice tool to study, so that when and if you do decide to lease, you will already be familiar with a lease contract. 83

84 If you decide to lease, do not forget to check out to see if there are any lease incentives from the manufacturer. Many times the manufacturers will have subvented lease rates! With this short chapter on the leasing basics and by investigating the web sites I gave you, you should have a good understanding of leases and what to watch out for. Recap: Let s recap what you learned in Chapter 9: Leasing is basically the same as renting a vehicle. How to calculate the Money Factor to ensure you are not getting ripped off. How your monthly lease payment is figured. The selling price of vehicle is negotiated the same as if you were purchasing the vehicle. The leasing terms and language. The difference between leasing and purchasing. Where to get leasing software and lease quotes. Where to lease direct and get full disclosure. Where to see an actual lease example contract and definitions of each line. How to get the best deal possible when leasing. In Chapter 10, you are going to learn about Bad Credit. What to do if you are in that situation and how not to be taken advantage of. 84

85 CHAPTER TEN Bad credit. Two words that can strike fear into the hearts of people trying to buy a new or used vehicle. In reality, the same thing could be said for those same people trying to purchase a house or any large ticket item. There are many people who make a very nice living off of those who have bad credit. I myself have never had bad credit; however, I have worked with literally thousands of people who have had bad credit. I have also counseled hundreds of them on how to improve their credit rating and get out of the ugly situation they are in. In this chapter, I am going to tell you a few things that happen to people with bad credit and how they are continually taken advantage of. Of course this chapter would not be complete if I did not tell you how not to be taken advantage of. So I am going to give you some great advice on that topic as well. Let s start with why those with bad credit do get taken advantage of and why it s easier to take advantage of them. The reason someone has bad credit is irrelevant. Some people were involved in an accident and medical bills buried them, and they could not keep up (understandably). They may be young in age and irresponsible, and no one taught them about how credit can affect their lives for a very long time. Some people get into an ugly divorce and the other spouse is responsible for paying joint loans does not. Now they are negatively affected because of it. Some people lose a job and can t get another one paying the same amount in wages and naturally fall behind in the bill paying. Sometimes tragedy happens, and no one has a back up plan or savings to cover for it. The next thing you know, the bills are still coming and you re way behind. Last but not least, some people are just plain dirt bags and do not pay their bills. Somewhere between the front door and the mailbox they lost their way, and the bills never get paid. The bottom line is, bad things happen to good people and some people are just plain dirt bags. Now what does all this have to do with bad credit and why is the reason they have bad credit irrelevant? Because my friend, bankers don t care why you have bad credit, they only care about how are you going to repay them their money if they loan it to you! Auto dealers only care about how much money they can make off of you, and if they can get your car loan approved with the bank. 85

86 Let me make something very clear. Car dealers make the most amount of money from people with bad credit. Why is this? Because people with bad credit typically feel like second class citizens. They feel guilty for having bad credit. Car dealers know this and take full advantage of it! Many of them are also in a desperate situation to get car financing because they want to re-establish their credit rating. What this does is create a situation of giving up control to the car dealership, and once you do this you are royally &%$#@! When a person with bad credit comes into the car dealership and the Sales Manager pulls his or her credit and sees that they have a bad credit rating, they will immediately try to take control of the situation and find out several things. They will ask you where you work, how much you make, how long have you been at your job, is there a possible co-signer, do you own a house, how much of a down payment do you have, is there a retirement account of some sort that you could tap into for an additional down payment, etc. The Sales Manager is going to assess the situation and see if he or she can get you bought. The term get you bought is slang for can they get the bank to approve a loan for you and what the terms will be. Before we go any further, let me explain bank ratings real quick. There are typically four tiers of credit. They are known as A, B, C, and D credit. A credit is perfect credit and signifies a 700 FICO score and above. B credit is usually generally good credit and a FICO score of C credit is usually FICO score and is rated as medium credit rating, meaning you probably have had some hiccups in the past, but your credit is not great and neither is it bad. The next tier is D credit rating, and this is usually a FICO score and is a very poor credit rating. If your score is below 525, you have really bad credit and will have severe problems in getting a conventional car loan, unless you have a substantial down payment. I am assuming 99% of the people reading this know what a FICO or credit score is. However, for the 1% who may not, here s a quick definition. Back in 1980, Fair, Isaac and Company came up with a mathematical formula to predict the credit risk of consumers based on information collected from a person s credit report. Today it is known as a FICO scoring system. It is the system most widely used for scoring credit worthiness. When someone refers to your credit score as your Beacon or FICO score, they are talking about the same thing. 86

87 There are three credit bureaus that report your credit and they are Equifax, TransUnion, and Experian. You can find them at their web sites and They also have information about credit and your credit score, frequently asked questions, how to improve your score, etc. OK, let s get back to how people with bad credit get ripped off the most at car dealers and how to avoid it. When a person with bad credit goes into a dealership and has their credit pulled, the dealer is going to try and take total control of them and the entire situation. The obvious reason the car dealers try to do this is to maximize profit on the car deal for the front and the back-end. Banks that deal with bad credit consumers are known as subprime or secondary lenders. These banks have parameters in place that are very strict and the auto dealers must follow them. Depending on the credit rating of the person with bad credit, it will determine how much money the bank is willing to loan that person. The amount of money the bank is willing to loan is usually divided up into three areas of profit. The bank will only loan, for example, 110% of the wholesale value of the vehicle. That 110% is in reference to the front-end only. Remember as we discussed in previous chapters, there is also the back-end of the car deal. The bank will also stipulate how much the dealership can charge for warranties. The third part is the total LTV, which means loan to value. Sometimes the secondary banks will put a set amount to loan against the wholesale value of the car. This amount, of course, includes everything like the price of the car, warranties, and any other back-end products, tax, title and license fees. Pay attention here, because this is how the auto dealers make a lot of money from subprime borrowers. Our consumer with bad credit is at the dealer and the Sales Manager has told them that they have found the perfect car for him or her. Let us say, for example, that the wholesale value of the car based on Kelley Blue Book or NADA is $10,000. The secondary lender bank that the auto dealer has submitted your application to has capped the dealership at 110% on the frontend and $1500 max amount to be charged for an extended service contract. LAHA and GAP insurance are allowed to be sold at state guidelines, and they require that the buyer must put down at least $1000 as a down payment. Keep in mind that for this example we are using 110% as the guideline from the bank, but depending on a person s credit, it could be from 80% of wholesale 87

88 book to 115%. Prime borrowers or those with excellent credit can borrow up to 150% of wholesale book on a vehicle. In our above example, let s say that the dealership just bought the car they are selling to our consumer at the auction last week for $8,000. The bank is giving them 110% of wholesale book, which equals $11,000. This means they have a built-in profit already of $3,000. Now remember that the bank required the borrower to put at least $1,000 down as a down payment. Now the dealership has a $4,000 profit so far on just the front-end of the car deal. Now, this is where the art of fleecing really takes place at the dealership. The Sales Manager is now going to explain to the consumer that they need a substantial down payment in order to get the person approved. You see the dealer has not shown their hand and told the consumer with bad credit that they got them approved yet! He or she is going to try to get as much money down as possible from the buyer because the more money he or she gets down, the bigger the profit on the frontend. He then tells the buyer they need at least a $5,000 down payment. The buyer balks and says they do not have that much money, but they could come up with $2,500. Do you see where this is going? The dealer cost of vehicle is $8,000. The wholesale cost of vehicle is $10,000. The bank is willing to loan 110%, which is $11,000. The sales manager got a total of $2,500 down payment. Therefore the selling price of the vehicle is now going to be, in this example, $13,500 because you add the down payment amount to the amount the bank is willing to lend. $13,500 minus the down payment of $2,500 is $11,000, just what the bank ordered and allowed. $13,500 minus the $8,000 that the dealership owns the car for equals a $5,500 profit on the front-end, and they are not even done fleecing this customer! As you can see, the more down payment the customer would have had, the higher the price of the car would have been. 88

89 The Sales Manager is now going to give the buyer his or her payments based on the selling price of the car and the down payment, plus all of the add-on s in the Finance office! The Sales Manager is going to make sure that the customer understands that they have to get the extended service contract, the Life, Accident and Health (LAHA) coverage, and the GAP insurance. All big profit makers for the store. Remember that it is illegal to try and force a buyer to get the extended warranty coverage and the rest of the add-on s. So how does the Sales Manager con the buyer into buying the extra back-end products? When you are a professional negotiator and you are dealing with this situation everyday, you get very good at twisting sentences and words, so that the buyers think they have to purchase these items! It is probably the single biggest con in the car business, getting people to buy things they do not have to or need. When the Sales Manager speaks with the customer he or she will say something like this: Bob, I have great news. I just got off the phone with the bank and here is how they have approved your loan. Your payment is going to only be $411 per month. Isn t that great? Bob, our buyer says, Gee that seems a little high for putting $2,500 as a down payment. Our life-saving-credit-repair-specialist, Sales Manager replies, Bob, you have to keep in mind that the payment includes an extended service contract, Life, Accident and Health Insurance, and GAP insurance. Now the reason the bank approved the loan that way is because they like to see extended warranties on cars. If the car breaks, they don t have to worry about you not making the car payment, because you had to pay to get the car fixed. They also like to see the Life, Accident and Health Insurance on there, because if you, God forbid, were to die, the car would be paid off. If you got sick or injured on or off the job, then the insurance company would keep making your car payments for you. Last but not least, Bob, if you wrecked the car, the bank knows that it will be paid off in full with the GAP insurance. 89

90 Bob starts thinking to himself that he must be getting a good deal if the bank approved him. The Sales Manager explains that it s the best thing for him to do, so that he can re-establish his credit and get on with life. Before Bob can come to his senses, he has signed on the dotted line and is driving his new car. Let s add the total profit that Bob needlessly paid to the auto dealer. There is $5,500 on the front-end for the car, $1,000 profit on the extended service contract because the Finance Manager sold Bob the cheapest powertrain warranty they had, $800 dollars profit on the LAHA insurance, $250 on the profit from the GAP insurance and last, but not least, the dealership got a buy rate of 18% from the bank and sold it to Bob for 21%. Therefore, they made another $900 in interest rate. The auto dealership in our example made $8,450 from Bob, our consumer, with bad credit! Don t be shocked because this happens every single day in America! Did you notice how the Sales Manager worded his or her sentences so that the buyer thinks the bank wants him to buy the extra goodies such as the extended warranties, LAHA and GAP insurance? He never told Bob he had to buy those items, but the way he worded it made Bob think he had to purchase them. The above example is psychological warfare in its purest form. Bob was no match for the highly trained Sales Manager and his sales crew. There are a couple of things you must do so that you do not get yourself in this same situation if you have bad credit. The first thing is, you buy a car the exact same way any one else does who has good credit. You follow the rules and examples I give you in this book. The difference is you must get pre-approved first! This is the major key in not getting ripped off when you have bad credit. If you get pre-approved, the dealership has no way to find out what your own private credit situation is. You re just another cash buyer. So how does one with bad credit get pre-approved? I thought you would never ask. There are banks that specialize in secondary lending and finding you a loan. The first place to go of course is your own credit union. If they deny you, go to This is the best bank to work with when your credit is less than perfect, and they will give you the lowest interest rates. The next bank to go to is They are pretty competitive with Roadloans. The third bank to try if Roadloans and Household turn you down is located at 90

91 These three banks are the three biggest banks that the auto dealers use to get you approved. Why not skip the middleman and go to them directly. Not to mention you won t get stuck paying extra interest rates that the dealer tacks on. Now there is only one bank that I know of that specializes in consumers who are either in bankruptcy or just got out of bankruptcy, and it is Prestige Financial located at If you re in bankruptcy or just getting out, then they are your best bet for getting a car loan. If all else fails, try Driverloans has relationships with hundreds of banks, and you can apply in one place and shop for the best loan terms. When you apply online at the above banks in order to get the best rate and approval, make as large a down payment as you can afford. The more down payment you have, the better your chances are of getting approved. Always put down at least $1,000. Secondary lenders will not even give you a chance at getting a car loan without at least that much money down. Unlike at the dealership, the down payment in this situation is not going to hurt you. That is because you are going straight to the bank for the loan and acting just the same as a cash buyer at the dealership. Hot Tip: Secondary lenders want to see you purchase the newest vehicle year possible. This is because the vehicle is least likely to break down and has lower miles on it. Remember this before you shop for a car loan. Let s say, for example, that you decided to buy a Honda Civic. You went to Edmunds and found out the invoice amount for the car and that there were no rebates or dealer cash to help us out on the selling price. You then called the nearest Honda dealer and found a fleet manager to sell you the car you want at Invoice. You ask him to fax you the invoice, so you could take a copy of it to your bank. Now that you have negotiated the best deal you believe you could get, you can now go online to the banks I already mentioned and fill out the application. They will also ask you what kind of car you are buying, the price of the car, MSRP of the car, and how much money you have as a down payment. The reason it is important to shop for the car first is so the bank has the information on the car and can make a more informed decision about your car loan. 91

92 If you re financing less than Invoice on the car you are buying, the bank feels much better about giving you the car loan, because they know you re not paying too much for the car. Once you get approved for a car loan, the bank will overnight you a check and you can go back to the dealership and pay for the car with out anyone knowing your credit history. Not to mention you won t have to go through the jimmy jack that the Sales Manager or sales person would have put you through if you were not pre-approved already. One last thing on bad credit. What happens if you can t get approved at any bank? Your last resort is actually two choices. Go to the dealership and see if they can get you approved. You still negotiate the price of the car before you let them pull your credit. Nothing changes except that you are relying on them to get you approved for the car. The last choice if the dealer cannot get you approved is called Buy-Here-Pay- Here. I am sure you have seen these small used car lots that have cars for sale. Basically what they do is sell you a car and finance it themselves. The interest rate is usually very high, and they also will want a down payment. At the risk of repeating myself I will say, Negotiate the price of the car first! Then the financing. One of the things you want to ask the Buy-Here-Pay-Here dealer is if they report to the credit agencies. The reason it is best to deal with a Buy-Here-Pay-Here dealer that reports all your payments to the credit agencies, is so that your credit can begin to get reestablished. Most Buy Here Pay Here dealers do not report to the credit agencies. If you can find one that does report great but do not expect it. Last, but not least when you do get a loan for a car and it is high interest, do not sweat it. The reason I say this is because when you have bad credit you have to start somewhere in order to re-establish your credit. If you apply for a loan and the interest is 18%, don t worry about it. If that is the lowest rate you can get, then that is where the cookie crumbles. The good news is that if you make your payments on time for at least 12 months, you should be able to go to your bank or credit union and ask them to refinance your loan at a much better interest rate. You have shown that you can and are making payments on time and this is the key to re-establishing your credit. Nine 92

93 (9) out of ten (10) times your bank will refinance the loan for you at a much better rate, and it won t cost you anything to get the loan! Co-Signers The other thing you can do if you cannot get a loan is to ask a close relative to co-sign for a loan with you. I myself have seen many people get burned by cosigning for loans, so I highly do not recommend that any one co-sign for someone else. If the person with very bad credit can get someone to co-sign for them, great. Just realize that you are putting their credit on the line with yours! However, that being said let me tell you how to protect yourself if you do decide to co-sign for someone. Of course I am talking about the person with good credit that is going to co-sign for someone else with bad credit. Make sure that when the contract is written, you, the person with good credit, are first on the loan papers. This also insures that all the monthly payments go to your address. This way you can pay the bill on time every month and collect the money from the person for whom you co-signed. This protects you from having late payments on your own credit report if the bill was going to the person you co-signed for, and they were late paying the bill. The last thing to do is at the twelfth month of the loan, take the person you cosigned for to the bank and get them to refinance the loan at a lower interest rate in their name only. Now that you are no longer on the loan. Back On Track! When you do get a loan for a vehicle, make sure you always make your payments on time so that you can re-establish your credit. Now you are on your way to getting your credit back on track! Isn t life great? Recap: Let s recap what you learned in chapter 10: Dealers make the most money from people with bad credit (at least those who did not read this book). ;-) The bad credit scam of fooling people into thinking they have to get the back end products. The 4 tiers of credit ratings. The 3 credit reporting agencies. 93

94 The best way to buy a car if you have bad credit. Which banks to go to if you have bad credit. The proper way to co-sign for someone with bad credit. In Chapter 11, I m going to discuss dealership departments and rankings. You re also going to see how dealerships rip off their own employees! Keep reading my friend! 94

95 CHAPTER ELEVEN So far we have covered the best ways to purchase an automobile and all the different scams that take place at car dealerships. We have also gone over the finance department and what to expect there as well as what to pay careful attention to on the different contracts whether they be the retail contract or the leasing contract. This next chapter covers the areas that make up an auto dealership, pay plans, and what kinds of things go on inside an auto dealership. What I mean by things inside an auto dealership is the environment and the social make up. I told you on my web site that you would know more about the car business than 99% of the people you know or meet and this chapter further solidifies that claim. This chapter has nothing to do with buying a car, but there are several reasons I wanted to include it into this book. I want you to know about the different divisions in auto dealerships, so that if you have a problem then you are going to know who to talk to and deal with so you re not wasting your time. I explain pay plans so that you understand why employees at car dealers are always going to try and up sell you on service, parts or buying a car. The more they sell the more money they make. I also dive into some of the different personalities that you may find working at some car dealers. These are some of the very secrets no one wants to admit to about the auto industry. Why do I tell you these things? It s simple. When you understand the environment of a business or industry it greatly enhances your total understanding of why that business or industry does what they do and how they do it. So let s get started. Auto Dealership Divisions The typical auto dealership is made of four parts or divisions. There is the Sales Department, the Service Department, the Parts Department, and the Administration Department. With the exception of the Administration Department, each of the other three departments is treated as a separate business entity. Each department is responsible for creating their own profit. Each of the four departments in the auto dealership are managed by their own department manager, who in turn reports directly to the General Manager, who is in charge of the entire dealership and reports directly to the owner. 95

96 The Sales Department is made up of the Sales Consultants, Assistant Managers, Finance Managers, Finance Director, Sales Managers, (usually a New Car Manager and Used Car Manager), and the General Sales Manager. Here are very basic job descriptions, just so you have an idea what each one is responsible for in the big picture. Sales Consultant: Prospect for customers and sell cars. Assistant Sales Manager: Also known as a closer. Manages the sales consultants and close car deals. Finance Manager: Sells the back-end products, completes the contracts and motor vehicle paper work. Finance Director: Manages the Finance Managers and the Finance Department. Sales Manager/New Car Manager: Desk the car deals, manages the Assistant Sales Managers and Sales Consultants. He or she also manages the new car inventory. Sales Manager/Used Car Manager: Desk the car deals, manages the Assistant Sales Managers and Sales Consultants. This manager will also manage the used car inventory and go to the auto auctions to purchase and sell vehicles. General Sales Manager: Manages the entire sales department and all the above listed managers report to the GSM. The GSM also does the advertising for the sales department. The GSM reports directly to the General Manager. The Service Department is made up of the lot attendants, car detailing personnel, mechanics, service writers and the Service Manager. Here are very basic job descriptions just so you have an idea the responsibilities of each one. Lot Attendants: Keep the cars on the dealership washed and moved around on a regular basis. Dealerships always keep their cars moving around the lot and rearranging them so that it appears they are selling more cars than they really are. Car Detailers: Detail the used cars that come from trade-in and auctions. They also clean up the new cars and get them ready for sale. 96

97 Mechanics: More recently known as Service Technicians, they fix the cars. They also go to special schools to keep up to date on the latest technology from their respective manufacturer. Service Writer: This is the person you see at the dealership when you want to get your vehicle worked on. They make the appointment for your car to get fixed and it is their job to try and up sell you mechanical work for your vehicle. They are paid a base salary plus commission. Some are 100% commission. This is why, when you bring your car for a $20 oil change, sometimes you leave with a $350 bill because they up sold you extra work to be done on your vehicle. Some of it will be legitimate work that your vehicle needed, but then again sometimes it won t! Service Manager: They are in charge of the entire Service Department and the above listed jobs. The Service Manager reports directly to the General Manager. His job is to make the Service Department profitable. He is usually paid a base plus commission on the profit of the Service Department. Hot Tip: The Service Manager works with customers all day who are usually upset and ticked off because their car is broke. When dealing with the Service Manager, explain to him that you understand his job is very hard because he is dealing with negative people all day. You would very much appreciate it if he could yada, yada, yada on your car. He will be shocked that you were so kind to him and go the extra mile to make sure your vehicle is taken care of. Remember, you get more bees with honey! The Parts Department is usually the smallest department and consists of usually 2-3 parts people and the Parts Manager. Parts employee: Gives parts to the Service Technicians when they are working on cars and mails out parts to different auto mechanic shops and body shops. Also runs the parts counter at the dealership. Parts Manager: Manages the Parts Department and is responsible for its profitability. He or she will also be responsible for getting new accounts for the Parts Department, such as other auto shops who will order parts for cars they are fixing. The Parts Manager works closely with the Service Manager and reports directly to the General Manager. The Administration Department is usually made up of several employees depending on the size of dealership. They do all of the paper work for the dealership such as Department of Motor Vehicle (DMV) licensing paper work, bank finance paper work, title work, service and parts paper work, all Sales 97

98 Department paper work, etc. The person who manages the Administration Department is usually referred to as the Business Manager or Office Manager. The Office Manager s job is very difficult, stressful, and thankless. They have to combine all the paper work from all of the different departments and make it work. General Manager: The General Manager is in charge of the entire dealership and answers only to the owner. The General Manager is actually the dealership owner s representative. Many times the owner will not go to manufacturer events and the General Manager will have to go in his place. Pay Plans & how Auto Dealers Rip Off Their Own Employees! The Sales Consultants at dealerships are usually paid 25% of the profit on the front end of the car deal. A few car dealerships pay a flat amount per car sold but those are few and far between. Some dealers also pay up to 30%. So, let s say that Joe, the car salesman, just sold a car for $3,000 more than what the dealership paid for the car. You would think that Joe would make $750 on that car deal figuring his commission at 25%. Wrong! You see most auto dealers have what is called a pack. This means that a certain amount, known as the pack, is not included in the amount for commission to the sales consultant. The pack amount varies at different dealerships, but in my experience the average across the nation is about $500. So even though Joe sold the car for a $3,000 profit for the store, his commission is only going to be figured out from the gross profit of $3,000 minus the pack amount of $500. Instead of Joe making $750 he really only gets paid $625, 25% of $2,500. As you can see, if a dealership sells just 100 cars a month, this is an extra $50,000 for the owner of the store! The only people getting paid a small percentage of that $50,000 are the Sales Managers. Are you starting to see what s going on? Here is another way they rip off their own employees. This one affects the Sales Consultants and the Sales Managers. Let s say that the auto dealer buys a car from the auction for $10,000. He pays $100 for transportation cost to get the vehicle back to the dealership. Then he charges another $150 to the car for detailing it, whether or not it needs it. Bear in mind he is paying a detail person about nine dollars an hour for a 3-hour job max! 98

99 Now the car goes through the Service Department and has whatever is wrong with the car fixed. Let s assume for our example here that the bill for the shop was only $300. Now the cost of that car is so far $10,550. Keep in mind that the dealership owner has already made a small profit of about $120 from detailing it and charging $150 for it. Then he put it through the Service Department and made a profit from the $300 worth of work that was done. Now comes the real fun part for the Dealership Owner, because most of them add an additional amount of money, from $100 to $1,500 to the cost of the vehicle! This is an additional form of Pack! Let s say that our owner, in this example, adds $600 to the cost of the car. That means that the vehicle is now going to go on the books of the auto dealer as having a cost of $11,150! Add it up! The original auction cost was $10,000 plus $100 for transportation, $150 for detailing, $300 for Service Department repairs and then $600 all add up for additional profit to the Dealership Owner. Keep in mind that this $600 pack is money that the dealership owner does not have to pay any commissions on except maybe to the General Manager! Are you paying attention my friend? If a dealership only sells 100 used cars a month that is $60,000 pure profit that the owner is not paying commissions on! I once knew of a dealership that had a $1,500 pack, the same as this one. Plus on top of that, the Sales Consultants had another $500 pack. The Dealership was keeping $2,000 per used car sold! They had about 8 different dealerships at the time. Can you imagine how much money they were keeping to themselves! Some hush-hush secrets in the car biz! Have you ever stopped to think why auto dealers are always open so late at night? They stay open until 8, 9 or 10 o clock. If customers keep coming on the lot they will just stay open. I myself have left the dealership many times past 12 o clock midnight! The reason is because everyone in the Sales Department is strictly paid on commission. That means the only expense for being open to the owner is electricity! Now there are plenty of businesses that stay open late at night or even 24 hours a day. Keep in mind though that their employees are paid by the hour and are guaranteed to get a paycheck. Sales consultants are not. You wonder why 99

100 there is such a high divorce rate among car people. If a Sales Person does not make enough car sales in the month, then they are guaranteed minimum wage at 40 hours per week and that is it. Regardless of how many hours he or she worked, they only get the minimum wage based on 40 hours. (Some states may vary). The car business is one of the few jobs left where a guy can get out of prison one day and the next, have a job selling cars. It s true. The bottom line is if you have talent then know one cares about your past convictions. Some dealers have gotten stricter on their hiring policies, especially in the smaller cities and towns. However, in the larger cities if you can sell cars and make the dealership money, you will get hired. The car business does not care about the salesperson s past, only his or her ability to make them money! One of the running jokes at one dealership was that James, (not his real name), could stab someone to death on the showroom floor. The owner of the dealership would run out and pay for the very best attorney for James, so he would not lose any sales by James going to prison. That is how good of a salesman James was, and goes to show how important his huge number of sales meant to the dealership. Welcome to the real, unspoken about, hush-hush, car business! I like to compare the car business to the wild, wild, west. It is very unregulated and at the same time it is a very immature business environment. What I mean about being unregulated is that virtually any one who has the talent of selling can get hired. Unlike an industry such as the securities business, if you were caught defrauding customers or convicted of insider trading, you would have your license stripped and not be able to work in the securities industry. In the car business if you got fired for stealing money while at work, you could just as easily go down the street and get hired at the next car dealer. What if a sales manager at a dealership was caught smoking marijuana at work in a company vehicle? He would probably get fired. Two days later he would have another job at a different dealership as their sales manager. Regardless of smoking marijuana, if the guy produced positive results, that s all the new owner that hires him cares about. 100

101 Another good example of being unregulated is the hidden packs I spoke about earlier that no one gets paid on except the Owner and General Manager. Some dealerships have actually gotten sued over them and now many of them are having employees sign pay plans that explain to them that there are extra fees that will not be used for commission payments. Let s talk about what I meant when I said the car business was an immature business. What I mean is this. There are very few persons in upper management who have a college education. I myself do not have a college education, so do not think I am bagging on people who do not have one. What happens is that sales consultants get promoted at young ages, and they simply do not have the people skills or training needed to do the job in a manner that is professional. They simply copy what their prior bosses did when managing them. Hence, what you have is a lot of yelling and screaming going on and little power trips. You also have lawsuits against the Dealership Owner because some of these same managers do not know how to conduct themselves in a professional manner. Neither do they know how to handle different disciplinary situations that arise. One of the biggest things is sexual harassment. Dealers are always big targets for this type of lawsuit. Did I mention fist fights yet? Sales people get into a slugfest with one another because one guy accuses another guy of stealing his customer. Here is how it works. Customer John Smith comes into the dealership and asks for Sales Person Jim Jones. The Sales Person who John is speaking with, Tim, says that Jim no longer works at the dealership, but that he would be happy to help him. Tim ends up selling the customer, John, a car and gets the commission. Jim, the original sales person who should have been paged to the showroom floor by Tim, finds out about the sale later on the next day. He learns through witnesses that his customer, John, asked for him by name. Tim did not page him to the showroom floor so that he could help his customer, John. This of course is outright stealing by Tim. Jim tells his Manager about it who does nothing. All he cares about is the fact that he gets paid on the deal, no matter who sold the car. He is an immature, unskilled manager and does not have clue about what he should be doing about the situation. Jim, furious at his Sales Manager and Tim, goes out on the parking lot where Tim is and begins a fist fight. Management looks the other way. 101

102 The wild, wild, west! The car business is also a very transient business. Mostly this is so in the larger cities. There are car people who have worked at every dealership in the city. Why is this? For one thing, it s because owners are constantly changing pay plans on their sales consultants and managers. They are famous for luring a good employee to come and work with them for what the employee thinks is more money. Six months later the owner changes his pay plan, so that he is making less money! The employee gets ticked off and leaves for another dealership. The owner is not bright enough to realize how much money this costs him in rehiring and training new people. Not to mention the lost trust. Here is another great example of why it is so transient. The Sales Manager or General Sales Manager will have a friend who is a Finance Manager at another dealership across town. This friend gets either fired or just quits his job. He goes to see his buddy the General Sales Manager and tells him he wants a Finance Manager job working for him. What does the GSM do? He fires one of his own Finance Managers so he can hire his buddy! This happens all the time in the car business and there is no real recourse for the employee who got fired for no cause. If you complain and try to sue the dealer, word will get out and you won t get hired anywhere else. You can have a lot of things going against you and still get a job at an auto dealership. However, the one thing that car dealers stay far away from is hiring someone who sued another fellow car dealer. I could go on forever about true stories that I have seen happen in the car business that are absolutely insane, but that would take a whole other book on its own. Pay Plans Let s get back to pay plans. The Finance Manager is also paid on commission. He or she usually gets paid about 15% to 20% on all of the back-end products he sells such as extended service contracts, GAP insurance, higher interest rates, etc. This is why Finance Managers are very pushy on getting you to buy the back-end products. They are on commission just like the Sales Consultants. Now how does the dealership owner rip off their Finance Managers? I am glad you asked. 102

103 Remember the packs we spoke about earlier? Well the dealership owner will also add packs onto the back-end products. If for example, the true cost of an extended warranty to the dealership is $600, the dealership will put the cost as $800. This gives the owner a $200 hidden pack. If the Finance Manager sells an extended warranty for $1,800 he or she will only get paid his or her percentage on $1,000 profit instead of the real profit to the store of $1,200. If a dealership sells 100 customers an extended service contract, that is $20,000 extra dollars that no one is getting paid commissions on! They also will do the same thing with the other back-end products such as finance reserve. If the Finance Manager gets a buy rate of 7% from the bank and sells it to the customer for 9%, the dealer may put a.25% pack on the extra 2 points of profit. Therefore, our Finance Manager is only getting paid his or her percentage of profit on 1.75% markup on the interest rate instead of the full 2%. The Assistant Sales Managers or Closers are paid usually 10% of the front-end of the car deal on the sales that they close. Usually the sales crew is divided up into crews who are managed by the Assistant Sales Manager and the ASM is paid off of his or her crew. Each sales crew is usually 6 to 8 sales consultants. The Finance Director is paid a percentage of the total finance profit. He or she lives off of the Finance Managers that he or she manages. Sales Managers and the General Sales Manager are paid a certain percentage on the entire profit of the Sales Department and the Finance Department. They do not get paid on the hidden packs spoken about earlier. The percentage all depends on the size of dealership and sales volume. The Parts Manager is usually paid a base salary plus a percentage of the profit on the Parts Department. The Service Writer is paid a base plus a percentage of the profit of what they write and sell in service work. The Service Manager is paid a base plus a percentage of the total profit of the Service Department. The General Manager is usually paid a base plus percentage of the entire dealership net profit. Everyone else is paid hourly or salary. I think that about covers it for this chapter. 103

104 Recap: Let s recap what you learned in chapter 11: What each department is in the auto dealership. What the different positions are in the dealership and departments. The basic responsibilities of each manager and their prospective pay plans. The ingenious ways auto dealer owners rip off their own employees with packs. More shocking truths about the real car business. In the last chapter coming up, I am going to give you an Action Guide to use that will recap the easiest and best way to purchase an automobile and not get ripped off! 104

105 CHAPTER TWELVE What I am going to do in this chapter is give you an Action Guide that summarizes the best and easiest way to purchase an automobile without getting ripped off. I am going to list the steps, one by one in chronological order, so that you after reading this complete book, could simply follow these steps and be assured you won t be getting taken advantage of. ACTION GUIDE 1. Go to and have your credit pulled so that you know what your credit rating is, and also make sure that there are no mistakes on your credit report. They have the option of pulling your credit from all three credit reporting agencies and this is a good idea, so that you can make sure there are not any mistakes on all three credit reports. 2. Have your trade-in car professionally detailed and sell it yourself! 3. Get your financing lined up so that you are pre-approved. You can get financing online at If your credit is edgy or bad go to or 4. Assuming you have decided on the kind of car you want to buy, you should be sending out your Educated Fax Assault to the Fleet Managers or Sales Managers for their best price quote. Then you are following up each fax with phone calls as described in Chapter One. You also want to get some quotes from the following sites: While waiting on your best quotes to come in from the Fleet Managers and Internet sites go to, and and find out the invoice amount for the car you are interested in and waiting quotes for. Also look up to see what rebates, dealer cash or incentives are going on for the car. 6. When you have received your lowest price, minus any rebates and incentives, make an appointment with the Fleet Manager and purchase the vehicle. Because you did your homework and know what the average selling price was for the car you purchased, you should be in a very good mood. 105

106 7. Go online to get an extended service contract at If you need GAP insurance then go to and get that. If you want the exterior protection for your car then go to and get it there. 8. Now that you have purchased your favorite automobile and educated yourself on how not to get ripped off, the last thing you need to do is go to your computer, open your , start a new to be sent to every single person in your address book. Tell them to go visit so that they can purchase this e-book and learn for themselves how not to get fleeced the next time they purchase an auto. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Well you are at the end of the book and the journey I hope was an eye opener to say the least. We started with discovering the best kept secret in the car business and that is the Fleet Department. Some people ask me, Hey Peter, why don t the car dealers advertise the Fleet Department a lot more? I will answer that question with this one. If you had a business would you spend a bunch of your advertising dollars promoting the department that made the least amount of profit? Heck no you wouldn t! Fleet departments in car dealers are looked upon as a necessary evil. They know they have to have one in order to cater to the businesses and large corporations that buy vehicles in bulk. They know that those businesses are not going to mess around with the typical sales department plus all of their shenanigans. So they have the fleet department in order to deal with these organizations and the educated consumer like you are now. The real money is in the sales department where unsuspecting sheep walk into everyday and get fleeced. That is why all the advertising dollars go into the Sales department and not the Fleet Department. From the dealer s standpoint it of course makes perfect sense. We also discovered what to buy and where to buy the back-end products such as extended service contracts, GAP insurance, etc. It s certainly not at the dealership paying their inflated prices. Remember the Internet is our best friend in doing research. Obviously not just for buying a car but for anything and everything. Then we went over leases and the contracts and learned all about the different car buying scams and sales that car dealers put on. Remember the one with the 106

107 $ gift certificate? That one is very effective, and you will surely laugh if you ever find one in your mailbox. Last but not least we learned about how car dealers are set up, their pay plans, the environment of a typical dealership, and one of the most important chapters in this book is bad credit. If the chapter about bad credit does not make your blood boil then you may need to see the doctor. ;-) It s a shame that those with imperfect credit get taken advantage of the most and that is why I devoted an entire chapter to the subject. You can now be confident that you are equipped with all the knowledge you need in order to go out and buy your dream car with out getting ripped off. Bad credit, good credit, paying cash or financing you now have the education and tools to get the right deal you deserve! If you have any questions or comments, please them to me. I love to hear from people who bought the book and especially those who put my principles to work and bought a vehicle! Cheers, Peter M. Humleker Jr. mailto:[email protected] P.S. Do you have a web site or business where you have a list of people or customers? Would you like to make money telling people about this e-book? If so, I will pay you a very nice percentage of the profit for every person who purchases from your recommendation! Go to for the details. 107