Minnesota Attorney General's Office
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Chapter 4: Where to Buy a Car
The Car Handbook
Once considered rock bottom on consumer lists that rank trustworthiness, car salespeople have climbed above others in surveys today. A recent report shows that 82 percent of used-car salespeople value honesty as an important factor in achieving success, whereas stockbrokers rated honesty 30 percent lower than that.
Car salespeople have a twofold job: selling you a car and selling you a car you want. Seek out a car dealer who errs on the latter side. Shop for a dealer as diligently as you are shopping for your car.
Price isn't the only consideration in selecting a dealer, however. The service you'll receive after you buy the car is critically important, too.
Ask to speak to the service manager before you buy a car. Find out when the service department is open, especially if weekends and weeknights are the best times for you to bring in the car. Also ask about the availability and condition of "loaners." Some dealers loan cars when repairs take a day or more to complete. Others will rent you a car or provide you with transportation.
Proximity is another important consideration. Having your dealership close to home saves time and gas money when servicing the car.
Ask friends to recommend dealers or seek out customers' opinions. Also, look for customer service awards proudly displayed on the walls of the dealership. Manufacturers survey the dealers' customers about the service they received and recognize top-flight dealerships. You can also call the Better Business Bureau for more information about a dealer.
It's Gotta Be New
New cars are sold through dealers but what kind of dealers? There are several types, each with its own personality and numerous sales techniques. Get to know the types, then decide which particular seller you're most comfortable with.
The Traditional Dealer
Traditional new-car dealers typically will be willing to haggle over the price of a car. They can be intimidating or extremely affable, but much of your perception of them probably will depend upon how comfortable you are with negotiations.
Many no-haggling dealerships cropped up in the 1990s to serve customers who prefer not to barter over price. But no-hagglers aren't new. The idea of selling cars at one and only one price was first presented by dealers who sold cars that were so sought after the dealers felt they shouldn't have to negotiate. If a buyer didn't like the price, the dealer could always find someone else who did.
The no-hagglers of the '90s are a little different, however. The one-price strategy still works best for dealers selling high-demand vehicles. But today's greater demand for customer service has added a new dimension to car sales. Customers want good service, plus the option not to haggle, while still getting a good price.
No-hagglers may offer a standard discount below the sticker price and hold the price steady for all customers. The set price allows the dealership to make a decent profit, yet it reassures the customer that he or she isn't being taken for a ride. This allows a friendly relationship between the customer and the salesperson.
One no-haggling salesperson, who called himself a "service technician," said, "I steer you into the correct vehicle. I'm not just trying to sell you anything. I want you to find the `right seat.'"
Be aware that no-hagglers may negotiate loans and may push extended warranties, rustproofing, credit life insurance, service contracts and other back-end extras, as discussed in the next chapter.
If you want to shop price without doing the work yourself, you can hire an auto broker. Brokers may or may not get you the best deal. They are found through some credit unions, banks, discount clubs and auto clubs such as the American Automobile Association. They may work with a handful of dealers or a single dealer. Sometimes they make their money by splitting the manufacturer's holdback with a dealer. A holdback is a set amount of money the manufacturer refunds to the dealer when a car is sold.
To find out if a broker is reputable, talk to car buyers who have used the service. And call the Better Business Bureau to see if the broker has a good rating.
Selecting Used-Car Sellers
More than half of the people who buy used cars buy them from private individuals and half of those individuals are friends or family members. Other used cars are usually found through ads in the classified section of the newspaper, on bulletin boards, or you may see a used car with a home-made sign in the window.
Watch out for pros posing as private car sellers. These curbstoners run classified ads, just like private sellers, but often ask to meet at a parking lot so you won't know where they live. They take advantage of buyers by overcharging for cars, often by rolling back odometers to increase the car's apparent value or by selling previously wrecked and rebuilt cars. Call the past owners who appear on the title to double-check the mileage. And be wary if a seller's phone number appears more than once in the classifieds. That's the sign of a pro.
Dealers, used-car lots, rental car agencies, auto brokers and auctions all sell used cars, too. There are major pros and cons to buying from each.
Pros: If you know the seller, chances are good you'll be able to get honest answers about how the car was driven and kept up. The owner will usually sell the car for less than its retail value because he or she has no overhead and only small advertising fees.
Cons: If you don't know the seller, you might not get honest answers about how the car was driven and maintained. Ask for repair receipts. And be sure to check that the seller is indeed the owner. If not, the seller could be what's called a "curbstoner" a used-car sales pro who pretends to be a private seller and more likely than not specializes in fleecing his or her customers. You can run into title and licensing problems when you buy from anyone other than the owner. If you suspect the private seller is a salesperson posing as the car's owner, ask to see the title of the car. If the name on the title is different from the seller's, walk away.
Ask private sellers the following questions over the phone to save you unnecessary trips to look at cars. Honest sellers will tell the truth about these, however, a curbstoner will lie about them, so be wary.
- What condition is the car in?
- Why are you selling it?
- Are you the original owner?
- How long have you owned the car?
- Have you maintained the car according to the manufacturer's schedule in the owner's manual? How often has the oil been changed?
- Do you have repair receipts I can look at? Where did you usually take the car for service?
- Where did you buy the car?
- Do you sell many cars?
- Where did you generally drive the car in the city, on long trips?
- What is the mileage?
- Has the car ever been painted? If so, why?
- Has the car ever been recalled? If so, may I see verification that the problem was corrected?
- Would you object if I took the car to my mechanic for inspection?
- Is there anything I'd need to do to put the car in tip-top condition?
- Are there any liens on the car? (If so, the owner still owes money on the car and you could get stuck paying what's owed if you buy the car.)
Pros: They usually have a wide selection of higher-priced used-car models because they only keep the best cars. The others go to auctions or used-car lots. Because they have service facilities, they're more likely to have made repairs on the car than have other types of sellers.
Cons: Used cars from new-car dealerships may be more expensive.
Questions to Ask a Dealer About a Used Car
- Where did you get the car?
- What condition is the car in?
- Does it have any major defects?
- Has the car ever been in an accident?
- Has the car ever been painted?
- What is the mileage? What steps have you taken to confirm the accuracy of the odometer reading?
- Has the car ever been recalled? If so, may I see verification that the problem was corrected?
- Has the car ever been bought back by the manufacturer as a lemon?
- What repairs did you have done to it?
- Would you object if I took the car to my mechanic for inspection?
Pros: Besides offering a broad selection, used car lots often offer a number of less expensive, older model vehicles.
Cons: Used-car dealers often buy the castoff cars from new dealers. They also buy from auctions or purchase used cars from lease fleets, taxi companies or police departments.
Used-car lots often don't have a service department to repair cars; instead, these operations tend to sell cars "as is." Even so, under Minnesota law, a used-car dealer must give you a warranty unless the car is excluded from the law for such reasons as having more than 75,000 miles on it or costing less than $3,000. See Chapter 8 for a detailed description of the law.
The dealer may also offer to sell you a service contract to cover the cost of repairs. This serves as insurance against having to pay through the nose for repairs. But read any service contract carefully so you know the deductible amount and exactly which repairs are covered.
Rental Car Agencies
Pros: Some people believe rental cars are a good deal because they're usually rented by
business people for short trips to the airport or meetings, as well as for vacationers'
longer, but less wearing road trips. Rental cars usually are serviced regularly, with
records of their maintenance history.
Cons: You don't have any way of knowing who has driven the car before you buy it. You don't know if the car was abused by one or more of the drivers who previously rented it. That's why the Minnesota Automobile Dealers Association members have adopted a standard to disclose when cars for sale are previous rentals. That way, you can make up your own mind about whether you want to purchase a previous rental vehicle. Rental cars may also cost slightly more than cars purchased from private sellers.
Pros: You can get a good deal if you really know cars and are an avid fixer-upper.
Cons: Mostly professionals bid at auctions, so auctions can be intimidating for the average car buyer. Some auctions won't admit private parties.
What Should I Know About Air Bag Safety?
More than 70 million air bags are installed in vehicles on the roads today. Air bags have saved an estimated 1,700 lives as of the end of 1996. There has been an 11 percent reduction in driver fatalities in passenger cars equipped with air bags, and a 30 percent decrease in fatal injuries in head-on collisions in vehicles equipped with air bags. So what's the problem?
An air bag activates at a force of over 200 miles per hour, posing a risk to children and small adults. Nineteen adults have been killed by the driver-side air bag, and 31 children have been killed by the passenger side air bag (most of the adults and children were unrestrained and nine of the children were in rear-facing infant car seats).
What is being done about this problem? The federal government through its rule-making procedures and automobile manufacturers with the use of new technology are working to address this problem.
The bottom line:
- All passengers must wear seat belts.
- Rear-facing infant seats should never be placed in the front seat.
- Children under age 12 should never sit in the front seat.
- All other passengers in the front seat should place the seat as far back as possible to limit injuries from air bags.
For more information, contact the National Highway Traffic Safety Administration at 1-800-424-9393 or visit its Web site at http://www.nhtsa.dot.gov/.
Chapter 5: Negotiate From the Driver's Seat
The Car Handbook
Most Americans would probably rather have a root canal than haggle over the price of a car. In survey after survey, two-thirds of car buyers report that they "hate" the negotiation process. But be consoled if you're negotiating the price for a car: The margin for error isn't all that great. Most dealers mark up cars as little as 10 percent for a low-end model and up to 25 percent for a luxury car. That's nothing compared with markups of more than 100 percent for clothing and jewelry.
The time when some people lose the negotiating game is at the "back-end" of the deal. They assume the vital negotiations are over when they leave the lot or showroom floor to iron out financing details. All those options, including service contracts, rustproofing, paint sealants, credit life insurance and credit disability insurance, may be the real moneymakers for the dealer.
Playing the Game
If you don't want to haggle over the price, you may buy a car from a one-price dealer or hire an auto broker to negotiate a deal for you. But if you're among the one-third of Americans who likes to jump in the ring with the pros, put on your boxing gloves and learn the game.
Although some dealers have responded to competition from no-hagglers by softening their sales approaches, be familiar with the different methods they may use. Sometimes you negotiate with just one salesperson. This person may invest more in your satisfaction than an official "closer" would. A closer is a person who takes over for the salesperson to complete the sale.
Know the Dealer's Invoice
To find out how much the dealer has marked up the cost of a vehicle, you need to find out what the dealer paid the manufacturer for it. Check a resource such as the "Consumer Reports Annual Buying Guide."
A resource like this will often list the dealer's "invoice" for the car and for options. The invoice, however, is not the whole story. "Holdbacks" and other credits that the dealer receives from the manufacturer almost always reduce the dealer's true cost below the invoice amount.
Popularity Has a Price
High demand means a higher price. If you want the most popular car of the year, be prepared to pay a little more. The upside is that a popular car may also reap you a higher price when it's your turn to sell the car as a used model.
The best thing you can do is fully research a vehicle you're interested in to see if holdbacks or other incentives apply. And don't be fooled into thinking that a car sold to you at "invoice" means it's being sold to you at the dealer's cost. There is almost always still room to bargain.
Almost everything is flexible in car sales the price of the car, the price of the options, the loan rate and the extra services. But this flexibility doesn't mean the seller will bend over backwards for you. The seller may try to make it seem as though prices are firm. Decide what you want in a car and what it's worth to you, then negotiate a fair price.
Here are some suggestions to help you get the best deal possible:
- Time your purchase. The best times to buy a car are at the end of the month when dealers want to eke out a few more sales to finish the month strong, as well as during the holidays. Dealers spend lots of money advertising holiday specials, and they want to make sure to cover their costs.
- Don't mention your trade-in vehicle until the sale on the new car is negotiated. At least, that's what conventional wisdom says. This may or may not be practical in your case.
- Avoid answering sales questions about whether or not you'll be ready to commit to a purchase that day "if the price is right." Just say, "Maybe," or, "I'll think about it."
- Don't tell the salesperson if you've already arranged financing. He or she may offer a low price for the car thinking the dealership can make a profit by financing the purchase.
- Never tell the salesperson what you're willing to spend in monthly payments for the car. In fact, never let the dealer know your bottom-line price. They won't tell you theirs, either.
- Start bidding low. Offer a price that's just above the dealer's invoice price.
- Don't panic if the dealer's counter-offer is much higher than your first offer. Only raise your next offer by $100 or $200. Remember: You've done your homework. You know they're making a profit and may be getting a manufacturer's holdback, besides.
- Stand firm. The dealer should give you a lower offer to counter your second bid. Now you must decide whether or not to accept the dealer's offer.
Crossing the Line
When negotiating, remember this simple rule: If the salesperson is still negotiating the car price, the salesperson is still making a decent profit. If the salesperson walks away from you, however, you've probably crossed the bottom-line price for the car. Don't worry about hurt feelings. You're negotiating for the best possible deal you can get.
When you're ready to talk price on a car you've selected, the salesperson will ask if you're planning to trade in your current car provided you own one. That's the last question you should answer. If you tell the dealer you're planning to trade in your old car, the dealer will want to lump the two transactions together, possibly putting you at a disadvantage. Here's how:
Marcy Stephens wants to buy a freshly minted sedan with a sticker price of $15,000. She tells the dealer that she wants to trade in her little 1988 coup to bring down the price. The dealer offers to sell her the sedan, complete with options, for $9,000 plus her coup. She's ecstatic. The blue book value for her coup is $5,000, and the dealer is giving her $6,000 for it.
new sedan sticker price $15,000.00
coup trade-in - 6,000.00
new sedan total price $ 9,000.00
Sound good? Not really. People rarely pay the full sticker price.
If Marcy had negotiated her new-car price before mentioning her interest in trading in her coup, her deal might have been sweeter.
First, she could have negotiated a discount off the sedan's sticker price say $2,500. For the coup, she may have been able to negotiate to receive the blue book value of $5,000. Her total price for the new car would have been $7,500.
Deal for the new car:
new sedan $15,000.00
discount - 2,500.00
new sedan total price $12,500.00
Subtract the trade-in:
new sedan $12,500.00
coup trade-in - 5,000.00
new sedan total price $ 7,500.00
It's Not Over Until It's Over
Just when you thought you could let down your guard with the dealer, shake hands and sit down for coffee in the office, you find you have several crucial negotiations left. You still have to find the best deal on a loan and decide whether or not to pay for an extended warranty, rustproofing, credit life insurance and other extras.
Most car models, whether domestic or foreign, are sold in two or more "trim lines," meaning a base price and a set of options. Trim lines vary and are given such names as standard, DX and deluxe.
Sometimes it's cheaper to buy a car in a higher-priced trim line than to buy a basic model and dress it up with options. But check out the available trim lines and the prices of options you want.
Options usually come in packages, and buying a package can be cheaper than purchasing options separately. But try to avoid being talked into options you don't want.
Dealers offer financing for cars through auto makers or local banks. The upside to getting a loan through a dealer is convenience. The dealer can process your loan application right in the showroom office. The downside is that the dealer may mark up the loan for profit. Shop around for the lowest rate and then tell the dealer you won't take anything higher. Your dealer will usually match the going market interest rate.
Service Contracts (a.k.a. Extended Warranties)
Service contracts can be a significant profit item for dealers. They're like insurance policies. And, like insurance policies, they're designed not to be used.
An extended service contract supplements the manufacturer's warranty that comes with the vehicle. Compare your warranty with the service contract being offered to avoid paying for services you're already getting for free. Because competition for customer satisfaction has grown of late, standard manufacturer's warranties have improved. Since a typical warranty covers the car for three years or 36,000 miles, you may choose not to buy more coverage.
A service contract, however, will extend the length of time parts will be repaired under warranty. That may be helpful if you're planning to keep your vehicle longer than the time covered in the manufacturer's warranty. Check to see if the extended service contract cancels automatically when you sell your car. If you want a manufacturer's service contract, double check to be sure that the contract is indeed from the manufacturer.
What to Ask About Your Service Contract
- Does the company offering the contract have a solid reputation? Call the Better Business Bureau to find out.
- Check with the Commerce Department, (651) 539-1500, to find out if a company issuing a service contract is "reinsured," meaning if the company goes bankrupt, your contract is still good.
- Do you have to prove you've followed factory recommendations for regular preventive maintenance in order for repairs to be covered?
- Is preventive maintenance covered?
- Are towing and rental cars covered?
- Do you need to pay up front for repairs before being reimbursed by the company?
- Do you have to take the car to specific mechanics?
- Is there a deductible fee for repairs?
You know the expression: Rust never sleeps. No matter how hard car makers try to keep it down with new technologies ranging from galvanizing steel during manufacturing to spraying cars with sealants once they've hit the road, rust eventually peeks through. It's just a matter of time.
So the term rustproofing is misleading. Rustproofing may help stave off corrosion for a few years, that is. Certainly cars on the streets today take longer to rust than those of old. But your question when buying a car is whether or not after-manufacturing rustproofing is needed.
Some experts say galvanizing during manufacturing makes additional rustproofing unnecessary. Galvanizing is a process of protecting the steel with a zinc coating that manufacturers say they've perfected in recent years.
To help consumers choose whether or not to buy additional rustproofing, the Council of Better Business Bureaus, Inc., launched a thorough study of rustproofing practices. It found that 90 percent of vehicles made by the early 1990s already came with five-year corrosion perforation (anti-rust) warranties from the manufacturer.
Manufacturer's warranties, as well as warranties for after-market rustproofing, apply if the rust starts on the interior of the car and eats a hole through to the outside. Surface rust due to stones, scratches, hail and environmental damage are excluded from manufacturer's and most after-market rustproofing warranties.
Paint Sealant and Fabric Protection
Paint sealant and fabric protection are two more high-profit items for the dealer. It's unclear if paint sealant really works. Will your car really look shinier for a year or so? Does it really protect the paint? The jury's out on this.
Fabric protection is also expensive. You can save a lot of money by spraying the fabric yourself with a spray protective commonly available at discount, automotive and hardware stores.
Trading In and Up!
When you want to sell your old car, shop around at a few different dealers to get the best price. And be sure to have it thoroughly "detailed" or cleaned before you do. Spiff up your car like you would spiff up yourself if you were going to a job interview.
Of course, you can decide to sell it on your own or through an auto broker instead. You receive the wholesale and not the retail price when you trade in your car to the dealer. Check the blue book for these values. But if your time is in shorter supply than your money, trading in your vehicle may be your best option. By trading a car in when you buy a new car, you also avoid paying sales tax on the value of the trade-in.
Credit Life and Credit Disability Insurance
Credit life insurance ensures that the finance company loaning you money to buy your car will be among the first of your creditors to be paid if you die before your car is paid for. Likewise, credit disability insurance ensures that your finance company is paid if you are disabled and unable to work to pay off your car loan.
These types of insurance are usually optional. If you wish to buy this type of coverage, remember that you do not have to purchase the insurance from your finance company. Shop for the best price by checking credit life and disability rates offered by insurance companies.
Closing the Sale
Are you absolutely 100 percent sure you're going to buy the car? If not, don't put down a deposit. If you change your mind, the seller may have a legal right to keep the deposit you made. And remember, you do not have a three-day cooling-off period in which to return the car!
Before You Sign . . .
Read the sales contract carefully. If the dealer made you a verbal promise, say, to throw in fog lights for the price you negotiated, be sure it's in writing. Check that:
- Everything you and the dealer have agreed to is included.
- Both the dealership manager and the salesperson have signed the contract. Otherwise it might not be valid.
- All portions of the contract are filled in before you sign.
- The contract states that you can void the agreement and get your downpayment back if all terms in the contract are not met (such as failure to deliver on a specified date).
Give It the Once-Over
If your new car is being delivered from another dealership, you won't have the opportunity to look over the vehicle you're receiving. Before you accept delivery, make sure all the options and extras are on the car as specified in your contract. Also, test drive the car to be sure it handles like the one you previously test drove.
Sign It, Own It
No three-day cooling-off period exists when you buy a car. Before you sign the contract, understand that when you do, the car is yours! You must honor the agreement. You have no right to return the vehicle. If you decide you don't want the car, you'll have to absorb the depreciation and sell it again.
Note: The Lemon Law doesn't give you the right to return the car and forego payments
Feeling Squeezed? Learn About Minnesota's Lemon Law
Once you sign the contract for your new car, you cannot return the car just because you don't like it. But if it's truly a lemon, the seller is obligated to service the car, and eventually may have to replace it or refund your money under Minnesota's Lemon Law.
The Lemon Law applies to those cars that are still covered by the manufacturer's original new-car warranty, were purchased in Minnesota and are used at least 40 percent of the time for personal, family or household purposes. The law also covers vehicles leased for more than four months. The terms of the law are:
- The manufacturer has a duty to repair a motor vehicle in accordance with the terms of the warranty if:
- The motor vehicle has a defect or problem that is covered by the warranty; and,
- The problem has been reported by the vehicle's owner within the warranty period, or within two years after delivery of the vehicle, whichever comes first.
- The manufacturer has a duty to refund or replace a car that has substantial defects or problems. Under the law, if the manufacturer or its authorized dealer has been unable to repair a car's problem after a "reasonable number of attempts," the buyer or person leasing a car may go through a manufacturer's arbitration program or go to court to seek a full refund of the car's purchase price, minus a deduction for use of the vehicle.
- A "reasonable number of attempts" is defined as:
- Four or more unsuccessful attempts to repair the same defect; or
- One unsuccessful attempt to repair a defect that has caused the complete failure of the steering or braking system, and that is likely to cause death or serious bodily injury; or
- A car that has been out of service due to warranty repairs for 30 or more cumulative business days.
- For more information on Minnesota's Lemon Law, contact the Minnesota Attorney General's Office for a free brochure detailing the law.