The dealership service experience, Part 1
How “goodwill” works
Car companies spend millions and millions in marketing dollars to get people to buy their vehicles. Even if the car is reliable and nice to drive, it only takes a few bad experiences to turn that carefully cultivated owner over to another company when the time comes to get a new ride.
This can happen when the time comes to trade, when a lease needs to be turned back in, or even sooner, if the service experience is badly managed. So the car manufacturers are taking a more active role to try to make sure these points of interaction with customers are better managed.
And it can be little things, such as not replacing a dead battery in a remote without charging for “labor,” or not authorizing a loaner vehicle (or reimbursement for a rental) when a 10,000- or 20,000-mile vehicle needs a warranty repair.
Often this is because the manufacturers, in their ongoing quest to improve profits, slap their dealers’ service departments’ wrists for what the call “non-essential” expenses such as these. But more and more as the economy improves and sales pick up, manufacturer purse springs are loosening and such expenses are being authorized—even encouraged.
These expenses, along with fixing things that aren’t covered by any remaining warranty, are generally referred to as “goodwill.” And as the car companies collect more and more data through customer satisfaction surveys and other means, they are realizing that this is essential to customer retention. They know that it is less expensive to keep a customer than to capture a new one, further justifying goodwill spending.
If you have a newer vehicle, especially one still within warranty, there are things you can do to insure that goodwill dollars could flow your way if and when an issues arises that isn’t clearly covered by a manufacturer warranty.
First, try to do as much routine maintenance as possible at a franchised dealer (one that sells the car new). This is critical, in my experience. I have a close friend who is works for a Japanese car company here in the US, and has to determine whether goodwill monies will be spent on out-of-warranty repairs. He told me that one of the first things he checks is whether oil changes and the like were done at his company’s dealer. If not, he is much less likely to release the funds. His reasoning is that, if the customer doesn’t support his dealer, why should he go the extra mile to help them—especially as he has only a limited fund of goodwill dollars.
These days, when many dealers have “quick change” oil lanes that charge about the same as chains like Jiffy Lube, you’re best off building a relationship with your local franchise.
Next, try to remain polite and professional when faced with possible expenses. Loosing your cool early is bad; save any diatribe for when all options have been exhausted. The service personnel at a dealer have some measure (often a significant amount) of control over their goodwill money, and they are much more likely to give it to someone they like than a customer who is yelling obscenities at them.
A good strategy is to listen to the explanation as to what needs to be done, and then ask if there is any way that some—or all—of it could be covered by goodwill. Ask to have the service manager of the dealership become involved too, as he or she is the one with the most control of the goodwill monies.
If they still cant (or wont) authorize the release of funds to help, find out to whom you can send an email to at the district or regional level; all car companies have staffs who handle such things, and they can be quite helpful.
Finally, save threats to bash the dealer online until the right moment; only the most web-savvy service personnel will even realize the impact this can have on their business, whereas upper-level managers and regional reps usually “get it,” as their dealers’ ratings can help determine their bonuses or promotion prospects.
Handled properly, you’d be surprised what you can get done for either a reduced price, or even free. And if not, at least you’ll know that you left no stone unturned in your quest to save on servicing costs.
For more on how to save on all aspects of the car ownership experience, get the Car Buying Tips Guide ebook, with its 100 percent money-back guarantee, here.
Dealers making more money in the first quarter 2012
Profits being driven by increased used car sales
The first quarter of 2012 was a huge success for car dealers across the US, with sales hitting levels not seen since before the recession, and massive increases in profits for many as well.
Some of the largest publicly traded dealer groups had profit increases of 50 percent or more—Lithia, one of the nation’s largest, saw its first quarter profits go up 93 percent. What’s driving these profits, and how you can not only protect yourself, but also benefit from this, is what I will cover in this post.
Amongst the most important reasons profits are increasing are that sales of used cars by these dealership groups, who were long known for their new car franchises, are way, way up. When new car sales were on fire in 2005-7, there was little reason to focus on the harder task of finding good used vehicles, getting them ready for sale (called reconditioning, or “recon”) and selling them at a profit.
These days, new car margins are tighter, and profit has to be squeezed from more astute consumers wherever possible. As I’ve discussed in other posts, such as this one, the Finance Office is one of the biggest money-makers for dealers. Used cars sales is another.
Dealers used to wholesale many of their trade-ins to auctions or independent used car dealers, but no longer. Now, they recon them and sell them to buyers they hope will someday come back for a new car. And they are making loads doing so, with margins of over $2000 per vehicle for many of the more savvy dealership groups, as compared to less than half that on the average new car.
To get more used cars to sell, dealers are resorting to some interesting new techniques. One is to have service personnel tell the used car department about cars that come in for mechanical repairs or routine maintenance; the used car manager tries to turn that service customer into a new car buyer and get their vehicle as a trade-in.
Another is to used sophisticated “equity software” to comb through databases, looking for consumers who owe less than their car is worth, and then call or email them to try to get them to come in and get a new vehicle. There is usually a direct correlation between the increases in used car sales and profits at dealerships.
Dealer will of course try to get a trade-in for the cheapest price possible (to maximize profit when they resell it), but since they are so hungry for used cars, you can leverage this to maximize what you get for your own car. This can mean $1000 or more in extra savings on the whole transaction. I go into detail on how to do this in one of the chapters in the Car Buying Tips Guide ebook, and cover it in brief in this post.
Now that you know how much dealers really want your trade-in—and why—you can leverage this desire accordingly, using the right techniques and strategies, to maximize your savings. Combined with the ways I discuss to get a better price on the new car you’re buying, and maximizing savings on any financing, will insure the best overall deal possible. Each of these topics gets extensive coverage in the Car Buying Tips Guide, with its 100 percent money back guarantee.
Three ways to win in the dealer finance office
Top car buying tips to save money in “The Box”
The Finance and Insurance (F&I) office at a car dealer is where most of the profit is generally made. The top salespersons at the dealer work in what is affectionately known—by dealers anyway—as “The Box.”
It is critical that you keep this in mind, especially after working hard to strike what appears to be a good deal with your salesperson (and perhaps a sales manager). Here are three top car buying tips that will help in the Box:
- A good F&I manager will custom-design their sales pitch to your own needs, fears and desires. They find out what these are by doing what’s called “the interview.” The smoothest way to do this is to come meet you as you’re finishing up with the salesperson. They’ll put you at ease by saying something like, “Congratulations; you’ve picked a great car. I’m working on your paperwork right now, and as I want to speed up the process. Do you mind if I ask you a few questions first?” They will go on to quiz you on things like who will drive the car, how many miles per year you’ll drive, and how long you’re likely to keep it. This is all designed to build a custom “Menu-based” sales program to sell you things like service contracts (extended warranties) and the like. It is calculated and very, very slick. Here’s the first of your car buying tips: Don’t drop your guard! Be nice, but be wary.
- Know which products you may want before you go car shopping, and compare prices online. Have this info available with you or easily accessible via tablet or smart phone. There are some good products out there, as I cover in the Finance office chapter in the Car Buying Tips Guide ebook. But dealer profit markup on them varies between 20 percent and 100, so you need to know what they should cost. The one that needs the most research (and to which I’ve devoted an entire chapter in the book) is service contracts. You can negotiate on these products, too. That’s car buying tip number two.
- Finally, get preapproved on your financing, as I describe in this post, before going shopping. Dealer F&I managers marked up interest rates an average of over two points in 2010, which added thousands of dollars of cost to those auto loans. The only exception would be for car company-promoted 0% loans or the like. But you still need to know you’ll qualify, so be aware of the condition of your credit—and that’s our third car buying tip.
There’s more to it than that of course, but following these basic car buying tips will save you potentially thousands of dollars in the finance office. Fore more, get the CBTG ebook, with its 100 percent money-back guarantee.
Out of state car buying
How to safely buy a car at a distance
Recently, I was helping a client look for a Dodge Ram diesel. There were so few good ones around, he decided to look out of state. He found one several hundred miles away, and asked me how he could make sure it was a good buy.
As with many people, he assumed that if its CARFAX report was clean, it hadn’t been involved in an accident. But, as I explain in this post, that is simply not the case: one third or more of “clean” CARFAX vehicles we see have been involved in an accident or had significant paintwork.
There were lots of nice pictures of the Ram too, but that isn’t a big help either. We call it the “10,000-foot view,” meaning that you can’t see anything wrong when you look down from an airplane travelling at that altitude; likewise, pictures flatter most vehicles.
What to do? The only safe way I know to buy at a distance—and I’ve been brokering now for over 20 years—is to pay for a thorough independent inspection from a good company like Alliance Inspection Management. They’ve been inspecting cars for a very long time for lease companies, and I have found AiM’s reports to be invaluable when I am searching for vehicles at a distance. They differ from other companies in that their inspectors are employees, not part-time contractors, so there’s much less chance of something getting missed.
A full inspection from such a company will cost over $100—and be worth every penny—especially if the car doesn’t pass muster. Which, in my experience, happens quite often. It also gives you legitimate grounds to ask for price reductions, which a seller is much more likely to agree to than something as vague as “Well, the bluebook says it’s only worth ‘X’.”
You can learn more about AiM on the Resources page, and there are a lot more tips about buying out of state in the Car Buying Tips Guide. And my client? I ended up finding him a nice Ford F250 diesel five minutes from my office.
Car sales in early 2012 soar
Three new car buying tips to maximize savings
January and February set a blistering pace to new car sales in the US, and March is on track to be even better. Based on an incredibly strong early opening, new car sales could approach 15 million this year, a big jump back towards the numbers the industry did before the recession. Yet the lessons the manufacturers learned to get through those dark days mean there is less need for the kinds of rebates we’ve all taken for granted since GM started the incentive wars with “Keep American Rolling” campaign, post-September 11th.
With high demand and low inventory levels, there’s less need to put money “on the hood,” meaning consumers need all the new car buying tips they can get. Here are a few from the Car Buying Tips Guide ebook:
- Get preapproved on your financing first—especially if you have poor credit. Interest rates are at all time lows, yet car dealers are marking them up more than ever before. Know your credit scores, and fix what you can before applying for credit. Consider getting more than one preapproval, too; check your bank or credit union against those available in the Resources section. Getting preapproved gives you leverage to negotiate with the dealer.
- Contact multiple dealers via email only for written price quotes. Ignore come-ons for now, and narrow your choices to the dealers that not only offer good prices, but do so in a respectful, professional manner. It’s a good indication of how they’ll treat you when you’re there in person. Try to work with a fleet manager if they have one; if not, work through the internet department (but beware—some “internet managers” are basically normal sales people).
- Shop your trade-in (if you have one) to maximize its value, as I describe in this post, before going to test drive. This can increase your total savings by $500-1,000 on the whole car transaction.
If you follow these three new car buying tips, you’ll help to assure yourself that you not only got a good price on the new car, but that you got the best possible interest rate on the loan and that you maximized what you got for your own trade-in. The combination of these three can save you thousands.
For more great new car buying tips, get the CBTG ebook, here.
Hidden cost factors in new cars
Facility upgrades: how it affects new car pricing
Here’s a really insidieous one: facility upgrade incentives. Manufacturers are convinced that the newness and niceness of the dealer you go to makes a big difference on your perception of their brand. So they try to get dealers to built or upgrade their buildings. To do so, they use carrot and stick. The carrot is extra money for every car they sell, if they upgrade. The stick is that they will get penalized, or miss out on cash if they don’t. But you and I don’t know if there’s money, or how much—it varies considerably by the size of the store, where they are located, and how many vehicles they move.
So one dealer may really be offering you a great deal, with only $300 profit on the car you like. But another dealer of the same brand may be getting enough back from their manufacturer to offer you what is a lower price—but that has more profit in it for them.
On the one hand, this doesn’t really matter—you just want the best price. But in other ways, it really does. What if the first dealer has better customer service, or you’ve had good luck with them in the past, and want to be loyal? These facility upgrade incentives distort the whole picture. And they wont end anytime soon; lots of dealers who upgraded not too long ago are being “encouraged” to again, as some new CEO or marketing head decides that the “old look” just wont cut it.
For more on hidden incentives and how they can affect you get the Car Buying Tips Guide, with its 100 percent money-back guarantee.
Maximizing trade-in value
One of the best new car buying tips
Another new car buying tip is actually to get your trade-in into condition that will maximize what you are offered for it. This can mean an extra $500-1,000 in savings–or more–on the whole new car transaction.
While I go into extensive details on how to do this in the Car Buying Tips Guide ebook, here are a few simple tips: get it professionally detailed to make it look its best and keep it clean; make sure that if there are any mysterious “check engine” warnings illuminated on the dash, you know what needs to be done to fix them—you can use a tool like CarMD (availible in Resources) to do this—so the dealer cant deduct more than the actual cost of the repair; and if your tires are worn out, consider putting a full set of used ones on. These are available in most cities and online (via craigslist or ebay), and can cost less than half as much as a dealer will knock off your trade-in’s bid price.
Next, take good pictures of it, both inside and out, and pay to get copies of its CARFAX and AutoCheck reports. You’ll get offered less if any prior accidents or paint work show up on these, so it is important to know what these reports say—especially as both quite often contain erroneous information (which you can get corrected). Bundle the pics, reports, and info into an email you can send to multiple dealers for written trade bids. Do this before you go to test drive.
The country’s largest dealer group, AutoNation, has found that trade-ins sell for more at the brand of store the car was manufactured by (used Toyotas fetch more at Toyota dealers), so they move their used inventory around to maximize what they get for each one; you can do the same by emailing out your bundled trade-in info to local dealers that would sell your car brand new.
Right now, dealers really need good used cars, and you’d be surprised how bids from different ones can vary by $500 to $1,000. Leveraging the top written bid you get back from the emails you send, to get the dealer offering the best price on the new car to also give you the most on your trade-in, is amongst the most powerful new car buying tips.
Ask them to match your highest written bid, or to wholesale it to the top bidder if they cant match it, so you get that higher amount—and the savings on the new vehicle. This will help offset that old dealer line, “Well, if I’m giving you more off on my car, I cant give you more on yours, can I?” that a dealership’s used car manager loves to use to justify a low trade-in bid.
Following these trade-in specific new car buying tips will help you maximize your total savings. For more great new car buying tips, get the CBTG ebook here.
Automotive stair step car incentives: the truth revealed
One of the top new car buying tips
Car rebates are, by law, disclosed to consumers, and are heavily advertised. But they have the unfortunate side effect of lowering resale values on used versions of the same model. These days, as car companies seek to keep resale values up (to make their leases more attractive), they often resort to hidden “incentives” to move the metal.
Some are merely flat dollar amounts, like $500 or $1,000 “dealer cash.” But another type, called the “stair step” can be very frustrating, for both dealers and consumers. This is where a manufacturer pays a dealer bonuses depending on the number of a particular model they sell over a period of time, say a month or fiscal quarter. The reason they are so annoying is that there is little way to know what they are—or will be, before the end of that time frame. They also often give larger dealers a competitive advantage over smaller ones, since they, in effect, pay less for their cars—and can therefore sell them for less and still make the same profit.
Here are some new car buying tips to deal with stair step and other incentives. First, do all the research you can about the models you’re interested in online. Second, before you go to test drive, contact several dealers’ fleet or internet departments for written price quotes. Ask them to include all applicable rebates, incentives, and ask if there are any volume-based, or stair step, programs that can lower the final price.
Just mentioning this marks you out as a very informed consumers—almost no one outside the industry has heard of these, and is one of the top new car buying tips you should have.
Note also that, by their very nature, such volume-based incentives often make shopping later in the month better, as the dealer will be more willing to offer a lower price if they know they’re in line to get bonuses for selling more cars. While these programs are usually retroactive (applying to all examples of that car already sold over the specified time frame), dealers obviously will have sold more cars as time goes by.
Many dealers don’t like stair steps; they distort the market, and mess up natural competition. But there is little sign they are going to go away. In fact, manufacturers are using them more and more to increase sales, and to pay dealers back for forced improvements to their facilities. For more great new car buying tips, read the Car Buying Tips Guide.
Make money on your lease
Leveraging the car lease vs buy equation
In the Car Buying Tips Guide I spend a lot of time on the pros and cons of the whole car lease vs buy question. Amongst the upsides are lower payments and the knowledge that, if the car isn’t to your liking, you can turn it in at the end of the lease’s term.
I also detail how you can make some extra money on your lease, and new data are out showing how much it could potentially be for those who land on the leasing side of the car lease vs buy ledger.
In 2011, 20 percent of retail new car transactions were leases. While below the peaks hit in 2005-7, this reflects considerable growth since the dark days of 2008. That’s according to the Manheim 2012 Used Car Market Report. Manheim is the world’s largest car auction company, and a huge number of off-lease cars (called “maturities”) flow through them. What most people don’t know about, though, is what happens to their cars once they turn them back in.
Manheim’s data says, for example, that Ford Motor Co. made over $3,000 per off-lease vehicle in the first half of last year. If you lease a car, you can take advantage of this as well.
The reasons there’s money to be made are that used car prices are at record highs, and that the lease companies were pessimistic in 2008-9, when they were setting the residual values, which is what the vehicle would be worth—wholesale—at the end of the lease term.
In states with no sales tax, tapping into this is pretty easy: get a payoff amount from the leasing company, buy the car (they own it, not the lessee), and advertise the car. Sell it and pocket the difference—which can often be more than that $3,000 figure.
In most states, though, when you buy the car from the lease company, you have to pay sales taxes on it. And that can dramatically reduce or eliminate the profit. In that case, it is best to make arrangements with a local dealer to do a “pass through.”
In this scenario, you still advertise the car, and field potential buyers. But the dealer buys the car out, and handles the paperwork part of the transaction. You need to pay them to do so; my brokerage charges $100; most dealers charge $3-500. This works better if you agree to purchase or lease your next car from them, of course, and there are other details as I go over in my ebook.
But leveraged properly, you not only get much lower payments from a lease, but the chance to profit on the “back end” too, just like dealers are doing right now. This tends to bolster the case for leasing in the car lease vs buy equation.
For more on car lease vs buy, get my ebook, with its 100 percent money-back guarantee.
Car leasing rates rise
Car lease vs buy survey
The percentage of new, mainstream cars leased has historically hovered around 20 percent (“premium” cars lease in much higher numbers). In late 2008 and most of 2009 lease rates plummeted into the single digits. Now they look set to return to more normal levels.
Driving the car lease vs buy equation towards leasing are several factors:
- The need for more Certified Pre Owned (CPO) inventory, which mainly come from three-year old cars whose leases are up—called “maturities.”
- The desire of car companies to avoid rebates, which affect resale values and perceptions of the desirability of a model or manufacturer.
- Historically high used car values.
- Record low interest rates.
Given these, expect to see more and more advertising of lease deals; they make sense for many consumers, if structured properly, as I explain in my ebook. In my twenty years of leasing and selling new and used cars, I’ve approached the car lease vs buy equation as a very personal one, in that it has to meet the needs of the consumer: how long they keep a vehicle, how many miles a year they drive, etc. For those who keep a car the average three to four years, leasing can save them 30 percent on their payments, and give them added flexibility.
Will lease penetration get back into the 30-35 percent range of six or seven years ago? Experts doubt it, but I wouldn’t be so sure, as new car prices continue to increase, and the car companies strive to keep up the residual values of their vehicles. So when determining what's best for you, it is important to figure out your past car buying habits and real needs first. For more on the car lease vs buy question, read the leasing chapter in the Car Buying Tips Guide, which comes with a 100 percent money-back guarantee.
