﻿I’m a pretty chill guy, but there are few things in life I hate more than this.
Going to go to a car dealership. Everytime my wife and I are in the market for a new car, we
are forced to visit the local car dealership. And the process often involves a lot of unnecessary
waiting, painful haggling, and encounters with many practices that are quite frankly,
downright deceitful. So in this video, I want to share with you some of these disingenuous car
dealership practices so you can not only recognize them, but hopefully avoid them outright. Hi,
if you are new to the channel, my name is Tae from Financial Tortoise. Where we learn to grow our
wealth, slow and steady. The first most obvious way car dealerships rip us off is by offering
inconsistent pricing. Shopping for cars is not like shopping for most other products. Unlike,
say, laptops or dishwashers, cars are typically not sold for one standard price. Ten people could
go into a dealership and each pay a completely different amount to buy the exact same vehicle.
This for me just feels completely wrong. I understand that homes in the same neighborhood
could sell for different prices because not all homes are identical. Even the exact same
layout could have a different view and different corner of the street. However, cars with the same
model and same spec are identical. Economists actually have a term for this. It’s called,
not surprisingly "price discrimination." Instead of charging everyone the same price, the seller
charges the buyer different prices based on his or her willingness to pay. The dealership essentially
is trying to milk as much money as they can out of their customers. If you seem more gullible,
they will upcharge you by $2,000. If you seem like a type to put up a fight, maybe upcharge you only
by $1,000. Yes, we shouldn’t group all dealerships in this category given I’m sure there are
dealerships that do not engage in this strategy. I just haven’t found one yet. But the fact is that
many dealerships do engage in it. And they do it aggressively - deceptive marketing tactics,
hidden fees, and overpriced unnecessary add-ons. And to make matters worse, this
ugly strategy is deployed unevenly. Some studies found that dealerships tend to charge people
of color more. Older people more than younger individuals and older women compared to other
age and gender groups. So it’s not a surprise that many have come to call car dealerships that
deploy these strategies, “stealership.” I’ve seen this first hand and found haggling over the price
of a new car with aggressive commission-seeking salespeople to be quite exhausting and maddending.
If this doesn’t get you pretty riled up, let’s move onto a second way dealerships rip us off.
The second way car dealerships rip us off is by lowballing on trade-in offers. And this too
I have unfortunately experienced first hand. I’ve heard that dealerships tend to see a buyer who is
looking to trade in their used cars like a naive deer that just wandered into a lion’s den. People
are often looking to trade in their cars at a dealership because they don’t want to deal with
the hassle of directly selling it. However, this signals to the dealership that we are either naive
when it comes to car shopping, or we are price insensitive when it comes to getting cash for
our used car. So not only does the dealership raise the price of the car they sell you,
they also really lowball you on the trade-in. Many years ago when I was less financially savvy and
less better looking than today, I was one of these naive car shoppers looking to trade in my used
car at a car dealership. I didn’t do my homework on how much my car would have sold in a private
market before entering the dealership. And knowing how ignorant I looked, the car salesman used the
age old tactic of making me wait while he checked with his manager. He came back many minutes later
with a grim look on his face and said given the condition of my used car, he could only offer me
several thousand dollars for it. Now I’m not a car expert but for some reason this just didn’t feel
right. Thankfully I didn’t trade in my car that day and I sold it to a private owner a few weeks
later at multiple times what the dealership offered me. Lesson learned was this. While
trading your old car in at the dealership feels convenient, you will get more value by selling
your car directly to a buyer. Or even dealerships that deal only with used cars. Car dealerships are
looking to negotiate constantly with you and a trade-in car is like giving them an extra hand
at the poker table. Don’t trade-in a car. Go into the negotiation without this chip on the table and
you increase your probability of getting a deal on your terms. Alright, talking about negotiations,
let’s talk about the third way car dealerships rip you off. The third way car dealerships rip us off
is by mixing negotiations. Most car shoppers have an idea of the amount of money they can
spend each month for a car when they start car shopping. And the salespeople are well aware of
this fact. So what they will try to do is get this number from you. What your comfortable monthly
payment is. Whatever you do, don’t fall for this trap. Salespeople like to start with the monthly
payment because it allows them to combine multiple factors to fit that figure - the trade in value of
your current car, financing terms, the price of the new car and some random deal they have going
on that day. They will get you to that monthly payment number, but you’ll be so confused by how
they got there. But that is because that is the core of their strategy. Mixing these negotiations
allows the dealership to highlight the most favorable figure, like the total price of the car,
while covering up less favorable figures, like the financing terms or the trade-in value. It’s
not until you get home you realize that while you bought the car at lower than MSRP, you only got
half the trade-on value and the terms of your loan is now 72 months vs the 60 months you originally
had in mind. You were just so fixated on the price that the car salesman kept highlighting, you
couldn’t see the trees in the forest. This is why it's important to remind ourselves of the earlier
point of trading in cars. You don’t want to bring a factor that dealerships can use against you. And
in addition, break out the negotiations of each sale separately. Negotiate the total price of the
car before you discuss financing. Never talk about monthly payment. Focus on the total value of the
car. Also with financing, it's a good idea to have your loan pre-approved separately before you even
start looking at cars. Though you might eventually use the dealership’s financing terms, you can use
it as leverage to get them to terms that are more favorable for you. The fourth way car dealerships
rip us off is by trying to sell us unneeded extras. Dealerships like to add "dealer-installed
options" to pad the price of the car. And the most frustrating part is these are a lot of times added
even after the price has already been negotiated from our earlier point. These dealer-installed
options come in many forms but the ones I’ve seen have been outright just weird - rustproofing,
paint protection or fabric protection. Shouldn’t these just be a standard for a new car? And these
guys don’t come cheap because for the dealership they translate directly to the bottom line. The
fact is that these dealer-installed options are nothing but a complete waste of money.
All new cars most often come with adequate rust, paint and fabric protection applied
at the factory. And what’s worse is that when dealerships charge you for these unnecessary
extras, it not only is a waste of money, it can void the carmaker’s original warranty on those
categories of protection. You might even see them added to your sales invoice at the closing. Even
when none of it was ever discussed with you during sales. Go through your documents line by line so
you know what you are paying for. Or best yet, make sure you clarify with the dealership that
you don’t want any dealer added options on your vehicle. If they try to slide it in, no need to do
business with that dealership. The fifth way car dealerships rip us off is by upselling expensive
extended warranties. I had an interesting experience with this with my last car purchase.
Just when I thought the finish line was just around the corner, they told me they needed
me to go into this one secret office to have a final ‘conversation’ about something important.
Not surprisingly, they were again trying to add something to their bottom line. This time with a
great offer on extended warranties that I couldn’t live without. New car buyers should always say
no to extended warranties. Not only can they add thousands of dollars to our invoice, as they are
notoriously bad deals. These warranties are not factory warranties. Those you automatically get
on any new car you buy. Extended warranties are policies that kick in after your basic warranty
has expired and they're backed by a third-party underwriter. The probability is that you'll never
need the coverage, and even if you do, the money you save on the repairs won't likely come close
to what you paid for the warranty. Car dealerships push extended warranties because they get a huge
commission for selling them. Sometimes up to 50% of the selling price, or even more. So it's not
a surprise that they try to slide these in at the end of the sales transaction. You are likely
exhausted from all the negotiation and you would like nothing more than the experience to be over
so you can drive that car home. But don’t put your guard down yet. Say no to extended warranties. It
would actually serve you better to save that money so you can use it for car maintenance and repair
down the line. Alright, we talked a lot of how car dealerships are out to rip you off. So the
big question. How do we protect ourselves? How can we wisely avoid being ripped off
by car dealerships so we get the terms that are favorable to us? Let me share with you a few tips:
Number one tip is to always do your research before you even start reaching out to different
dealerships. You need to know the value of the car you want. Look up Kelly Blue Book, Edmunds
or NADAGuides. These websites will give you an accurate valuation of what a new or used car
is worth in your area. This way you have a good baseline to start negotiating from. The second tip
is to get your financing in order before you ever step foot into a dealership. You want to approach
the negotiation from a position of strength, and not be at the mercy of their lending terms. Get
pre-approved for an auto loan from your bank or credit union, or even better, get a few different
quotes so you can compare interest rates. This way you know how much car you can afford, and what the
true cost of ownership will be. The third tip is not to trade in your car. I talked about this
several times earlier. You will almost always get a better deal by selling it yourself. The
dealership will give you a low-ball offer because they want to make money on the sale of your car
as well. They will also try to use it against you in the negotiation by using phrases like,
“well, if you're not going to trade in your old car, then we can't give you that great
deal on the new one.” Don't fall for it. Stick to your guns and sell your car yourself. And always
be prepared to walk away from the negotiation. If they're not giving you the terms that you want, or
if they're being unreasonable, don't be afraid to walk away. There are plenty of other dealerships
out there that would love to have your business. Don't let yourself get taken advantage of. Use
these tips to avoid getting ripped off by car dealerships. And always remember, the dealer is
not your friend. They're out to make a profit, and you need to be smart about it so you don't
get taken for a ride. Before we go, a final tip that I like to share is to use a middleman. Or
most often called an auto broker. And this isn’t a recommendation for everyone given you want to find
someone whom you can trust. But an auto broker's job is to find you the best deal on the car that
you want. And in some cases, they can even get you a better price than if you were to go directly
to the dealership yourself. Of course, there is a fee involved. But if it means saving thousands of
dollars on the purchase price of your car, then it might be worth it to you. Most often the greatest
savings come in the form of time and emotion though. I was able to find a family friend in
this business who completely changed my car buying experience. In my last car purchase process,
I was able to just share the specific specs of the car I was looking for and within days,
he had the car in my driveway. At a price within my range and paperwork ready to be signed. No
need to wait at a dealership. No haggling. Now again, the key to this strategy is to
ensure you find someone you can really trust given this is also a, how do I say it nicely,
a highly competitive industry. That’s it guys. Let me know in the comments below if you also
had similarly bad car buying experience at a dealership. Thank you guys for watching and if
you like to learn more about cars and money, check out my video here. Until next time, all the best.