Breath of a Salesman (Car Buying Lesson Number Two)

The second lesson of car buying is: many car salesmen treat their customers like idiots, and many customers are. Salesmen try, and often succeed, to get the customer to focus on the monthly payment, rather than the price of the car. That's backwards. A monthly payment (when financing or leasing) is simply a mathematical result caused by the price of the car (plus sales tax and finance charges) divided into monthly pieces. The only way truly to lower one's monthly payments is to lower one or more of the components that make up the overall price. Of these, the largest component is obviously the price paid for the car itself.

But car salesmen often reverse this process and create a series of deceptions for the customer. The most common deception is getting the customer to focus on a seemingly low monthly payment, while simultaneously charging a large down payment. That is simply robbing Peter to pay Paul. If you look at a car ad in a newspaper or magazine, the large print is the monthly payment. Often this payment looks attractive (and it invariably ends in a 9). But if you look at the fine print, it almost always indicates a substantial down payment or "capital cost reduction." What's more, the fine print in these ads usually indicates that the advertised price is based on MSRP (Manufacturer's Suggested Retail Price). That's sticker price. Zero discount. Not much of a deal there.

When you're in discussions with car salesmen and they present you with a (rather high) monthly payment and you react negatively to it, many salesmen will then ask, "what do you want your monthly payment to be?" They may even ask you this when you first walk into the dealership. Again, that begs the question, since whatever number you answer, they will typically pull the money out of the monthly payment to lower it to that level, and add the amount to the down payment. Or they might lengthen the term of the loan, or shorten the term of the lease, either of which almost always results in lower monthly payments but not a lower price overall being paid. It's all a psychological ruse. You could buy or lease a Bentley for $299 per month if you wanted to. All you have to do is put down $158,000. So when a car salesman asks me, "what do you want your monthly payment to be?" I answer, "the lowest price for the car, chopped up into 36 (or 48 or 60) pieces."

Some people feel more comfortable negotiating over their monthly payment only. When the salesman presents an offer of, for example, $579 per month, these people like to just get that number reduced, and to let the dealership worry about what components need to be lowered to get there. This is a simple method, and there's nothing wrong with it, as long as one knows what a good monthly payment and a bad monthly payment should be, based on the price of the car and the other factors involved. Otherwise, you could feel great that you got your monthly payment lowered from the salesman's initial offer of $579 per month to $539, only to find out later that, based on even a modest discount off the car's sticker price, the payment should have been only $439.

That is why I find it best to negotiate the price of the car before discussing the monthly payment, not vice versa. And when the salesman or his manager starts poormouthing about how they're not making money on the car, you can remind them that other components that make up the monthly payment, especially the finance rate (or "money factor" in a lease), are being marked up for additional profit by the dealer. And, dealers often receive "holdbacks," "marketing support" or other financial incentives from the parent car company. Don't worry, the car dealers are doing fine.