I’ve purchased a lot of new cars over the years (12 at last count, not including bikes), so I’ve learned a thing or two about the art and science of negotiating with car dealers. I’ve purchased new vehicles in Colorado, Minnesota, New Jersey and Florida, and nearly all of the transactions have gone smoothly. That’s not to say that they’ve all been easy or pleasant, but they’ve nearly all been civil. The exception to the rule was buying my FJ Cruiser in Florida, so I’m posting this as a lesson to others. Spot the warning signs of a predatory dealership early, and you avoid the unnecessary drama you’re likely to encounter; unless you live in Whitefish, Montana, chances are good you’ve got other dealerships to choose from in your neighborhood.
My wife and I moved to Jacksonville, FL in 2007, and one of my requirements for living in hurricane country was the ability to get out of Dodge regardless of weather or road conditions. In the cold war, people built bomb shelters to prepare for a “worst case” event, so my desire to purchase a capable compact pickup or SUV as a “rolling bomb shelter” was far less paranoid. You can’t drive a bomb shelter to Home Depot for plywood, but you can certainly drive an SUV, which you can also use for trips to the beach or towing friends’ boats. I opted for Toyota’s FJ Cruiser, because I’d always been a fan of the FJ40 and the second generation 4Runner, and the FJ Cruiser seemed like a reasonable blend of both vehicles. Sure, the fuel economy wasn’t great, and truck had the aerodynamics of a housing complex, but it was the right size and had legitimate off-road capability. I ran the numbers (invoice, MSRP) on an FJ equipped with the option packages I wanted, then headed out to my nearest Toyota dealership.
I ignored warning sign number one, which was an “ADM” of $3,000 per vehicle, plus another $2,500 worth of dealer-added accessories like paint sealant and window etching. At the time, no one was buying cars or trucks, so I assumed I could easily negotiate around this. I assumed wrong, but more on that later – if you visit a dealership that has “ADM”, or Additional Dealer Markup, on each and every window sticker, just move on.
Warning sign number two came when the car salesman gave me the sad story of his life. A career helicopter pilot, he’d been forced to move cross-country to care for his aging father. Unable to find work as a pilot, he was reduced to selling cars to put food on the table and pay for his father’s care. I suppose such a backstory is possible, but it’s certainly not likely. I don’t mean to be cynical here, but recognize the sign that the sales rep is trying to create sympathy by establishing a “down-on-his-luck” persona. His personal life has absolutely nothing to do with your mission, which is buying the vehicle you want at a price you’re willing to pay.
Test drive over, we returned to the dealership to crunch numbers. He asked for an offer, so I threw out a price of $500 above what I knew to be the invoice price. If they agreed to the transaction, they’d make my $500, plus Toyota’s 2% of base MSRP holdback; in other words, they’d earn about $1,000 on the sale of the truck, less $50 or so worth of costs for add ons. The salesman left to “consult with his manager”, so I sat back to wait as we did the dance.
A few minutes later, the sales rep returned with a concerned look on his face. “If we sell you the truck at that price,” he said, “we’ll lose $5,000 on the deal.”
My mind reeled as I did the math in my head. The difference between invoice price and MSRP was only $2,500 or so, so I countered with “You mean to tell me that if you sell me the truck at sticker price, you’ll still lose $2,000 on the transaction? What kind of business sense does that make?”
The sales rep looked at his shoes and said, “That’s what my sales manager told me.” In other words, we weren’t going to come to terms, and I’d just wasted half an hour of my life. Pushing back my chair, I said, “We’re done here” and walked out of the dealership to the salesman’s objections. It would have been a mildly unpleasant experience, except for what happened next.
As my wife and I walked back to our car, the sales manager moved to intercept me, blocking the path to my car. All apologies, he asked what had gone wrong and assured me that he’d do whatever it took to save the deal. Did I want a new salesman? Would I just come back inside and have a cup of coffee?
I felt my blood pressure rise, and I resisted the urge to move the guy out of my way. Do that, and suddenly it’s a physical confrontation, which generally involves police and lawyers. Instead, I looked at him and said, “Just tell me this: what does ADM stand for?”
I knew the answer all too well: it stands for “Additional Dealer Markup”, which is what car dealers charge you to buy the latest and hottest products. Want to buy a Boss 302 Mustang? Be prepared to pay ADM. On the other hand, you should never expect to pay ADM on a two-year old product that dealerships weren’t moving.
The sales manager quickly backpedaled and tried to explain that “ADM was enhancements they do to their cars to add value.”
I cut him off before he could finish, and said a little louder this time, “That’s not what I asked. What does ADM stand for?”
He countered a second time, with, “It’s things like security and appearance enhancements…”
My anger boiled over, and this was going to end, one way or another, in the next few seconds. Inches from his face, I screamed, “Not what I’m asking. I asked you what ADM stood for.” Spittle flew from my lips, and I felt the veins in my forehead throb.
The sales manager shrank back on himself and stepped aside. “Additional dealer markup”, he said.
Calmly, I replied, “Thank you, I know that and we’re done here.” In a bizarre sort of way I felt I’d won, by getting the sales manager to admit they were screwing customers. There wasn’t another soul on the lot, so it was a hollow victory.
Ultimately, I bought the truck from another dealership that quoted me a price I was willing to pay before I even got to the lot. They delivered exactly what I wanted at a price that gave them a reasonable profit and kept me happy, which is exactly how car buying should be.
What can you learn from my encounter? Here are a few tips:
1. If you see “ADM” or “Dealer Enhancements” on every window sticker, simply turn and walk away. The dealership is preying on an unsuspecting public, and you certainly don’t need to give them your business. On the other hand, ADM is reasonable and customary for high demand (or low production volume) automobiles; seeing it on one or two stickers isn’t cause for alarm.
2. Know the invoice price of the vehicle you want to buy (including options) and how much you’re willing to pay for it before you sit down to negotiate. As a rule, I won’t pay more than $1,000 over invoice price for a new car (less if it’s an unpopular model). If the dealership isn’t willing to negotiate on price, find one that is.
3. Beware if you have a trade in; surrender your keys, and the dealership may play games returning your keys if the deal goes south. Give them a valet key, or have a spare key made and give them that. If you have your keys, you can always drive off the lot, if they have your keys, you’re still a potential
4. Don’t be afraid to walk out of a transaction if you’re unhappy with negotiations. I won’t do this as a negotiation tactic, but I will do it if the dealership really pisses me off.
5. Don’t let your anger get the best of you. Words are one thing, but I could have been facing an assault charge if I’d pushed my way past the sales manager. Communicate in a clear (and loud) voice that you’re unhappy and wish to leave, and generally the dealership won’t stop you. Angry customers don’t exactly help close deals with other customers.
6. Have your financing arranged before you sit down to negotiate. If you’re using low interest rate financing from a manufacturer, be sure that’s clearly marked in the paperwork. Never fall for the “how much do you want to spend per month” trap; know up front what your monthly cost will be.
7. Do your homework. Research dealerships on the internet, and check sites like Edmunds.com and KBB.com to see what a “fair” price is for your specific area. If possible, shop at dealerships recommended by friends and neighbors.
The internet has made car buying a lot easier and (generally) more civil. The days of fast talking and amoral car salesman are generally behind us, but every now and then you’ll encounter an old school dealership and sales rep. Knowing how to deal with them is more than half the battle.