When a Good Car Deal is Not a Good Deal

good car dealsYou just got this great deal on a new Ford Explorer XLT for which you paid only $29,217!

The MSRP sticker price was $33,795, which means you got a savings of $4578.

Wow !!!

That’s 13.55% below MSRP! A great deal.

It’s even below dealer invoice price of $32,183.

However, when you went into the F&I (Finance and Insurance) Manager’s office to apply for your loan and sign the papers to conclude the deal, the deal began to fall apart.

Here’s how.

Not knowing that it’s the Finance Manager’s job to make additional profit for his car dealership, you fell for most of his attempts to sell you additional services and products, all of which erode your deal, make a lot of profit for the dealer, and don’t provide you good value in return.

Let’s take a look at what you bought and why you probably shouldn’t have.

Extended Warranty – Your brand new car already has at least 36 month manufacturer’s factory warranty (even longer for the engine and drivetrain). An extended warranty now won’t do you any good. If you still have the vehicle when the factory warranty expires, and you expect to continue driving it for a few more years, buy the extended warranty then. It’ll be cheaper than buying now for a few thousand dollars from a profit-hungry dealer.

Protection Package – Such “protection” packages may include rust-proofing, paint sealant, and fabric protection, at a high cost to you and high profit for the deal — but completely unneeded. All brand new cars have factory-guaranteed rust protection, clear-coat paint protection, and seat fabric that is already stain resistant (get a $10 can of ScotchGard if you think it needs more).

Window Etching – Dealers etch your car’s VIN number on your windows (the VIN is already in several places on your car), at a cost of about $250, to supposedly deter thieves. Maybe it does and maybe it doesn’t. But if you feel like you need it, buy a cheap hobby etcher and do it yourself.

Appearance Packages – Such dealer-installed “packages” may include pin-striping, gold electroplating, window tinting, or other at inflated prices. Sometimes these have already been put on the car and it’s hard to negotiate the extra cost out of the deal.

Nitrogen-Filled Tires – Nitrogen provides absolutely no real benefit and is not worth the cost that dealers charge.

Credit Insurance – This is nothing but a form of term life insurance that you could buy from an insurance agent for much less cost, if you feel you need it.

Alarm Systems and Lo-Jack – Most new cars already have anti-theft systems. Lo-Jack may be worthwhile if you have an expensive or special car that you would want to try to recover if stolen, and it can reduce your insurance rate by a little. There are new GPS based devices that do a very similar job at lower cost.

Maintenance Packages – This is a kind of pre-paid service contract (for routine scheduled maintenance) that may actually save a little money, assuming you have all your work done at your dealer. But for routine oil and filter changes, you can probably save money by having it done elsewhere. Save your receipts.

GAP Insurance – GAP insurance may be worthwhile but only if you will be “upside down” on your car loan (GAP is usually included free with leases) for some part of your loan term. It pays the difference between what your insurance pays and your loan balance if your car is stolen or totaled in an accident. You may be able to find it cheaper elsewhere, such as at your auto insurance company.

Dealer Financing – Car dealers arrange loan financing for customers with their “captive” finance company (Ford Credit in this case) or a bank. They often add a “reserve” of 2% or more to the normal “buy” rate offered by the finance company. This is additional dealer profit that you might avoid paying by arranging your own financing at a local bank or credit union. The dealer may explain away the higher rate by telling you that you have poor credit. If you don’t know your credit, you might fall for it.

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One Other Problem – Depreciation

All vehicles lose value as they are driven and get older. But some makes and models lose more value than others, based on factors such as reliability, quality, popularity, recall history, and market conditions. Unfortunately, the Ford Explorer is one of those that depreciates in value faster than other makes and models. This affects its sale or trade-in value when you decide to move into another car in a few months or years. In other words, your original good deal is further eroded by the fact that you have lost more money than someone who purchased a similarly priced vehicle with a lower rate of depreciation.

Summary

Getting a great deal on a new car is much more than the price you and your dealer agree on. The deal is affected by what you buy, or don’t buy, in the Finance Manager’s office before your leave the dealership, as well as the car’s rate of value depreciation. What initially appears to be a good deal can turn out to be a terrible deal in the end.

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