The internet has leveled the playing field for car buyers more than ever, but despite a wealth of useful information out there, we still encounter a ton of misconceptions about buying from a dealership. As a professional car buyer, I’m going to clear up some of the most common ones and hopefully save you some frustration the next time you go shopping.
“Cash Is King”
If you are buying a car from a private seller and you want to haggle them down, telling them you have cash right now will sometimes motivate them to give you the price you want even if they “know what they have.”
But at the dealership, the ability to flash your bills gives you no leverage on the price whatsoever. In this current competitive market, dealers aren’t making much on the cars themselves. If you are a good negotiator the dealer may even take what they claim is a “loss” on the car, but in order for those deals to work, they need to make some money somewhere. After all, the dealership would have a hard time keeping the lights on if it didn’t make some kind of profit somewhere.
Often this profit comes from financing, namely loans. Even if you get a low-interest loan the dealer still gets a little money on the deal by selling you that loan. Of course, really shady operations can make a lot of money on these loans if you aren’t careful. So that is why it’s key to shop these loans around and get pre-approved before you arrive.
But if a dealer sees you are a cash buyer and therefore loses their opportunity to make some profit in the finance office, may be less likely to wheel and deal on the car itself.
“You Need To Service The Car Where You Bought It”
This is an incredibly outdated myth. I’ve spoken with a lot of folks who seemed discouraged about traveling to buy their car because they were afraid they would have to do the drive all over again when it came down to service.
The truth is that if your new car is under warranty, that warranty is good at any dealer anywhere in the country, regardless as to where you bought your car. For example, let’s say you bought a new Honda in Pennsylvania and had to relocate to Florida. If your car needs a repair that is covered under the manufacturer warranty the local Florida Honda store can handle it.
What this means for buyers is that when you are shopping for a new car you should spread your net beyond your immediate area because you could find significant savings if you are either willing to travel or ship a vehicle.
“You Can Avoid Sales Tax By Purchasing Out Of State”
This concept is kind of the opposite of the local-service only misconception. I’ve had clients in high tax areas think they can save a chunk of money by simply making their purchase in a region with a lower tax rate.
While this sounds like a great plan for folks living in places like Los Angeles and New York City, the fact is no matter where you buy your car the sales tax is assessed based on the area of registration not the location of the purchase.
Here is a common example: the city of Philadelphia imposes an extra sales tax on top of the state tax. Folks who live in Philly pay more in sales tax than the folks that live in the suburbs. Some buyers are under the impression that if they buy their car outside city limits they can avoid the premium. However, it doesn’t matter if a Philly resident purchased their vehicle in Reading or even as far away as New Jersey—they still have to pay the full Philly sales tax.
Now that isn’t to say that people in high tax areas shouldn’t shop outside their region to get savings, and it is likely that they may find better discounts elsewhere, but they aren’t going to save on the sales tax.
“You Will Get The Best Price If You Go When The Dealer Is Closing On The Last Day Of the Month”
Spend enough time on the internet and talking with car buyers and eventually, someone will tell the story about how they got the deal of a lifetime by rolling into the dealership an hour before it was about to close on the last day of the month. They will swear that their timing and negotiating skills beat the dealer into submission into offering them the lowest price in the history of the automobile.
This strategy comes from an old-school bit of car buying advice that says that dealers are more likely to offer you a bigger discount at the end of the month because they are trying to hit a sales quota. While it is true that dealers do try to meet or exceed a certain number of units sold, the problem with that advice is it makes two key assumptions: first, that the dealer has not yet met their sales quota and is desperate to do so, and second, that the dealer sells enough volume to meet or exceed that quota and therefore go “deeper” on their discounts.
What a lot of people don’t realize is that some dealers have the ability to discount deeper than others, even though they are all purchasing that unit from the automaker for the same price. Higher volume stores that meet or exceed quotas can often “afford” to offer steeper discounts, while smaller stores don’t have that luxury and need to make their profits on the units themselves.
If a buyer goes into the wrong dealer at the 11th hour on the last day of the month, and the sales manager hands them a price and says “This is the best we can do,” they are probably not lying. But what that buyer doesn’t know is that the dealer down the street can do better because they sell more cars. However, that high volume dealer may have already met their quota for the month and may not be as willing to take a loss on a sale.
The only way to know for sure who has the best price is to do your shopping from the comfort of your phone or computer and compare several quotes in writing. However, that process is most effective when it is done within a few weeks time.