Gabriel called the show this morning. He’s a car dealer who has been in the business for 20 years.
“The problem I see is lot of people don’t educate themselves before buy a vehicle. Cars don’t have a 50 percent markup,” he told me this morning.
On American-made cars, there is an 8 to 9 percent markup from the MSRP to the invoice price. This information is available on the manufacturer’s websites. Each dealer also gets a holdback that ranges from $400 to $1,500 from the factory. So that’s there for negotiation as well.
Gabriel believes that if auto buyers spent time online, they could probably save themselves a lot of money when they buy a vehicle. How much money? THOUSANDS!
“Buyers don’t look at the interest rate they can get (on a loan) before they get to the dealer. If they spend time online, could probably save themselves more money,” he said. As far as websites goes, Gabriel likes Edmunds.com and Kelly Blue Book (KBB.com). But he also said to check out the manufacturer’s own websites, like Ford.com, because there is great information there about the vehicles themselves and pricing.
As far as advertising goes, Gabriel says “Be careful.”
“That’s where people get frustrated. They’re getting ripped off because they don’t read the ads properly. When they see an ad that says they’re going to save $20,000, the dealer takes what you’d get if you paid 13 percent on your car loan vs. the 0 percent he’s going to give you and they add that to the so-called “savings” so when you go in to look for a car that’s priced at $35,000, you think can get for $17,000 because that’s the mindset they have you into,” Gabriel explained.
When it comes to getting a loan if you don’t have good credit, there are banks that help in the subprime market. What you may not know is that the dealer has to pay extra cash to the subprime lender so you can get your car loan.
“People who have not so good credit, there are banks that help the subprime market. But the dealer has to pay what they call a hedge fee to bank for doing the loan. If one of these banks approves a $25,000 loan for the vehicle, they charge a $3,000 fee to do it. That’s why customers who have lower scores have to put $10,000 down on the vehicle. Some of that money goes to pay the $3,000,” Gabriel explained.
“I don’t think it is right that they pay that amount because of their credit,” but consumers also don’t understand how the credit markets work, he added.
The best car should be the least expensive vehicle you can afford to save money and interest.
“The best vehicle to buy is 1-year old low-mileage vehicle because the owner has already taken the depreciation,” Gabriel said.
I’ve spoken on air about how some of my friends and neighbors are buying 2008 edition cars for 35 percent or more off the invoice price. That’s well below the MSRP and the holdback. Are there great vehicle deals out there right now? Absolutely, but you have to look to find them, know your stuff and be prepared to negotiate for what you want.
My thanks for Gabriel for taking time this morning to call into the Ilyce Glink show and educate us all on what’s going on behind the doors of car dealerships all over America.
Published: Jan 25, 2009