On the Fourth of July, the radio program This American Life repeated an episode that described the art of the deal for car dealerships. The show argued that the buying of a car was a quintessential American experience. The automobile industry is central to the economy and most Americans purchase a car every five years or so.
Before the coronavirus, approximately 17 million new cars were sold in the United States every year. This year, however, automakers are reporting a 30% decrease in sales. The recovery of such sales will be important in getting the economy back on track.
Buying a car is usually a nerve-racking and highly emotional experience. I remember losing my temper and storming out of one dealership, only to have the salesperson follow me down the street. Often it is a contest of wills and since a car is one of the few big ticket items almost everyone buys, it assumes oversized significance. In America, cars often symbolize status, independence, masculinity and sophistication.
My wife Diane and I are terrible customers, since cars don’t hold much attraction for us. Make, model, color or accessories aren’t important and neither of us likes to drive all that much. We see a car as transportation and are fairly practical when buying one, which upsets a lot of salespeople, who bank on exploiting an emotional attachment. The last car I loved was my 1961 Corvair. I have no desire to take a test ride since they’re all the same to me.
A number of years ago we traded our old car on a new car purchase. The old car had a lot milage and admittedly was not in the best of shape. But to make the deal work, we needed to get a certain amount for our trade-in. The salesman finally acquiesced, but you could tell he wasn’t happy about it. He sarcastically asked if they could keep the quarter they found in the ashtray.
On another occasion we traded in our van, which was a brand known for its quality. Despite its excellent reputation, we must have had a lemon. It had brake problems and burned out alternators like Christmas tree bulbs. Also, at some point, the speedometer and the odometer both malfunctioned, so it was impossible to tell how fast you were going or how many miles were actually on the car. The dealer discovered the broken odometer after they had already given us substantial trade-in credit. The salesman begrudging conceded that we had gotten the best of that deal.
In the car sales business there’s a saying — “buyers are liars” — since everyone involved is trying to play everyone else. The salespeople’s distrust of customers may seem ironic, since Gallup poll showed that car salespeople were ranked only above members of Congress in terms of honesty and ethics.
Being an auto salesperson is a notoriously difficult job. The hours are long, pay is unpredictable, and there are only a few fringe benefits. Arizona business writer Lisa McQuerrey says the poor reputation can also be demoralizing and makes their jobs even more difficult.
According to McQuerrey, the internet makes the job even harder. She says, “… customers often come to the dealership armed with volumes of information. They’ve studied up on ways to ‘beat the car salesman’ and get the absolute rock bottom price.” In general, dealers make a net profit of only 1-3% on new car sales. That’s somewhere between grocery stores and hospitals.
Patrick Anderson, from the Michigan-based Anderson Economic Group, says that auto dealers make their money from manufacturer incentives, service, and extra charges like financing and warranties. Used car sales has also been a perennial money-maker, although lately the used car market has been cratering.
Numerous sales strategies abound in car dealerships. Some are based on superstitions such as the odd, but pervasive, belief that balloons sell cars and that a party/circus like atmosphere is the most effective sales environment.
Many tactics are rooted in psychological gambits, like the classic “bait and switch” and “the foot in the door,” in which the salesperson convinces the buyer to comply with a number of small requests to develop a receptive response set that eventually leads to a sale. Experienced salespeople seldom ask direct questions, because they want to avoid giving customers the opportunity to say “no” in any context.
Many also employ the “illusion of choice” and offer their customers a false choice such as, “Would you prefer that model in blue or red?” Frequently, they try to close the deal by creating a perception of scarcity. They may announce that the current sale will end tomorrow or that some other customer is interested in the same vehicle.
Most salespeople have learned to develop rapport with customers by mimicking language or gestures or by finding common ground. Some dealerships go so far as matching customers with similar members of their sales force.
A fairly common strategy is to convince the buyer to take the car home for the night. This is referred to as “puppy-dogging.” Mark McDonald, a MotorTrend.com columnist, says, “When customers show it to their friends and neighbors, they will make such a fuss over it — just as they would a new puppy — that they’ll have no choice but to buy it.”
A powerful sales technique is for the salesperson to ask, “What would it take for you to buy this car right now?” Customers, feeling put on the spot, often make up the first plausible sounding excuse that comes to mind. The salesperson then takes them at their word and tries to reframe or resolve the issue, with the implied understanding that when that issue is resolved the sale is final.
Besides being careful to avoid such ploys, there are a few other tactics that customers might consider. It is important to look at the whole deal, including the price, payment, length of the loan, interest rate, trade-in credit, and extras. It is easy to get confused and focus on only a couple aspects of the deal. You may get your desired trade-in, but then lose your advantage on the price or interest rate.
If possible, wait until the end of the summer to buy a new car; Labor Day weekend is the Black Friday of car shopping. If you can’t wait that long, at least wait until the end of the month, when sales quotas are due. Dealers often sell below costs to make their quota.
It’s also important to do your homework. Look online for the actual cost of the vehicle and options you are considering. Also check the Bluebook value of your trade-in. Then email several dealers to obtain price commitments. Those email replies can often help you wrangle the deal you want. A lot salespeople don’t like dealing with savvy customers. Some even refer to them by the pejorative term, “the professor,” but better preparation usually means getting a better deal. Finally, always leave a quarter in the ashtray of your trade-in just to “sweeten” the deal.