Buying Strategies:
Dealerships need to move cars. They need to sell a car, hopefully you're in a position where you don't NEED to buy a car.
The rule for salespeople is as follows: "Sell a car, in stock, today." If you don't like their number, flat out say that you are going to go down the street where they will deal.
It also helps if you know a little bit about how the car business works and if you can even remotely let the manager know that you know where most of the money on a deal is hiding, you can lift these rocks and potentially keep some of that money in your pocket instead of theirs.
MSRP -
This is the sticker price. It should be a criminal act to pay sticker on any car that's not ultra rare. No TDI in today's market is rare. There's plenty of supply. They aren't limited in production anymore as they were back in the B4/A3 days.
If you see something in regard to "Market Adjustment $1,500" just walk away and visit the next VW dealer. This dealer is out of their mind. Market adjustment simply means they think they can get MORE than sticker because the car is "hot" and everyone wants them. It's basically the dealer attempting to get another $X dollars out of you because they think they can. This will be their starting point to negotiate from. Just leave.
Invoice -
This is what the dealer would like you to think that is what they pay for the car. They would like you to buy into the fact that MSRP minus Invoice price = total margin on the vehicle. In reality, there's plenty more places where there's money in the deal, and you should start negotiating at the invoice price. The dealer may show you "the invoice" to try and convince you that he's practically giving the car to you. You can also look up the invoice price on any number of websites.
Factory to consumer or factory to dealer cash / incentives -
Most incentives these days on VWs seem to be factory to dealer. Basically that means if X condition is met, the manufacturer will subtract that amount of money from the vehicle's invoice price. The dealer can choose to take this money and keep it as extra profit in the deal or they can take that money and pass it along to the customer to get to a more aggressive selling price. Before you set foot in a dealer, you should know every incentive on the vehicle you want to purchase. Incentives also include special financing (i.e. 0.9% APR for 36, 48, 60 months.) Incentives can be easily found by going to VW's website and entering in your zip code. Incentives are generally regional and they are based upon the buyer's home address. (i.e., Even if you live in Illinois, you might not be able to take advantage of an offer in Arizona should you decide to fly out there and buy a car. However you would likely be able to get any offers available in your home zip code.)
Floorplan -
This is one that a lot of folks tend to look over and / or don't understand. The manufacturer doesn't just give your dealer all those shiny new vehicles out on the lot for free. The dealer basically is charged interest on those vehicles until they are sold. Think of it as akin to an interest only home loan. This is one of the big incentives a dealer has to move cars quickly. Depending on the manufacturer, and I don't know the exact deal from VW, but the dealership may get the first 30 days free. After that, he may be paying 1-7% interest on the invoice price of the cars until they are sold. The longer a car sits on his lot, the less profit there is in the deal so that's why you may see certain "new" cars marked down yet other cars are still selling closer to / at MSRP. You may also see sales people trying to steer you toward a certain vehicle as it's been on the lot for a while. Some dealerships go so far as to offer an instant cash payout to sales staff if they can move the oldest car on the lot. This is more common with used vehicles, but if you happen to have a brand new Passat S in an undesirable color that nobody's looked at for weeks, there may be heavy incentives on sales staff to move this car. The dealer basically wants to stop paying to have the car on his lot.
Holdback -
This is basically extra money in each deal that is "held back" from the dealership until the car is sold. A lot of times you can't find out a whole lot about the amount of holdback on a particular car, but it exists in practically all sales. A lot of times this money is untouchable - this is how the dealership makes their nut on the sales side while selling the car at a price below invoice minus factory incentives.
Step Incentives -
This is the big one. Lower volume dealers hate them. Mid level dealers loathe them, and high volume dealers still hate them but love them at the same time.
Each dealership is assigned a "goal" by the manufacturer as to the number of cars they think they should be selling. A step incentive is basically additional money that will be given to the dealership if they sell a percentage of their manufacturer assigned goal.
A quick google search came up with the following for VW step incentives:
Level 1: Achieve 75% of goal, get 0.25% of MSRP
Level 2: Achieve 100% of goal, get 1% of MSRP
Level 3: Achieve 125% of goal, get 1.75% of MSRP
For this example, we will use your average 2014 Passat TDI SE with Sunroof, with no other dealer / port installed accessories. It has an MSRP of $28,295. Assume the dealerhsip has a goal of 100 cars this period. (Periods may be monthly or quarterly - 100 cars seems to be a good sample quarterly goal, which is slightly over 1 new VW sold per day.)
You think you got a pretty good deal when you got the selling price down to $26,500 + + $820 Destination fee + TTL/Documentation fee. Slow down.
Should that dealer sell 75 cars in that period, for each car sold he will receive an additional 0.75% of MSRP on EACH VEHICLE SOLD. On this car, that's an extra $212.22 that the dealer will receive from the manufacturer.
Say they reach goal - 100 cars. That's an extra $282.95 that could be in your pocket!
Lets say they're having a great period - 125 cars sold - that's an extra $495.16 that you have to work with.
The dealer KNOWS this. This is one huge reason why it's great to buy practically at the end of the month, near the last day or so if at all possible. Let's say you're the bubble car - They've sold 99 and you'd make 100.
Let's do some math. We will use an average MSRP of $25,000 for all cars in the period:
99 cars sold: 99 x (25,000 x .25%) = $6,187.50 step incentive rebate from the manufacturer.
100 cars sold: 100 x (25,000 x 1%) = $25,000 step incentive rebate from the manufacturer.
124 cars sold: 124 * (25,000 x 1%) = $31,000 step incentive rebate from the manufacturer.
125 cars sold: 125 * (25,000 * 1.75%) = $54,687.50 step incentive rebate from the manufacturer.
See how powerful the step incentives can be? If you happen to be on the bubble, or pretty close to it for the next step level, the dealer can REALLY put money toward your deal to get it closed. If you see the difference between the 124th and 125th car, they can practically GIVE you a $25K car and still make the same money as they did for selling 124. Anything they sell that 125th car for is pretty much the dealerships money.
You can see how this favors large / high volume dealerships and how low volume dealerships can't compete. Step incentives are why. High volume dealerships know that they can get this step incentive cash back from the manufacturer and work some of that into deals and undercut the dealership down the street.
So here are my tips:
- Basically you want to start your price negotiations at invoice price - any factory to dealer / factory to consumer incentive money, minus $800-$1,000. You can always come up, they can always come down from where they want to deal. Since you're hopefully not NEEDING a car, the best leverage you have is your feet. Walk out if you don't like the deal.
- Dealerships always involve a lot of waiting. Poke your head around into various offices and look for the chart. There's always a chart around that has sales goals on it to motivate sales people. The closer they are to goal, the more you can probably count on working some step incentive money into the deal.
- Always buy nearest the end of the month, as this is likely when floorplan interest is calculated as well as the aforementioned step incentives are closer to being reached.
- It may seem heartless, but these dealer staff are not your friends. Any money that you don't get off your deal is basically equivalent to them reaching into your pocket and taking money out. They're going to play on your "niceness" qualities. This last time I was looking for another $1K on this deal. The manager wrote on a sheet of paper "Let's be friends and split the $1K!
" and wrote the deal for $500 off instead of $100. Obviously I sent it back.
- NEVER SHOP BY PAYMENT. This is the first question a sales person will ask. If you say that you're looking to be around $400. You aren't leaving the dealership under $412. That's an extra $they are going to get from you. You'll hear "Oh, what's an extra $8 a month?" Well at 0.9% for $60 months figure you're paying $17 for each $1,000 borrowed. That $8 translates roughly into an extra $500 for the dealership. Always state you shop by bottom line.
- On that note, every time you are presented with the "foursquare" (you'll know it when you see it, it's the four boxes that has interest rate, trade in value, sales price, and down payment) ask for a full breakout from their deal system that has:
- Selling price of the car
- Any fees associated with sale (Destination, TTL, Document, etc..)
- Trade-in Value (If trading in)
- Amount Financed
- Loan term
- Loan Interest Rate
- Monthly Payment
Sales managers hate it when you ask for that because they can't hide anything on that sheet. The foursquare has way too many places for dealers to work in extra money without you noticing. Think of the four square as some kind of grifter / 3 Card Monty trick. Managers are trained in how to move money around on these things and be so slick about. When you have all the facts above in your face, you have everything in front of you.
Read this: Consumerist article on the Four Square
- Try and deal with only one sales person if you have to come back. If you start with one person and someone else helps you on Thursday because your original guy is off that day, both of them now have to take a "Split" and basically only make half the money on the deal. No sales person will fight as hard for half of a deal rather than a full commission.
- Also, always know your interest rate. Dealers can and will try and quietly bump you up a half a point or more at closing time. This is all extra profit for the dealer. Note that for VW you need to have a 700 or better Trans Union score to qualify for 0.9%. Special concessions can be made if you already have a loan/lease in good standing through VW credit and/or your score isn't quite at 700. Ask them to ask the F&I guy to call to get a concession. Also don't let them BS you and say "Ok, you can't get 0.9% from VW so we can get you financed through Joe's Bank down the street at 3.9%." VW will give those with lower scores a decent rate (1.9%, 2.4%, etc..) Dealers make tons of money off of financing - especially if you don't go with the manufacturer's financing (they get kickbacks from local banks, sometimes its a cash payment other times its a quarter of a point or so.) On new Passats right now in our area I think it's either 0.9% with $500 dealer cash or $2500-$3000 cash back if you use other financing. Should you not finance through VW for some reason, make sure you get that other rebate!!!
- Warranty prices are negotiable as well. Whatever they say their bottom dollar is, it's probably at 75-100% profit. This is one area where I think you can actually get some value contrary to a lot of other advice on the market. Let's face it, VW's, and especially TDIs are loaded with lots of complicated systems that as a whole tend to hold up well. However with VW labor at $100+ an hour and some sensors costing $100+ (Sometimes much more) you can run into some serious money should you have an issue. People were paying $700 for exhaust flap cleaning / replacement on 2009 Jettas. The invoice to fix the cruise control on my Jetta was $800 all in. If you can get a good deal on a warranty and you're more comfortable with the piece of mind that coverage carries, you might be a good candidate for a warranty.
Keep in mind that warranties sold at dealerships are not warranties. They are basically service contracts / insurance. Contrary to what the F&I guy says, the warranty does not cover "everything the manufacturer's warranty does." You should only be considering the "top tier" / "Platinum" / best coverage options, and only if these are usually exclusionary contracts. These are the only way to go. By exclusionary, everything is covered unless it's expressly marked as excluded. TDI owners need to know that some big things that are generally excluded are "Any portion of the exhaust system". How far this goes I don't know - Technically exhaust valves start the exhaust system, but it likely means turbo-back - i.e. DPF, Catalyst, and exhaust pipe is not covered. It could also mean that AdBlue exhaust treatment systems are not included, I'm unsure at this point - probably good to get clarification on this.
- My final word of advice: Negotiate a cash price for the vehicle first. Then talk trade if you have one. When you talk trade first, they can mess with your trade value to get you to practically any sales price they want. At least when you have a cash price of the vehicle negotiated, you know exactly what you're getting for your trade. They aren't saying "Oh, we've given you an extra $500 for your trade!" when in reality they aren't selling the car for as low as they can.
My father in law has been in every facet of the auto sales industry from sales, to F&I, and even working for Carfax. The best advice he told me was "Until they're ready to let you walk out the door, you're leaving money on the table."
Sorry this post was somewhat winded and some of it may seem like common sense or elementary. Buying a new car is like a sport. Well informed players can win. I like to win.
Updated when I got home. Had a few more thoughts and I was able to edit a few typos.
