I'll be the first to admit, in spite of my love for cars, I'm not all that well versed in the car dealership buying experience. Like many, I find it intimidating. It seems the moment my foot touches asphalt of the lot I am descended upon by a salesperson (or three), the same way a killer whale zeroes in on an injured seal that mistakenly wades into its kill zone. Instantly my defenses go up and I'll say just about anything to get them to go away.
I wish I could handle it better and felt more confident about buying a car from a dealer, but there was a lot about the process I didn't know. Most of what I did know was informed by anecdotes from friends, not hard facts from pros.
The University of Southern California (USC) Auto Club recently took it upon itself to help people like me. It hosted a panel with the Rusnak Auto Group, one of the biggest networks of European car dealerships in California, to teach how to properly navigate the car buying experience, dispel some myths and answer questions.
The panel was moderated by Jarod DeAnda, AKA "The Voice of Formula Drift." The panelists from Rusnak included Used Car Manager Ken Lemler, Finance Director Ken Lau, General Manager of Business Development Napoleon Rumteen, and Finance Manager Keti Ludzheva. The four have a combined 52 years of experience in the automotive industry. Below they answer a few questions for us and clear up a few misconceptions people have about buying a car through a dealership.
Andrew Beckford (AB): What do you think are some of the biggest misconceptions about buying a car from a dealership?
Napoleon Rumteen: 1. That there's a profit margin; most commodities have much larger profit margins (20 to 30 percent). Cars get somewhere around 2 to 5 percent. That's before commissions.
2. Car dealers don't care about the consumer experience. Unfortunately that perception was self-induced by the car industry a long time ago and maybe in a very small portion of the industry nowadays. However, manufacturers and dealers have shifted their thought process and the pendulum has swung strongly to promote catering to the customer.
Dealers spend a lot of money on technology to improve processes and decrease transaction time. They focus on exact targeting when it comes to advertising for a customized promotion that appeals to individuals. They're highly conscious of their online reputation. Engage in a lot of charity.
Most importantly, they focus more on training salespeople to deliver a transparent and consumer-centric experience. It's all about the customer journey and retention. No more are the days of slamming people in cars and never keeping in touch.
AB: What are some of the most common mistakes that young buyers make when purchasing a car from a dealer?
Keti Ludzheva: Budgeting incorrectly. Vehicles are advertised without sales tax, registration and other fees that will be added at the time of purchase. Doing some research on a first-time buyer or college graduate program is also a very good idea to inform oneself about what types of financing will be available.
AB: Generally speaking, many tend to have a negative view of car salespeople because of the belief that they are only trying to get the most money out of customers rather than trying to get the best deal. Why do you think this belief exists and what do you think can be done on the dealership side to end those types of perceptions?
NR: I think this is true for any competitive sales industry. Consumers are leery of the "hard sale." The car business unfortunately will spend many more years shifting consumer perception based on how they've conducted business in the past.
Regulations definitely keep dealers in check. The more progressive dealers embrace this new era of business and are focused on a fair and ethical profit. They validate their pricing with a lot of third party sources that show what cars are sold for and back trade-in appraisals with auction pricing. Consumers are comforted knowing what the average prices are, how much others are paying, and it helps them make informed decisions.
Also, training plays a big part in developing professional salespeople who understand how people want to be sold. Trained salespeople have more longevity, build a clientele, grow a portfolio of repeat and referral business that's usually a direct manifestation of the follow up and trust salespeople create.
AB: Some people find the car buying experience to be intimidating. Can you provide any advice to help give some confidence to those who may be too afraid to go through a dealership for their next car purchase?
K Ludzheva: Pro-activity and being an informed consumer is paramount. Going into a dealer with information after having received multiple offers for similar or the same vehicles helps immensely.
Also, scheduling an appointment (if offered at the dealer of interest) and meeting with a sales manager will aid in giving the dealership the best opportunity to customize your experience to your needs. At the end of the day, they will do their best to make a deal and if you tell someone in management plainly how you'd like to be worked with, they will set you up with the sales associate best equipped to meet and hopefully exceed your needs and expectations.
AB: Most people can't afford to pay the full price for a car up front so they turn to financing. However, financing can seem like a confusing and complex process for those who have never done it before. Can you provide any tips on how to get financing and how to simplify the process?
Ken Lau: Most dealerships and manufacturers have online credit applications. This will be a good place to start. First select the vehicle you want, determine how much down you are working with, then submit information online. You will be contacted by dealership representative shortly after. In addition to financing, you may also want to consider a lease ... more car for same payment or less.
AB: Sometimes buyers don't have the cash for a down payment so they look into trading in their current car towards a newer car. What should someone looking to trade in his or her car expect before beginning the process?
Ken Lemler: There is a lot of information online about valuing a trade-in and not all of them are equal, because not all markets are equal. Region, condition, vehicle history, mileage, optional equipment and even color can have a significant effect on a vehicles value. Looking at websites and services that offer a "trade-in guarantee" that some institution will back with a check will give you a good idea of what a trade-in is really worth. At the end of the day, a commodity is valued by what someone will pay for it.
AB: While we are on the subject of trade-ins, many of our readers are car enthusiasts that like to modify their cars. Often they spend thousands of dollars on aftermarket parts like wheels, tires, suspension, and other performance components. Within the community is debate over the belief that the value of modifications done to a car add no value and may even take away value from the car when trying to trade it in at a dealer, while others believe dealers will factor in the modifications when appraising a car for a trade in. How do dealerships factor in aftermarket modifications when appraising a car for a trade in?
K Lemler: Modifications - unfortunately there is no short answer to this question. The best answer I can give is how modifications effect the resell value. If you customize the car to your particular tastes you lessen the pool of potential buyers who are willing to buy the car as you have modified it. Less demand means less value in the market. Customizing a car is cool and popular - just don't expect a return on investment.
Consider limited modifications, like intake modification for fuel economy, medium level tinting of windows (not windshield), blacking out or chrome wheels. These modest modifications typically are okay as long as it was done tastefully. Please understand these modifications typically neither detract nor add a value to a vehicle. However, they may help sell a vehicle faster which is a plus.
A medium suspension lift on 4WD truck or SUV is good, so long as it's not a 2WD, lifted to the point the handling is affected or you need an elevator to get in. It needs to be professionally installed at a dealer or reputable 4WD shop. DIY jobs, block lifts and non-brand names often negatively affect resell value and may even make the car unsellable. Stick with a brand most consumers have heard of; FOX, Bilstein or Rancho are just a few examples. A good lift may even add to the vehicle's resale value.
Short of that, most modifications will detract from [a vehicle's] resale value. The more extreme the modification, the less people you have in the market who are willing to buy it. Instead of an extreme paint job, consider wrapping the car. It's often less expensive and not permanent. Hint, wrapping is often cheaper than a paint job and allows for more extreme expression without permanent consequences.
AB: There tends to be a lot of debate between what is best, leasing or purchasing/financing a car. What are some of the key differences between the two and what should a young buyer consider before choosing which route they want to go?
K Lau: Statistics show that up to 75 percent of vehicles are traded in at 42 months. This means that 75 percent of car buyers will never see their pink slip. The benefits of owning a depreciating asset is minimal. Unless you know this is the last and only car you will be driving, you should really look into leasing vs. "financing."
AB: What are some of the things that should be considered when deciding on whether to buy a new or used car? How should a CPO car fit into the decision making process?
K Lemler: Purchasing new versus used is, again, a very personal decision. There are a lot of products (service contracts and extended warranties) out there to protect a driver when purchasing a pre-owned vehicle of any type; however, there is a certain comfort knowing you are and will be the only owner and driver your vehicle has ever had. It goes back to budgeting and wants versus needs. Perhaps you've found a model that really excites you, but it's a little out of your budget when new. A pre-owned car of the same model might fall within your budget.
Certified cars are a bridge between new and used. They represent a value over a new car immediately because they cost less and retain a factory-guaranteed warranty, similar or identical to that of a new car. They also represent a value over a normal used car because they have extended factory warranty coverage, which protects the driver and owner from mechanical defect and premature failure of systems in the vehicle.