Smart Buying Essentials

Closing the Deal

Congratulations! You and the dealer salesperson have finally come to terms on a fair price for your spanking-new dream car. You even managed to get a reasonable price in trade for that old heap you've been driving. You passed a credit check and the nice salesperson quoted you a very competitive figure on a dealer-arranged loan or lease. It's taken a eternity, but you can almost feel those keys dropping into the palm of your hand. Time to breathe a sigh of relief, right?

Not quite. There's just one item left on the dealer's agenda: A visit to its finance and insurance office - "F&I," in the lingo of car sales - to sign the final papers. Here, many buyers expect to encounter some sort of clerk, and let their guard down. In fact, F&I people are masters at salesmanship, and are often

more accomplished at sales tactics than the sales folk on the showroom floor. With a few strokes of the pen, an F&I person can turn a sweet deal for the customer into a bonanza for the dealer.

It's logical to think that dealers make their money - lots of it - on the sales of new cars. Look at a dealership and what do you see? Showrooms filled with marble and chrome. Sales people running around in designer ties and expensive shoes. And of course, there are the cars - scores of pristine cars, each worth tens of thousands of dollars.

Now, if the department store marks up those ties or shoes that the sales folk wear by 20 or 30 percent, then most people assume the car dealer - also a retailer - probably pockets $4,000 or $6,000 on a $20,000 new car. Not even close. Take a look at the vehicle charts that follow in this book and you'll see that difference between the dealer's cost and our suggested target prices are considerably less - perhaps $800 or $1,000 on a $20,000 vehicle. In fact, over the past decade, dealer gross margins have hovered in the 6 to 7 percent range. And out of that, the dealer has to pay for income taxes, sales commissions, interest, advertising and other overhead costs. Pretty slim pickings. But don't grab your hanky and weep for the dealers yet. They have other ways to pay their bills. What they don't make on sale of the car itself, they can more than make up in the F&I office.

On loans, for example. Dealers don't lend buyers their own money; they arrange loans through banks and then tack on a couple of percentage points of interest for themselves. A dealer who marks up an 8.0-percent loan by two more percentage points stands to make $684 on a four-year, $15,000 loan.

But while some buyers may need the dealer's help in arranging for a loan or a lease, F&I people all too often push a laundry list of unnecessary or exorbitantly priced stuff:

• Extended warranties. Often sold with a 200 to 300 percent markup. New cars have lengthy manufacturer's warranties these days, so an extended warranty is redundant protection for buyers who trade cars every three or four years. And in any case, a car buyer doesn't have to purchase one at the time of the car sale, or even from the dealer. Mechanical breakdown insurance, sold only through insurance companies, can be a cheaper alternative and can usually be purchased any time before the car's factory warranty runs out.

• Security systems. Many new cars already come equipped with factory-installed anti-theft devices, ranging from alarms to ignition-defeating devices. Aftermarket retailers can also install security systems. And window-etching plans offered by dealers often carry a huge markup.

• Rustproofing. Completely unnecessary on today's cars with their galvanized and plastic panels and comprehensive factory corrosion warranties. Rustproofing jobs can even void the factory new-car warranty.

• Paint sealant and fabric protection. Car buyers can save $200 or $300 by waxing their cars from time to time, or by buying a $5 can of Scotchgard or the equivalent and applying it themselves.

• Credit life insurance. Better to buy insurance through an insurance agent than a car dealer. Standard term life insurance or disability insurance policies are likely to be far cheaper ways of protecting a buyer after a disabling illness or a buyer's family after the buyer's death.

If the "F&I" person tries to sell you anything that you're not absolutely sure you want or need, take a former First Lady's sage advice: just say "no"-to all the sales pitches.