10 Ways to Avoid Car-Buying Gotchas

Sept. 23, 2013 — -- intro: Americans' on-again, off-again love affair with cars is definitely back on. New car sales jumped 17 percent last month, to 1.5 million, the highest level since the beginning of the Great Recession. Consumers are buying cars even while they remain reluctant to spend on other big-ticket items, and it makes sense – drivers can only put off buying a new car for so long. The average age of cars on the road today is 11.4 years, a record. So as millions of Americans trudge for the first time in years into dealerships during this, the traditionally best time of the year to get a deal on a new car, it's time to remember this hard truth -- the house (almost) always wins. That's what I found when researching my book Gotcha Capitalism, and it's even more true today.

Buying a car is still an inherently risky process, full of mine fields and booby traps that work only one way -- in the house's favor. The Internet, once seen as a great equalizer for consumers in the car-buying process, is now a part of those booby traps, and can hurt as much as it helps.

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Never forget: Dealers are much better at selling cars than you are at buying them. They are professionals and do it every day. You do it once every 5-7 years. Start from this humble, skeptical angle and you'll avoid getting screwed.

This is not a guide to beating a dealership out of every last $5. Many buyers haggle like they are at an Egyptian bazaar, only to overpay for car registration or some other tack-on. It's about getting a fair deal. Many people think they are good at buying cars, but like a good wrestler, dealers are very good at using their alleged strength against them. Not long ago, I had to counsel a friend who called me bragging, "every single salesperson was shaking their heads saying I'd taken them for a great deal," but when I did the math on his monthly payments, and I had to tell him something was wrong. He'd agreed to a $2,000 extended warranty without realizing it, and about $30 extra had been snuck onto his monthly payments right under his nose! (I'll explain how to get out of those).

The world is now full of consumers who think they've scored a great deal by getting "invoice price" off the Web, only to get screwed by tack-on delivery fees, expensive financing or back-room shenanigans like window etching. So here is a guide to the gotchas of car sales you might not see anywhere else.

quicklist:title: Isolate the negotiation, part one: Get your auto loan at the bank first.text:

Dealers try to confuse you. A confused consumer is a profitable consumer. This isn't the last time you'll hear me say this. Always go to the bank and get your own car loan before you go to the dealer. This way, your discussion with the dealer will be about one thing: the price of the car. Not the monthly payment, not the interest rate, not the discount, not the rebate. You want to simplify, simplify, simplify the transaction. Bargain only on the price of the car.

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Before you get your auto loan, make sure to check your credit score for any errors or negative accounts that could cost you more money in interest or lower the total amount of the auto loan. You can get a free look at your credit score, plus a breakdown of which components of your credit history are hurting you by using the Credit Report Card.

quicklist:title: Isolate the negotiation, part two: Do not trade your old car in at the dealer.text:

Many consumers overlook this last, but final, element of a new car sale. Dealers often give buyers a good price on a new car, then make up the markdown by low-balling the trade-in. With the deal nearly done, most consumers cave. Don't muck up your good deal with a bad trade. Just sell the car yourself on Craigslist or somewhere else. It's not that hard, and it'll probably get much more for the car. Isn't an extra $1,000 worth an annoying afternoon of test drives? More important: your only hope at a fair deal is to stick to one thing – the price of the car.

quicklist:title: Isolate the negotiation, part three: Focus on the end result.text:

Always start by discussing the "out the door" price, and insist on this. Don't negotiate up or down from MSRP, or bother with invoice, or any of those other distractions. Find out what you'll have to write on a check to drive away with the car, and talk only and always about this.

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A word on invoice price, which was a valuable tool when it first began appearing online: Dealers have figured this out, and now muck it up with holdbacks or other fees to convince consumers they are getting a cheap price while hiding their profits. Your job isn't to screw the dealer by paying less than you *think* the dealer paid for the car. Your job is to get yourself the best price.

quicklist:title: Get a good price.text:

As with all goods, there's one only way to arrive at a fair price -- to see what the market will bear by comparison shopping. Here, the Internet is still a big help. Once you've settled on the car you want, with the options you want, e-mail at least five local dealers and one non-local dealer, and ask for their best out the door price. You are can use some of the great tools available, like Edmunds.com's True Market Value pricing, as a reality check. But all that really matters is the price your market is supporting when you are ready to buy. Naturally, dealers may give you one price via e-mail, and try to change the price when you actually arrive at their door, but we'll get to that in a moment. In reality, these prices will rarely vary by more than a few hundred dollars, so that gives you a great starting point.

And about those discounts: Dealers may promise crazy discounts or trade-in values, such as doubling blue book value. Some even promise to give buyers a check for a thousand dollars after they finance a car purchase through what's known as a negative amortization loan. (Some lenders let buyers borrow up to 120 percent of the value of the car!) However, neg-am loans were a disaster in home buying, and they are a disaster in car purchases, too.

quicklist:title: Timing.text:

When is the best time to buy a car? For years, that question was easy to answer -- September/October, when the old model year ended and the new one began. Dealers don't want 2013 cars taking up lot space when shiny new (and more profitable) 2014 cars are there. But all that has changed. Nowadays, new model cars can be released at almost any time of the year. Plus, automakers are better at avoiding overproduction than they were in the past. That can mean a shortage of new cars for some models at the end of the year, creating a price squeeze on a car you want. You can read the tea leaves on this by following rebate offers, which are automakers' way to fine-tune model sales. If you see rebates falling, that means you won't get a better price by waiting. If you see huge rebates, you can probably find a dealer who's desperate to sell that car model.

Some consumers also have luck buying a car near the end of the quarter, or of the month, when a dealer might be more anxious to "make a number" and reach an automaker sales incentive.

quicklist:title: Rebates.text:

Take the money, (not the cheap money) and run. Most carmakers now offer an intriguing either/or proposition to buyers -- take either a rebate, or seemingly too-good-to-be-true financing rates. In nearly all cases, you are better off taking the money than the financing. There are clever calculators for this all around the Internet, but they all boil down to this: unless you are borrowing a lot of money (north of $25,000), and the rebate is tiny (south of $1,000), take the money. Because you've already shopped around and gotten a good deal on a car loan, you won't be losing much on that 0.9% financing anyway. Car loans can be had in the 2 percent to 3 percent range right now, anyway.

quicklist:title: Give yourself time and be ready to walk away.text:Dealers nearly always try to find ways to not honor those e-mailed price quotes you've received. Of course, they never say, "Sorry, we lied just to get you here!" But they don't have to. They will say there's a delivery charge because the color you want isn't on the lot after all, or they'll find a new excise tax to charge, or they'll say you can't get that car without $300 mud-flaps. That's OK. It's your cue to get up and leave. Exercise your right as a consumer to not tolerate this kind of misbehavior, knowing that four or five other dealers are ready to give you roughly the same deal. Even if you head to a dealer where the email price is slightly higher, you will pay less in the end by not dealing with a seller who is baiting-and-switching you this early on.

NOTE: You can't take this walk-away step if you don't have time, that's why it's important to avoid buying a car under duress. Don't buy it the weekend before you are moving to a new home. Don't buy it when your old clunker runs into a big repair bill. Don't plan on getting home for an afternoon football game. Always believe that tomorrow is just as good a day to buy the car as today, and don't believe when the seller claims, "this is a once-in-a-lifetime opportunity."

On a related note, don't car shop on an empty stomach! Eat a big meal, and know a dealer's strategy can involve wearing you down so you fall for one of their traps along the way.

Remember: It's OK to feel like a jerk. When you leave a dealership for bait-and-switching you, they will scream and/or cry as you walk out the door. They'll tell you no one has ever accused them of cheating. That's fine. In fact, it's downright delightful. Many folks will say you haven't really tried to buy a car until you've stormed out of a dealership for misleading you.

quicklist:title: Bring a calculator, a spreadsheet or a friend.text:

Speaking of misleading -- I've purchased five new cars in my lifetime. During four of them, dealers made a massive mathematical error in their favor. This is not an accident. As good with numbers as I think I am, I didn't catch most of these mistakes in my head. I caught them after I calculated the figures myself with an electronic aid. You should always do the same, or at least bring a dispassionate third party (like a friend) who can do it for you.

quicklist:title: It's not over till it's over.text:

Many, many good deals go bad in the back room. That's when the finance manager will try to convince you to take dealer financing rather than your own, or to buy an extended warranty, or undercoating, or some kind of anti-theft device. All of these things will be overpriced, and all of them can be purchased later. Remember rule #1 -- isolate the transaction. Put another way: in a presentation on the car buying process that has a cult following, video game developer Rob Gruhl makes this point -- "You wouldn't stock up on candy at a movie theater." Say, "No, no, no," and hand over that check with only the out the door price on it.

quicklist:title: Regret laws, sometimes.text:If you find you've been tricked into purchasing an extended warranty, many states have "regret laws" that give consumers five or 10 days to back out of that part of the deal, no questions asked. In Washington, for example, buyers need only drop off a letter at the dealer to get a refund for the warranty portion of the deal. (Also called "remorse laws" that entitle consumers to a cooling off period and a right of rescission, some states extend those rights to other contracts, such as health club agreements. They are aimed at industries that have a bad reputation for high-pressure sales.)

There is no such thing as a regret law for the actual car purchase, however.

Bonus Tips

Speaking of saying anything. To put yourself in the right frame of mind when buying a car, read this incredible undercover story by Chandler Philips, who took a job as a car salesman so he could see dealer tricks from the inside. It'll make your skin crawl, but it's a healthy perspective.

Speaking of saying anything, part 2: Some states make consumers sign a piece of paper saying that the agreements between buyer and seller are entirely on the paperwork signed by both parties, making clear that no verbal agreements can change what's on the paper contract. That sounds like a consumer protection, but … it also means the dealer can say *anything* to the consumer and, at least on paper anyway, not be held responsible. Dealer sales reps will sometimes say nice things like, "Oh, we don't charge for that," when the contract says otherwise. Guess which one has the force of law? In other words, don't listen, READ.

New vs. used. Buying a used car is a good way to save money over buying a new car, but it's not the slam-dunk it used to be. Sure, new cars can lose 10 percent to 20 percent of their value as soon as they are driven off the lot, but they lose a lot of their warranty and free service perks during that first year, too. Also, large rebates make up for some of that depreciation. And most important, buying a used car is a totally different kind of negotiation than buying new. With used, there is only one, and you are bargaining over a scarce item. Walking away might mean the car will be gone if/when you return. Buying a new car is a lot more like buying a box of cereal at the grocery store. You can bargain all you want, and walk away from as many dealers as you want, knowing there's more cereal somewhere else.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.