When I was newly married I really really wanted a new Toyota Tacoma. We were just looking at prices and dreaming, but somehow ended up in the salesman's office negotiating price. We felt really foolish because we didn't even intend to talk to a salesman. We were just window shopping. There we were in a high-pressure sale when we knew we couldn't afford it. Trying to find a polite exit we made an extremely low offer and refused to raise it at all. For some reason we let them run our credit and it got worse. They kept telling us we could afford it because they had run our credit and they sell cars to people with worse credit all the time... We told them more than once, we had a budget and we couldn't make the payment even if we did qualify. Of course, they asked what we could afford and we told them what our budget would allow... of course, they had some 8-year financing option and were proud they could meet our budget needs. We told them we weren't going to be upside down on a car for 7.5 years.
We were there for 4 hours politely waiting for them to end the conversation so we could leave.
While I was embarrassed that our no-cost-newlywed-window-shopping date ended in 4 hours of high-pressure sales, but we learned a lot. We learned that the salesman will work very very hard to secure financing. They will find "deals" and other ways to reduce the sales price far beyond what you'd think. Even after 4 hours, the salesman followed us out the door finding new ways to make it "affordable" for us.
What I learned is, dealerships make 75% of their profits from financing, fees, and add ons. That's 3x the markup on the car. They will lose money on the sales price if they think they can make it up in finance. I purchased two other cars for cash and realized I couldn't get the salesmen to work as hard as they did when I was a broke newlywed. I've walked out on several cash offers where the salesman just wouldn't work with me. So, this time I hinted I was a financially wounded father with a broken-hearted daughter who had to have the right color, which wasn't that important to me. The pre-approved loan was the real chum in the water. Simply saying I was pre-approved sent the message I was financially desperate and likely to accept a crappy loan. That got them to the base price agreement which we both initialed. Then I asked them about the fees. I told them I didn't need the theft recovery service which was another $500. When I suggested the $299 doc fee was pure profit his tone shifted. I'd reached his breaking point and he was about to back out so I told him I wouldn't argue it and immediately asked if he'd make that deal if I didn't finance through them. He said yes and I asked if he was sure. He reassured me he would make that deal even if I financed with someone else. That's when I told him I'd like to pay cash. The agreed price was about $1,500 over the Kelley Blue Book (KBB) trade-in value for that car. I let them have the dealer documentation fee so they made about $2000 on the car, but that was less than they were expecting with financing kickbacks.
The total price, the amount I wrote the check for, was still below average bluebook.
I just got off the phone with the insurance adjuster. The cash value of the totaled car was only $1,000 less than we paid for the car in February. We lost our deductable, TTL, and that dang documentation fee, but the total loss is about half of what we expected. Happy day!
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