I’ve sold cars for four decades – you must avoid saying a disastrous line to a dealer or risk paying the price for YEARS
A CAR dealer who has sold motors for over four decades has revealed the disastrous line you should avoid saying – or risk paying the price for years.
Ray Shefska and his son Zach used their YouTube show to explain how a common money-saving method could actually see you get a worse deal for your new motor.
Many drivers might think that paying for a car in cash would be a great way to stick to a budget and keep costs down, but it can actually sting you in the long run, according to Ray.
This is all to do with the way that car purchases work, with the process being divided into two stages: the front end and the back end.
The front end is the initial transaction for the car, where the equation for how much the dealer profits is simply the price they sell the car at minus the price for which they bought it.
The back end, meanwhile, is the sale of all the extra financing deals, insurance products, warranties and the like that takes place after the initial purchase.
Ray and Zach explained that dealers are happier to negotiate and give “deep” discounts at the front end, sometimes even making losses there, as they can make them up on the back end.
However, if you signal that you are paying for a car in cash rather than putting it on a monthly finance payment before the deal is done, salespeople have less of an incentive to reduce the price of the car as they need to make all their profit on the front end.
If you then decide that you would like to take advantage of the often cheaper warranty or insurance products that dealerships sell along with the car, you still have to pay for those while also losing out on an initial discount.
Ray said: “Once you say you’re paying cash then [the dealer] is not as predisposed to negotiate as deep a discount as they would have been if they were assuming they had the opportunity to make the money back on the back end.
“I have been part of deals where we have lost £1500 or £2,000 on the front end, knowing that we had already set up a back end profit of £3,500 between finance reserve, extended warranty, dent and ding repair.
“Dealers often use the money they can make in the back end, to further discount the vehicle in the front end.
“If you take away one of their profit centres…they’re not as motivated to discount the vehicle up front, they’ve got to make some money somewhere.”
That’s not to say, though, that you shouldn’t ever pay in cash.
Instead, Ray and Zach urged customers to wait until they had negotiated the front-end price of the vehicle (what’s known as the out-the-door price) and the deal is locked in.
If asked by a salesperson, it’s best to just say that you haven’t decided which payment method you intend to use and that you would be most comfortable discussing that with the dealership’s finance manager once an out-the-door price has been agreed.
That way you are likely to get the benefit of a front end discount while avoiding some of the jacked up back end prices that dealers use to grow their profit margins.