Do not fall for these 3 car dealership traps! When we founded CarEdge five years ago, our mission was simple: empower customers to navigate car buying with confidence. While we’ve come a long way, car dealerships continue to use tactics that make negotiations challenging. Recently, I tested our CarEdge negotiation templates by interacting with dealerships firsthand, and the results were eye-opening. Here are three common car dealer tactics and, more importantly, how you can play it smart.
1. Dealer won’t give the out-the-door price
The number one piece of advice we always give to DIY car buyers is to insist on negotiating the out-the-door price. The out-the-door price (OTD price) includes taxes and fees, giving you a true picture of the total cost of the car. We have a free OTD price calculator that can be a valuable tool while you shop.
Unfortunately, it’s often a challenge to get an OTD price from car salespeople. They will tell you that you need to stop by in-person to get an accurate quote. It’s simply not true. As long as you’ve shared the exact vehicle you’re interested in and your zip code, nothing is keeping them from sending you the car’s OTD price. This is a problem I ran into multiple times as I interacted with dealerships. In fact, it’s a common car dealership tactic.
Take the following exchange with a Florida Honda dealership, for example. Our messages started off as expected…
Soon, our texting turned into a back-and-forth about one thing: my insistence on seeing the out-the-door price for a Honda CR-V I was interested in.
Notice that as a confident car buyer, I didn’t back down. If you keep asking, the salesperson will eventually share their out-the-door price quote with you. And in the rare event that they don’t, you definitely don’t want to give them your business anyway. Here’s how this conversation ultimately played out.
See, that wasn’t too much to ask, was it?
Let’s take a look at other car dealership tactics that buyers face when inquiring about cars online or via text.
2. They want to know if you have a trade-in
You may have caught it in the messages shared above, but car salespeople always want to know how much is in it for them. And by that, I simply mean how much money they will be making. And with that, comes the question of whether or not you have a trade-in that they can expect to resell either on their lot or at the auction.
Here’s how quickly the representative from Honda of Aventura brought up the question of a trade-in.
The story was the same at other dealerships. All too often, the salesperson insists on knowing if you have a trade-in. There’s a simple way to handle that – don’t give them an answer. As we talk about in the trade-in tactics for success guide, you should always treat your trade-in and the vehicle you are purchasing as two separate transactions. A polite way to work around their question is to kindly say that you may have a trade, but you’re not sure right now. Then follow that up with a reminder that you really just want to know the out-the-door price after all.
Why shouldn’t you share if you have a trade-in? Car dealers like to treat your trade-in and new purchase as one transaction, allowing them to play with the numbers to make them more favorable for them. Getting a car deal that’s almost too good to be true? Expect them to offer less for your trade-in. If you insist on keeping your new car purchase and trade-in as separate transactions, they won’t be able to use your trade-in against you.
3. The dealer adds accessories you don’t want
If you’ve purchased a new or used car in the past decade, you’ve almost certainly encountered cars with unnecessary and sometimes downright odd add-ons. The story from the car salesperson is always the same: the car has this great product, and since it’s already on the car, it’s added to the vehicle’s price.
These car dealer fees add little value despite potentially costing hundreds or thousands of dollars. If you don’t want the product, these fees or ‘add-ons’ are always negotiable:
Etching – You can find it elsewhere for significantly less.
Paint protection – A wax job at a local shop will be more cost-effective.
Nitrogen-inflated tires – The benefits are minimal, and air inflation works just as well.
Pinstripes – These are often overpriced and outdated styles.
As you can see from my outreach, one dealer added $999 in accessories. What are these accessories? Do I want them? Did I ask for them? When you negotiate the out the door price, be prepared to negotiate these accessories off the price of the vehicle.
All car buyers should remember this: you don’t have to accept markups for forced add-ons. If anyone tells you that you do, then remind them of pending lawsuits about this deceptive practice. Here’s how we negotiate dealer add-ons effectively:
Push back, and ask for a copy of the add-on product’s contract.
Point out that on the contract, it is clearly stated that accepting the product is voluntary and is not necessary to obtain financing.
Don’t hesitate to say that you’re walking away from the deal. The salesperson (and sales manager) need to know that you mean business, and are not simply in love with the car.
As I just experienced firsthand, the key to successful car buying is staying in control of the negotiation process. Car dealership tactics will often try to steer the conversation toward their advantage, but by being persistent and informed, you can avoid common traps like hidden fees, unnecessary add-ons, and unclear pricing.
Don’t hesitate to push back when necessary, and remember: you can always walk away from a deal if it doesn’t meet your expectations. You hold the power in these transactions, so use the free car buying resources at your disposal to secure the best possible outcome.
Electric car prices have fallen off of a cliff. Depending on your stance in the market, this could be great news, or far from it. Since September 2022, the average used electric car price has tumbled from $63,069 to $33,645. That is a 47% loss of value in a little over a year and a half.
At the same time, used internal combustion engine vehicles have seen their prices decline too. Since September of 2022, used cars powered by internal combustion engines have seen their average price decline from $34,000 to $32,000. This 6% loss in value over 18 months is more like what we would expect.
A closer look at some EVs for sale today reveals that a 47% drop in value would actually be a better scenario, believe it or not. Should EV buyers consider this drastic drop in value to be a good or bad sign? We’ll get into that too.
EV Depreciation Shock: Popular EVs Lose Half Their Value Instantly
The actual value of new electric cars is significantly lower than their starting MSRPs. Take for example this BMW i4 that is currently for sale. The manufacturers suggested retail price is $64,740. The CarEdge Target Discount from the dealer is 8% off of MSRP which is a price of $59,561.
What happens when you plug this vehicle into CarEdge.com/sell and receive instant cash offers? With just 500 miles entered on the odometer, the highest cash offer is $28,370 from CarGurus.
That is an astounding 56% loss of value the moment you drive the car off the lot!
Things get even worse when you look at the Mercedes-Benz EQS. This 2023 Mercedes-Benz EQS has a manufacturers suggested retail price of $156,170. The CarEdge Target Discount is 15% off of MSRP, leading to a selling price of $132,745. 15% off of a Mercedes seems like an excellent deal! Until …
When you plug this vehicle into CarEdge.com/Sell with 500 miles you get an instant cash offer of $67,000. Again, a 57% loss in value.
Even Ford’s Big Discounts Aren’t Enough…
When Ford launched their flagship ‘Tesla-killer’ EV in 2021, nearly infinite demand was expected by Ford’s leadership. “It’s hard to produce Mustang Mach-Es fast enough to meet the incredible demand, but we are sure going to try,” said Ford CEO Jim Farley at the time.
How times have changed. From boasting production targets of 200,000 copies by 2023, to struggling to sell last year’s inventory even today, Ford EV sales have not lived up to their corporate expectations.
The good news for buyers is that great deals can be had on a new Mustang Mach-E. But is it enough to lift buyers out of negative equity from day one?
This new 2022 Mustang Mach-E was STILL on the dealer lot in early 2024. In fact, about 100 new 2022s remain across the nation. With a $27,000 discount, surely it’s a steal, right? Not so fast…
Here’s how much online car buyers would pay for that exact car, the moment it is driven off of the lot…
That’s right, a 48% drop in market value from day one. Although this was a 2022 model, roughly two-thirds of all new Mustang Mach-Es on dealer lots today are leftovers from 2023. No one should be paying MSRP for last year’s cars in spring or summer of 2024. See how low prices are near you.
What This Means For Buyers
Lower selling prices is welcome news for EV buyers, but with a few VERY important caveats.
Advice For New EV Buyers
The only folks who should be buying new EVs right now are those who plan to keep them for a long time. Otherwise, buying an EV is a very risky financial decision if there’s a chance you’ll be looking to sell anytime soon.
Unless a hefty down payment or trade-in is made, buying a new EV in 2024 puts buyers at significant risk of becoming ‘underwater’ on their car loan. This means that your car is worth less than you owe on the loan (learn more here). It’s a situation you want to avoid, no matter what.
Leasing an EV is another great option, and there are some great EV lease offers out there today. Plus, leasing is a low-stress way of trying out the EV lifestyle for the first time.
Advice For Used EV Buyers
This is where the EV depreciation crisis turns into good news for some. If you’re open to buying a used electric car, the shocking depreciation of today’s new models is in your favor. Previously, EV buyers had to decide between the benefit of the federal EV tax credit (available only on select models), or somewhat lower prices on the used market. Today, that’s no longer the case.
In 2024, the price gap between new and used EVs couldn’t be more clear. The savings that come along with a used EV are no match for even the most generous of new EV incentives. With new tools like Recurrent Auto, you can even check a used electric car’s battery health before buying.
Used EV buyers can take advantage of rapid depreciation to score a sweet deal on any used EV, from Tesla to Ford and everything in between.
In 2024’s changing EV market, there are more reasons than ever to equip yourself with car buying know-how. The good news is that we have 100% FREE resources to get you there!
Understanding used car dealership profit margins can make buying a car at a fair price easier than you’d think. Thanks to fresh industry data we have insight into the profitability of eight publicly traded dealership groups. And while most used car dealers experienced a decrease in gross profits per used vehicle sold in Q1 2023, there were exceptions — Carmax (+3%), AutoNation (+35%), and Carvana (+52%).
Here’s the breakdown:
Carvana: $4,303 (52% increase)
CarMax: $2,277 (3% increase)
Asbury: $2,141 (14% drop)
AutoNation: $2,117 (35% increase)
Group 1: $1,689 (16% drop)
Lithia: $2,120 (30% drop)
Penske: $1,808 (21% drop)
Sonic: $1,626 (6% drop)
So, how does understanding dealership profit margins empower you, the consumer to get a better deal? Let’s dive in.
Timing Your Purchase and Negotiating Power
Fluctuating profit margins in the market hint at competitive dynamics, potentially paving the way for better deals for consumers. This could be an excellent time to consider buying a used car, especially from dealerships that are currently facing profit contractions.
With the knowledge of dealership profit margins, you could have an edge in price negotiations. If a dealership enjoys high-profit margins, there may be more room for negotiation. On the flip side, those with tighter margins might not offer as much price flexibility, but they could be keener on making a sale.
Interestingly the used car dealers with the greatest profit margins are Carvana and CarMax, the two dealer groups that do not allow negotiations. This means that if you are considering purchasing from one of these dealers you need to understand that you are paying a premium, and you likely could save money on a comparable vehicle from another dealer.
Exploring Dealerships and Researching Vehicle Value
Don’t restrict your search to one dealership or group. The disparity in profit margins among dealership groups underscores the value of shopping around. Independent dealerships could also provide attractive deals.
It’s also paramount to research the fair market value of the vehicle you’re interested in. Resources like CarEdge can provide an extensive array of data to help you make an informed decision.
Days Supply of Dealership Inventory – Another Crucial Metric
Understanding the days supply of inventory is another valuable piece of information. It indicates how long a dealer’s current stock of used vehicles would last given the current sales rate. The longer a vehicle stays on the lot, the more it costs the dealership in the form of floorplanning costs, which can encourage them to negotiate on price.
Current used inventory days supply for the six groups are:
Asbury: 27 days
AutoNation: 29 days
Group 1: 30 days
Lithia: 52 days
Penske: 39 days
Sonic: 29 days
Unfortunately we do not have a reliable source for days supply for Carvana or CarMax.
This information could influence your buying strategy. Dealerships with a high inventory supply might be more willing to negotiate on price. Timing your purchase when the inventory supply is high could lead to better deals. A high supply might suggest overpricing or less popular models, whereas a low supply could indicate competitive pricing or high-demand models.
With this knowledge of dealership profit margins and days supply of inventory, you’re well-equipped for your next car buying journey. It may not look like the good old days, but you’re setting the stage for a win-win negotiation. After all, in this new era of car buying, information is your strongest asset.
In June, the Federal Trade Commission proposed a new set of rules that would ban unscrupulous sales practices that are commonly employed at car dealerships. Among the notoriously anti-consumer practices targeted are the sale of products without benefit, bait-and-switch pricing, forced add-ons, and discriminatory practices for cash buyers.
There’s a reason the annual trustworthiness of profession poll from Gallup ranks car salespeople at the bottom; it’s not because every salesperson is bad, it’s because a few bad apples ruin the bunch. Over the years I have heard countless stories from our community of these aforementioned practices. Still, powerful dealer lobbies are combating the FTC proposal, and it’s become clear that they’re determined to defeat the proposal at all costs.
Fortunately, consumers have a real opportunity to have their voices heard. A public comment period is now open until September 2022, and we’re calling on you to share your opinion with the FTC. It’s clear that auto dealers are already amassing a unified position, and we need to do the same. If consumers show up in numbers, car buying may be transformed for the benefit of we, the people. Time is of the essence, as this narrow window leaves less than two months for the public to share their support.
FTC Proposal Levels the Playing Field for Car Buyers
On June 27th, The Federal Trade Commission proposed a new set of rules that would ban specific auto sales tactics commonly used by car dealers to take advantage of consumers. In an FTC proposal titled Motor Vehicle Dealers Trade Regulation Rule No. P204800, the following auto dealer practices are targeted:
Selling Products with No Benefit to the Customer
Advertising the Real Price of the Car Online
Non-Discriminatory Practices for Cash Buyers
Enhanced Consent for F&I Products
FTC Bureau of Consumer Protection Director Samuel Levine explained the reasoning behind the proposed rules. “As auto prices surge, the commission is taking comprehensive action to prohibit junk fees, bait-and-switch advertising and other practices that hit consumers’ pocketbooks. Our proposed rule would save consumers time and money and help ensure a level playing field for honest dealers.”
The average new car transaction is now $47,202, or 72% of the median household income in the United States. Bait-and-switch pricing, forced add-ons and dishonest financing tactics have all contributed to the average monthly car payment soaring to $730, 40% higher than the average payment just five years prior. With car prices at record highs, consumers are fed up with anti-consumer sales tactics that proliferate at many dealerships nationwide.
This is our chance as consumers to unite behind a proposed rule that could change car buying for the better unlike ever before. However, this battle is far from won.
Car Dealer Dissent Has Been Swift, Yet Flawed
The National Automobile Dealers Association, or NADA, is a nationally-recognized industry and political force that represents over 16,000 auto dealers nationwide. Every year, the NADA and its counterpart for independent dealers spend millions of dollars lobbying politicians to advance legislation that is pro-dealer, too often at the expense of the consumers the auto industry relies on. The power and influence of today’s car dealers can be traced directly to the NADA and NIADA.
Needless to say, the dealer lobby isn’t happy about the FTC’s proposed rules. In a letter to the FTC, the NADA characterized the proposal as unsupported, sloppy and inconsistent. How so? NADA senior vice president Paul Metrey dismissed the proposal as “woefully inadequate” because the regulation is unnecessary in his view, because it would address “things they can go after” already. It’s as if dealers and their powerful lobbies are fully aware of the anti-consumer sales tactics flourishing in the industry, but are content with pushing the limits of regulation until enforcement encroaches on their bottom lines.
Another flawed argument promoted by the NADA is that complaints are few and far between. The FTC said it received more than 100,000 auto-related complaints in 2021. To counter that startling statistic, the NADA says there were 42 million new- and used-car sales last year. We all know that car buyers rarely have the time to seek out the procedures to submit a formal FTC complaint. Consumers have jobs, families, and other financial obligations on their minds. Imagine if one out of twenty dishonest car sales resulted in a formal complaint. In reality, reporting is likely even lower.
CarEdge’s Community Members Share Troubling Car Buying Experiences
There’s no way of knowing just how widespread this problem is, yet every day our community of CarEdge members shares tales of shady dealership practices, and dishonest, anti-consumer tactics that cost them time and money. Whether it be comments on YouTube, or essays we receive via email; our millions of monthly viewers are fed up with the status quo, and demand change.
Industry media outlets are picking sides, and some heavyweights are clearly siding with dealer lobbies. Industry news outlet Automotive News published an editorial promoting the talking points disseminated by the NADA and NIADA. They too are calling for interested parties to submit comments during the narrow public comment period.
The Time to Act Is NOW. Make Your Voice Heard By Submitting a Comment in Favor of the FTC’s Proposal
The FTC’s open commenting period is now open, and it will remain open until September 12, 2022. Anyone can submit a comment to voice support or displeasure with the proposal. In a classic David versus Goliath scenario, dealer lobbyists are facing off against consumers like you and I. With massive auto dealer lobbies and even media outlets calling for dealers to submit comments opposing the proposed rules, it’s up to all of us to make our voices heard. Submit a comment today on Regulations.gov. This should be a priority for all Americans who are sick and tired of car buying being synonymous with deception and dishonesty. We’ll keep you posted on the latest developments.
As someone who spent 43 years managing automobile dealerships and advocating for better enforcement of rules and regulations regarding dealer advertising and F&I practices, I strongly support your efforts to finally rid America of the unethical practices that many dealerships employ. Business decisions are made by dealerships everyday as to how to advertise the price of a vehicle online. Should we include the destination charge that is part of the MSRP in the price or should we disclose that in the small print? Should we disclose any dealer installed accessories or packages that the customer is expected to pay for in the advertised price or should we only disclose that once they have come into the dealership? Should we disclose all dealer and state fees or again wait until the customer has agreed to buy the car? How should we disclose our F&I offerings, or our rate markups for placing indirect loans? These are all business decisions that truthfully should not have to be made, full disclosure and transparency is not only what consumers want, it is what they are entitled to. You can read many consumer complaints in regards to this issue on our YouTube channel: https://www.youtube.com/c/CarEdge/ videos, just click on just about any video and read what consumers are saying on a daily basis.
One must question what is wrong with a society as a whole when everyone knows that consumers are taken advantage of everyday when purchasing a car or truck and everyone turns a blind eye to it. Law enforcement, consumer protection agencies, State Attorney Generals, the Federal Trade Commission and many other “consumer” protection organizations all know what is going on yet do next to nothing to correct it. The essence of commerce should not be “who can we take advantage of today” but rather how can we operate in a consumer respectful and honest manner. I believe the enactment of these proposals would bring us closer to the later and finally rid our society of the former.
Average monthly car payments have been increasing ever since the beginning of the chip shortage in 2020. Today, the average monthly car payment for a new car exceeds $700 for the first time ever, while the average monthly car payment for a used vehicle is more than $500.
Over the last 18+ months we’ve covered the tenuis rise of car prices. It’s shocking to think that the average car payment is now closing in on the average mortgage payment in America. Data from Edmunds shows that 12% of new car buyers in June are paying more than $1,000 a month. In 2021 the average home mortgage payment was roughly $1,000 a month. Let that sink in.
Here’s the latest data on new and used car payments, affordability, and which vehicles you should consider if you are looking for a relative “bargain” in today’s market.
Let’s dive in.
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Average monthly payment on a new car
Data from J.D. Power/LMC Automotive suggests that the average new car transaction price was $45,844 in June. As compared to data from Cox Automotive, this average transaction price is actually down considerably when compared to prices from the end of 2021 and earlier in 2022.
For example, at the end of 2021 the average transaction for a new vehicle was $47,077 according to Cox Automotive, however the average monthly payment was only $688. This was a function of cheaper interest rates.
Today, the average monthly payment for a new car stands at $712 dollars. That is more than rent for a one bedroom apartment in some cities.
City
Rent
Akron, OH
$640
Wichita, KS
$710
Lubbock, TX
$720
Shreveport, LA
$740
Lexington, KY
$800
El Paso, TX
$860
Baton Rouge, LA
$860
Tallahassee, FL
$860
Oklahoma City, OK
$870
Des Moines, IA
$890
Average loan terms for a new car sit at 70 months, with most consumers opting for 6 year financing terms at an average interest rate of just over 5%. Back in December of 2021 the average new car interest rate was under 4%, accounting for the uptick in monthly payment amounts.
Average monthly payment on a used car
As you very well know, used car prices have skyrocketed ever since the beginning of the chip shortage. For the first time ever, the average used car monthly payment sits above $500. Data for Q1 of 2022 shows an average interest rate of 8.6% and an average loan term of 68 months. We expect data for Q2 to show a significant increase in the interest rate and monthly payment. We would not be surprised to see 9%+ as the average interest rate on a used car loan, and monthly payments in excess of $525 for the first time ever.
Used hybrids and electric vehicles are especially expensive in today’s market, with monthly payments on more fuel efficient vehicles in excess of $700.
What vehicles have the most affordable monthly payments?
Cox Automotive tells us that the average transaction price for a new car was $47,148 in May 2022. Where are the new car values?
Sadly, non luxury vehicles are seeing their prices increase rapidly as more consumers look for “value”. The average price paid for a new non-luxury vehicle in May was $43,338; on average a customer paid $1,000 over MSRP for a new non-luxury vehicle. We are seeing some below MSRP deals on Stellantis brands; Jeep, Ram, Alfa Romeo, Chrysler.
The average luxury car buyer paid $65,379 in May. They also spent about $1,000 over MSRP to get their new car.
The average electric vehicle buyer paid $64,000 in May. The Chevrolet Bolt represents the only real “bargain” in the EV space.
The average truck buyer paid $56,216 in May, while the average van buyer paid $48,671, and the average SUV buyer paid $46,073. The only “value” segment on the list are cars, where the average sedan buyer paid $41,902 in May.
Automakers such as Nissan have average transaction prices of $34,681. Compared to other automakers such as Toyota ($40,036) and Hyundai ($35,988) they represent a relative “steal”.
Ford, Stellantis, and GM have seen their average transaction prices increase significantly. Ford’s average transaction price stands at $49,528. Stellantis is at $53,212, and GM is at $50,854.
States eligibile for below invoice pricing and 100% free delivery:
Alabama, Arkansas, Texas, Oklahoma, Florida, Georgia, Kentucky, Louisiana, Maryland, Delaware, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.
What if I don’t live in these states? If you're outside these areas, don't worry! We're committed to making sure everyone can enjoy our deals. Although the delivery fee will not be waived, you can still purchase from CarEdge and either pay for shipping or coordinate pickup at a participating dealer.
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