Price Packing

In addition to the front of the house profit new and used cars are "packed." This is a cost to the buyer that's immediately added to the price of the car. Pack money is nothing more than profit designed to ensure the dealership makes something on each unit they sale. This pack money typically goes to pay the owner of the dealership. On new vehicles the "pack" money is typically $0 or $500 dollars. Dealers often add "pack" money on used cars which varies from $500-$1200 dollars. The amount of pack varies between dealerships. Salespeople are paid after pack money.

Customer Service Fee

The dealership charges this fee for supposedly handling all of the paperwork related to the transaction. This includes the title, tax and tag work. If the customer finances his purchase of the vehicle with a loan from a bank, the financial paperwork must also be completed. Now, the customer service fee is legitimate in at least one respect: It is part of the price of the vehicle that goes towards paying the office workers.

The customer service fee often does not account for the amount charged by the dealership. The fee is often inflated by the dealership above what it actually is. Some states like California regulate the customer service fee, while other states such as Florida do not. Every aspect of the customer service fee, from the title documentation to the tax work, can be negotiated except the sales tax.

Bump-Stickers

Bump stickers, also known as addendum stickers, are blue-and-white stickers that appear next to the MSRP stickler on a new vehicle. Addendum stickers are used by car dealerships to mark up the MSRP. This is done by "adding on" additional products or services, such as scratch-resistant paint. The price of each of these add-ons is marked up individually, so taken together, the MSRP is marked up by a significant amount.

The dealership uses the addendum sticker to negotiate with the customer. The customer may feel as if they are getting a great deal, but the truth is the addendum sticker amount is far higher than the MSRP. The customer is paying more money than they would have to if the dealership used the MSRP.

Car dealerships also get some back-end profits out of the deal. The F&I office will quote the customer a higher interest rate than they actually qualify for, then negotiate it downwards to a "lower rate." This is another way the dealership makes money.

Holding Points Of Rate

When a customer's loan application is submitted by a car dealership to a lender, the lender responds with something known as a "call back." This call back details the loan requirements in order to be approved. The car dealership takes this information and uses it to increase the interest rate offered to the customer on the loan.

Suppose a sales manager submits a customer's numbers to a lender for approval. The lender will reply with the term, the maximum financing amount, documentation needs and the buy rate. The buy rate is the interest rate the lender has approved for the loan. The lender allows the dealership to contract 2 extra points of rate if the customer agrees to the deal. The car dealership often does not tell the customer that they quality for a lower rate, instead offering them the increased buy rate.

Importantly, if the car dealership contracts with the customer for 2 points of rate over the buy rate, not only will the customer pay the dealer more money, but the dealer will be reimbursed for the extra 2 points by the lender. When a customer buys a car from a dealer, it is in their best interest to ask to see the buy rate from the call back documentation. The customer should get a nasty surprise when they compare the buy rate to the interest rate the car dealership is quoting them. If the dealership refuses, that is a dead giveaway the dealership is holding points of rate and trying to fleece the customer.

Down Payment

If the customer has good credit, they should never have to pay a down payment to purchase a car. Sometimes making a down payment is necessary. The customer may have too much negative equity in the trade or a need to lower the monthly payment. The bank will usually have no problem lending to a customer with no down payment if their credit is good and the loan amount is not unreasonably more than the price of the vehicle.

The car dealership, on the other hand, will sometimes tell the customer that the lender is requiring 20 percent down and there is nothing they can do. Another lie is to tell the customer that he will have to pay his taxes and fees in cash. Both of these are blatant untruths designed to get the customer to pay more money than he has to.

The way around this impasse is for the customer to secure his own financing before he goes to the dealership. The dealership may attempt to collect some form of down payment, anyway. The customer must remember that the only entity in this transaction that can tell him he needs to make a down payment is the bank. If the bank tells him he does not need to make such a payment, anything the dealership tells him in that regard is false. Down payments are nothing but extra profits.