A Trip to the Dealership for Routine Maintenance
Part 2 of 2
In my last post, I wrote about the question car dealerships love to ask during a routine service visit (and have software to track you with!):
Here is a breakdown of how this dealership scheme can take real money out of your pocket.
We are going to follow Trade-in Terry, who owns a perfectly functional and reliable 2022 Toyota Rav4, as he visits the dealership for a routine tire rotation.
Terry purchased his new 22 Toyota Rav4 XLE AWD in January of 2022 with both available packages. He paid the MSRP price of $33,639 (the price 3.5 years ago), and he put down $5,000, financing the remainder with the dealership.
Below is Terry's initial loan:
2021 Rav4 XLE AWD
- Down payment$5,000
- Term60 months
- Interest rate (7.98%)$647.17/mo
The amortization schedule shows the payoff after 3.5 years and 42 payments (this is the time left when Terry is at the dealership for his tire rotation) is $10,944.63 as remaining principal.
Using actual auction data, we know that the vehicles true wholesale/trade value after 3.5 years, with 35,000 miles, is approximately $27,000 (subject to change based on condition).
While Terry is waiting, the salesperson takes the opportunity to approach Terry and tell him that he can "get into a brand new car, for about the same payment with little to no money down!"
Terry is intrigued and told that the dealership can get him into a brand new Rav4 for only $11 a month more, and he only has to put $1,000 down! He is (strategically, by the dealership) not shown a breakdown of the numbers.
What Terry does NOT know is that he should have about $16,056 in equity.
- Approximate trade value$27,000
- Minus payoff$10,944
What's happening? Why is this a very bad deal?
Below is a probable structure of the deal that the dealership put together, but Terry isn't shown or told. In reality: the dealership is making over $14,000 by Terry agreeing to go up in payment $11 a month and putting down $1,000. This is how they are doing it!
- Selling the vehicle over MSRP$500
- Vehicle Profit at MSRP$3,000
- Interest Markup$1,283
- Holding on the trade$7,000
- Profit in "free" products (added without telling Terry)$2,500
*These are all approximate*
Unfortunately, Terry didn't contact YourCarHaggler.com to talk through the dealership games with him and got convinced that this was "the deal of the month, because [they] really wanted his current car!"
Terry's payment did only go up $11 a month (was $647 and now $658), but Terry's payment could have gone DOWN $274 a month had he ignored the monthly payment, focused on the numbers, and had us on his side.
How do we help?
If Terry called YourCarHaggler.com, we would have ensured that the deal was truly in Terry's favor and ensured no games were played.
Although Terry absolutely doesn't need a new car, if he decided to get one, it's our job to help him buy as responsibly and wisely as possible.
Below is what his deal structure may have looked like with our help.
- We would have helped Terry get a discount on the Rav4.
- We would have helped Terry secure a better interest rate on the loan.
- We would have fought for Terry to ensure a great trade in value.
- If Terry decided that he wanted an extended warranty, we would have helped him save on that too!
We focus on total cost of ownership, seeing past the manipulative payment tricks. We show our clients the whole breakdown, so they know what they are really paying.
If you are ready for a new or used car, we'll help you do it the smart way... not the dealership's way.
When you are ready for a new or used car, we'll help you do it the smart way, not the dealership's way.
Your Car. Your Terms. YourCarHaggler.com
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