It was actually my brother who was shopping for a new truck most recently. Being in the car business and working with lots of different dealers, I took a look at his application and got him a great pre-approval with one of our national banks. He wasn’t exactly sure about his credit, so he was relieved to see that I got him the best approval available, income waived on a fully loaded 2016 Ram 4X4.
The payments fit his budget like a glove but he wanted to take some time to think about it because he kept seeing the “unicorn” ads about the truck he really loved, the Chevrolet Silverado. The payment he could afford was about $250 biweekly. But he saw an ad for a 2017 Silverado for $74 a week! He couldn’t just ignore that if it was at all possible to purchase the truck of his dreams AND save $100 biweekly.
But my brother knew we was never going to get the $74 per week advertized price on the truck he wanted. We all know that truck is just an advertising trick. Somehow we even know that it's a complete farce when we are looking at it and we don't feel at all entitled to that deal when we go shopping. Salespeople even laugh at us when we ask about, "the one that's advertised in the paper or on Facebook,” and for whatever reason we just accept it.
Want to know why the $74 per week truck doesn’t exist? It’s not complicated. It's basic math. Let’s pretend for a second that the bank who finances the contract on that truck isn’t going to charge any interest for the loan (not likely). While we are at it let’s also say the dealer isn’t going to charge freight, PDI or an admin fee and you won’t be purchasing any extended service. Let’s just say for arguments sake you got the deal of all deals here.
On a 96 month term, (the longest term possible for an auto loan), at 0% interest $74 per week works out to a pre-tax selling price of: $31,050. Now they are allowed to advertise payments without including the HST in Nova Scotia so that $74 per week, after the first * of fine print, is actually $85.84. So right off the bat you are never getting $74 per week no matter who you are and how good your credit is. Even if you get the best deal possible once you add the HST that payment dream is already gone.
But why stop there? Let’s keep going and show you how the “payment creep” works. MSRP on a base model Silverado 2017 is $30,435 so that one they have advertised with the $74 per week payment has an asterisk next to it which says something like, “*Not truck shown. Special order only please allow 3 to 9 months for delivery.” So forget about driving away today. But let’s locate one of the “close to base model” trucks that we do have here on the lot because, “base model trucks just aren’t that popular so we intentionally order them with a few extra options.”
Can I quickly sidebar here? Because I want you to know that when a salesperson tells you stuff like this at the dealership, they are not being dishonest or misleading. This is simply how the marketing for vehicles works. Local dealers and salespeople honestly have very little control in how the manufacturer wants their vehicles advertised and this method is their general rule of thumb.
So let’s find a truck that's actually here that you can actually have, that is close to the advertised price. Here’s one it's not the black one with the chrome bumper like the one in the picture that attracted you here, but it is close to the base model price: $34,989. What would your payment be on that? With no freight, PDI, admin or aftermarket warranty protection? $96.73 per week on a 96 month term at 0% interest.
It's a far cry from the $74 per week that got you thinking you could afford a truck in the first place but hey… it’s not too bad. You can probably stretch for that. So you take it for a ride and this is where the manufacturer does the rest. A new truck smells great. It drives great. You could be the first and only owner and this time you are going to baby this vehicle. You’ll make sure that it’s still on the road 10 even 15 years from now. Sure it's not the black one you wanted. But blue isn’t so bad and you could get some chrome accents for it and maybe some big mud tires? Oh yeah! This is gonna work out fine. You can stretch your budget a bit for this truck.
Back to the dealership and you’re ready to sign up. $96 per week isn’t so bad. Well, now we have to add in the extra costs that you cannot negotiate. The first is the Pre-Delivery Inspection. Can’t sell a car without one. The truck needs to be inspected or you’re not legal to drive in Nova Scotia. Let’s call it $499. And now we have freight. Sure the truck is on the lot now, but it came from Ontario and that costs money. It cost the dealer about $1400 (maybe a bit less) to get it here and they are going to pass that along to you. And then we have the admin fee. All the paperwork the dealer is going to do to transfer the title, register the lien, secure your approval with the bank. They are typically going to charge anywhere from $399 to $699 for that.
So let's add it up keeping in mind that you are still on the longest term possible and at 0% interest (two things that typically don’t go together even for the best credit customers at the best of incentive times with the bank) But hey, this is a unicorn deal so let's just put it together with the best possible numbers and see what we get. Price: $34,989. Freight: $1400. PDI: $399. Admin Fee: $399. That’s $2298 in additional costs that the dealer doesn’t have to advertise and you can’t purchase the truck without paying. This takes your weekly payment to $102.75. Still not too bad eh?
But let's get real. 0% over 96 months doesn’t exist. Even if you have great credit you’ll be paying a minimum of 2.99%. That brings your weekly payment to: $114.99. Most likely scenario on a term that long? Most customers will land around 4.75% - 5.49%. So let’s take the optimal, but realistic, and now your payment is at: $122.95 per week. And this is the number you’ll think you’ll be paying when you sign the papers and arrange your delivery appointment a week later.
From $74 per week which brought you into the dealership to now $122.95 per week, still within your budget, but you must be feeling a little taken by now. So just to add salt into the wound let's show you what it will cost you to put some extended protection on your vehicle. Let’s say you go with the extended warranty protection for $2200. Let’s throw in a one time only $1400 undercoating, and heck, let’s give you a $499 GAP coverage which is an insurance that pays off the balance owing of an auto loan in the event of a total vehicle loss. I mean, if you write off your truck when there’s $30,000 left owing on it and the insurance company only gives you $23,000 for the value of the vehicle, are you really going to want to come out of pocket for the remaining $7,000 just to keep your credit in good standing? You need the GAP.
So let's go ahead and use some guilt laced salesmanship to add another $4099 in back end product to your auto loan. You’re excited to get the truck home and you don't want to start this process all over again somewhere else, plus the coverage you’re getting is actually great protection. So why not? Let’s see what it does to your $74 per week payment.
Now you’re at: $136.57 but that’s it! That’s everything included. Great protection, tax interest everything. $136.57 is the total amount that will be coming out of your account every week and you got the truck you wanted! Sigh of relief that it's over and enjoy your new ride!
Here’s the kicker. $136.57 is $273.25 bi weekly. That's $23.25 MORE EXPENSIVE biweekly or another $604.50 per year, an additional $4,836 over the life of the auto loan, than the truck my brother didn’t buy because the Silverado was supposed to be cheaper.
And, maybe that’s okay. It could be worth the extra cost for him to get the truck he prefers. But he didn’t decide to go with the base Chevrolet over the loaded RAM because it was the truck he preferred. He did it because it was supposed to be cheaper. In my opinion this is a manipulative way to market your vehicles and the Auto Advocate will simply not participate in it. Back to Top
The truth is they don't have them. No single dealer can advertise that they have all the inventory because there are many dealers who all have vehicles for sale and there's no way dealer 1 is going to advertise dealer 2's vehicles on their website. So when they say they have 2000+ Cars for sale what they are really saying is, they have "ACCESS" to 2000+ Cars, Trucks, SUV’s and Minivans, and BY THAT they mean they go to a weekly auto auction just like every other licensed auto dealer in the world.
IT’S NOTHING SPECIAL is what I mean. In fact, even if a dealer doesn’t have a vehicle that will work for you on their lot, they can generally get one within 30 to 45 minutes. As an ex-dealer myself I know that being successful in that world is all about being well connected. If you absolutely need a Caravan with Sto-n-Go seats it can actually be to your advantage to allow the dealer who doesn’t have one to locate it for you. They may even discount the price a bit if they can secure your business by locating you the vehicle.
Then again, if you really do want to go to the auto group with the most vehicles, then you have to go in town to the big players. These guys have names like O’Regans or Steele and they really do have 2000+ vehicles to choose from.
But you are only looking for 1 vehicle and while it’s important to have a wide selection, that alone will not guarantee you the best deal or even the best vehicle for you. Sometimes dealing with a smaller dealership which deals in lower volume is the way to best receive the red carpet treatment.
My advice would be to start to narrow your search based on the most basic information about the vehicle starting with your needs. Do you need a 2 door or a 4 door? Manual or Automatic? Are you looking for a Car, Truck, SUV or Minivan? And how much are you looking to pay bi-weekly or per month?
Going in saying to yourself, “It must be the 2016 Ford Escape with leather interior and a sunroof,” may not be your best bet. Often times customers are not honest with themselves or simply haven’t taken the time to really understand what their needs and wants in a new vehicle are. A good salesperson will help you with that, and hey, they may even suggest a newer, nicer vehicle that you hadn’t thought of, maybe even one that’s easier on your budget. Now THAT’S what I call a car buying win! Back to Top
Some dealers will offer you $500 if they can't get you approved. Or $1000 cash back when you buy your car. How much cash do you think they really give out on a promotion like that? You're looking for a vehicle right not a pre-paid credit card. Don't get caught up in the dealer spin machine.
All the auto dealers who advertise primarily to subprime customers with the “Everyone’s Approved” or “All Applications Accepted” or “We’ll Give You $500 If We Can’t Get You Approved” don’t want their customers to know this simple truth: Most, if not all, of the licensed dealers in Nova Scotia have access to the exact same subprime lenders. Unless a dealer is offering to finance your purchase “in-house,” meaning they are going to lend you the money out of their own pocket, basically every dealer you visit will have generally the same financing tools at their disposal.
There are even some banks (income funds) whose policy it is to never issue a decline when deciding on whether or not to lend someone money.
Again, understanding the reasons why a bank will lend and why they won’t is not rocket science. Banks are about maximizing investment returns while minimizing lender risk. One way they can minimize the risk that their loan will not be paid back is by lending large amounts of money to people who have excellent credit ratings and low interest rates. When they are dealing with customers who have a shaky credit history, they will still lend money, but they will generally lend less money, at a higher interest rate and dictate other aspects of the loan requirements. They may require a customer to prove their income with pay stubs or provide a letter of reference from their employer.
The main point to take away here is that no matter who you are and how great or horrible your credit history is, there are options available for you to enter into an auto loan contract. It's absolutely true when dealers say they will give you $500 if they can’t get you approved. But it’s really another way of them assuring you they will give your application the most attention they can. You can believe me when I say, they don’t write a lot of $500 cheques. Now, at times they may offer a customer an approval that comes with an exorbitant down payment, or the requirement that a previous auto repossession be paid first in full, but the CYA they hold tightly to is that they can actually produce a document with your name on it and green letters at the top that say, “Approved!” no matter who you are, provided you are legally eligible to purchase a vehicle and you are employed.
Why are the subprime dealers so confident? It isn’t because the new car dealers can’t get you approved. Unfortunately its usually because they simply don’t invest the time and energy necessary to follow through with your application. It’s no secret in the car industry that good credit customers generally offer you a better pay cheques than bad credit ones. There are more of them, they are usually not limited in vehicle selection and their loans are much less complicated to put together. Not only that, when you are paying 0% interest there is usually a lot of wiggle room to upsell back end products like warranties and insurances without effecting the payment too much.
Long story short? Some new car dealers simply do not want to spend twice as much time for half as much money. Personally I don’t think that’s very ethical. If there is a vehicle available for sale and you can provide financing for it, but you just aren’t interested in doing the work, you aren’t doing your job. We in the car business are compensated very well for the jobs we do. If a dealer isn’t willing to give you the attention you deserve as a “customer” not a “prime customer” or a “sub-prime” customer, they don’t deserve your business. Back to Top