Don’t Get Thrown Under the Bus

30 Jan

In a time when the profit margins in most sales industries are decreasing there is an increased interest in other ways to improve the bottom line.  One industry that has found a way to increase their margins is the used and new car industry.

The internet has leveled the playing field in many ways for the used and new car industry.  Small car lots such as ours in a very small town can show their vehicles on-line next to the new car stores in large cities. 

When we place our cars on-line and advertise our pricing it is seen next to the larger dealers and smaller ones depending on the search a customer chooses for locating a vehicle in their area, price range, and other criteria important to them.  This provides us the opportunity to show our vehicles to an audience we didn’t have ten years ago. 

Our car lot has a price advantage in some ways because we have low overhead compared to larger dealerships.  We do not have a showroom of salespeople staring out the window or roaming the lot waiting for a customer to stop on the lot.  We have one person responsible for buying and selling on our lot, my husband, who if not busy selling or buying cars, is busy fixing them.  He is also a mechanic.  Each of our employees are flexible in their abilities and job descriptions.

How in a difficult financial and very competitive time do you increase your profits when everyone is busy trying to undercut the competitor?  The answer is the backend.  In the used and new car industry the front end of the deal is the cost of the vehicle, transfer fees, document fees, and sales tax.  This is pretty standard from lot to lot and state to state.  It will vary between the sales tax rate in different states and the cost of registration from state to state.

After you think you have made your deal and you know all the up front costs for your vehicle you are generally sent to the F & I guy in the sales department.  It is this person’s job to sell you more stuff.  The salesperson did a great job of selling you on the car you are purchasing. 

It is the F & I guy’s job to take your peace of mind that you had about purchasing your vehicle and take it a way one piece at a time.  They will then try to sell your peace of mind back to you one piece at at time in the way of added stuff for your vehicle. 

The Finance and Insurance guy will try to sell you glass protectant, fabric protectant, service contracts, gap insurance, extended warranties and rust protectant for your new or used vehicle.  This is where the profit comes in.  These are added on to your previously agreed upon price.  They will try to sell you on it by saying it will only cost you so much per month on your car loan to add this or that to your purchase price.  It doesn’t sound like much but over the life of a loan it can be a lot.  We don’t sell any of this add-on stuff at our lot and don’t recommend you buy it.

Most of the things they want to sell you are unnecessary.  Rarely will you be able to collect on a repair from a service contract because there are so many criteria that you must meet to collect or the company has gone out of business before you can collect.  The dealer will get to keep a very large percentage of your service contract money right away so it is in their interest to sell the stuff whether you need it or not.  It could be the item that will  determine whether they will make a profit on the sale of the vehicle or not.  The F & I guys are paid well to do their job and they are great at it.

A very important fact to keep in mind if you do buy all the add-on stuff for your car you could end up owing more than the car is worth right away.  This might not be as  important if you keep the car the entire time of your loan period and pay it off.  If you end up trading the vehicle off before the end of your loan period or have an accident that totals out your vehicle before the end of your loan period, this is very important because you will be “Upside Down” in your vehicle.  This means that you still owe more money on your loan  than what a dealer, private party, or insurance company will give you for your vehicle. 

 The insurance company or dealer will give you only what your vehicle is worth not  your remaining loan amount.  You will have to come up with the difference to pay off your loan to the bank when the insurance company settles or you trade in your vehicle.  This is the only time that gap insurance makes sense.  If you have bought all the other add-ons offered by the F & I guy then you should buy the gap insurance unless you have money in your savings account to cover the difference.

The best thing to do is to not buy any of the add-ons offered by F & I guy, they are rarely worth it.  You are money ahead to put something away in a savings account each month for car repairs than buying a service contract and find a trustworthy service garage.  Putting aside money each month for maintenance is important.  Rarely does $50.00 a month budget cover it in a year’s time but if that is all you have to put aside, do it.  At least you will have a start and won’t have to put repairs and maintenance on a credit card.  Just a set of tires for a car can set you back $500 or more and that wouldn’t be covered by a service contract.

Remember, when you made the deal for your vehicle you had peace of mind about your new purchase…Don’t get thrown under the bus by the F & I guys!  Be smart!


Posted by on January 30, 2011 in Business Matters, finances


Tags: , , , , , , ,

20 responses to “Don’t Get Thrown Under the Bus

  1. Booksphotographsandartwork

    January 30, 2011 at 11:28 pm

    Thanks for the tips!

  2. flyinggma

    January 30, 2011 at 11:34 pm

    Thanks for taking the time for reading a longer than usual post!

  3. nrhatch

    January 30, 2011 at 11:39 pm

    Thanks, Jeanne. We avoided all those add-ons with our last 2 car purchases, but it’s great to have someone in the business reinforcing that decision.

  4. flyinggma

    January 30, 2011 at 11:54 pm

    Good for you! I worry about the young individuals just starting out making a mistake like purchasing the add-ons. The F & I guys are very persuasive sales people. I’ve know them to sell very expensive extended service contracts on brand new cars. The customer would have been better off to just trade off their car at the end of the factory warranty than to have purchased the extended service contract on their new vehicle.

  5. Joe Clark

    January 31, 2011 at 6:42 am

    Great & useful post! I hope those younger individuals you mentioned read this. Ever since I discovered those big dealerships like charging $400 for a $50 job, I have never gone back.

    • flyinggma

      January 31, 2011 at 7:14 am

      It’s not only the big dealerships, Joe. We could sell all those same products to our customers if we wished but we choose not to because it is not in our customers best interest.

  6. writerwoman61

    January 31, 2011 at 8:30 am

    Thanks for the informative post, Jeanne! I think most of us tend to err on the side of caution when it comes to making big purchases…it’s good to get a view from “the other side.”


    • flyinggma

      January 31, 2011 at 8:36 am

      I think that one of the things that they prey on is a person’s insecurity when it comes to the knowledge about vehicles and their repairs. Some F & I guys like to “frighten” their customers into purchasing their products with the cost of replacing parts the almost never fail. I’m not saying that a part couldn’t fail and need replacement but you are still better off saving than adding to your loan amount for that event.

  7. pearlsandprose

    January 31, 2011 at 9:57 am

    Thank you for posting this. We fell prey to that stuff years ago, then realized we didn’t even need half of it. Now we get disbelieving looks, but stick to our guns.

    • flyinggma

      January 31, 2011 at 10:16 am

      Good for sticking to your guns! It is not always easy to do in high pressure situations.

  8. 36x37

    January 31, 2011 at 11:55 am

    This is really good advice, Jeanne. We’re planning to trade in my sedan for the dreaded mini van this summer, and it’s useful to be reminded to steer clear of those F&I guys.

    • flyinggma

      January 31, 2011 at 12:44 pm

      I know you think that the mini van should be avoided at all costs but really it is the vehicle Dean and I choose to drive off the lot if we are going on a longer trip even if we don’t have any one else riding with us.

      They are comfortable, roomy and have a lot of flexibility. We drove a mini-van to my brother’s house for Christmas, Dean and I, our four kids and grandson Jack. There was plenty of room for each of us and you can’t beat the gas mileage vs. the crossovers or SUV’s. We like the Chrysler Town/Country or Dodge Gr. Caravan’s with the Sto N Go on our lot and for our own personal travel.

  9. Carol Ann Hoel

    January 31, 2011 at 12:22 pm

    Thank you for such good advice, Jeanne. This is so true. I remember the F & I guy who stole our peace of mind. We refused it all because we had decided on a maximum payment, which was where we were when we got to the F & I guy. We didn’t buy the extra year warranty, and our AC unit went out in the second year. Nevertheless, it’s still good advice. We had to pay plenty to get the AC fixed, but we saved on the payment each month by refusing it. We stayed in budget with our payment. We were upside down anyway, and we would have been worse off had we succumbed to the temptation to add on costs. We still own the same vehicle and it’s paid off. Blessings to you, your husband, and your business…

    • flyinggma

      January 31, 2011 at 12:46 pm

      Thanks Carol. Its unfortunate that you had AC problems but those extended warranties really don’t cover that much for the money if you can get them to pay out at all.

  10. Thomas Stazyk

    February 1, 2011 at 5:20 pm

    Interesting and informative–car buying is one of my least favorite things!

    • flyinggma

      February 2, 2011 at 2:24 pm

      It can be enjoyable if you are prepared in advance for what you are up against and hold your ground to where you need to be financially.

  11. tedgriffithphotography

    February 2, 2011 at 11:33 am

    Excellent information! This is something that should be taught to young (and older) people as life lessons. Unfortunately, we mostly learn from our mistakes, instead of others wisdom.

    • flyinggma

      February 2, 2011 at 2:23 pm

      Thanks Ted. This is only my opinion but it comes after years of experience listening to the stories of others and how they got in their financial messes when it comes to vehicles.

  12. nrhatch

    February 2, 2011 at 11:12 pm

    You said, “I get weary of people who deliberately choose to be offended. I did a similar post a while back. ”

    I’m looking for it and can’t find it. Can you give me the link here or on SLTW? Thanks.


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