In October 2007, Consumer Reports, conducted a random, nationwide telephone survey among adults who have purchased new cars within the last year to gauge consumers' buying experiences at new-car dealerships. Results of the survey showed that while more than half of consumers are generally satisfied with the experience, data showed that savings and satisfaction can still be maximized.

Consumers reported two common techniques used by car salesmen to increase sales during new car purchase transactions.

1. The "Monthly Payment" Scheme: One common strategy is asking buyers what they could afford to pay per month. This tactic gives the seller the chance to bundle the vehicle price, trade-in value, financing or leasing terms all together in one cost. It is easier to lower the trade-value and raise prices for each variable this way, leaving the buyer in debt for longer periods of time.

An investigative piece on car dealership tactics, "Confessions of a Car Salesman" by Chandler Phillips, points out the same tactic and explains. "…When you agree to be a 'monthly payment buyer' several variables are introduced that are harder to keep track of: the term of the loan can be extended up to 72 months (six years!) without your awareness and the interest rate can be raised."

2. The "Extended Warranty" Scheme: Most new car buyers also reported that they were also offered extended warranties by the sales staff. However, Consumer Reports found the warranties generally unnecessary, suggesting the fees paid on a higher-coverage warranty could be used for more useful car-related expenses. Extended warranties are generally more beneficial for covering the cost of repairs to older or trouble-prone vehicles after the original warranty runs out.

Of course, new vehicles from the manufactures sold at a dealership should not have the same problems as an older car.

While these are the only two schemes reported by the respondents, it is important to still be familiar with the others 'techniques" that can be used to increase the selling price of a car. Chandler Phillips notes other tactics that he learned to use while working as a car salesman himself:

• "Up to what (price)?" Beware giving a salesman a price range you may be willing to pay. You may find the higher end of the range appearing on the sales contract, even when the offered and agreed price was lower.

• Lost documentation containing the price you originally agreed upon Some have been surprised that a different cost (albeit a higher one) appeared on the contract.

• Salesmen offering and making justifications for extremely low prices for trade-ins. The dealership can minimize its price reductions to the buyer, then generate greater revenue from your car upon resale.

These are only a few questionable practices used in new car sales, and not all car salesmen are dishonest. Familiarize yourself on the techniques being used to separate you from more hard-earned money when buying a car. When you are better prepared, you can spot these tactics and respond accordingly.


References:

Consumer Reports. Survey Shows that Many Consumers could Save More Money.
http://www.consumerreports.org

Phillips, Chandler. "Confessions of a Car Salesman."
http://www.edmunds.com/advice/buying/articles/42962/article.html