A recent survey of 1,000 U.S. adults by Capital One Auto Finance found that most consumers are not confident when it comes to understanding the process of buying a car at auto dealerships. Only 20 percent of consumers feel sure of themselves when buying a car. On top of that, 62 percent of those surveyed believe they did not get the best price on the last car they bought. Ironically, almost half of those surveyed said that getting the best deal was the single most important part of the car buying process. Fully 82 percent said that negotiating the price is still necessary.
In perhaps the understatement of the year, Jeff Rabinowitz, managing VP of Capital One Auto Finance, said, “The current state of trust and transparency in car-buying needs to be addressed.”
One of the biggest stress components in buying a car is that it takes four hours from start to finish for the average purchase. In this two-part series, we are going to take a look at why this is the case, and what can be done to reduce this time and make the whole experience less stressful. We begin with the preparation phase. Part two will focus on speeding up the process once consumers arrive on the lot.
How to Prepare for Purchases at Auto Dealerships
Here are some pointers to help consumers prepare for buying a vehicle at auto dealerships. They could save about two hours if they arrive properly prepared.
First, consumers should spend a few hours on-line to narrow down the type of car: make, model, color, options, etc.
Then they should look at the local dealer’s online inventory to see if their dream car is in stock.
Third, they should roughly estimate the vehicle price so they are not surprised when they begin the negotiation process.
Why Should Consumers Research Cars Before Visiting Auto Dealerships?
The reason is simple: consumers routinely show up at auto dealerships and tell the salespeople what they think they want, but then change their mind when they walk through the lot and fall in love with something else. Dealers know this.
Today, most consumers want a sport utility vehicle (SUV), crossover or a truck.
Once a make and model have been chosen, consumers should also think about important features: How important is fuel economy? How many seats are needed? What about storage or all-wheel drive? These aren’t the type of things to discuss with a significant other in front of a salesperson; better to get it straightened out beforehand.
Many consumers get trapped into spending hours online trying figure out what the dealer is paying for the vehicle, what their markup is, and how they can negotiate the best possible price.
It’s important to know that dealers don’t really make much money selling new cars. The average new car dealer has a gross margin of less than two percent.
Dealers make a higher return on investment selling used cars than new cars and make the highest percentage of sales from “fixed ops,” which are the parts and service operations.
Thus, it’s better to spend time researching a car that will work best than to try and save a few hundred dollars on a new car, the average price of which is around $36,000. The important thing is to get the right vehicle and enjoy the buying experience, not saving $200 on the cost of the car.
What Should Consumers Take with Them to Speed Up the Process?
Consumers need to bring several pieces of documentation before visiting auto dealerships.
It might take an hour or so to gather the information and it may entail making a couple of phone calls. Better to spend an hour in the comfort of a living room than in the somewhat hectic pace of a dealer’s showroom. (I can almost guarantee that if a consumer forgets a crucial piece of documentation, they will have to go home and get it and then go back to the dealership.) If prepared, however, they will save at least a half hour in the buying process. Here is the needed documentation:
A driver’s license to take a test drive and to verify identity for legal documents.
Pre-approved loan from a local credit union or bank. Yes, most people still have auto dealerships arrange financing for them, but consumers will get a lower rate if they visit their credit union and get preapproved.
Title of the trade-in. Obviously, the dealer has to verify that someone actually owns the trade-in vehicle. They may still owe some money on it, but the dealer will work that out later.
Current registration for the trade-in. This can be an issue. If consumers have not kept their registration current, the next owner will have to pay the DMV back fees. These can be hundreds of dollars or even more, so the dealer has to be sure that the registration is current.
Proof of insurance. Consumers should call their insurance companies in advance and ask about coverage on a new vehicle (i.e. what happens if a consumer has an accident on the way home?).
Loan paperwork for the trade-in if a loan is still outstanding. As with insurance, it would be a good idea for consumers to call their lender and ask for advice about trading in a vehicle.
Documents to help qualify for a special discount such as a military discount, recent college graduate discount, or a manufacturer rebate on a specific make and model. You will need proof if you are in these categories because the dealer must show that to the manufacturer.
What is the Best Way to Plan for a Down Payment?
Consumers should also have plans for making a down payment. Unless one has a very high FICO score, they are probably going to be asked to place a down payment. They will definitely need to do this for a lease, which now accounts for about 30 percent of all new-vehicle sales, and they will likely have to make a down payment if purchasing a used car.
Many people will not have enough available cash to write a check for the full amount of the required down payment. CrossCheck can help.
Consumers should tell the dealer that they would like to use CrossCheck’s Multiple Check service, an option that allows them split their down payment into four checks to be deposited over a future period (usually 30 days).
When we guarantee these payments, the dealer knows they can finish the paperwork and get consumers behind the wheel of their dream car without paying interest or any additional fees. And dealers know CrossCheck will guarantee the check payments whether they are good or not. It’s just one way that CrossCheck helps consumers and auto dealerships finalize car sales. It takes less stress out of the car buying experience and probably saves a little time too!
Auto dealers may download our free guide to learn how Multiple Check can help increase sales and mitigate risk while saving time and money.