Are you planning to buy a used car at a dealership and are concerned? You should be. Car dealerships use clever tactics and skills to make money off people.
The Four Square Trade In Rip Off Method
If you have ever bought a car you may have heard or seen the four square method of negotiation. This is just a simple way to make you think that you are getting a good deal, but it's all psychological, do not believe it. Here's what happens.
The fours square method; the first square, we have your trade in. that is if you have an old car you would like to trade in for a new one. The second square is the price. The price of the car you would like to buy. Third Square has the down payment. Here lies the amount of money you would like to pay before you can clear the whole amount. And lastly, we have the monthly payment.
Let us use a hypothetical case. You are trading in a 2006 Chevy Impala with eight million miles on it, and you want to get a new one. Here's what the dealer will first do; he will deliberately devalue your car in front of you. How does he do that? When you are there asking him questions about your car, the dealer will be busy pointing out little chips and dents on your car, scuffed wheels. This is just a tactic, and many fall for it. We easily believe that our car is a piece of junk.
Devaluing Your Used Car Process
After the whole process of devaluing your car is done, he comes back to you with the four square and offers you $4000 for your piece of junk. And let's assume that the price of a new impala is $24,900. The down payment is the money they want you to put down, say $4,000. For monthly payments they will sketch out like three different scenarios for you; $500 @ 60 months/ $475 @ 72 months/ $450 @ 84 months.
The four square is a negotiation tactic. The dealership makes its money through the down payment and the monthly payments and this is where all their negotiation energy will go.
When you go to the back to do paper work and those guys are there selling you rim insurance and warranties and all that stuff, that's just junk. It's the highest margin in the dealership, don't fall for it.
The second highest margin is the service centre, where they get the car serviced, and what a rip off!
New cars are the least profitable in the dealership because the cost of a new car doesn't change, no matter the location. The used cars department is where the real business' at. Here's why.
Used Car Negotiation
You're there negotiating a car and you pick out a car that appeals to you. You test drive it and you feel it, you smell it, you touch it and you fall in love with it. Sound familiar? Then the negotiation begins. Notice the act during the negotiation. None of it is real!
So they come with the four square and the numbers here are designed to offend you, to shock you. They want to give you a feeling of power when you start negotiating. They want you to feel like you've beaten them up so you feel like you got a deal.
The dealer goes through the four square fast and tells you to sign. Here's where it all begins. You have to pay attention to all the squares on there. Don't focus too much on the down payment or monthly payments, take a look at the trade in, fight for a raise. Remember, the dealer devalued your car, so it's up to you to give it value. looking on the down payment and instalments will get you the buyer thinking of the cash you have which means you have already submitted to their terms, you will try to lower the down payment but that will just hike the instalments and the higher the instalments the more the profit the dealership will make. The dealers want to get you into the longest term possible. The act is just for formalities.
Note this; the lower your instalments and the more the months the higher the profit the dealership will make.
Not all car dealerships rip their customers off, but the ones that use the four square method do. So stay aware and don't be so naïve when it comes to negotiation, do not fall for the ac. Remember, its Hollywood.