For too long, automakers and dealers have dominated the car buying experience, leaving consumers feeling rear-ended every time they drive off the lot. Mark Ragsdale, author of “Car Wreck: How You Got Rear-Ended, Run Over, & Crushed by the U.S. Auto Industry” said that reality can be changed. He offers his insider advice to help consumers kick-start the revolution — one car purchase at a time.
If you’ve ever bought a car, you’ll probably agree: The interval between window-shopping and driving your new purchase off the lot is no fun. More often than not, it’s fraught with high-pressure salespeople, “bait and switch” negotiating, and seemingly endless paperwork. Sure, you might get a nice new (or slightly used) car out of the hassle, but the hangover you feel as you drive away lasts for days — and comes crashing back every time you make your monthly loan payment.
Here’s the question: Does the car buying process have to be so demoralizing? Absolutely not, Ragsdale said. By educating themselves, consumers can take control of a process that for too long has been dominated by car dealers and automakers.
“The auto industry has recently received $63 billion in taxpayer bailouts,” the author said. “That fact alone should tell you: The industry is broken. And the system it uses for selling cars is broken. Unfortunately, before much of anything changes, it looks like consumers are going to have to demand a better car buying experience.”
Ragsdale, in his book, uncovers the car business schemes that continue to pillage consumer wallets. He uses his experience as a car dealer to reveal what really goes on behind the guarded walls of today’s automobile industry and to help consumers avoid becoming its next victim.
“I am a messenger of truth, but I’m no angel,” Ragsdale admitted. “As a dealership owner, I consummated car deals I knew in my heart were not in the best interest of my customers — deals I would not have made sitting on their side of the table. After all, I was neither their clergyman nor their financial advisor, but a car dealer trying to score as big a profit as possible.
“But now I want to clear the air,” he continued. “It’s time to level the playing field and let consumers in on the secrets that are crushing their wallets every time they buy a new car.”
In “Car Wreck,” Ragsdale reveals many secrets of the trade. He explains, for example, how many consumers sign car deals where they owe more on their vehicle than it is worth and why car payments go up each time you trade for an essentially equivalent model.
“The reality is that there are no innocent parties in this scenario,” Ragsdale said. “Consumers vilify automakers and car dealers, and in many cases, rightfully so. But they are responsible, too. When it comes to buying cars, many consumers make decisions that are not financially sound. And I think they do it because they think that is simply how the process has to work.”
Of course, the process doesn’t have to work this way. The automobile industry can reform itself — but first consumers will have to demand the reform. Yes, this means you. And the first step is to seize control of the car buying experience to ensure that you drive off the lot having made a decision that didn’t break the bank.
There are a few key pieces of information, per Ragsdale, that consumers need to have in order to negotiate a better deal:
Know the actual cash value of your trade-in. The Internet, library, even your insurance agent can get you relevant information quickly. The same books utilized by lenders to calculate your next vehicle’s loan value are used by dealers as a basis for your current vehicle’s appraisal. Know the range of these numbers before discounts and rebates get added on at the dealership — giving you a confusing “allowance” number that really masks the truth about your equity position.
Know what you still owe on your car. You need to know the difference between the market value of your present car and its net payoff amount. Are you upside down? By how much? Download a payment calculator template for free on the web. Punch in the difference between what your car is worth and what you currently owe.
Say no to increasing your finance contract term. Increasing your finance contract term in order to maintain your same payment is the worst thing you can do to yourself. By extending the term, your payment will be less, but you pay a heap-load more interest, which is good for the bank and bad for you!
“For many consumers, getting a better deal at the car lot comes down to self-control,” Ragsdale said. “Sure, you’ve probably been taken advantage of when buying cars in the past, but you’ve allowed this to happen by not knowing the full story. The full story includes your current situation with the car you have versus allowing what you ‘want’ to cloud what you can actually afford. By knowing your options as well as the salesperson or dealer does, you can protect your wallet.”
Translate car salesman’s speak. The retail side of the car industry has developed its own language to slow you down and sell you a car. This language delays the delivery of bad news until everything is written down and put out on the table. It is devised to keep you from getting angry or discouraged before you have selected a vehicle. The whole program is designed so you won’t storm out of the showroom door into the arms of a competitor.
“The dealer’s plan is to delay talking about ads for which you may not qualify,” Ragsdale said. “He will put off explaining why your trade-in is not worth as much as you expect or even still owe on it. He will try to place you in a closing situation, when everything is down on paper, when the issues can be isolated and addressed. This strategy works when selling cars to folks who don’t understand how dealers arrive at their numbers, but wastes a whole lot of consumers’ time and energy.”
Don’t get nailed with more debt. There are three common strikes that go against consumers who try to buy cars they can’t afford. These strikes eventually lead to deals in which the consumer is paying more than she can afford per month over an extended contract term:
Strike One: Attempting to borrow more than the maximum advance allowed by the bank’s guidelines.
Strike Two: Applying for a greater monthly payment than your provable household income and debt obligations will allow.
Strike Three: Asking a lender to stretch its guidelines on both of these issues simultaneously — especially when there is no down payment. There’s no financial investment in the transaction other than a customer signature.
“The reality is you are in control here,” Ragsdale explained. “In an environment where you can buy a motor vehicle on virtually any street corner, and find a bank to loan you all the money to do it, you have to be responsible. Irresponsibility cannot be solved by any law. The law makes no accommodation for buffoonery.
“To avoid getting buried in debt, do not buy cars you can’t afford,” he said. “It’s really that simple. Consider another car instead, or wait until you have some cash to fix the problem. Stop thinking short-term. Short-term thinking is reactionary. Start thinking long-term. Long-term thinking is revolutionary.”
Don’t believe the hype. Car dealers spend $7.7 billion on advertising annually. Meaning, each dealership location you pass on the road spends $365,000 in advertising every year. And automakers spend millions more researching where consumers will be, when they will be there, and whatever attention-grabbing mechanism might work.
Automakers and dealers do anything they can in order to offer the lowest possible price and/or payment in their ads. Dealers want to place their offers within the budget of their intended audience, making more customers inclined to visit the showroom. They also want their deals to look and sound better than offers from dealers across town who advertise the exact same products at higher payments and with no warranty.
“What you might not realize is that many dealerships advertise products at a loss,” Ragsdale said. “Of course, selling vehicles at a loss will doom a business. But that is not the aim of car ads. What they really want to achieve is showroom traffic. In fact, eight out of ten customers shopping based on a dealership ad end up selecting something different than the advertised car they came in for. Caveat emptor (buyer beware), because ads — unlike the products themselves — carry no warranty.”
Just lease it. Most consumers overlook the finest financial option to get what they want, debt-free and ready for a new start every two or three years. This option is leasing. When leasing a car, the customer negotiates a purchase price with the dealer as if he or she were buying. Once the contract is signed on an agreed price, the dealer sells the car to a leasing company at that same price. The leasing company then leases the car to you under certain terms. Those terms consist of the monthly payments you will make, how long you will make them, and the rate of interest that will apply.
“There are many reasons to consider leasing,” Ragsdale said. “To name a few: You will have a shorter term for a similar payment. The impact of any cash down payments you might make in order to lower your monthly payments virtually doubles in effectiveness. In most states, you are not taxed on the entire value of a leased car, as you are on a purchased one. And as the car is exchanged for a new one every few years, customers suffer very few maintenance or repair burdens outside of warranty. In my opinion, leasing is the best untapped resource for auto debt reduction in U.S. history.”
“Automakers and car dealers play significant roles in the American culture,” Ragsdale noted. “We need cars to get around, and they supply them. There’s no getting around it. But it is possible to demand better service from these companies. And the best way to do that is by being an informed, responsible consumer. By protecting your wallet, you can force these companies to treat consumers with more respect and create a new set of standards for these companies to follow.”
Ragsdale is an ex-car dealer from a car dealer family and brings 25 years of experience to his insightful new book, “Car Wreck: How You Got Rear-Ended, Run Over, & Crushed by the U.S. Auto Industry.” By age 24, he ran a Pontiac-Cadillac dealership on behalf of his father and a partner. By 30, he purchased the majority share of the store. Over the next twelve years, he proceeded to purchase or construct five additional franchised automobile dealerships and three motorcycle stores. He has represented Chevrolet, Pontiac, Cadillac, Kia, Honda, Excelsior-Henderson, and Indian Motorcycle.
His experience in the industry is broad. He has served on the Kia National Dealer Advisory Council, as chairman of a National Automobile Dealers Association (NADA) 20 Group, as director of the Massachusetts State Automobile Dealers Association, and as president and/or director for several different dealer marketing associations.
In 2008, Ragsdale sold his dealerships. He now writes and consults with car dealers, policy makers, and other industry professionals. He resides in Shrewsbury, Massachusetts, with his beautiful wife, Lauri, and their two children, Wyatt and Isabella. For more information, please visit www.MarkRagsdale.com.