Every day, millions of Americans make the trip to a new car dealer to see if they can afford a new automobile. Used cars are normally sold with a somewhat “fixed” price. The dealer may accept an offer that is close to his asking price but the price of a new car can vary all over the map. I have often asked myself why?
In reality, most ads for new cars do not represent any “actual” car. They represent a kind of mythical car with a mythical price. The phrase “the picture shown may not actually represent the actual car is an understatement.” When an actual car is advertised, the dealer often includes a notation that there is “one auto in stock.” This prevents the dealer from being sued for false advertising. It should also alert a consumer to what is called an ad that is run to “generate floor traffic.” I asked a dealer once why they did this and he gave me a kind of a cloudy response that indicated “we need to entice buyers into the showroom.” Of course, this bolsters most people’s fears and distrust of car dealers.
Now, how about the price? If you read the papers, please have a magnifying glass handy. The use of an asterisk has become very common. Normally, the first asterisk indicates that the price has been advertised without certain costs such as tax, title, plate, destination charge and document fees. Now these five categories can add several thousands of dollars to the price of the car. If I recall, the destination charge is in the area of $700 to $800 per car. Isn’t this nice? As a consumer, you are charged to have the car delivered to the showroom. The second asterisk has to do with financing. Car loans can now run from six to seven years and the length of the financing time is reflected in the annual APR%. There are usually several disclaimers such as the price quoted includes all factory rebates and military discounts where applicable. As I understand it now, if you served in the military you do not qualify for the “military” discount. To qualify, you must have been in the military and served enough time to be, quote, “retired” from the military, a small matter that the dealer explains to the consumers as he tries to write up the sale papers.
Now it would make sense to me that if I worked for a car company, as an employee, I would want to buy the products of that car company in an attempt to guarantee my job. So why do car dealers spend 50% of their advertising on these employees? It almost appears that all the ads are written to those employees. As an employee, do I walk into a new car dealer without a clue as to what it would cost me to buy a car for the company that I work for? Apparently this is what happens.
Now the features that are included in these new cars mystify me. One dealer advertised that this particular car came with floor mats. Wow! How about a 24.7 gallon gasoline tank? What if I didn’t want a 24.7 gallon gasoline tank? Wouldn’t it be better to advertise the mileage for the car versus the fact that it would cost you almost $75.00 to fill the gas tank at $2.99 per gallon? Additionally, you would have to read the 19 lines of small print to try and pick up the items not included in the price. One of the more “common” items not included is an automatic transmission. Now, how many cars today are made without an automatic transmission?
Leasing, of course, is a topic all by itself. The monthly payment seems to be the key advertising element. However, is the true price of my lease $199.00 per month if I have to put $1,999.00 down at the time of leasing? With a little basic math, I think the real price per month is closer to $254.00 plus tax if I factor in the required downpayment over 36 months. And how about the small print on the last page of the lease that states that you will give the dealer $450.00 as a termination fee? The dealer does not point that out to you and asks that you quickly sign the lease so he can “move the process along.”
In the end, the pricing of new cars may never change, although some dealers are attempting to move toward one “set price” that eliminates negotiation. Some day, when I go into a new car dealer, I would like to meet the “sales manager” that seems to be the one making all the decisions that the salesperson keeps running to.
DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati’s Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.