DON'T PAY CASH AT CAR DEALERSHIPS! (Here's Why)

Hello everyone, welcome back to Whiteboard Finance. My name is Marco and I am

here

to help you master your money and build your wealth. In today's video we'll talk about how you should never tell a car dealer that you're paying

cash

. especially during the selling process and especially during the negotiation process, if you have saved money to buy a car with

cash

, congratulations, that's a good thing; However, most people think that this is a positive thing and a bargaining chip in their favor when they are in business. In fact, you are probably hurting them by making them pay more for the cost of the car, so dealers and the current business model are not incentivized in any way for you to pay cash for your cars and in fact may result in you paying more for the car, so in this video we are going to talk about how the business model works. modern car dealership business, we're going to talk about how to actually buy with cash at a car dealership and finally I'm going to talk to you about how I personally buy cars with cash and other options outside of the dealership model, stay tuned so Let's try to better understand how a modern car dealership business model actually works and operates, so that new car sales make up 58 of the sales at a dealership, so when most people think about car

dealerships

cars, they think they make most of their money from the sale or price of the car, which couldn't be further from the truth, although new car sales make up 58 percent of sales, they only make up 26 percent of gross profits.

It's because the prices are transparent, now people have phones, they have apps, they have the Internet, you can find out what the price of a car is in about five to ten minutes, if you do some preliminary research, it's not that difficult, so that car dealers must take action. money elsew

here

, so what do they do? They make most of their profits from service fees and spare parts for f and i accessories. These are the main profit centers of a dealership. Okay, so the car literally considers it a vehicle. The main point of the video is that the car is simply a vehicle to access high margin financial and insurance products, that is what fni means.

Those are the guys that stand in the back and do the paperwork, so fni is simply the place where they sell you gap insurance, wheel insurance. extended warranty protection packages, etc., etc., and the funny thing is that 55 of these extended warranties, according to extensive research, show that these extended warranties are never used, so you are paying for a product that you end up not using , so if I were a casino. and they had a five percent house edge right here, 55 percent, those numbers would make my mouth water, so the next slide, now that you understand how the business model works and where they make their money, you It will teach you how to move forward. the selling process and how to buy a car for cash okay this is the part everyone has been waiting for so how to buy a car for cash at a dealership so there are only four factors that go into a deal car, okay? have the price of the car you are interested in have your trade in if you are going to trade in a car if not then you can get rid of that factor you have a down payment so this is the money you are putting down in this case if it is A cash buyer, who is 100 percent down, if you're putting down less, you're going to get some payments, okay, this is pretty much what boils down every car sale. down to these four factors, so let me walk you through a very quick example of a sales process that we've all been through, Mr. or Mrs.

Car Buyer, you come to the dealership, you're greeted by a salesperson, hey, I'm Marco. without lubricant chevrolet where we give you service without lubricant how can I help you today? I rate you I put you in a car you go on a test drive you come back from the test drive hey sir lady car buyer how did you like that new one? car smell, you know, come on, would you like some coffee or tea? We'll take you inside, look at some numbers, how does that sound? We go through the sales process and this is where the negotiation begins.

Most people who are cash buyers shoot themselves. on the foot in this step here do not tell them that you are paying in cash this is where you kill all your bargaining power and I will explain to you why dealers are incentivized remember the new business model where 74 of their income comes from outside from the sale of the car is from fni and other things, service packages, accessories, etcetera, etcetera, the way dealers make money is literally by becoming the bank so they can be their own lenders or they can buy your profile and your credit score to all the different lenders in their network and they can probably give you a pretty good score;

However, this is where they make money and this is where you have the most room and number one to negotiate the price. financing with them, okay, just pretend you're not a cash buyer, you're putting down 10 15 percent, I don't know, make up a number, so once you do that, the dealership knows they're going to do a floor, which is basically a commission, so when Mr. and Mrs. Carr's buyer, you know, ends up taking out a loan with the dealer bank, bank x will pay the dealer a flat fee or a commission, or the other The way dealers make money through financing is through loans. through points or financial reserve, so basically all of this is you qualify for a purchase rate, let's say you have a credit score of 800, the loan will be four percent, right, that's the purchase rate which the dealer will prepare in numbers. additional two percent called the sales rate and that's where they do the arbitrage, that's where they do the two percent spread, so for quick calculations, if you took out a 20,000 loan financed over 60 months at four percent and you They deliver it to six.

That two percent difference is worth one thousand thirty-three dollars over the course of the loan spread, so now you can see where the dealer would be most willing to go to negotiate the price because they're making money here on the payments, it makes sense. Now you're probably wondering well, Marco, you know I don't want a loan, what does all this lead to? I thought the goal was to buy the car for cash, yeah, so when you go to the administrative office and f and I Well, where they sell you the gap insurance, the wheel insurance, all that good stuff, that's where you find the sheet and You basically break down each of the costs.

Well, we'll get into that here. Well, this is where the rubber is. meets the road in the video, this is what you are going to do in the back office, so you are applying for a loan from the distributor themselves, someone who is part of their network or actually the financial arm of the manufacturer, such as Lexis Financial, GM Financial, etc. etcetera the reason you were doing this as mentioned earlier in the video is because you are going to beat them on price once you finish the sales negotiation on the floor with the salesperson you will be in the back office and they will introduce you their final numbers, so normally what it looks like is you'll see that the retail price of this car was thirty-two thousand nine hundred and ninety-seven dollars.

Well, it brought us to the asking price, which is now thirty. In this case, they will itemize your local taxes. I just assumed that ten percent is high, but suppose for easy numbers, then you have like document fee, fee one, government fee, fee two, you know, some bs fees that make up, which I'll explain to you in a second here What to do, you have a gap that they are going to incorporate into this gap insurance and then accessories and service packages, things like that. I ran out of space on the board, so you're going to come up with a total number of whatever, you know, five figures minus your down payment and that's going to be the amount financed now, this is where you really want to continue the negotiation process and Don't be afraid to walk away if you don't comply with this, it's okay, this will save you money, so pay attention, since you are applying for the loan, first and foremost you need to understand if this loan has a prepayment penalty, if If so, then what I'm explaining is not going to work, it's not worth the effort if it doesn't and most loans shouldn't have a prepayment penalty, so you just save a lot of money and can send me a commission check in the mail if you just want to joke.

It's really not right, so what happens is once they look at all this, you're like, "Oh, doctor fee, $500, no thanks, I'm going to cross out that government bs fee, no thanks, I'm going to cross out that gap, I don't do it." I need it, I'm just saying it for this example, if you want a space, use it, whatever, I don't care about accessories, I don't need it unless you want it, then you ask them to redo the price they're going to say, oh, this document fee. that's a state mandate if I charge you x I have to charge everyone else x otherwise I'll lose my license blah blah blah blah well guess what for all the big brained people in the comments going leave a negative feedback, this is just a bargaining chip, it's okay, you don't have to delete this, all you have to do is take this 500 and remove it from the price of the car, you say, okay, I will pay the 500 fee if I You charge 29.5 for the car.

It makes sense so you're just buying more bargaining power and if they say no I can't do that you know what you're saying thank you Mr. F and I have a great day and you leave with a smile on your face and you drive away. into the sunset, I'm just kidding, but you're buying yourself more bargaining power anyway, so you'll still end up paying the sales price of the car, you'll still pay the same tax as you would have. paid, you can buy yourself some bargaining power with these bs rates, you are not going to pay for these things, you ask them to redo the total, you write down what you said you are going to leave and this is the point of the video you get. your payment amount from the lender, let's call it 30 days later or 45 days later, you say, hey, what's my payment amount?

It should just be these numbers, the sales price, the tax, whatever amount you financed minus your down payment, and you send them a cash check. I just paid cash for the car and at the same time I get all the benefits of negotiating the sales price. This makes sense? Well, now that I've saved you a ton of money, this is how I've been buying cars my entire life. My parents are immigrants. No I don't buy new cars. I have never bought a new car. I probably never will. I don't rent cars. I have a business. Maybe leasing makes sense to save me some money as a payoff.

I don't care, I don't even care. I play those games I buy cars with cash at private parties, okay what is a private party? He left the car spotless and I serviced it at every service interval. It suffered depreciation, maintenance and now they sell it to you cheap without fees that a dealer would charge you. Yes, those people exist too and that's how I buy cars. I buy cars on forums, I buy cars on Craigslist, I buy cars from private parties that have been well cared for, have maintained the car well and have all the service papers and everything, and I'm also mechanically inclined, so that helps too.

He's my dad, so my point is that I've broken even or made money on most of the cars I've owned. I've only lost money on a couple of cars I've owned. I buy cars that are in high demand and low supply generally. enthusiast cars I drive them for a while I sell them to make money or cover expenses okay that's why I've never had a car payment in my entire life so let me explain these two real quick because I know people in the comments are oh, me. I don't have a mechanic, I'm not a mechanical expert, I'm going to take advantage of it, just use some common sense dude, if you're pulling up to a nice residential development, the guy lives in a 500,000 house or a mcmansion or whatever you want to call it, probably took good care of the car, it's fine, and you check it out and inspect it, just use common sense, so what I do is I go to forums, uh, if I'm looking at a Volkswagen Touareg, which is no longer made.

I'll go to the Volkswagen Taurig forums. If I am looking at a six-speed manual diesel Porsche Cayenne that is no longer manufactured. I'll go to a renlist from the Porsche forums. I can go to Craigslist. I can configure it. Do an automatic search so when certain words meet my criteria they email me and I can see if the car is in good condition or not, so this part of the video will probably resonate with maybe five percent of the people who watch the video, but this is the best. way to buy a car you avoid all dealer fees you avoid everyoneshoddy sellers you avoid all the headaches of going through the dealership process you are simply dealing with another human being if you have good character judgment you know what to do look around and you did your research, buying cards from private parties is the best way to get value and period, if you disagree, comment below if you agree, comment below if you agree or not.

I mean, it's just my opinion and I've had success doing it for many years, thank you very much and if you want to see my video on how car dealers rip you off, watch this right here. Have a prosperous day everyone.