Business Math in Action

Car Dealer Lingo

The first substantial purchase you make will very likely be an automobile. You’ve probably heard that car dealerships are treacherous places, that the salespeople will try to fleece you, that you can’t go in there alone. All true. Before you step foot on a dealership lot, you need to do some research. Most important, you need to know the dealer invoice price of the car and to have in mind the dollar amount you want to spend. While you’re negotiating with the salesperson, do not get distracted by the monthly payment; only negotiate the actual dollar amount of the car.

To get you started, here are some key terms you may hear during your negotiation. Don’t let your research end with these. There are many excellent books and Web sites that can prepare you for the sales pitch you will encounter when you buy a vehicle from a dealership.

Invoice price, or dealer’s invoice. The price the manufacturer charged the dealer for the car.

Base price. The price of the car with no added options. Base price includes standard equipment and the manufacturer’s warranty.

Sticker price, or MSRP. The sticker they’re talking about is on the window of the car. It lists the base price, options, and Manufacturer’s Suggested Retail Price, or MSRP. The key word to remember: suggested. You do not have to take their suggestion. Base your negotiations on your research.

Blue Book price. This refers to prices for used cars listed in the Kelley Blue Book. Other sources, both online and in print, also list the estimated values of used cars.

Rebate. A manufacturer markdown. The dealership is not losing money on this because they aren’t the ones providing it.

Dealer holdback. A percentage the manufacturer agrees to pay the dealer after the car is sold. It’s usually around 2 or 3 percent of the MSRP. When a dealership advertises that it is selling a car “below invoice,” it’s usually because they will get a dealer holdback from the manufacturer, thus still making a profit on the sale. A number of Web sites list the dealer holdbacks being offered by manufacturers at any given time.

Dealer preparation fee. A charge dealers will try to tack onto your bill after the sale is made. They claim it is for “preparing” the new car, for example, taking the plastic wrapping off the seats. Manufacturers pay the dealers for this, so you should not accept this charge.

Destination charge. The cost of transporting the car from the manufacturer to the dealership. There should be no dealership markup on this charge.

Add-on interest. A system of calculating the interest and adding it to the principle at the beginning of the loan, so that if you are able to pay off the loan early, you will still have to pay all the interest.

Upside down. A dealership term for owing more on a trade-in than the vehicle is worth.

F&I office, or business office.F stands for finance; I stands for insurance. This is where you will go once you have agreed on a price for the car. Taking you to a different location, away from the salespeople, puts you off guard. In the F&I office a “business manager”-who is really another salesperson-will try to sell you extended warranties, insurance policies, special finishes, and loads of other extras you probably don’t need. This is also where your financing will be completed if you are doing it through the dealership. Keep in mind that they are also selling you an interest rate on the loan; it is negotiable.

Remember, no matter how hard they sell you, you can always walk away even if you have signed papers. You do not legally own the car and are not responsible for it until you have driven it off the lot. Once you do that, it’s yours unless your contract specifically includes a clause about being able to return the vehicle.