Mathematics for Business and Personal Finance

Chapter 9: Vehicle Transportation

Business Math in Action

Car Dealer Lingo

An automobile is the first big-ticket purchase many young people make. You may have heard that car dealerships are places where you can get stuck with a bad deal if you are not careful. You can avoid a lot of problems simply by doing 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. When negotiating with the salesperson, do not get distracted by the monthly payment; only negotiate the actual dollar amount of the car.

Here are some key terms you may hear during your negotiation. This is just to get you started, though—.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" is a document 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: The rebate is a markdown from the manufacturer, not the dealer. The dealership is not losing money on the rebate.

Dealer holdback: A percentage the manufacturer agrees to pay the dealer after the car is sold. It is usually around 2 or 3 percent of the MSRP. When a dealership advertises a car sold "below invoice," it does so because it 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: Dealers try to tack this charge onto the 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: This is the cost of transporting the car from the manufacturer to the dealership. The dealership should not place a markup on this charge.

Add-on interest: Add-on interest is a system of calculating the interest and adding it to the principle at the beginning of the loan. If you are able to pay off the loan early, you will still have to pay all the interest.

Upside down: Upside down is 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. 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 other extras you probably do not 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, if you have second thoughts about buying 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 is yours unless your contract specifically allows you to return the vehicle.

English Language Arts/Writing

Buying an Automobile

Write a short plan of the preparations you would make before visiting a dealership to buy an automobile.