Dissecting a Car Ad: What You Read and Hear Is Not What You Get
George Boelcke FCI
May 23, 2007
Ah, we’re in love with the automobile. In fact, so much so, that there are more vehicles on the road than there are people with drivers licenses in the country. And you’d be amazed how often our attachment to our wheels leads to huge financial problems – sooner or later.
Never mind that almost 50 percent of people who trade their vehicle owe more in debt than the value of the vehicle. That is – they’re “upside down”. It’s one of the biggest debt traps for millions of people, because they don’t have a clue about the gimmicks, tricks and language of the car industry. And without that – you’re dead when it comes to getting a good deal, or even just knowing what to ask or to avoid. It’s the reason for a huge chapter in the It’s Your Money book. After many years as Director of Finance in the industry, it could actually be a book on its own.
Over the coming months, we’ll discuss some buzzwords and lingo in car ads that might at least get you to stop and think – instead of simply getting excited.
4,000 guaranteed trade-in: It might be $4,000 or $3,000 or whatever “guaranteed” figure the ad shows. But is everyone’s trade worth $4,000 sight unseen, or does the dealer assume a worst case scenario, that they’ll get a lot of wrecks traded in? Right! So, in fact, each vehicle has to be overpriced, or any available rebate has to be used for this. Your trade is worth what it’s worth – nothing more – nothing less. As long as the dealer has “room” (enough markup) they can promise a vastly inflated trade, a free trip, toaster, or anything else - but you’re paying for it.
Millions of dollars of financing available: Dealers make money when you finance or lease your vehicle through them. But they’re simply the middlemen for third party lenders. Yes, these financial institutions have millions of dollars of loan money. Why not say billions? Lenders don’t run out of money, do they? This headline is hoping consumers think there’s some kind of special pot of money set aside, just for this special sale.
No down payment (OAC): OAC stands for “on approved credit.” No down payment really means the largest amount financed. But then, no down payment is always something which may sound attractive. But is also one of the biggest debt traps possible, and will always involve the highest payment, and the biggest problems, if you ever need to trade your vehicle, as you’ll likely owe a whole lot more than it’s worth.
Fleet cancellation sale: Companies with huge fleets pay a lot less than you and I do. The factory invoice has a code when the vehicle is ordered for a particular fleet client. Should that specific sale not go through, the fleet concessions are off the table, and you’re right back to the original cost of the vehicle. You’re not getting the fleet price – sorry. You might get a lesser markup, but the headline doesn’t tell the whole story.
Today only: Most ads are designed to create urgency and to have you act now! The less time you spend comparing, researching or thinking, the more likely it is that you’ll make an impulse decision. That doesn’t ever work in your favor, but that’s not for retailers to worry about. But slow down and ignore the urgency. After all, sales are like buses, there’ll be another one along any moment.
Discounts of up to $13,000: Calm down, there won’t be any real $13,000 in savings. Over the past few years, the automotive definition of savings has radically changed. It’s now what you’d pay versus last week, but what you’re paying below the full sticker price, so it’s a little misleading. For example, an SUV may have a sticker price of $49,000 but everyone is selling the vehicle for $41,000. So would you define that as an actual $8,000 discount or saving? The other part is the available rebate. If the vehicle has a $5,000 rebate, that brings it to the $13,000 discount. But on an expensive vehicle, the majority of purchasers will chose the low interest alternative, not the rebate. So what’s the real saving? It’s only what you negotiate off the actual $41,000 price.
As the big warning label in the It’s Your Money book states: Just because you’re sitting on the wrong side of the desk doesn’t mean you’re not in the driver’s seat. Or in the words of the old sergeant on Hill Street Blues: Be careful out there!
Never mind that almost 50 percent of people who trade their vehicle owe more in debt than the value of the vehicle. That is – they’re “upside down”. It’s one of the biggest debt traps for millions of people, because they don’t have a clue about the gimmicks, tricks and language of the car industry. And without that – you’re dead when it comes to getting a good deal, or even just knowing what to ask or to avoid. It’s the reason for a huge chapter in the It’s Your Money book. After many years as Director of Finance in the industry, it could actually be a book on its own.
Over the coming months, we’ll discuss some buzzwords and lingo in car ads that might at least get you to stop and think – instead of simply getting excited.
4,000 guaranteed trade-in: It might be $4,000 or $3,000 or whatever “guaranteed” figure the ad shows. But is everyone’s trade worth $4,000 sight unseen, or does the dealer assume a worst case scenario, that they’ll get a lot of wrecks traded in? Right! So, in fact, each vehicle has to be overpriced, or any available rebate has to be used for this. Your trade is worth what it’s worth – nothing more – nothing less. As long as the dealer has “room” (enough markup) they can promise a vastly inflated trade, a free trip, toaster, or anything else - but you’re paying for it.
Millions of dollars of financing available: Dealers make money when you finance or lease your vehicle through them. But they’re simply the middlemen for third party lenders. Yes, these financial institutions have millions of dollars of loan money. Why not say billions? Lenders don’t run out of money, do they? This headline is hoping consumers think there’s some kind of special pot of money set aside, just for this special sale.
No down payment (OAC): OAC stands for “on approved credit.” No down payment really means the largest amount financed. But then, no down payment is always something which may sound attractive. But is also one of the biggest debt traps possible, and will always involve the highest payment, and the biggest problems, if you ever need to trade your vehicle, as you’ll likely owe a whole lot more than it’s worth.
Fleet cancellation sale: Companies with huge fleets pay a lot less than you and I do. The factory invoice has a code when the vehicle is ordered for a particular fleet client. Should that specific sale not go through, the fleet concessions are off the table, and you’re right back to the original cost of the vehicle. You’re not getting the fleet price – sorry. You might get a lesser markup, but the headline doesn’t tell the whole story.
Today only: Most ads are designed to create urgency and to have you act now! The less time you spend comparing, researching or thinking, the more likely it is that you’ll make an impulse decision. That doesn’t ever work in your favor, but that’s not for retailers to worry about. But slow down and ignore the urgency. After all, sales are like buses, there’ll be another one along any moment.
Discounts of up to $13,000: Calm down, there won’t be any real $13,000 in savings. Over the past few years, the automotive definition of savings has radically changed. It’s now what you’d pay versus last week, but what you’re paying below the full sticker price, so it’s a little misleading. For example, an SUV may have a sticker price of $49,000 but everyone is selling the vehicle for $41,000. So would you define that as an actual $8,000 discount or saving? The other part is the available rebate. If the vehicle has a $5,000 rebate, that brings it to the $13,000 discount. But on an expensive vehicle, the majority of purchasers will chose the low interest alternative, not the rebate. So what’s the real saving? It’s only what you negotiate off the actual $41,000 price.
As the big warning label in the It’s Your Money book states: Just because you’re sitting on the wrong side of the desk doesn’t mean you’re not in the driver’s seat. Or in the words of the old sergeant on Hill Street Blues: Be careful out there!
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