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

hey everybody welcome back to whiteboard finance my name is marco and i'm here to help you master your money and build your wealth in today's video we're going to be talking about how you should never tell a car dealer that you are paying cash especially during the sales process and especially during the negotiation process if you've saved up money to buy a car with cash congratulations that is a good thing however most people think that this is a positive thing and it's a negotiating chip in their favor when in fact it's probably hurting them making them pay more for the cost of the car so dealerships and today's business model are not incentivized in any way for you to pay cash for their cars and it actually may result in you paying more for the car so in this video we're going to talk about how the modern car dealership business model works we're going to talk about how to actually buy with cash from a car dealer 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 okay so let's try to better understand how a modern car dealership business model actually works and operates so new car sales account for 58 of sales at a dealership so when most people think of car dealerships they think that they make a majority of their money on the sale or the price of the car which couldn't be further from the truth although new car sales make up 58 percent of sales it only accounts for 26 percent of gross profit the reason for that is because pricing is transparent now people have phones they have apps they have the internet you can find out what the price of a car is in roughly five to ten minutes if you just do some preliminary research it's not that hard so car dealers need to make money elsewhere so what do they do they make a majority of their profits from f and i accessories service fees and parts these are the major profit centers of a dealership okay so the car think of it literally as a vehicle no pun intended well pun intended it's the whole point of the video the car is simply a vehicle to get you into high margin finance and insurance products that's what fni stands for those are the guys in the back that do your paperwork so fni is simply where they sell you gap insurance wheel insurance extended warranties protection packages etc etc and the funny thing is is that 55 of these extended warranties according to extensive research shows that these extended warranties are never used so you're paying for a product that you end up not utilizing so if i was a casino and i had a five percent house edge right here at 55 percent i would be salivating at those numbers so the next slide now that you understand how the business model works and where they make their money from is going to actually teach you how to go through the sales process and how to actually buy a car with cash okay so this is the part that you've all been waiting for so how to buy a car with cash from a dealership so there's only four factors that go into a car deal okay you have the price of the car that you're interested in you have your trade-in if you're going to trade in a car if you're not then you can get rid of that factor you have a down payment so this is the money that you're putting down in this case if you're a cash buyer that is 100 percent down if you're putting down less you're going to get some payments thrown at you okay this is pretty much what every car sale boils down to these four factors so let me take you through a very uh quick example of a sales process we've all been through it mr or mrs car buyer you come to the dealership you're greeted by a salesman hey i'm marco with no lube chevrolet where we service you with no lube how can i help you today i qualify you i put you on a car you go on a test drive you come back from the test drive hey mr mrs car buyer how'd you like that new car smell you know let's uh would you like some coffee or tea uh we'll take you inside look at some numbers how does that sound and we go through the sales process and this is where the negotiation starts most people that are cash buyers shoot themselves in the foot at this step right here do not tell them you're paying cash this is where you kill all of your negotiation power and i'll explain why so dealerships are incentivized remember the new business model where does uh 74 of their revenue come from outside of the sale of the car it's from fni and other things service packages accessories et cetera et cetera the way that dealerships make money is by literally becoming the bank so they can either be their own lender or they can shop out your profile and your credit score to all the different lenders in their network and they can probably get you a pretty good score however this is where they make money and this is where you have more room and number one to negotiate on price you lead them to believe that you are financing with them okay just pretend that 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 that they're either going to make a flat which is basically a commission so when mr and mrs carr buyer you know end up taking a loan with dealerships bank x bank x is going to pay the dealership a flat fee or a commission or the other way that dealerships make money through financing is through loans is through points or financial reserve so basically all this is is that you qualify for a buy rate say you're an 800 credit score the loan is going to be four percent right that's the buy rate the dealership will bake in numbers they'll bake in two extra percent called the sell rate and that's where they make the arbitrage that's where they make the two percent spread so for quick math if you took out a 20 000 loan financed at 60 months at uh four percent and they get it to you at six that two percent difference is worth one thousand thirty three dollars over the course that loan in spread so now you can see where the dealership would be more willing to go to negotiate on price is because they're making money here on the payments makes sense so now you're probably asking yourself well marco you know i don't want a loan what does all this lead to i thought the point of this was to buy the car with cash yes so when you go into the back office and f and i okay where they sell you the gap insurance the wheel insurance all that good stuff that's actually where you find the sheet and you basically break down every single one of the costs okay and we'll get into that right here okay so this is where the rubber meets the road in the video this is what you're going to do in the back office so you are taking out a loan from either the dealer themselves someone part of their network or actually the manufacturer's financing arm so like lexis financial gm financial et cetera et cetera the reason you were doing this as mentioned earlier in the video is because you're going to beat them up on price once you finish the sales negotiation on the floor with the salesman you're going to be in the back office and they're going to present to you your final numbers okay so typically what this looks like is is you're gonna see retail price this car was thirty two thousand nine hundred ninety seven dollars well you got us down to the sales price which is now thirty they're gonna break out your local taxes in this case i just assumed ten percent that's high but just assume that for easy numbers then you have like doc fee fee one uh government fee fee two you know some bs fees that they make up which i'll explain to you in a second here what to do you have gaap which they're going to build into this gap insurance and then accessories and service packages things like that i just ran out of room on the whiteboard so you're going to come to a total number of whatever that is you know five figures minus your down payment and that's going to be the amount financed now this is where you actually want to still continue the negotiation process and don't be afraid to walk away if they don't meet this okay this is going to save you money so pay attention so since you're taking out the loan first and foremost you need to understand if this loan has a early prepayment penalty if it does then what i'm explaining is not going to work it's not worth the effort if it doesn't which most loans shouldn't have an early prepayment penalty then you just save yourself a bunch of money and you can send me a commission check in the mail if you want to just kidding not really all right so what happens is is once they break all this down you're going to say oh doc fee 500 bucks no thanks i'm crossing that out government bs fee no thanks i'm crossing that out gap i don't need it i'm just saying for this example if you want gap use it whatever i don't care accessories i don't need it unless you want it then you have them redo the price they're going to say oh this doc fee that's state mandated 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 uh for all the big brain people in the comments that are going to leave a negative comment this is just a negotiation chip okay you don't have to knock this out all you do is you take this 500 and you take it off the price of the car you say okay i'll pay the 500 fee if you charge me 29.5 for the car does that make sense so you're just buying yourself more negotiation power and if they say no i can't do that you know what you say thanks mr f and i have a great day and you walk away with a smile on your face and you drive off into the sunset i'm just kidding but anyway you're buying yourself more negotiation power so you're still going to end up paying for the sales price of the car you're still going to pay the same tax that you would have paid you may buy yourself some negotiation power with these bs fees you're not going to pay this stuff you have them redo the total you put down whatever you said you're going to put down and this is the point of the video you get your payoff amount from the lender let's call it 30 days later or 45 days later you say hey what's my payoff amount it should simply just be these numbers sales price tax whatever the amount you financed minus your down payment and you send them a check cash you just paid cash for the car while still getting all the benefits of the sales price negotiation does this make sense okay so now that i saved you a bunch of money this is how i've been buying cars my entire life my parents are immigrants we don't buy new cars i've never bought a new car probably never will i don't lease cars i own a business maybe leasing makes sense to save me some money as a write-off i don't care i don't even play those games i buy cars with cash from private parties okay what's a private party it's a human being just like me and you are there shady people that exist yes are there good people that exist yes are there rich people who maintain the crap out of the car made it pristine and serviced it at every single service interval took the depreciation hit the maintenance hit and now they're selling it to you for cheap with no fees that a dealer would charge you yes those people exist too and that's how i buy cars i buy cars off of forums i buy cars off of craigslist i buy cars off of private parties who have taken well uh who have well maintained the car and have all the service documents and everything and i'm also mechanically inclined so that helps too so is my dad so my point is i've broke even or made money on most of the cars that i've owned i've only lost money on a couple cars that i've owned i buy cars that have high demand low supply typically enthusiast cars i drive them for a little bit sell them make money or break even okay this is why i've never had a car payment my entire life so let me elaborate on these two very quickly because i know people in the comments are oh i don't have a mechanic i'm not mechanically savvy i'm gonna get it taken advantage of just use some common sense dude if you're pulling up to a beautiful residential development the guy lives in a you know 500 000 house or a mcmansion or whatever you want to call it he probably took good care of the car okay 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 not made anymore i'll go to volkswagen taurig forums if i'm looking at a porsche cayenne diesel six-speed manual which they're not making anymore i'm gonna go to a porsche forums renlist i may go to craigslist i may set up an automatic search so when certain words meet my criteria i get emailed and you can see if the car is in good shape or not so this part of the video probably resonates with maybe five percent of the people watching the video but this is the best way to buy a car you avoid all the dealership fees you avoid all the sleazy salesmen you avoid all the the headache of going through the dealership process you're simply dealing with another human being if you have a good judge of character you know what to look for and you did your research buying cards from private parties is the best way to get value period if you don't agree comment down below if you do agree comment down below whether you do or don't i mean it's just my opinion and i've had success doing it for many years thank you so much and if you want to watch my how car dealerships video rip you off check this out right here have a prosperous day everybody you

Channel: Marko - WhiteBoard Finance

Views: 1,042,068

Rating: 4.9235077 out of 5

Keywords: buying a car, buying a car from a dealer, buying a car with cash, car buying tips, car buying negotiation, car buying tips from a former salesman, car buying process, car buying tips for first time buyers, car buying cash, car buying cash vs financing, buying car cash or finance, used car buying cash, dont pay cash for car, why i dont pay cash for my car

Id: MleR3FFaKMU

Length: 12min 27sec (747 seconds)

Published: Tue Aug 11 2020