"There's a sucker born every minute," carnival king P.T. Barnum allegedly proclaimed in the fall of 1869. And while Barnum was never known to own an auto dealership (after all, he died in 1891 -- several years before Henry cranked out his first Ford), some might believe his words live on in the heart of every car salesman.
OK -- they're not all out to rip you off. Most are just out to make an honest dollar. But most are experienced and aggressive salespeople. So if you're going out to buy a new car this year, you'll want to make sure you know what you're doing.
You'll need to be an educated, assertive consumer. While this requires a bit of research and number crunching, with the volume of information available online and in print, you should be ready to head to the showroom in just a few hours.
Here are the come-ons, misrepresentations and mistakes you'll want to watch for:
To avoid being misled, know your credit score before you head to the showroom. Contact the three major credit bureaus and ask for a copy of your credit report. You may have to pay a nominal fee. The credit agencies are: Experian, Equifax and TransUnion.
Treat each of these as separate transactions, and negotiate each one. If you get a new car for $200 over invoice, but only receive $1,000 for a trade-in car that's worth $2,500, you haven't done as well as you could.
"You need to manage all parts of the process by doing research ahead of time," says Joe Wiesenfelder, senior editor of cars.com. "It's very important that buyers not think of the dealer's finance department as their loan agent. The dealer is not required to find you the best rate, and might add to the number by serving as the middleman."
Focus on the price of the car rather than the monthly payment. "Never answer the question, 'How much can you pay each month,'" says James Walsh, editorial director with Silver Lake Publishing, Los Angeles. "Stick to saying, 'I can afford to pay X-dollars for the car.'"
You should also find out what cars actually are selling for, after taking into account any consumer and dealer incentives. A number of Web sites provide information on the actual selling prices of cars, as well as rebates and incentives. These include Autobytel.com, cars.com, carsdirect.com and edmunds.com.
Of course, some popular cars go for sticker price. The Honda Odyssey minivan currently falls into this group, says Wiesenfelder of cars.com.
You'll want to search for holdbacks or other factory-to-dealer incentives available for the car you're considering. While it's not a given that the dealer will apply any of these funds to the car you like, it doesn't hurt to ask.
The goal of these unscrupulous dealers often is to put you into a more expensive car -- another red flag. "If you didn't qualify for $299 per month, how would you qualify for $450?" points out Ostroff. To avoid this, you may want to have financing in hand before you head to the dealer.
These policies may or may not make sense for you. In either case, you want to understand what you're purchasing, and have the opportunity to decline it and shop around for better prices.
In addition, you may be better off finding your own financing, and then taking the dealer rebate, if one is offered. Say you're looking at a $20,000 car and will get $4,000 on your trade-in. You can choose between zero-percent financing, or financing at 3.49 percent with a $2,000 rebate. The term of the loan is 36 months. Over the course of the loan, you'll come out ahead by more than $1,200 if you take the rebate and the 3.49 percent financing, says Reed of Capital One.
While this isn't illegal, it's risky. Why? You'll end up owing more on the second car than it's worth. In the parlance of the automobile world, you'll be "upside down" in the vehicle. If it's totaled in an accident, or if you decide down the road to trade it in, you'll end up writing out a big check to cover the remaining amount of the loan.
Still, there's a danger. "These loans take forever to pay off," says Mark Perleberg, lead automotive expert with NADAGuides.com. You're likely to continually owe more on your car than it's worth, because your car is depreciating faster than you're paying it off. If you're considering a long loan period, you may want to consider a less expensive car better suited to your budget.
Similarly, some dealers will encourage you to purchase a car for unrealistically low monthly payments now, but with a balloon (inflated or much larger) payment at the end of the loan period. In a few cases, this can be a legitimate way to finance a car. For instance, you may just have graduated and can realistically assume that your income will rise by the time the balloon payment comes due.
Be wary, however. "Make sure you know what you're doing," says Wiesenfelder. "If you're only paying $198 a month on a $35,000 car, there's a reason. Eventually, you have to pay the principal."
How can you avoid all of these come-ons? Educate yourself. "Many dealers are good and honest, but there are some that you need to be more careful of," says Reed of Capital One. "Know what you want to buy and know your alternatives to dealer financing. Then, be careful of the dealer selling you things you don't want."
-- Updated: Jan. 20, 2005