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Buying a New Vehicle

Buying a New Vehicle

By Jeff Youngs, February 24, 2012
Each year, millions of consumers venture into automotive showrooms in search of a new vehicle. As dealerships focus on improving customer satisfaction, they have become more consumer-oriented in an effort to make the buying process more enjoyable and informative.

While today's showrooms are brighter and more inviting, the buying process has changed very little in decades. The transaction process is less confusing when you understand the roles of key individuals at the dealership, and some basic terminology used during the sales process.

Key Individuals at the Dealership:
  • Salesperson-As a customer, your primary interaction will most likely be with a Salesperson. As an expert on the operation and features of the vehicle, a Salesperson will accompany you during the test drive, negotiate with you during the sale, and assist the Finance Manager with the required paperwork. Customer service is their goal, so ask the Salesperson if you have any questions during or after the sales process.

  • Sales Manager-The role of the Sales Manager is to oversee all new- and used-vehicle sales at the dealership. The Sales Manager has the authority to adjust pricing and make all sales-related decisions. During the sales process, the Salesperson will often consult with their Sales Manager many times as the terms of the transaction are negotiated. Larger dealerships will have many Sales Managers, each having a team of Salespeople reporting to them.

  • Finance Manager-The Finance Manager is responsible for new- and used-vehicle financing, warranty sales, and sales of aftermarket products. An expert in finance for automotive sales and leasing, the Finance Manager often has business relationships with several banks and leasing companies, which gives them the ability to offer numerous financing options. After the vehicle negotiation is complete, the Finance Manager will draft the sales or leasing contract.
Common Terms:
  • Down Payment-The amount of money paid at the beginning of the sales transaction is often called the Down Payment. Many times, especially in advertising, it is referred to as "total money out of pocket" or "total drive-off." As the Down Payment increases, the loan or lease amount will decrease, reducing monthly payments and interest charges.

  • Monthly Payment-The amount due each month on an installment loan is called the monthly payment. On a lease, the monthly payment will include the base lease amount as well as the sales tax for the full price of the vehicle.

  • APR-The Annual Percentage Rate (APR) refers to the interest rate on the vehicle loan. A lower APR means the monthly payments and the total cost of the vehicle will be lower.

  • Factory-to-Dealer Incentives-These financial incentives are offered from the factory (manufacturer) to the dealer as a reward or bonus to sell more vehicles. The dealership is not obligated to share or provide this money to the customer, but many choose to offer this incentive to potential buyers.

  • Factory-to-Consumer Incentives-These financial incentives are offered from the factory (manufacturer) directly to the customer. The incentive is often offered as cash, special financing rates, or other tangible benefits.

  • Special Financing-This type of offer, often from the manufacturer or a preferred bank, will include a very low interest rate or extended terms for the loan. Special Financing offers may be given in lieu of other incentives. Sometimes these offers require that you finance your vehicle through the manufacturer's captive finance company (i.e., GMAC or Ford Credit).

  • Trade-In-After carefully inspecting the vehicle to be traded in, the dealership will assign it a monetary value. This value, which can be negotiated, may be used to pay off the existing vehicle loan, applied as a down payment on the new-vehicle purchase, or kept by the consumer.

  • Trade-In Value (Wholesale Value) -This is the value assigned to the vehicle by an auction house. As the wholesale value must allow room for other costs (such as vehicle re-conditioning), it is often thousands of dollars less than the retail value of the vehicle to a private party.

  • Payoff-An installment loan with monthly payments will have a balance, or payoff, which must be satisfied before the loan is considered closed. The loan payoff will generally decrease each month a payment is made.

  • Rebate-This is another name for factory-to-consumer incentives. Unlike financing incentives, which include special interest rates, Rebates are often cash incentives that may be used toward the down payment, to pay off a previous loan, or taken as cash by the customer.

  • Tax and License Fee-These are standard sales tax and licensing fees that are payable to the federal government and to the state Department of Motor Vehicles (DMV) or similar agency.

  • Documentation Fee-A sales or lease transaction requires extensive paperwork. It is common for a dealership to charge a documentation fee to process the transaction through their business office.
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