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Sales incentives drive up the price of your car

Ever wonder why a car salesperson seems so set on selling you a specific car, or why a finance manager can't stop raving about an extended warranty?

They may be eyeing a behind-the-scenes sales prize.

A sales prize could be anything from a cash bonus to a pull on a prize board to an all-expense paid trip to Las Vegas or Paris.

Lavish trips and cash are common behind-the-scenes incentives at car dealerships. A safari in Africa, a golfing holiday in Scotland -- name an enticing vacation destination and you can bet it has been used as a sales incentive at an auto lot somewhere.

The high-end trips are reserved for sales managers, general managers and owners who meet sales goals or win sales contests. Auto manufacturers often pay for these first-class trips.

Cash bonuses for salespeople are also quite common. A salesperson could receive a bonus for selling a specific number of cars each month or clearing out specific models.

Commission-based finance managers are keen to sell you everything from dealer-arranged financing and extended warranties to rust proofing and car alarms.

"It's safe to say they make really good money on the junk they sell you, and that's why they pile it on," says Mark Eskeldson, an auto expert and author of CarInfo.com, a consumer information and advocacy Web site.

Incentives are everywhere
These kinds of incentives are as old as the auto business itself. There are incentives on just about everything in the sales and finance departments.

"That's how the car business works. The more you sell, the more money you make, the more bonuses you get," Eskeldson says.

Auto manufacturers pick up the tab for most incentives in the sales and finance departments. They pass the cost on to consumers by bumping up auto prices. Art Spinella, vice president of CNW Marketing/Research in Bandon, Ore., estimates that consumers pay at least $571 more per car or truck for dealer trips and sales bonuses.

Who wouldn't want to walk away from a car dealership with an extra $571?

And just look at what happens when you eliminate all incentives -- from trips and bonuses for dealers to discount financing offers and cash rebates for consumers -- from the car-buying process.

"If you eliminated all the incentives, you could lower the sticker price by 20 percent," Spinella says.

The sticker price on a $20,000 car would be knocked down to $16,000. Wouldn't that be nice?

Unfortunately for consumers, that's not going to happen. Bonuses and sales incentives for salespeople and finance managers are ingrained in the auto business, and that's not likely to change.

On the flip side, there's little chance that consumer incentives, which have climbed quite high in recent years, are going anywhere either. Wise shoppers cash in on discount financing and rebate offers while new-car shopping.

Make the system work for you
And there are ways to make a dealer's inside sales incentives work for you as well.

For example, lots of times the cheapest financing rates are available through the dealer, especially for new cars. Few banks or credit unions can afford to offer the rock-bottom rates available through a manufacturer's captive financing company.

Even if you don't qualify for a rock-bottom rate, a dealer may still be able to beat the interest rate available from your bank or credit union. The commission a finance manager receives will prompt him to do everything he can to win your business.

A sales bonus or prize could also work to a consumer's advantage when negotiating the price of a car. Let's say a salesman gets a big bonus when he sells his 30th vehicle. If you're negotiating the price of vehicle number 29 -- you could land a bargain. When a big bonus is in reach, a salesman will be more apt to take a lower price to close the deal.

"If you know there's a bonus, use it to your advantage," Eskeldson says.

Learning about a bonus or behind-the-scenes incentive can be tough. Some dealerships will come out and say "We need to sell 20 more cars to send our sales manager to Hawaii." Others won't say a word.

"The problem is you never know what number they're on or even if there is a number," says Tarry Shebesta, president of Automobile Consumer Services Inc.

And some dealerships place cash bonuses, or spiffs, on slow-selling problem cars.

"Spiffs are used all the time to sell problem cars, but again that's not something you're going to know about," says Remar Sutton, author of Don't Get Taken Every Time.

It's best to be skeptical any time you're getting the super-hard sell down at the car dealership.

"Anyone who's too enthusiastic about selling a specific car or a specific product, you need to ask yourself why they're doing this," Sutton says.

Your best defense
Being an informed shopper is your best defense against over-zealous salespeople with cash bonuses dangling in front of their eyes or finance managers who are five extended warranties away from a three-day trip to Vegas.

Do plenty of homework. Learn as much as you can about the kind of car you want. Do lots of research on pricing so you'll be ready to haggle.

Edmund's Automobile Buyers Guide, AutoSite, Kelley Blue Book, CarPrice.com and NADAguides.com are among the sites offering timely pricing information as well as shopping and negotiating tips.

Be just as diligent when it comes to shopping for your auto loan. Be sure to check out deals from local banks and credit unions. This Bankrate.com search engine will help you compare car loan rates in your area.

"If you're buying a car, there's no excuse for not doing your homework and finding out what kind of car loan you qualify for," Eskeldson says.

It's best to have an auto loan all set to go before you set foot in a dealership. That way if the finance manager wants your business, he's going to have to beat the best rate you found on your own. And he won't be able to talk you into signing on for a loan with a higher interest rate than you deserve.

Once you know your stuff, be sure to stand your ground. Don't let a salesperson talk you into a vehicle you don't want. Don't let a finance manager tack on rustproofing or an extended warranty you don't need.

Say "no" again and again. If that doesn't work, get up and leave.

"Nothing will stop the hard-sell quicker than getting up and walking out," Spinella says.

 

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