Why You Can’t Always Trust Low Advertised Car Prices

February 27th, 2019 by

You remember the old saying: “If something seems too good to be true, it probably is.” That’s very true when you see crazy-low prices on cars. Here’s why.

Look, we’ve been in business for 25 years because we’ve made one promise to people like you: You’ll get one low price at our dealerships, no matter who you are, or what day it is, or anything else.

Where traditional dealers will typically start with a high price then make you try and negotiate them down, we discount our vehicles right upfront. That way you don’t have to worry about haggling over price — or anything. So we’re no stranger to low prices.

But lately we’ve seen some numbers getting advertised that, at a glance, seem impossibly low.

Here’s why you can’t trust them.

What Low Advertised Prices Really Mean

When you see a figure that seems too good to be true, what a dealership is really doing is trying to get you onto their lot — and then hose you on your trade in.

Some dealers will advertise prices that would mean they’re actually losing money on the vehicle. So the question to ask yourself is: How can they sell something to lose money? You think they’d be out of business quick.

Of course, they’re not actually losing money. They’re banking on the fact that they can get you to pry open your wallet in other ways.

The Scam of Underallowing

So if a dealer isn’t making money on the car they’re selling you, how are they staying in business? By making up the margin on the trade-in they’re going to buy from you.

This is a tactic called “underallowing.” In it, the dealer offers you a discounted price on a new car — but makes all that money back (and then some) by lowballing you on your trade-in.

Dealers will get people so excited about the low-priced car that the customer will accept way less than market value for their trade-in. A customer like you ends up paying more — but doesn’t even realize it.

The scam works because dealers know that customers who are baited by low advertised prices are generally more concerned with getting a good deal on their new-car purchase than they are about maxing out the value of their trade-in.

So let’s say you want to buy a new Explorer that traditionally costs $30,000, but is listed for $27,000. What the dealer knows — and you don’t –is that he can offer up to $12,000 for the car you’re trading in. But instead, he points to some scratches, notes that little engine squeak at start-up, and lowballs you. “I can give you $7,000 for it,” he says.

Now you go into negotiation mode. You get him to give some ground and bump the trade in up to $8,000. But you don’t fight too hard, because you figure you’re getting a hell of a deal on the new car. You sign the contract and drive away happy.

But here’s the thing: You just left $4,000 on the table. So even if the car was discounted $3,000, you still lost $1,000 on the deal.

How to Beat Underallowing — and Get a True Deal

The solution here is twofold.

First, before you accept any offer on your car from a dealer, demand to see the ACV sheet.

ACV is short for “Actual Cash Value,” and on used car lots it’s the source of truth. Why? Because that sheet shows the actual value that the dealership’s accounting department assigns to the car. At dealerships that make you negotiate and haggle, the whole game is to get you to accept a number that’s less than what the ACV sheet says.

Second, treat the two transactions—the buying of a new car and selling of an old car—separately. At Apple Autos, we do that automatically.

It starts with honest pricing: Every car on our lot and website is listed with discounts and rebates upfront. What you see is the actual price. We don’t make you haggle in order to get it.

And we don’t need to: Our margins are already lower than other dealerships. Our business model is built on volume, rather than big payout per sale. The typical dealership sells about 50 used cars a month and earns up to $3,000 on each transaction. We sell about five times that many vehicles, and we bring in $1,200 profit, on average. The difference in those margins is passed on to our customers.

What’s more, we pay honest prices on trade-ins. The figure we offer is good regardless of whether you buy a car from us or not.

Your car should be worth what it’s worth, regardless of anything else. And we’ll show you our ACV sheet to proves we’re giving you every penny of your vehicle’s value.

How to Protect Yourself: An Action Plan

If you do go in to a dealership to check out a price so low it almost seems too good to be true, here’s how you can be prepared:

1) Check your car’s trade in value on third-party websites like Kelly Blue Book before you go in so that you arrive at the dealer with a reliable estimate of what you should get for your vehicle.

2) When they make an offer on your car, ask to see the ACV sheet.

3) Don’t be fooled by tactics such as the dealer saying there are scratches on the car or the windshield is cracked. Your vehicle may have actual damage, in which case you’ll need to factor that in. but don’t let it be exaggerated or made up.  

4) Ask the sales rep if they are on commission.

Want more questions that will help you get the most value for your trade-in — and the best deal on your car? Here’s a free guide with 10 of them you should ask before any car purchase.

Posted in Shopping Tips