Dealers Want You to Buy, Buy, Buy
Car buyers might think the process ends when they shake the dealer's hand and agree on a price, but as some shoppers would attest, the sales pitches only continue once you step in the dealer's office to do the paperwork.
Many dealerships want consumers to drive off the lot with additional services, insurance policies and other "protections" in tow. But much like dealer-installed car options that are available prior to purchase, these services are largely meant to boost the dealer's personal income.
"The dealer is trying to maximize the profit on each sale because they don't make a lot of them," Jack R. Nerad, executive editorial director and executive market analyst for the car valuation site Kelley Blue Book tells MainStreet.
To find out which add-ons are really worth the cost, MainStreet talked to the experts for their take on what to skip and what to buy. Here's what they said.
Fabric protection lets owners bring in their vehicles any time to have the upholstery cleaned or repaired if it becomes ripped, soiled and/or stained. Reed estimates most dealerships charge around $250 for this service, which is unfortunate since it really isn't necessary.
Nerad agrees that interior protections "are virtually worthless in this day and age" since car manufacturers have vastly improved the fabrics they use to upholster interiors. "It will last quite a long time, longer than you would think it is going to," he says.
A cheaper way to protect your interior: buy Scotch-Guard for around $5.
VERDICT: Consider ... at a later date.
Philip Reed, senior consumer advice editor for car review site Edmunds, says that an extended warranty can have "real value" for consumers looking to buy piece of mind. However it can also be a big waste of money if the consumer never uses it and the warranty only covers major repairs.
"It's a gamble for both sides," Reed admits, explaining that the dealership will lose money if you take advantage of the extension.
Most people don't end up using the warranty, and according to Consumer Reports, around 42% of extended warranties are never used, mostly because the vehicle didn't need repairs or the standard manufacturer's warranty sufficed.
These warranties typically cost about $1,000, so someone concerned about buying a lemon who intends to keep the car for more than three years should take some time to review the fine print of a dealer's offer and manufacturer's warranty before agreeing to buy the extension.
"You don't have to buy any of these services that day," Reed says, adding that you can buy the warranty at a later date.
Consumers who opt for this option are paying for the dealership to etch the vehicle identification number (VIN) onto the car's windshield, windows or other expensive parts in a move to dissuade thieves, who would need to replace those parts to sell the car, from stealing it. The feature sounds attractive until you realize that it's often overpriced. Many companies actually sell DIY etching kits directly to consumers.
"The dealership will offer etching for around $200," Mike Quincy, automotive content specialist with Consumer Reports, says. "You can probably get it done yourself for around $25."
Nerad explains that at some time during the life of a car loan, many owners will owe more than what the car is worth, because it depreciates in value over time. This can be problematic since someone who totaled his or her car during this "gap" would only recoup what the car was worth at the time of the crash.
Dealers tend to offer gap insurance as a way to recoup the difference and Nerad says you may want to consider taking them up on their offer, depending on how much your insurance company is charging for it.
"See what they cover," Nerad says. He explains that just like with the car's price, dealers are often willing to negotiate the costs of these services and a little research on competitive rates could help you make a deal that is mutually beneficial.
If you don't know whether your insurance provider has gap coverage or what its rates are, you can always find out and then purchase the dealer's insurance at a later time.
Nerad advises against taking up the dealership on any exterior protection services like rust-proofing, scratch guard or paint seals.
"It's a glorified wax job," Reed agrees, estimating that dealerships may charge around $275 for the service, a price you could probably beat if you had the detail done elsewhere.
Billed as a way to make sure your next of kin doesn't get stuck with your auto loan payments if you die before the car is paid off, these services are generally overpriced, especially if you have a poor credit history, according to Consumer Reports. They also tend to be unnecessary, since most life insurance policies provide this type of coverage.
Driver-Installed Alarm Service
VERDICT: Skip (unless you store valuables in your trunk)
To make a buck, dealers will often install an upgraded alarm system with additional security or anti-theft services. They may have installed LoJack, a service that specializes in tracking and recovering lost or stolen vehicles.
These services can be good, but are also unnecessary. According to Reed, many cars will already have an alarm that was installed by the manufacturer, and a consumer's insurance policy typically covers the cost of a stolen car. However, a very niche audience might benefit from the added security.
"This service can be really good for jewelry salesmen who carry samples in the trunk of their car, or for a car collector who would be interested in having the vehicle returned," he says.