10 Ways to Outwit a Car Dealer

"Sticks and stones may break my bones, but words will never hurt me."

That's all well and good on the playground, but it's a different story in a car showroom.

That's because auto dealers have their own colorful slang that says something about how the car business operates; some pitfalls to watch out for; and, in some cases, how some of the more cynical dealerships see the customer.

Many car dealer terms can be applied to customers. Quite a few, like "Minnie the Moocher" are not compliments. (In the Cab Calloway song, Minnie the Moocher dreams she has $1 million in nickels and dimes, which she counts a million times.) A "mooch" is a customer who wants everything, without paying for anything. Not something the dealer likes to see.

Another such term: Be-back. This is a customer who makes multiple visits, as in, "I'll be back." Salespeople get paid on commission, so naturally their first priority is to close the deal.

Don't allow yourself to be rushed. If the salesperson is helpful and knowledgeable on your first visit (on your first visit, you're called an "up"), get their business card and ask for them next time. Consumers should negotiate hard, but they shouldn't get so caught up in the nickels and dimes that they lose sight of the big picture.

Nor should they take to the "ether" and let the details flow in one ear and out the other.

It's important to take your time. Read the fine print. Don't fall in love with a particular car--at least, not so much in love that you get in a rush and won't settle for anything else.

"Good advice," says Rosemary Shahan, president of the Consumers for Auto Reliability and Safety advocacy group, in Sacramento, Calif.

Money Grubbing

She says another term to watch out for is "dealer reserve." Often poorly understood, it refers to the markup the dealer applies to the interest rate on your car loan.

Dealers make money for arranging loans. Based on how risky the customer is, the lender approves a loan at the so-called "buy" rate. The dealer hikes the buy rate to the rate you pay, up to a ceiling specified by the lender, usually a couple of additional percentage points. The difference, called "dealer reserve," is a big source of dealer profit.

There's nothing illegal about it. Dealers and auto lenders have argued successfully in several lawsuits that arranging loans at the point of sale is a valuable, convenient service. And the National Automobile Dealers Association is quick to point out that in independent consumer surveys, most people say they are satisfied with their dealerships.

People should know that the dealership, not the bank or the finance company, sets the final interest rate you pay. "Most people have no idea that the dealer is getting what in essence is a kickback on the loan," Shahan says. "It is an undisclosed conflict of interest." Potentially, the interest rate is even negotiable.

However, Ron Burdge, a Dayton, Ohio, attorney who specializes in "Lemon Law" complaints, said that even if you know this, few dealerships will budge.

"What's negotiable about it," he says, "is it just means you can go somewhere else if you don't like it."

Bottom Line

For the consumer, it pays to know the behind-the-scene details; it also pays to shop around and study up so you know even a few words of the local language.