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Buying a New Car

May 10th, 2011 No comments

As a follow-up to my previous post about some of the psychological techniques used by car salespeople, here is a good and brief introduction to purchasing a new car. Much of it stems from keeping your options open and never allowing yourself to feel pressured into buying a car. This is something I try and drive home to people in therapy or in any other interactions I have with them – keep the control in you life within yourself. Do not allow other people or circumstances to control your life. You have the power and choice to act for yourself. Yes, other people and circumstances influence all of us but only we have the ability to choose how we act.

In a sales situation, the buyer always has the power because the buyer can walk away at any time (barring a forced situation such as in slavery or when violence is threatened or in other such circumstances but I’m not writing about those at this time). Here is a good intro into buying a car. Warning: there is a brief instance of bad language in the video.

The Psychology of Buying a Car

February 3rd, 2010 6 comments

Disclaimer: With this post I am not attacking people in sales or other similar work. I am not trying to say that all or even most car salespeople are dishonest. I believe that most are honest and are just trying to make a living as well as possible. However, what we cannot ignore is that there are people who are dishonest and take advantage of their sales training to try and take advantage of some people. But again, I don’t want this post to be misunderstood as an attack on all retail services and professions – it is not.

Recently I had an experience looking for a car. I arrived at a dealership to be approached by a woman who had just started working there. As she walked me over to start looking at the type of car I was interested in, we were joined by a more experienced salesman who wagged along to make sure the new saleswoman knew what she was doing. This salesman asked how much I was looking to spend. It is not usually a good idea to reveal how much you are looking to spend because of a reason I will discuss below. However, because I was just looking and was not going to buy a car that night (unless they happened to have a great one for a great price), I divulged my limit. I said I was willing to spend a specific amount of money. His reply, “You know that with taxes, tags, and fees [our exorbitantly high fee - he didn't say that but their fee was exorbitant when compared with other dealerships in the area] it’ll be $X more. Is that okay?” I replied, “Yes, it is.” I had already factored in taxes and fees in my what-I-can-afford price.

I stated I was going to pay cash and that I wasn’t going to trade in my car (it’s usually best to only agree you are going to trade in your car once the final price on the other car is settled in writing; that way the dealer does not mark up the price of the new car by how much the trade-in is worth – not all dealerships or salespeople do that but it happens). Frank [not his real name] the salesman said, “OK, I think these cars [there were three we looked at] are probably in the ballpark of your price range but I can’t be sure until I talk with the boss and he crunches some numbers.” I looked at two of the cars – they were okay but I really just wanted to see the prices so I could know if they were fairly priced or not. There were no prices on the cars at this particular lot. Why not? Well, when I stated that I would rather talk prices first before driving any of the cars, Frank said, “Oh, well we don’t want to go through all the time and effort to talk about price before you actually drive the car. What if you find out you don’t like it?”

I like to be upfront about costs because I do not want to waste my time or the salespeople’s time on a car that I cannot afford. In this case, because I was interested in the process and the particular model of car (to see if I liked that model of car), I said, “OK, I’ll drive this car – I haven’t driven one of them before.” I decided to play his game and see where we went. If I liked the car and it was a good price, I would possibly purchase it (but not without having my wife view and drive it). The car looked nice – it had leather seats, a DVD player, but it was a bit older and had more miles than I wanted. Said Frank, “Oh, this is a nice car – we just got it on the lot yesterday and it’ll sell fast.”

Let’s stop. Where’s the psychology in all of this? One sales technique being used on me (and I played along) is what is called the foot in the door technique. Ask little favors or even give little rewards (in this case it was as simple as pointing out the nice leather seats and DVD player and other features or even taking a car for a test drive – novelty can be a great reward) and someone is more willing to listen to you and purchase your wares because they feel obligated and a bit committed. Start small and build from there. So the goal is to get the customer in the car and – assuming they like it – they will be more willing to stick with it. At some point many people feel obligated because of what they have received from the salesperson – test drives, time, and realized or unrealized perks. The other psychology sales technique he did was create a scarce commodity – make the car seem like it was going to go quickly and you feel like you have to act quickly – it just got there yesterday and was going to be gone tomorrow. I’ll get back to this later.

One thing I forgot to mention – as we started looking at this particular car Frank pushed the power sliding door button and nothing happened. “I’m not very familiar with how to work this particular car,” he said, trying to cover up the fact that the power door was in fact not working (it could be opened manually). This ironic experience was in the context of Frank talking about how they do such a thorough inspection of all their cars and fix what needs to be fixed. Then Frank said that he has to drive the car off the lot and then we’ll switch and I can drive it. I’m thought, “That’s new, I haven’t had a dealer require that before but I haven’t shopped for cars before in this part of the country and maybe that’s the way it is done here.” It’s also possible that this particular dealership had past experiences with non-employees hitting other cars on the lot when leaving on a test drive. After this, Frank started up the car and said, “I like to let the car warm up for a little bit before driving it, my father was a mechanic and I like to take care of my cars.” That’s generally good policy with cars, particularly when the engines are cold. However, the whole time the dashboard lights are dimming and then getting brighter, then dimming and back and forth for about 10 seconds. Once the car was “warmed up” we were off.

Frank turned the first corner in the lot and I telt a slight clunk from the transmission – that’s a great sign (that was sarcasm). I’ll fast forward to when I drove the car. It was okay but I was not impressed. I was impressed more with the overall look and fit and finish than its drivability. It drove okay and was comfortable but I didn’t think the transmission would last long. We get back to the dealership; I was interested in what kind of ‘deal’ he would offer me on the vehicle so we went in to finally talk prices, 40 minutes into the process. I’m an eternal optimist so I thought, “Well, if he can sell it to me for $X, I might purchase it. I’m sure I’ll have to get some work done on the car, potentially a new transmission soon, but if the price is low enough, it will still be worth it.” In this case $X was considerably lower than my limit was. We went into his cubical (the other saleswoman was with us the whole time. She was very nice but mostly just observing at this point.) to start the paperwork “for the quote.” Again, this is a continuation of the foot in the door technique. He was trying to get me to the point where I had put enough effort in that I would say, “OK, why not?” Frank scurried off to go talk prices with his boss.

Next was one of my favorite parts of this experience. Frank came back with an offer that is “almost at [my] target.” It was 11% higher than my target price. Again, my target price was not for this particular car, it was the price I was willing to spend a car in general. If I were less polite I would have laughed at the price he offered. That price was a good 25-30% higher than similar cars were selling for in the area. I thought, “Is he serious?! That’s ‘almost’ my target price? This guy is very generous (to himself) with my money.” I looked at the various other fees that get added on. Their dealership fee was about 8% of the car’s price (that fee is much higher than at other dealerships in the area, some of which had no dealer fee). Here was another psychological technique he used (I don’t have a specific name for it, although I’m sure one exists) – on the paper the car had a “listed” price that was at least 25% higher than his ‘reduced’ deal for me. Stores do this a lot – put things on ‘sale’ and people will buy them, even if the sale price is higher than the normal price. People see “reduced prices” or “sale” and think they are getting a good deal. Sometimes they are, sometimes they are not. Had I purchased the car (I certainly wasn’t considering it at that point unless he reduced his price by a significant amount), I would have received a bad ‘deal’.

What happened is that this salesman had a problem he did not know he had. He thought he was in control of the situation. He forgot that the customer is always in control unless the customer relinquishes that control. I had a firm grip on my control, he just did not realize it. I did surrender enough to keep the car buying process moving because I wanted to see where it would go and if Frank would ever offer a fair price on the vehicle; I wanted to see his ‘best deal’ for me on this car. While we were going through initial paperwork he mentioned that he had a couple coming from “[not-so-nearbyville] or was it [slightly-closer-nearbyville] tomorrow to look at and probably purchase the vehicle.” He might have been telling the truth about the matter – I like to give him the benefit of the doubt – but the whole statement was too contrived to seem real. Once again he was trying to make the car a scarce commodity that I had to act on “tonight or it will be gone tomorrow!”

One more point about why he thought he was in control of me – I am not a rude person and I can come across as rather soft and indecisive at times due to my wanting to perform cost-benefit analyses on major decisions. I like to weigh options; in a sales setting, I might look like an easy target at times. I’m sure I am an easy target in some situations – like with my daughters – but I was fully in control in this particular situation; I also didn’t want to be rude and just stand up and leave. I said the price was still too high and I called him out on his statement that the price was “almost at my target”. Maybe it was close in government spending but not for me. When we are talking thousands of dollars, an 11% “cost-overrun” is significant. He left to talk with his boss and came back stating that in order for his boss to give me a better deal I had to sign my name to show that I was “committed” to this car – that’s just some more sales psychology. Once you start to sign things, even meaningless pieces of paper like the one I signed (it really was essentially a blank piece of paper with my name on it), you tend to feel more committed and it is harder psychologically to back down. As an aside, this is a technique therapists can use with suicidal patients. Get them to commit to not harming themselves verbally or in writing and they are much less likely to do so because of the commitment. In this case, the only thing I was committed to was not buying the car. I have to admit that with a background in psychology and as a scientist I enjoyed the psychology of the situation. I was also impressed with his sales techniques. He didn’t come across as pushy as some other salesmen I’ve met but his techniques needed some polish. He never even found out if I really liked the car. I said it was nice and he jumped on that; he assumed he could sell the car to me because he assumed I liked it when at most all I gave was a tepid response. I know that is optimistic salesmanship on his part but selling is much easier if it is a car (or other thing) that the person actually wants.

His sales shortcomings were not entirely his fault, I was quite non-committal (which he viewed as “almost convinced to buy”) about the process because I really just wanted to see how low the price would go in order to see if the price ever approached the fair market value. I was also in a social psychology experiment mode. He came back with the price ‘down’ to my target price (the dealer fee was still high though). I said I’d have to talk with my wife before I committed to anything. They were even trying to get me to make a “fully-refundable” deposit (again, more commitment) on the car to “lock in the price so we don’t sell the car tomorrow.” Another great part of this process was how the salesman was always on ‘my side’, which might be true but on a commission-based reward system at work there is great incentive to sell items at the highest prices possible. That is good business but not good for the customers. Frank kept stating that he was on my side, “This couple who wants to buy the car doesn’t even have any kids so I’d rather sell it to you since you’ll get better use out of it. You actually need it with three kids. I’d rather sell it to you even though this other couple is willing to pay a couple thousand dollars more than you are for the car.” Wait, what?! He had an opportunity to sell that car for $2000 more and he wanted to sell it to me instead? Maybe he really did want to, and if he did that was quite admirable of him, but even my optimistic self was cynical about his statement in light of the rest of the night.

Also, suddenly he mentioned that the “wife of this couple [had] already looked at the car” even though they live two to three hours away and the car had “just arrived 24 hours ago.” It’s certainly possible but it usually takes more time than that for a dealership to process cars. Maybe he didn’t know when they got the car on the lot and was saying 24 hours because it was recent but making that statement in the context of trying to get me to close on a price and sign the papers, was a bit too much of “scarce commodity” for me. He was so eager to sell me the car that his stories stopped matching up. Frank stretched the truth too often to be credible. I saw that he wasn’t going to go down in price any more so I ended my informal experiment. I made my exit and walked away saying that I’d talk to my wife. I did, but mainly to say that we didn’t want that particular car. As I was walking away, Frank knew he had lost me. He asked a couple times, “Was I too pushy?” He realized that he hadn’t been in control of the situation; he hadn’t read me correctly. And yes, at least to me, he was too pushy in the end (but that is just my personal preference. I know he was not particularly pushy as far as car salesmen go).

I went home and searched for the car online. It came up (same dealership) with an online price $200 less than the lowest deal he “cut me”. Most dealerships have separate online salespeople so the general on-lot salespeople are not usually aware of the online price (it’s usually lower than what is offered in person) but I still think it is interesting how his best deal for me was higher than the online price. The car’s online price was still higher than fair market value for that car. Part of the price difference in the online price and the “best price” in person stems from me telling him my limit in the first place (again, I did that on purpose). I further discovered that the car had been on the lot for about 5 weeks instead of only 24 hours.

During this process I was not trying to be manipulative. I honestly was interested in the car if it was a good enough price (okay, so maybe a toss-a-coin-in-a-well-and-have-a-bag-of-gold-fall-at-your-feet kind of price but given the year, miles, and condition of the car, that was not an unreasonable desire). It never even came close to what I would be willing to pay for it. Besides, had it come down to it, I would have asked for reductions because of the non-power power door as well as other issues (spotty interior lights, clunky transmission). So much for their “thorough inspection” that, according to Frank, was worth paying upwards of a couple thousand dollars more for a car from them than I could pay elsewhere.

I thought the whole process with that salesperson and that car was ridiculous. I know most salespeople are good people but at work it is their job to sell you their product. For some people this means sometimes burnishing the truth a little or a lot (as was the case with Frank).

I share this experience to help people be more aware of common sales techniques. Buying a car is a big decision and is daunting for most people. Remember that you are in control. Watch out for the foot in the door (that doesn’t mean you don’t let them do it, just recognize what they are doing and be willing to walk away). Also, be more alert when the salesperson is doing something as a favor to you. Maybe he or she is but remain skeptical – that’s part of what it means to have critical thinking. Actions like that (unless you personally know the salesperson) should raise red flags. Also watch out for the pressure situations of ‘scarcity’; yes, the car really might be sold tomorrow but if you aren’t completely comfortable just walk away. Find a salesperson (at another dealership if possible) who doesn’t pressure you more than you are comfortable. I’ve met some very nice and good car salespeople who sell cars without resorting to pressure. I am more than willing to work with them and reward them by not trying to haggle much over the price.

Also, if the stories of the salesperson start contradicting each other, walk away. Also, don’t give out your price target because they will almost always meet and surpass that target. If you say you can spend $16,000, many dealers will suddenly have $13,000 and $14,000 cars for sale for $16,000. You can give soft estimates of what you are willing to spend but if anything, say you are willing to spend less than you actually are. Again, as the consumer you are always in control (except in emergencies and hopefully then people are not there to take advantage of you) if you do not give up that control. Lastly, sales are not always good deals. Always do your research ahead of time for major purchases like a car.

I’m going to go back online and search more. I don’t really need a new car immediately but the time is approaching when I will need one. The whole experience was interesting though. There were other sales techniques Frank used but I didn’t go into them. I’m sure I even missed a few.

Update: I purchased an automobile shortly after this experience where I knew the price up front. It was a price near fair market value so I did not even try to haggle. The salespeople and situation were more pleasant and honest.