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Dollar for dollar, warranty coverage is more affordable than buying a "certified" vehicle from a used car dealership. Although buying a used certified automobile from a car dealership may seem tantamount to buying an almost brand new car, the best savings can be found in purchasing warranty coverage. Quite often, the cost of a warranty car inspection is less expensive and more cost effective than the price of a dealer certification.
Before, you haggle the sales staff at your local auto dealerships, be sure to learn the language. Dealer holdbacks and dealer incentives are very different. Both are components provided by manufacturers to a car dealership. A dealer incentive is a special offer the manufacturer extends to the car dealership to inspire or help ensure car sales.
Depending on the manufacturer, the dealer holdback may account for either a percentage of the Manufacturer's Suggested Retail Price (MSRP) or invoice price of a new car that is reimbursed from the manufacturer to the car dealership.
Since, dealers are required to pay manufacturers when an automobile is ordered opposed to when it is sold, car dealerships will acquire financing from either a manufacturer or financial institution. A dealer holdback is designed to help the car dealership maintain cash flow and inadvertently lower “variable sales expenses.”
Car dealership financing is referred to as a floor plan. It enables the dealer to maintain inventory and operating costs. In return, manufacturers will replace the dealer's interest obligation on the floor plan or loan for the first 90 days by issuing a "holdback" check every 90 days. As a result, using a dealer's holdback during price negotiations may not give you the bargaining advantage.
For example, if a vehicle has been collecting dust on a car dealership's lot for more than 90-days, the profits from a dealer holdback have been depleted, more than likely. Consequently, negotiating with a car dealer over potentially non-existent funds will not benefit one's cause.
Based on a recent market research study conducted by Consumer Reports, the results showed manufacturer-certified vehicles to outperform car dealer certified cars:
• Overall, manufacturer-backed certified pre-owned (CPO) programs featured more consumer protection and consistency than local or car dealerships CPO programs.
• The average price of manufacturer-backed certified pre-owned (CPO) programs were found to be $1,000 more in price than the average used car.
• Only 13 percent of manufacturer-certified cars carried more than 60,000 miles. Vehicles certified outside of an automaker's facility (with more than 60,000 miles) accounted for 32 percent of certified pre-owned cars.
• Less than nine percent of automobile consumers who bought manufacturer-certified cars reported serious problems, compared with 15 percent of the car owners whose vehicles were not certified at the manufacturer.
• As far as the negotiations involved in buying a used car, consumers who purchased manufacturer-certified vehicles had the ability to negotiate substantial discounts from the car dealership's asking price than those who bought other used cars.
Depending on the location of a car dealership, dealer incentives vary by region. As a result, consumers do not have a way of knowing if the precise incentive is extended at their local car dealership.
Quite often, manufacturers offer dealer incentives for the following reasons:
-- To inspire car dealerships to compete against each other to move slower-selling models or stock.
-- As a way of rewarding a car dealership for meeting a specific sales goal.
As a result all dealer incentives are not created equally; however, all may benefit customers by leaving a little bargaining room.
Since certified pre-owned (CPO) cars are marketed “like new” without the expense, car dealerships price CPO automobiles higher than non-certified cars. Certified-pre-owned cars are used vehicles that have passed a series of safety and maintenance inspection. These programs carry a specified term of warranty coverage.
It is important not to confuse a car certified by a dealership with a CPO vehicle from a manufacturer. The two certification programs vary in scope and advantages. Based on consumer research, CPOs backed by manufacturer programs have been shown to experience fewer maintenance problems than automobiles certified by an individual car dealership. The advantage to buying a certified pre-owned vehicle opposed to a new car is that a consumer may buy a luxury automobile for a lower price.
To tune-up your negotiating power with car dealerships, understanding the difference between a customer's incentive and a dealer's incentive may impact what transpires at the bargaining table.
A customer incentive is offered directly to the buyer from the manufacturer. Customer incentives may include the following special offers:
- Cash-back rebates
- Low-interest financing
- Other car buying perks
On the contrary, dealer incentives are factory-to-dealer offers designated to move more cars, serve as a sales incentive or lower the car dealership's actual cost to purchase the automobile from the factory. Regionally, manufacturers extend these incentives, referred to as ‘spiffs' to generate revenue on specific vehicle models.
Unlike a customer incentive where the consumer is entitled to an incentive (if offered), car dealerships are not required to pass on any discounts or rebates to their car buyers. For the automobile consumer, acquiring a dealer incentive may require a little negotiation muscle.
Compared to a factory-certified vehicle, a dealer-certification program may be a little risky because frequently they are not worth the cost. Often car dealerships of new and used cars offer their own brand of certification.
On the contrary, these types of car certifications are a means of cashing in on a precedent set by manufacturer. If you opt for a dealer certification program remember to request a copy of the inspection/repair list for the specified vehicle's certification. Review the details of the car dealership's auto inspection to make your final decision.
As a measure of protection, obtain an additional inspection from another mechanic and compare his or her findings to the car dealership's assessment.