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Johannesburg - Price is probably the most important factor when buying a car but this shouldn't be the only consideration.
GetWorth director Jamie Surkont warns against a common technique in car sales called the Four Square Worksheet, a psychological tool a salesperson can use to distract a buyer from the overall cost of a deal.
Surkont points to the Four Square Worksheet and stresses that there is a lot more to buying a car than just the price: "Think of a large square, divided into four smaller squares."
Each square represents the following:
1 The price of a new car
2 Your current car’s trade-in value
3 Your finance deposit, and
4 Your monthly payment
How it works
The new car price normally starts at the list price whilst the salesperson extracts the other information on what the buyer would like to achieve in each of the remaining three squares, explains Surkont. Based on this information, they will then present a draft deal.
Negotiations begin
Surkont says: "Normally the monthly payment and deposit are too high or the trade-in price is too low or the discount on the new car is too small. You reject that first offer, and the negotiations begin.”
Your reaction
Based on the reaction, the salesperson can determine where the focus should be placed. If you're bent on the cheapest price, the salesperson can offset this against a lower price on the trade-in.
Surkont said: "If you are only interested in what your monthly repayment is, he can still squeeze lots of high-margin extras into the deal, like warranties or smash and grab. Or if you need to clear a certain amount on your trade-in because of a high finance settlement, then the new car price can be loaded.
"And amazingly, you can still get low monthly payments by playing with balloon payments and other financial engineering. It’s a psychological tool, designed to confuse and prevent you from seeing the whole deal clearly."
Square flexibility
The salesperson has a lot of flexibility to move things between squares and add little extras here and there. The consumer on the other hand, finds the mix bewildering and ends up focusing only on their key considerations like the new car price or the monthly repayment.
“So you end up with a deal where you seemed to achieve your objectives, but you have a niggling feeling that you got taken,” he says.
'Psychological principles apply'
The Four Square Worksheet is a crude tool and many dealers won’t use it. However, even where a salesman doesn’t explicitly use the worksheet, the same techniques and psychological principles apply. Any car salesman worth his salt will be adept at extracting the information and playing the various parts of a deal off against each other to maximize the dealer’s margin.
“Remember that a dealer can make money on all parts of the deal, they get margin on the new car, they can profit on the trade-in, they get mark-ups or commissions on the extras and they get incentives on raising finance,” he warns.
How to beat the square tool
1 One square at a time: To level the playing fields, Surkont recommends that one separates the issues and insists on playing only one square at a time: "Ask for the best cash price for your new car. If you want any extras, like extended warranties, define these upfront, to be included in the cash price. Don’t get sucked into trade-in or finance discussion before you have a cash price."
2 Do your homework: "Do some research on your trade-in and get some cash offers before looking at a new car. These might be lower than what you wanted to hear, but a cash offer is a reflection of the real market. If you get an inflated trade-in, you will end up paying for it somewhere else in the deal," he says.
3 Net deal: Surkont says one should only then negotiate a net deal with finance: "If you change anything, make sure you understand exactly what changed on the other side to compensate. Even better, work out the numbers before you start."
4 Best interest rate: "Bear in mind that dealers get incentive on raising finance, so push for the best interest rate possible. You might want to also ask your own bank for terms before you go in, so that you have an alternative, or something to compare with," he advises.
5 Read the offer carefully: “Before closing the deal, make sure that nothing extra has crept in, apart from items you explicitly negotiated. It is not uncommon to see things change on the complicated financial documents, so this is important. Read the offer-to-purchase and finance terms carefully,” he adds.
