How Car Dealerships Rip You Off (The Truth) — Transcript

Hey everybody, welcome back to Whiteboard Finance. In this video, I'm going to show you how car dealerships rip you off using the Four Square method.

was still blood in the streets and unemployment was at an all-time high so instead of sitting around on my couch watching Netflix and you know eating potato chips I decided to get a job couldn't find a job in finance so what

So I graduated in December of 2010 with a finance degree when there was still blood in the streets and unemployment was at an all-time high. So instead of sitting around on my couch watching Netflix and, you know, eating potato chips, I decided to get a job. Couldn't find a job in finance, so what did I do? I ultimately got a job selling cars.

school for four years get my finance degree so I can do something that I can do without a high school degree right but I did learn a lot of valuable tactics and a lot of valuable skills that the dealerships use when trying to

Right, so selling cars, there's nothing wrong with that as a profession. You can make a lot of money, but at the end of the day, I didn't just go to school for four years, get my finance degree so I can do something that I can do without a high school degree, right? But I did learn a lot of valuable tactics and a lot of valuable skills that the dealerships use when trying to make money off of people, right?

you're trading in over here you have the price of the vehicle that you're buying down here you have your down payment meaning the money that you're putting down towards the car if you're not paying cash and then finally you have the monthly payment

So if you've ever bought a car, you may have seen this before. This is what we call the Four Square. Okay, so up here you have your trade-in value. This is the car that you're trading in. Over here you have the price of the vehicle that you're buying. Down here you have your down payment, meaning the money that you're putting down towards the car if you're not paying cash. And then finally, you have the monthly payment down here, meaning if you're financing the vehicle, these will be your monthly payments.

what the what the actual car manager or the salesperson will do is in front of you they'll silently devalue your trade that's what we call devaluing your trade so while you're talking and he's asking you questions about the car you know

So let's say, for example, you're trading in a 2006 Chevy Impala. You want to get a new one, right? So you have a 2006 Impala with 80,000 miles on it.

your vehicle so when they come back to you with this Four Square okay you're going to have a tradein value let's just say he wants to give you four grand for your piece of junk right they're going to have a price of the car let's just

What the actual car manager or the salesperson will do is, in front of you, they'll silently devalue your trade. That's what we call devaluing your trade. So while you're talking and he's asking you questions about the car, you know, he'll touch a little chip here, a little dent there, notice that the wheels are scuffed. It's all subconscious, okay? It's telling you that he knows that your car is a piece of junk, right? So right away, he's actually silently devaluing your vehicle.

out like three different scenarios right you'll have let's say uh $500 at 60 months 475 at 72 months and then they'll have like 575 or excuse me let's just call it 450 at 84 months okay so when they come

So when they come back to you with this Four Square, okay, you're going to have a trade-in value. Let's just say he wants to give you four grand for your piece of junk, right? They're going to have a price of the car. Let's just, let's just say you're buying a new Impala and we'll call this 24,900. These are all just hypothetical numbers. Down payment, this is the money that they want you to put down. Let's just say four grand. And then monthly payment, they'll sketch out like three different scenarios, right? You'll have, let's say, $500 at 60 months, $475 at 72 months, and then they'll have like $575 or, excuse me, let's just call it $450 at 84 months.

put down so financing is by far the most profitable Center within the whole dealership okay so when you go to the guys in the back to do paperwork and they're selling you uh Rim insurance and warranties and all that stuff that's all

Okay, so when they come back to you with this Four Square, it's essentially a piece of paper with these four squares. These are all meant to be negotiation pieces, okay? The dealership is really making their money on the monthly payment and also how much you put down. So financing is by far the most profitable center within the whole dealership.

you're taking it right there and then lastly new cars are the least profitable area of the dealership okay think about it logically if you're a Chevy dealership and you get brand new Chevys what do you think a brand new Chevy

Okay, so when you go to the guys in the back to do paperwork and they're selling you rim insurance and warranties and all that stuff, that's all junk for the most part, okay? That's the highest margin in the dealership. The second highest is the service center. So when you go to get your car serviced, yeah, you might as well be getting your rear end serviced because you're taking it right there.

relatively the same price they can only mark up new cars so much the new car sale is the least profitable center for the dealership remember that the used car is is actually way more profitable uh than the new car and you'll see why

And then lastly, new cars are the least profitable area of the dealership. Okay, think about it logically. If you're a Chevy dealership and you get brand new Chevys, what do you think a brand new Chevy is going to cost? It's going to cost the same in Ohio as it does in Florida, as it does in California, as it does in Alaska. It's a brand new car with an MSRP.

love right especially when you're coming out of this piece of junk here so they sit you down at the table would you like a cup of coffee um oh here's my manager you know oh this is Mike yeah nice to

Okay, these dealerships are getting them for relatively the same price. They can only mark up new cars so much. The new car sale is the least profitable center for the dealership. Remember that. The used car is actually way more profitable than the new car, and you'll see why.

you okay they're meant to get you into kind of like a oh my God these are so high what is this you know this is crazy because what they want to do is they want you they want you to beat them up

That's exactly from this Four Square. So what will happen is you guys are negotiating on a car. You pick out a car you like, you test drive it, you like it, you smell it, you touch it. Oh, you're in love, right? Especially when you're coming out of this piece of junk here.

through this really quick right down payment is this and your monthly payments are this and you're going to say okay if these numbers work for you uh just initial here on this x I will take this car home today there you go so

So they sit you down at the table. "Would you like a cup of coffee?" "Oh, here's my manager." "You know, oh, this is Mike." "Yeah, nice to meet you. Thanks for stopping in today." Blah, blah, blah, right? It's all an act. It's Hollywood.

and go back to the manager or the salesperson takes the paper back to the manager and says yep here you go you just bought a new car congratulations even if the terms aren't exactly what you wanted you feel bad about initialing

So what they do is they come back with this Four Square, this piece of paper that has these numbers on it, and the numbers are meant to offend you, okay? They're meant to get you into kind of like an, "Oh my God, these are so high. What is this? You know, this is crazy," because what they want to do is they want you, they want you to beat them up so you feel like you got a deal, right? It's all perception, and perception is reality.

this car okay and most people that have half a brain will say uh every Square okay but some of these people they don't understand numbers so they're going to go straight to their down payment they're going to talk they're going to

So the salesperson is going to say, "Okay, I'm going to go through the trade-in. It's four grand. This is the price, the Impala," and they're going through this really quick, right? "Down payment is this, and your monthly payments are this," and you're going to say, "Okay, if these numbers work for you, just initial here on this X. I will take this car home today." There you go.

you know what I need to lower my down payment I don't really have $4,000 with me right now you know is there any way we can go a little bit lower and the salesperson will put on an act and say

So that initialing portion is very important. It's because it's subconscious. It's psychological. Normally, when we sign things, we're committing our signature. That's like committing our word, our trust, right? So when we do that, when we initial on this piece of paper and go back to the manager or the salesperson takes the paper back to the manager and says, "Yep, here you go. You just bought a new car. Congratulations," even if the terms aren't exactly what you wanted, you feel bad about initialing and going back on your word.

you know he's in a good mood he just he just shot really nice uh nice score on this 18 round of golf you know we'll see what we can do here here we'll try and move this to three grand okay um you

So I know that's long-winded, but it's very important. Okay, so typically the salesperson is going to say, "Okay, which, um, work, where do we have to work with you on for you to take home this car?" Okay? And most people that have half a brain will say, "Every square," okay? But some of these people, they don't understand numbers, so they're going to go straight to their down payment. They're going to talk, they're going to think about the cash that they have or, in this case, don't have.

payments the person is going to say well you know what I think those payments were high to begin with you know I told you I really need to be right around you know 350 a month 300 a month people have

So a lot of people that are buying these kinds of cars, they're not very mathematically savvy, or and they're also broke, to be honest with you. So they're going to say, "You know what? I need to lower my down payment. I don't really have $4,000 with me right now. You know, is there any way we can go a little bit lower?" And the salesperson will put on an act and say,

payment for you it's going to be really hard to get you into you know uh 350 but I'll see what I can do my manager's in a really good mood today you know he's a really good guy so what they'll do is

"Oh, you know, you know, if you lower the down payment, you know these monthly payments are going to go up. You know, it's just basic math. It's kind of like a scale, blah, blah, blah," right? But my manager is feeling kind of crazy today, you know, he's in a good mood. He just, he just shot a really nice, uh, nice score on this 18 round of golf, you know, we'll see what we can do here. Here, we'll try and move this to three grand, okay? Um, you know, these payments may go up a little."

down payment and at$ 375 will you initial here and take the car home today and what are you going to do you'll say well we'll see I don't know I don't want to commit to anything or unless you're a

And that's when they start talking payments. They want to keep the conversation down here. Payments are most important to them. Remember that. Excuse me.

want to talk on this right and even if they do get to that point this is all a game they know how much they have or how much they can sell your tradein for and they'll wiggle on this but they won't

So now you're going to start talking payments. The person is going to say, "Well, you know what? I think those payments were high to begin with. You know, I told you I really need to be right around, you know, 350 a month, 300 a month." People have needed to be 300 a month for the last 20 years, okay? That's where everyone wants to be, you know, probably a little bit less than that even.

salesperson comes back and says you know what Jim you know he'll come back with a big smile on your on his face hey you know what Marco I I was able to get you down to 3,000 and we can get you into

Um, so the salesperson is going to say, "Well, you know, I moved a little bit on the down payment for you. It's going to be really hard to get you into, you know, uh, 350, but I'll see what I can do. My manager's in a really good mood today, you know, he's a really good guy." So what they'll do is

lot and you're going to you're going to sign right here our initial what he just did was he bumped this payment up roughly $415 over the course of this term that just made the dealership over $1,500 easily in interest okay they all have

they'll cross out this on 84 months to get you into the longest term possible.

that's the smallest portion of profit for these dealerships and also for the manufacturers so next time understanding this Four Square next time you go to buy a car go in with your own financing already in place talk to a local credit

union show them the car that you want to buy or that you're interested in get pre-approved or even get a certified check or a loan for that amount right that way your uh interest is fix and it's lower than what it would be at the

dealership the dealership intentionally leaves margin in these numbers that way that their guys in the back can sell you warranties for much less than what they actually cost hey it's only bumping up your payment $2 a month why wouldn't you

do this right it's all a game you guys so now um knowing what you know get your financing in place and don't tell them you have a trade okay when you go to a dealership do not tell them you have a

trade negotiate the car that you really like at act as if you don't have a trade and then bring this in at the last second they'll give you you know a ridiculously low number but at the end of the day it's worth doing because

you're negotiating on price you're not negotiating on the price of your trade in does that make sense so I hope this video was valuable to you I know it's a little bit longer but if you watch through the whole entire thing uh please

give the video a like share this video with a friend who's about to go get uh ripped off or you know buy a car from a dealership um and just let them know about what whiteboard Finance you guys I

put in a lot of effort into these videos thank you so much and have a prosperous [Music] day