Cash Is So Much Simpler

This is a guest post from Sheryl in Ontario, who is 40 years old with a grown daughter, and is trying to rebuild her retirement dream just 20 years too late for early retirement.

My full time job is in the admin department of a new car dealership.  Part of my daily tasks is to process the paperwork after a customer has purchased and taken delivery of a vehicle.  The difference in the amount of paperwork between a cash deal, and one that has been financed is substantial.

For a cash deal, the only paperwork needed is a bill of sale, 2 internal flow sheets (to make sure all the steps are taken properly to prepare the car for the customer), a copy of the ownership, proof of insurance, proof of payment, and any extended warranties (or waivers of purchase for warranties).

If the customer has financed,there is all of the above, plus the additional paperwork includes credit applications, proof of identity forms, loan contracts, copies of communications from the bank if the bank needs more than the standard data, proof of income forms, as well as either registration forms or additional waiver forms for payment protection or life and disability insurance.

Most dealerships I’ve had experience with, after you have agreed to purchase the vehicle, you are then taken to see the “Business Manager” , which is just a fancy title for another salesperson that sells financing, accessories, rust proofing, extended warranties and insurances.  When paying cash, the time spent with this second person can be reduced significantly, as you have removed most of the items they would use to upsell you.  A cash deal, there would mainly be accessories, extended warranties on the tires or mechanical components, or rust, fabric and paint protection.  No payment protection, no life insurance, no using the extended warranty as a lure to make sure you have coverage for the term of your payments.

If you are anything like me, the less time I spend with a salesperson, the better;  and if I can reduce the need / opportunity for them to spend time with me, I’ll find a way to do it.

Save money on interest, save time and hassle, reduce paper usage by just paying cash.

5 thoughts on “Cash Is So Much Simpler”

  1. Hi Sheryl;

    I’ve always been under the impression that salespeople want you to finance because they get extra commission? Is that accurate?

    Whenever I’ve priced out a car and told them I plan on paying cash, they seem to lose a bit of interest.

    Maybe things have changed but I also believe stuff like rust proofing etc can be done cheaper at an aftermarket shop vs dealership? And if I am buying a reliable vehicle, I don’t worry about extended warranties either.

  2. With the manufacturer I’m with, and through talking with people from other manufacturers as well, the following seems to hold true across the industry. (if anyone has other info, I’ve love to be corrected).

    If the factory is promoting a discounted interest rate, the dealer does not get any bonus due to financing. However, if you are paying full interest rate, the dealer will either get a flat bonus for sending that bank the business, or will bump up the interest rate and get a cut of the increased profit.

    The salesperson will usually get a small bonus for anything the business manager can sell to you that generates profit.

    Customers who pay cash, don’t usually buy as many after sale items and warranties as those who finance. It is a lot easier to sell something when it only increases a payment by $25 a month, than it is to upsell $1,500- $2,000 at one time.

    I have not priced rust protections etc, either price or quality of product, so I can’t comment on that. I price shop everything I buy and find it a worth while task or bargaining tool.

    Car dealers expect to be haggled with, so unless you are buying a limited edition or unique vehicle, or you have to be the first to own a new model, if you pay the sticker price, you’ve paid too much (unless there is a special sale, but those are rare).

    There are some fair and honest dealers out there, I’m lucky enough to work at one, but we are still in business to make money, and the mark up on vehicles is not as large as you would think it is.

  3. I have bought cars 3 times in my lifetime and always paid cash, the last time in 2007. It surely makes the visit with the “business manager” a lot simpler – I just say “NO” to anything and everything he offers. The only relevant thing he asked me which I did have to think about was how I wanted to handle the deposit I had already made via credit card. I could have him cancel the CC charge and include the amount in the bank check or let it go through and pay the lesser amount in the bank check. I chose the latter because I did not want to deal with a possible problem of having the dealer charge me on the card “by mistake.”

    There are various car buying aids such as Edmunds and Consumer Reports which help the buyer know the dealer cost so the buyer can start from there, not the sticker price. But if there are hidden dealer holdbacks, how would we know so we can negotiate from a still lower price?

    Sheryl, where do trade-ins of current vehicles fit into the dealer’s pricing and commission structure, even if the buyer is paying cash otherwise?

  4. Trade ins.
    A dealer will usually ask if there is a trade before talking any numbers with you. A dealer needs to profit a certain amount from each vehicle sold to stay in business.

    Part of the negotiating process is to make you feel good about the transaction, and if you think your trade is worth more than it actually is, then a dealer will sometimes inflate the selling price of the vehicle you are interested in purchasing to cover what you think your trade is worth, and what it is actually worth. The net amount of money you pay to the dealer would be the same.

    An honest dealer will base your trade in on market value, much like someone would if they were buying a house to fix up and flip. If a dealer believes he can sell your trade in for $9,000, they will assume it will take approximately $700 to recondition (brakes, safety inspection, clean up etc) and offer you between $7,000 and $7,500.

    Basically, if a car cost the dealer $20,000, and the customer bought it for $15,000 and a $6,000 trade, it would be considered that the dealer’s gross profit is $1000. Each dealer has it’s own commission structure, but most I’ve had experience with pay a percentage of the gross profit from each sale to the salesperson, regardless of how the vehicle was paid for.

    Each salesperson has their own style, and if you don’t like how one salesperson works, ask to speak to another one. A smart dealer would rather get the sale and split the commission between 2 salespeople than miss out on selling that car entirely.

  5. Thanks for clarifying Sheryl! I’m a terrible bargainer so I will buy from someone I like first before we get talking about money. If I am there in the first place (I don’t go car dealership visiting for fun), I can already afford to spend the sticker price and know what it’s worth but I’ll ask for their best deal and I usually get a thousand or so off. Others probably can do better than me but I don’t want to make it into a drawn out affair. Everyone deserves to make a good living.

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