Car Buying Articles
Secrets of Negotiating a Car Extended Warranty
How To Get a Better Deal in the Finance and Insurance Office
A few years ago, a young serviceman went into an Infiniti dealership and stumbled out a few hours later owing more than $47,000 for a new 2009 Infiniti G37x. He had also agreed to have the windows tinted and a protective treatment applied to the interior and exterior. Luckily, he didn't sign the contract but left to think it over. "It all happened so fast," the serviceman told Oren Weintraub, president of Authority Auto when he called to take advantage of Weintraub's company's "improve a deal" service.
When Weintraub looked at the contract, he found the serviceman had paid full sticker price for the car, $395 for the window tinting and $895 for the protective treatment: double the value of both products. Furthermore, he had put $20,000 down and financed at zero percent rather than taking $2,500 in available incentives.
He eventually found the serviceman the same car in the Los Angeles area, had it configured identically, financed it properly and shipped it to him for a $3,500 savings. This tale demonstrates the importance of several aspects of car buying, including the need to prepare yourself for negotiations on the additional products and financing options that will be presented in the finance and insurance (F&I) office when the sales contract is drawn up.
We first met Weintraub when he agreed to share his secrets of a professional negotiator. Weintraub started his concierge car-buying service after discovering that he would rather work for car buyers than be a general manager at a car dealership.
Weintraub gets his fee from his clients, which he says is offset by the low prices at which he can buy cars. He is not a car broker and believes that the car broker's practice of getting a commission from the dealer is a conflict of interest. A while ago, we spent the day with him in his Sherman Oaks, California, office and sat in on several extended-warranty negotiations. They were not final negotiations, but were meant to give Weintraub a feel for the market value of F&I products before concluding a sale.
Overview of the F&I Process
To put these negotiations in context, it's important to understand the sequence of events that occur when someone buys a car. When the customer's negotiation with the car salesman is finished, it's time to move into the F&I room, where the F&I manager draws up the contract. He (or she) also often tries to sell additional products such as warranties, alarms, maintenance plans, GAP insurance, window tint, VIN etching (a theft-deterrent service) and wheel and tire warranties.
"These are all profit sources for the dealership," Weintraub says. "There is a value to everything they sell, if the price is right. But the average person is not prepared to negotiate these products because they don't know what the price should be. It is a completely blind negotiation."
A recent trend in dealerships is to bundle these items and sell them using the menu system. For example: "The Platinum package is [X price], but you can also choose the Gold, Silver or Bronze package." Though an F&I manager will try to persuade you that you need to buy one of these packages, you can say no to all of them or "unbundle" a package and buy a selected item, such as an extended warranty.
Preparing for the F&I Room
If you know you'll be buying a car, you can assume you will be offered an assortment of products in the F&I room. It makes sense, then, to prepare for this encounter by keeping three things in mind:
- What products the F&I manager will offer.
- Which products you will want to purchase.
- What a fair cost might be for the product or service.
Weintraub says his approach is to try to buy the warranty at "cost plus," meaning a fair profit for the dealer above his cost for the warranty. The difficulty is establishing exactly what cost is. As you will see in the following dialogue, Weintraub has a method for getting a good quote and also for revealing the dealer's cost. This approach can be used for other F&I products.
On this particular day, Weintraub was doing a preliminary negotiation on a warranty for a client who was leasing a Toyota Avalon but would be driving extra miles that would put him past the limits of the included factory warranty: 54,000 miles over the three-year period of his lease. So he needed to extend the warranty to remain covered. For more info on warranties, see "How To Get the Best Price on an Extended Car Warranty."
Call #1: Negotiating for an Extended Warranty
In the following dialogue, Weintraub presented himself as an average consumer rather than as an industry insider. Someone could use this research approach when buying a car, or when buying an extended warranty for a car that already had been purchased. Weintraub called the main dealership number and asked to speak to someone in finance.
Weintraub: "I'm thinking about leasing a Toyota Avalon Limited. I drive 18,000 miles a year. What's the shortest warranty I can get up to 55,000 miles?"
Finance Officer: "You probably want to get a five-year/60[-thousand miles]."
W: "I'm just trying to prepare before I finalize the deal about what my costs would be."
FO: "You'll be looking at spending maybe $1,300."
W: "$1,300 for a five-year/60? I'm not sure I'm going to buy the car from your dealership. But would you sell the warranty to me for $100 over?"
FO: "$100 over what? Cost? No, I can't. The way things are going with the car business, they don't do a lot of business on the front end anymore, so..."
W: "How close can you come to that?"
W: "And how much over is $1,195?"
FO: "$300 over."
W: "I didn't want to spend more than $1,000 on a warranty. So if push came to shove, would you do it for $1,100?"
FO: "I'd have to take it up to the boss."
W: "So you're saying that $1,195 is $300 over? So your cost is $895?"
FO: "Pretty much."
W: "It kind of makes me nervous when you say 'pretty much.'"
FO: "I have about 15 different models I'm looking at..."
W: "Do you have your sheet in front of you so I can know exactly where I stand?"
FO: (After a long pause, reading from sheet of costs) "Hmmmm...$1,250. I was a little off. But I'll do $1,195 because I quoted you that."
W: "So $1,195 is like $245 over. I will make sure that if I do this deal that I talk to you."
"You have to be assertive when negotiating," Weintraub said after he hung up. "This guy was being nice but when he was giving us a number he says 'pretty much.' I don't like dealing with 'pretty much.'"
Call #2: Handling a Pushy Salesman
To try to clarify the true cost of this warranty, Weintraub decided to call two other dealerships. On this call, he ran into a real fast talker.
Weintraub: "I'm planning to buy a Toyota Avalon but I want to ask a question about the warranty first so I'll be prepared. Do you sell warranties with fewer years but up to 60,000 miles?"
Finance Officer: "You betcha. You can go three-year/60. What color is your Avalon?"
W: "The color? I'm not sure yet. Why do you ask?"
FO: "We might have one in stock."
W: "Once I figure out what I'm going to do I will definitely consider buying it from you."
FO: "Please do. Is there a number I can reach you at to give you more information?"
W: "Can you take a few minutes and give me prices on warranties because that's something I need to know."
FO: "You betcha. What's your number where I can call you back?"
W: "You're in your office right now. Can we talk about it right now before I wind up giving out more information?"
FO: "You betcha."
W: "Let's concentrate on the five-year/60 and three-year/50. Would you sell me a warranty for $100 over your cost?"
FO: "No sir. I would do it at $300 over my cost."
W: "And at $300 over, what would a five-year/60 be?"
FO: "That will cost you $725."
W: "So $425 is your cost?"
FO: "You betcha."
W: "I like it when you say 'You betcha.'"
FO: "Well, we all work for a living. So the first two questions are free; the next question will cost you $10."
W: "I see. Do you take credit cards?"
FO: "You betcha." (Laughs) "When you come in here and get your car, one thing I can promise you is no BS."
W: "I don't want to do anything on the new car right now. I just need the warranty information. I appreciate the information that you've given me. Please fax it to me, and I'll consider it."
Call #3: Getting Close to the Answer
Weintraub used the same strategy with the last call, and he got an interesting reaction from the finance officer.
Weintraub: "I will be leasing a Toyota Avalon and want to buy an extension of the warranty to up to 60,000 miles."
Finance Officer: "Are you going to be leasing it here from our dealership?"
W: "That's our goal."
FO: "Good, good."
W: "Would you guys do it for me for $100 over?"
FO: "$100 over? Wow...I don't know if we could do for $100 over. We could do it for like $400 over. Let me ask my manager."
W: "What's the lowest you can do it for me without having to talk to your manager? Could you do it for like $200, at least?"
FO: "The lowest I can do is $400 over. But it's not going to be expensive. Your cost will be like $675."
W: "So $675 is your cost or my price?"
FO: "That's your price."
W: "It's $675 for three years/50. So it only costs you $275?"
W: "For a Platinum [package]? That's a great price. OK, thank you. I will make sure if I get the car from your dealership, I will talk to you. Have a nice day."
Worth the Research
Reviewing the results, Weintraub pointed out that the first finance manager, who seemed pretty straightforward, offered a five-year/60,000-mile warranty for $1,195. He had claimed that price was $245 over his cost. However, after calling two other dealerships, a more accurate picture was revealed. It turned out that cost was $400 and their quotes were close to each other at $675 and $725.
"The first guy either didn't know his product or he lied about the cost," Weintraub says. "We get a lot of variances when we talk to different dealerships. But by calling a couple of dealers we usually get an accurate gauge of what the marketplace is."
Car shoppers who get a good price quote on an extended warranty could ask to have the figures faxed or e-mailed to them and take the paperwork with them when they go to buy a car. They should ask for that finance officer to do the paperwork so he or she would get the commission for the warranty that they have sold.
While this system might seem like a lot of hassle, it can be done in an hour's time and save a customer a lot of money and provide them with some real peace of mind.