"Congratulations, you're getting a great deal!" the car salesman says, pumping your hand. "Let's sign the paperwork and you'll be on your way in your new car!"
At first you're relieved. The negotiating is over. But then the salesman walks you down a hallway to an office with "Finance and Insurance" on the door. Inside, the finance manager greets you and begins to review the sales contract. An hour later you walk out in a daze: You've bought several new items and had them added to the contract. Now your monthly payment has increased.
What just happened? Are you still getting a great deal?
This three-part story, told by veteran auto finance manager Nick James to Edmunds.com Senior Consumer Advice Editor Philip Reed, teaches you how to safely navigate this crucial part of the car-buying process.
Believe me, I never set out to be an automotive finance manager. I was just looking for a good job that paid decent money so I could finish my education. But thanks to a few unexpected twists I wound up being a used car salesman for two months and then became a finance and insurance manager: the F&I guy. I did that job for six years.
In that time, I made serious money while closing hundreds of new and used car sales and leases. I sat across the desk from countless people as they nervously signed the contract on their cars. I advised them on which loans to take and persuaded them to buy extended warranties and other extras. I also peered into their finances — their salaries and, yes, their foreclosures and repossessions too. In fact, I probably knew more about my customers after 15 minutes than their friends knew about them in a lifetime.
During my time on the job, I never knowingly lied to my customers or cheated them. But I can't always say the same for the other people I worked with. There was this one guy they called the "Shredder," who took a couple's trade-in as a down payment on a lease. He said he was giving them an $8,000 credit for their trade-in but really only gave them $2,000. At that Saturday's sales meeting, they treated the Shredder like a hero for making so much money. But I remember thinking, "This isn't right; he just stole $6,000 from those people."
The lesson for you, as a car buyer, is simple: If you don't know what to watch out for and you run into someone like the Shredder, you can lose your shirt. If you have a complicated deal with a trade-in, manufacturer financing and extra products, there are thousands of dollars at stake. But if you have a little bit of knowledge and some preparation, an unscrupulous auto finance manager won't be able to hurt you.
The Guys in the Nice Suits
Before going to grad school, I decided to get a part-time job: anything that would give me the maximum amount of money for the minimum amount of time. I got a job selling used cars. It took me a few days to finish my training, a lot of which was about isolating objections. If a customer said, "It's too expensive," I would say, "OK. But other than the price, is there any other reason you don't want to buy it?" This approach worked really well on the car lot.
After I'd been selling cars for awhile, I became aware that right after I sold a car, my customers disappeared into the finance and insurance offices. I began to wonder what went on in the finance offices in the back hallway of our dealership. The F&I guys looked like banker types to me, since they always wore nice suits. Obviously, they made a lot of money because my commission slips clearly stated how much their slice of the pie was. One deal I saw had a $1,200 commission on it. That's a lot of money for a half hour of signing papers.
After only two months of selling cars I heard about a position in the F&I office of another dealership nearby. I applied and got the job. My first thought was that now I'd find out what goes on in the F&I room, and how auto finance managers make so much money.