Car advertising: Deals too good to be true?

Buying a new or used car is a long process. We’re not even talking about the amount of time spent in the showroom. Car buyers are spending 18 to 19 hours researching new and used vehicles before they purchase. Part of that time is used trying to decipher the different offers and deals used in newspaper, television and radio ads.

And that’s where we come in. At AutoNation, we’re committed to making the car buying process open, honest and up-front. So, to help you make sense of all that mumbo-jumbo used in car advertising, we’re going to decipher the jargon and tell you whether you’re in for a great deal or one that’s too good to be true.

Editors’ note: The offers and events you see outlined below are examples. You might see many versions of similar offers and often differ from store to store. AutoNation is offering general advice. If you want specifics on an offer(or offers) you are considering, contact the store that provided the offer. Ask them to walk you through it (and all options or variations) until you are comfortable. If for some reason the dealer is not willing  or you’re unsure about the offer, we suggest you walk away until you understand everything.

“$0 Down” versus “Sign and Drive”

Now I know what you’re thinking: “These are the same thing, right?” Well, not exactly …

With both offers, you are not putting any money towards the vehicle’s loan or lease at the time of purchase. Plus, the offers have no effect on the final price. If the car costs $15,000, you’ll still pay $15,000 whether you make a down payment or not. Both offers require a bank to approve your credit, which means you probably need a Beacon credit score above 700.

However, the biggest difference is when you pay for the taxes and fees. All states require that taxes and fees are paid on every car purchased. For $0 down offers, you pay these fees before you drive the car off the lot. Sign and Drive offers require no money out-of-pocket and/or no trade-in values. The taxes and fees are rolled into your monthly payments. So, Sign and Drive offers will be slightly more per month than $0 down offers.

Basically, if you see $0 down, be prepared to pay the title and fees at the time of signing. With Sign and Drive payments, you can literally sign the papers, the drive the car off the lot.

With 64% of the population not having at least $1,000 in savings, both $0 down or Sign and Drive deals are great offers. They help you get into a car without investing a lot of money at the start.

“We’ll Pay Off Your Trade, No Matter How Much You Owe”

There are a few other variations to this one, such as: “Get Up to $8,000 Over Book Value for Your Trade” or “Guarantee at least $4,000 for Your Trade”, but they all pretty much work the same way. Most manufacturers offer rebates or incentives to entice consumers to buy new vehicles. That money can be used to bring down the price of the new car or it can be used to pay off negative equity on a trade-in.

Negative equity is the difference between what you owe on the car and how much the car is worth today. For example: You owe $6,000 to the bank on your current vehicle, but the car is only worth $4,000 according to third-party resources such as Kelley Blue Book or Black Book. The negative equity on your vehicle is $2,000. The store can use the manufacturer rebates or incentives to pay off the negative equity on your behalf (provided you purchase a new vehicle that includes such incentives) or roll the negative equity into the purchase price of the new or used vehicle you are considering.

Your credit rating and the length of the new loan may also determine whether or not the new bank will approve the negative equity of the previous vehicle being rolled into the new lease or loan.

This offer will help you get out of your current car and into a new one, but you’re not getting out scot-free. You’ll still have to pay off the negative equity. But for most customers that’s a small price to pay to get out of their old vehicles. Since the car values can depreciate as much as 63% after five years, most consumers will have some negative equity at the time of trade-in.

“50% Off Used Vehicles”

WOW, 50% off? This one looks like a great deal. But, ask yourself this: How is the dealer taking 50% off the price?

The majority of these offers use the car’s original manufacturer’s suggested retail price. The ad is comparing a used vehicle’s price to its original price when it was new. That’s not exactly apples to apples.

When you buy a used car, you’re expecting to save money compared to purchasing a vehicle new. In fact, with normal use, most used vehicles are valued at 34% of their original list price after five years of ownership.

The hype is greater than the actual deal. Based on average resale values, this isn’t as big of a discount as you would be led to believe.

We want to hear from you

The examples above highlight a few popular offers that have often confused auto buyers. The key is to understand all of the facts and stipulations, trusting the auto retailer making the offers and being comfortable with your decision.

If you’ve seen other offers on new or used vehicles that “seem too good to true” or want some additional help, send in your questions through Facebook, Twitter, or in the comments below this post. We’ll do our best to answer your questions in a future post or reach out to you one-on-one.