The psychology of car buying

RACV RoyalAuto magazine

Cartoon of couple buying a car

You’ve up-ended three weekends, trudged from car yard to car yard weeding the great from the not-so-great but finally signed on the dotted line for a shiny new set of wheels. It’s about now most people feel almost instant relief, the stress of getting a good deal on something so expensive is finally over.

Dealing with upselling

But it’s also about now that the upselling begins. Finance, insurance, rust and fabric protection are all on the list of extras that dealerships may offer their customers.

In some cases the dealer will make more money from those add-ons – which can add thousands to how much you’re shelling out – than they will on the car. They’re major profit centres in an era when the earn on the car alone could amount to a few hundred dollars.

“You’ve got to think about the negotiation of those elements just as much as you do with the car,” RMIT Associate Professor of Marketing, Dr Con Stavros says. “There’s no point saving yourself a couple of thousand on the car but then spend that on pure margin for the dealer.”

Do your research

The General Manager of Motoring, Gordon Oakley, says buyers need to put as much energy, research and thought into the extras as they do the purchase of the car.

“Buying a car is quite an exhausting process,” he says. “You research the hell out of the car, you’ve got the price you want then you let the guard down and relax. But that’s not the time to let your guard down and relax.”

Mr Oakley says finance, in particular, is one area buyers can be misled. Temptations of zero per cent interest may seem appealing, but throw in fees and other charges and the cost of the loan can easily escalate.

“It’s not the rate – it’s the monthly payments that are most important,” Mr Oakley says. “People can save themselves thousands [on finance] by shopping around.”

Simplify the process

Mr Oakley says buyers should negotiate on the car independently of the finance and other extras, all with the aim of simplifying the process.

Tackling people once they’ve decided on a car is part of the sales psychology employed by sales people generally, including car dealers.

“From a sales point of view you want to maximise the price people pay,” says Dr Stavros. “They’re going to try to see where the maximum is you’re going to pay and the consumer is trying to work out what the minimum they can get away with.”

Sales people will often concede some money on the price of the car only to make it up in some other part of the often-complex transaction that is purchasing a vehicle. It’s all part of the negotiation process.

 “The art of negotiation is to create a win-win feeling,” Dr Stavros says. “Both parties want to walk away feeling they’ve got something positive out of it. Consumers have to feel like they’ve made some inroads or some kind of progress.”

But he says the rarity with which most people buy cars – generally years between purchases – and the differences in deals between makes, models, time of year, even a particular dealership can make a complex process even more difficult.

“I still think it’s [negotiating] a bit of a black box for most consumers; most don’t really understand how much they can ask for … so it’s a bit scary for a lot of consumers.”

He says much of the sales process involves forming a relationship and building on it in the relatively short time someone is in the dealership.

Build on relationships

“Fundamentally from a psychological perspective we like relationships,” Dr Stavros says. “A good sales person is able to develop a good rapport with their customers.”

He says the better sales people will have “some empathy and understanding for the consumer”.

“Being able to see things through the consumer’s eyes … responsiveness, being able to answer questions and anticipate what those needs are.”

Within that relationship, though, the sales tools are generally being used to maximum effect.

Scarcity is one of those tools. As with other areas of retail, car dealers like to make out a car is rare or a particular deal or limited edition will end soon. Sometimes it will, but other times it’s all about speeding up the sales process.

Accelerating the decision

“That’s a well known psychological concept in marketing,” Dr Stavros says. “If people think a deal is going to expire that forces them to make a decision … it’s an acceleration tool, it’s trying to bring it to a decision point.”

Dr Stavros says as with much of the sales process consumers can get in on the act.

“Consumers can play that same game as well, of course – you see it a lot in real estate,” he says, pointing out that many offers made on apartments or houses come with a use-by date.

Indeed consumers have more power than ever, mainly because of the transparency created by the internet.

Consumers get power back

“We live in an age when a lot of knowledge is available through other sources,” says Dr Stavros. “People can walk into any retail environment … and have a lot of information already. It does give the power back to the consumer … makes them feel more comfortable in the purchase.

“With a little bit of knowledge beforehand they probably know where the high and low points are.”

And, he says, “a good sales person is going to quickly establish what kind of information people have … and move past any stereotypical approaches.”

Speaking of which, are car dealers really as bad as the stereotypes suggest?

“That’s a bit of a hangover from the old days,” says Dr Stavros. “My perception is the good dealerships really want long term relationships.”

Story: Toby Hagon

 

NEW CAR BUYING MISTAKES

Getting a new car is exciting, but it can be easy to get caught up in the euphoria. Here are the new-car buying mistakes to avoid.

Not doing your homework

There’s a mountain of information, comparisons and reviews available at the click of a button, so doing your research is easy. Why wait for a salesman to tell you about a car’s features, when you can get impartial advice elsewhere?

Make a list of what you want and need and look for models that deliver.

Top tip: Determine your budget early and research the cars within that range before you visit the dealership.

Rushing

Urgency puts the power into the dealer’s hands. Visit multiple dealerships so you can speak to more than one person about price and – even when you’ve found an offer you like – don’t be afraid to tell the salesperson you’ll think about it.

They may offer you a once-off deal to buy then and there, but removing yourself from the pressure and hype could help you see more clearly. Take a friend for support and for a dispassionate opinion. They may be able to give you a reality check if you get caught up in the excitement.

Top tip: Remember, you have the upper hand – there’ll always be cars on the market and people who want to sell them to you.

Quick and easy to apply for and if you're not happy within 21 days you can cancel your car loan with out best deal guarantee^^

Feature creep

‘Feature creep’ is the tendency for optional bells and whistles to suddenly seem like essentials – usually thanks to a salesperson.

If you’ve decided you’re happy with cloth seats, for example, don’t be talked into a leather upgrade unless it’s within your budget.

Further, optional extras – such as rustproofing, extended warranties or paint and fabric protection – often aren’t worth the money or are cheaper elsewhere.

Top tip: Stick to your budget and your list of what you actually want.

Test drive failure

The test drive is critical, so don’t feel like you need to rush. Make sure you try a range of manoeuvres to get a feel for the vehicle.

Perform a U-turn, try reversing, and test driving on back streets and main roads. If possible, drive to places you’d normally go and, if you use child seats, make sure you can fit them easily.

It’s also important to test drive a car that has the same – or similar – specifications to the model you want; there’s no point testing a top-of-the-range variant with a different engine and suspension if you’re looking to buy the base model.

Top tip: Aim for a 20-minute test drive that covers a range of driving experiences.

Not understanding the price

In 2009, laws were introduced to ensure all compulsory charges associated with a new car – such as dealer fees, registration and stamp duty – are included in the advertised drive-away price.

So, the price you see slapped across the windscreen of a new car might be the worst case scenario. For example, it could be based on the most expensive rego costs in the country or could include costs that relate only to business buyers. Remember that while it says ‘driveaway’ price, you’re still able to negotiate.

Top tip: Make sure you ask for an itemised quote to find out what you’re really paying for and remember you can negotiate.

Not reading the paperwork

Paperwork is critical. Read everything before signing and question anything that’s missing or seems off. Ensure any deposit you’ve paid is in the contract. A purchase deposit may commit you to buying the car and may be non-refundable; however, a holding contract may simply ensure a vehicle is not sold to someone else. There’s no set amount for a deposit, so it’s important both parties are clear on the terms. Ask when they expect your car will be ready for pick-up and write on the contract that it’s subject to delivery by that date.

Top tip: Only sign when you’re satisfied. Keep a copy of the contract.

Finance

Most dealers provide car loans at the time of purchase, and this is where they make a big chunk of their money. Proceed with caution. Dealerships are often partnered with financial providers, your options may be limited and you might not get the best features and benefits for your money. Depending on the loan, you may actually be paying more overall. For example, instead of paying interest on just the car, you could be bundling the cost of the car, registration, insurance and other fees, and paying interest on the combined total.

Top tip: Get quotes from a range of lenders before visiting the dealership to find the best financing and insurance options.

Insurance

When buying a new car, insurance is often one of the last things people think of. It is vital that you organise insurance before picking up the vehicle – there are plenty of stories about people who have collected their new vehicle, only to be in a crash on the way home.

Top tip: Make sure you have insurance cover for your new vehicle by contacting your insurer in plenty of time. Also, if you are trading in your old vehicle, make sure you have insurance on the vehicle up until you have signed it over to the dealership/new owner. Having an accident while uninsured can be very costly.

The compliance plate trap

All cars come stamped with a build date and a compliance plate. The build plate tells you when a vehicle was manufactured; the compliance plate signifies when it was certified for sale in Australia – usually a few months later. The value of your car will be based on the build date so make sure this is the same year as the model you agreed to buy. If not, you could you be paying more for a car that should be valued lower, and you’ll lose money when you sell, as the car will have depreciated more than expected.

Top tip: Check the build date, which is located under the bonnet, and ensure the car is priced accordingly.

Not checking the car

When you get your vehicle, inspect it closely to make sure there aren’t any faults – if you don’t notice something then and there, making a claim later could be hard. Also check the car is the model you agreed on and meets the specifications you purchased.

Top tip: Even though you’re getting a brand new car, it’s still important to check that everything is in order and that there aren’t any scratches before driving off the lot.

More info

CALL RACV for a no obligation loan check on 13 15 60.

VISIT racv.com.au to find car loans and RACV’s Best Deal Guarantee.

WARRANTY RACV offers a range of warranty options for those buying a vehicle with RACV Finance, including Manufacturer’s Type Cover for used vehicles that are less than six years old and have travelled less than 120,000 kilometres at the time of purchase. For details call 13 15 60 or visit racv.com.au