WHAT
DOES IT REALLY MEAN?
A GLOSSARY OF CAR DEALER JARGON
Have you ever tried to understand the fine
print at the bottom of an advertisement for new cars? Car
dealers have their own jargon and much of it is not understandable
to the average consumer. Consider the following example
of the small print that appears at the bottom of a typical
ad for a new car:
O.A.C 3.9% financing for up to the
first 7 months of a 60s. contract. Total A.P.R. 10.2%, C.O.B.
$3,244.26. freight, licence, insurance and taxes extra.
The car shopper who understands the jargon
will know more about the dealer's offer and more likely
avoid costly mistakes. The following is a glossary of dealer
jargon you can't afford not to know.
| A.P.R. |
Annual percentage rate for the money you borrow . |
| C.O.B. |
Cost of borrowing: if you have to give up a cash rebate
in order to qualify for special "low cost"
financing (e.g. 2.9%), check out the C.O.B. details
in the fine print. If the C.O.B. is expressed in dollars
rather than as a percentage indicating the effective
interest rate, the dealer is not being forthright about
the true cost of the financing. In other words, the
2.9% financing noted in the headline is not the true
cost of borrowing. (See Fact Sheet #5 about dealer financing
offers.) |
| DEALER INVOICE |
The name would suggest that this is what the manufacturer
charges the dealers for a car. Not exactly! There are
usually a number of hidden subsidies built into the
dealer invoice (see "holdbacks"). As a result,
the dealer's true cost is almost always lower than the
figure on the dealer's invoice. |
DEALER STICKER |
The dealer can put any price on a car and add a long
list of fees. These prices are not particularly meaningful,
particularly when used to describe a "special sale
price" for example, "we've knocked $500 off
all of our prices"
F & I financing & insurance department of the
dealership. The "financial consultant" will
use a hardsell approach to convince buyers to take additional
financing, loan insurance, warranty protection, and
other services. (See Fact Sheet #3 on the dealer's seven
profit centres) |
| FREIGHT EXTRA |
This varies from about $450 to $650 depending on the
vehicle. |
| HOLDBACKS |
The manufacturer generally bills the dealer for more
than they actually intend to charge for the car. The
manufacturer 'holds back' the difference and returns
it to the dealer at a later time. Why this strange custom?
This permits the dealer to start negotiations by quoting
an inflated 'dealer cost' or 'dealer invoice' price.
|
INSURANCE EXTRA |
This refers to loan insurance. It is almost never wise
to buy loan insurance through dealers, some of whom
may be charging three to five times what a financial
institution would charge for comparable coverage. |
| LOWBALL |
You've been negotiating with a dealer, unsuccessfully
trying to get agreement on a price of $22,000. You're
about to leave and the Sales Manager hints if you come
back tomorrow, they will "try to get that price
down to $21,250" The manager knows that no other
dealer will be able to match this price. Will the dealer
actually give you this price the next day? Don't hold
your breath! The lowball is simply designed to bring
you back to their showroom even if you proceed to visit
other dealers. |
| M.S.R.P. |
Manufacturer's suggested retail price. Canadian dealers
are not required to post this on the car, but should
have it on file if you want to see it. As with the dealer
sticker price, the MSRP is not particularly meaningful
in determining the value of "Special Sale Prices"
. If no one sells at M.S.R.P., the $500 of M.S.R.P.
offer can only be judged relative to what other dealers
are doing with the same car. |
| O.A.C. |
On approved credit. Not everyone will qualify for
a loan. |
| OFFERS MUTUALLY EXCLUSIVE |
This usually refers to having to choose between a
cash rebate and a special "low cost" financing
offer. This is the most popular advertising gimmick
for dealer financing and is designed to draw attention
away from the real cost of borrowing. (See Fact Sheet
#5.) |
| P.D.I. |
Pre-delivery inspection. According to a former head
of G.M's Chevrolet division, manufacturers make mistakes
on 30% of all orders at the factory, so a P.D.I. is
an important form of insurance which could save you
major repair costs down the road. Although the P.D.I.
is a standard element of a purchase contract, dealers
often skip this to save the $200-$300 cost. The best
way to deal with this problem is to specify in the contract
that the completed P.D.I. sheet will be delivered with
the vehicle. |
| REBATE |
This is cash the dealer or manufacturer gives to the
buyer as a purchase incentive. It is often used as a
mutually exclusive offer in conjunction with "low
cost" financing offer (see "mutually exclusive
offer"). The rebates are also often included (or
already deducted from the car price during sales) |
| TAXES EXTRA |
In Ontario, these include G.S.T. (7% of the negotiated
price, plus freight), P.S.T. (8% of the negotiated price,
less the value of your trade-in), a fuel conservation
tax ($75 for compacts), a tire recycling tax ($5 per
tire), and a $100 federal excise tax on air conditioning.
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