Car Dealer Terminology Explained–Part 1: Buying a New Vehicle

BY JEFF YOUNGS, JD Powers

Car dealers sometimes use words and phrases that the average consumer does not understand, which often puts new-vehicle shoppers at a disadvantage during the car-buying process. To help educate consumers about the car-buying process and related words, phrases, and concepts, this article explains common car dealer terminology and how it impacts negotiation for the new vehicle and the financial transaction. The words and phrases are listed below, in alphabetical order, and are specific to the process of buying or financing a new vehicle.

Dealer Addendum Sticker
A dealer addendum sticker details any dealer-installed accessories, and their prices, that may have been added to a vehicle after its arrival at the dealership. In cases when a model is brand new and in high demand, a dealer addendum sticker may list nothing but additional markup over the Manufacturer’s Suggested Retail Price (MSRP). Keep in mind, however, that the price of dealer add-ons can be negotiated.

Dealer Prep Charge
When a new vehicle arrives at a dealership from the factory, dealership personnel must prepare the vehicle for sale. Often, the dealership passes that cost to the consumer through a dealer preparation charge. Sometimes dealer prep charges are reasonable. Sometimes they are not. This, too, is something that can be negotiated.

Doc Fees
Documentation fees are designed to pay for the costs incurred by the car dealer in association with processing paperwork related to a lease or purchase. Similar to dealer prep charges, sometimes these fees are reasonable and sometimes they are not. If you feel the fees are excessive, try to negotiate an amount that is more reasonable.

Extended Warranty
An extended warranty gives a consumer additional warranty protection after a vehicle’s original factory warranty expires. Car dealers typically attempt to sell customers an extended warranty at the time a new vehicle is purchased, but consumers often have up to one year after the purchase to decide if they want to take advantage of an extended warranty plan. This, too, is a negotiable price.

F&I
This abbreviation stands for finance and insurance. When buying a new vehicle, consumers are sent to the F&I office to finalize the details of the deal while the dealership prepares the new vehicle for customer delivery. In the F&I office, additional products and services may be offered to the consumer, such as dealer financing, extended warranties, service contracts, insurance, and more. At the end of this process, the purchase contract is finalized and signed, and then the customer drives home in his or her new vehicle.

Gap Insurance
A new vehicle depreciates the minute a consumer signs a contract and drives off the car dealer’s lot. That’s because it is now a used vehicle rather than a new vehicle. In the first weeks, months, and sometimes years that a consumer is in possession of the vehicle, it may be worth less than what the consumer owes on the car loan, especially if the new vehicle was purchased with no down payment or a small down payment.

If the car is stolen, or damaged beyond repair in an accident, during the period of time that the consumer owes more than the car is worth, there is a gap between what the car insurance company will pay for the vehicle and what the consumer must pay to satisfy the terms of the car loan. Gap insurance is designed to protect the consumer against this difference between actual vehicle value and the balance owed on the loan.

Holdback
Car dealers stock inventory, just like any retail store. Because vehicles are expensive, car dealers must finance inventory through the auto manufacturer using a process known as floorplanning. Car dealers must also advertise their inventory. These activities cost the car dealer money.

Because auto manufacturers rely on car dealers to keep assembly lines running and profits flowing, certain car companies may offer car dealers a “holdback,”–a percentage of either the invoice price or MSRP of a new vehicle that is repaid to the dealer by the manufacturer–each time a new vehicle is sold. The holdback is designed to offset expenses associated with floorplanning and advertising, and is generally not offered to the consumer. If a car dealer turns inventory rapidly, holdback money can help boost profit. If a car dealer turns inventory slowly, holdback simply helps to reduce losses.

Not all car companies offer a holdback to car dealers, preferring to employ other methods to assist their retailers in offsetting certain costs of doing business. Among car companies that do offer a holdback to car dealers, the amounts and programs vary between auto manufacturers, and frequently change. It is very difficult for consumers to determine whether or not a car company offers its dealers holdback money, or, in cases where a holdback program exists, if a particular vehicle is eligible for any holdback money.

Incentive
An incentive is an amount of money that is paid to the car dealer by the car company upon completion of a sale to a consumer. The car dealer may or may not elect to pass all or a portion of the savings on to the customer in order to lower the vehicle’s price or payment.

Interest Rate
The interest rate is the amount of interest a consumer pays on a new vehicle loan, expressed as an Annual Percentage Rate (APR). The lower the APR, the better the interest rate. Interest rates are negotiable, so be sure to get the best rate possible when financing a new-car purchase.

Invoice Price
Invoice price refers to the amount of money the car dealer pays the car company for the new vehicle. Generally, the invoice price is higher than what the car dealer actually pays the factory for the new vehicle, after accounting for any incentives, holdback money, or spiffs (defined below).

MSRP
The Manufacturer’s Suggested Retail Price (MSRP) is also referred to as the sticker price. Subtract the invoice price from the MSRP to determine the minimum amount of negotiating room the car dealer has with regard to the selling price for the new vehicle. Vehicles in low supply and high demand are likely to command full sticker price, or higher. Other vehicles are expected to sell for a price closer to invoice.

No Haggle Price
In an effort to simplify and bring transparency to the process of buying a new vehicle, some car dealers offer no-haggle pricing, which sets a firm price for a new vehicle in advance. No-haggle prices are designed to give customers discounts while giving car dealers a fair profit and can make buying a new vehicle easier, faster, and less stressful.

Rebate
A rebate is an amount of money paid to a consumer by the car company upon completion of a new-vehicle purchase. Consumers can accept the rebate in cash, or can apply the amount of the rebate to the down payment made on the vehicle by signing the rebate over to the dealership. Remember, consumers must pay taxes on the rebate, which is considered income, regardless of whether he or she accepts the rebate as cash or signs the rebate over to the dealer in lieu of additional cash for the down payment.

Service Contract
Consumers are likely to be offered a service contract when completing paperwork in the F&I office. A service contract is a pre-paid plan to have your new vehicle serviced at the dealership and typically offers a discount compared to the price the consumer might pay for dealer service without a service contract. Many new vehicles come with free scheduled service and maintenance, such as BMW models and Toyota models.

Spiff
A “spiff” is a temporary incentive that is paid to the car dealer or a car salesperson by the car company. For example, in order to inspire improved sales performance during a weekend sales event, the car company might offer the car dealer an extra $200 for every new vehicle sold, or the car salesperson an extra $100 for every new vehicle sold. Spiffs can sometimes give the car dealer extra wiggle room on price, but the amounts are typically too small to make a large difference in terms of the price or monthly payment the consumer will pay.

Trade-in Value
Trade-in value is the amount of money a car dealer is willing to pay a consumer for the consumer’s old car. This amount of money is typically less than what a consumer can obtain for the old car by selling it herself or himself via private party. The reason the trade-in value is lower is because the car dealer is taking on any financial risk associated with the old car, including the costs associated with reconditioning the vehicle and preparing it for sale, or transporting the old car to an auction if the car dealer determines it is not right for the dealer’s used car lot.

Upside Down
When a consumer is “upside down” on a car loan, he or she owes more money on the vehicle than the vehicle is worth. To avoid becoming upside down on a car loan, consumers should make a larger down payment and choose a model that holds more of its original value over time.

 

#DriveSmartBC: Back to School 2016

school_zone_sign.thumbnailThis could potentially be my 30th back to school article since I started writing about traffic safety. With that observation comes the question of how can I possibly write something new on the subject? It’s not like I’m going to be the only one that tries to draw your attention to the topic in the next couple of weeks. Everyone has a stake in this facet of road safety, but do we truly have your attention and will you give it some thought?

Probably the oddest response that I ever had to school zone speed enforcement came early in my career. I caught a teacher driving to work at the school where I was watching. She received a traffic ticket for failing to slow down and went straight to the principal to complain. He came out to speak with me and thanked me for taking the time to work the zone and encouraged me to come back often. He also mentioned that the teacher had expected him to come out and explain the error of my ways because she thought that the school zone did not apply to her.

Are you like this teacher? Can you excuse yourself from obeying the rules because you are in a hurry to  do something that you consider to be much more important than someone’s safety? If so, you are a selfish driver and need to take a look in the rear view mirror. Perhaps you will see flashing red and blue lights there.

School zones are 30 km/h for many reasons. You have more time to see, react to and prevent a collision if the situation presents itself. Pedestrians have more time to make safe a crossing decision and are less likely to choose incorrectly. Should the unthinkable occur, they are more likely to survive the collision than they would at just a few km/h faster. Thinking that you can safely drive “10 over” here is just plain stupid. Sorry.

Parents of school children can be frequent offenders as well. Don’t take your turn in the drop off zone, park wherever you will and let your passengers out wherever there is room. It saves time, but again, it’s selfish and unsafe. I’ve been involved in the investigation of a fatal collision where a child ran down the passenger side of the vehicle, across the rear and out into traffic where he was stuck by a passing car. Mom will wish for the rest of her life that she took the time to use the driveway. Don’t join her.

Obey the directions of school crossing guards. The law says that you have to. Not only do they help children cross the road safely on their way to and from school, they will report you to police if you don’t follow their direction. If you fail the grade as a driver here, you might receive a bad report card later on in the term.

Children don’t always use the crosswalks, marked or unmarked. When they do, you need to stop and let them cross. When they don’t, you are still required to exercise due diligence not to collide with them. They are children after all and don’t always make the best decisions. That’s why they’re off to school.

Cst. Tim Schewe (Ret.) runs DriveSmartBC, a community web site about traffic safety in British Columbia. For 25 years he was an officer with the Royal Canadian Mounted Police, including five years on general duty, 20 in traffic and 10 as a collision analyst responsible of conducting technical investigations of collisions. He retired from policing in 2006 but continues to be active in traffic safety through the DriveSmartBC web site, teaching seminars and contributing content to newspapers and web sites.

Mandatory Brake Checks on B.C.’s Highways

Check Brakes SignPerhaps you saw news coverage of the out of control commercial truck collision on the Coquihalla Highway last Friday. Witness accounts from the scene speculated that the combination appeared to have lost it’s brakes and may not have stopped at the mandatory brake inspection pullout nearby. No doubt this will be either confirmed or disproved when the investigation of the incident is complete.

There are mandatory brake checks before significant grades on many of B.C.’s highways. Drivers of specified vehicles must stop and perform a check of the braking system before they start down the hill. If the air brakes are out of adjustment or any other defects are found, the driver must remedy the problem before proceeding. Hopefully this insures that heavily loaded vehicles don’t lose their brakes and become involved in a collision.

You might be surprised to find out that heavy commercial trucks with air brakes are not the only vehicles required to stop and check brakes at these mandatory check locations. Any truck with a licenced gross vehicle weight over 5,500 kilograms must stop and check, regardless of the type of braking system involved. This could include a pickup truck towing a large recreational trailer behind it.

Properly licenced drivers of vehicle combinations like this often have either a higher qualification or endorsements and are familiar with how to proper check their braking systems. ICBC highlights a proper inspection procedure in the Driving Commercial Vehicles manual. It includes a pre and post trip list and a pre-hill section. The manual is worthwhile reading for any driver who would like to gain a better understanding of the heavy vehicles that we share the road with in addition to the brake information.

Many brake checks have signs posted that remind the driver of what they should be checking when they stop.

This is how we hope that the system works and we are protected by its operation when we share the road with heavy loads. When the driver is a conscientious one, all is well. In the real world, I’ve seen drivers pull in, stop, pause and continue without ever leaving the cab. If they did alight, a good tire thumping to discover flats was all that occurred as they never stooped to look underneath. I even knew of trucking companies where a ticket for out of adjustment brakes on trailers was a virtual certainty if I found them during patrols.

Even the courts have not helped the situation. Unless case law has changed since I ended my policing career in 2005, the courts held that the simple act of being able to stop the vehicle at the check was sufficient to comply with the sign directing drivers there. Unless the driver failed to stop at all, there were no grounds to issue a ticket for disobeying. Police would have to examine the vehicle and find a defect, then ticket for the particular defect in order to take any enforcement action.

With a perfectly functional, correctly adjusted braking system, over use of the brakes on a hill can result in a runaway truck. Experience, anticipation and proper control of vehicle speed through the use of the transmission on hills is critical. Signs at the check showing distance and grades are priceless information for drivers who have not encountered the hills of British Columbia.

Cst. Tim Schewe (Ret.) runs DriveSmartBC, a community web site about traffic safety in British Columbia. For 25 years he was an officer with the Royal Canadian Mounted Police, including five years on general duty, 20 in traffic and 10 as a collision analyst responsible of conducting technical investigations of collisions. He retired from policing in 2006 but continues to be active in traffic safety through the DriveSmartBC web site, teaching seminars and contributing content to newspapers and web sites.

Pot, policing hot topics at 2016 AMO Conference

The 2016 Association of Municipalities of Ontario’s Conference delivered  key presentations on policing costs and marijuana legalization today.

Wendy Williams, Her Majesty’s Inspector of Constabulary, an independent inspector of police services, spoke to delegates about theUnited Kingdom’s efforts to reduce policing costs while maintaining safety and protecting community policing and frontline policing. Rising policing costs continue to be a concern for many municipal governments.

Delegates also heard from Ashley Rea Kilroy, Executive Director, Marijuana Policy, City and County of Denver. Ms. Kilroy discussed Denver’s experience with the legalization of marijuana, noting that it required significant coordination between public services.

“Municipal governments deliver many of the services that will be impacted by the legalization of marijuana,” said Gary McNamara, AMO President. “Policing, licensing, public health and local economies will all be affected. We need to work with the provincial and federal governments as legalization moves forward.”

Conference presentations are being posted to www.amo.on.ca.

Ontario Government Ministers took questions from Conference delegates in an open session. Key issues include interest arbitration, municipal insurance costs and energy. More information on these and other key municipal matters is available at :www.amo.on.ca/AMO-Content/Footer/Newsroom.

The Honourable Brad Duguid, Minister of Economic Development and Growth announced the launch of the Investment Ready: Certified Site Program aimed at helping projects get off the ground faster by marketing sites to international investors.

Program highlights for Wednesday, August 17, the final day of the Conference, will include:

  • 9:05 a.m. – Incoming AMO President Lynn Dollin, Deputy Mayor, Town of Innisfil
  • 9:15 a.m. – The AMO Gas Tax Awards are presented by Adam Vaughan, Parliamentary Secretary to the Prime Minister, Intergovernmental Affairs and MP, Spadina-Fort York
  • 9:45 a.m. – Special session on Climate Change Going Forward

AMO is a non-profit organization representing almost all of Ontario’s 444 municipal governments. AMO supports and enhances strong and effective municipal government in Ontario and promotes the value of municipal government as a vital and essential component ofOntario and Canada’s political system.

Follow AMO on Twitter: @AMOPolicy, #AMOCONF16

SOURCE Association of Municipalities of Ontario

Why Don’t I See Traffic Police at Work?

cop-writing-ticket.thumbnailYou might be surprised to learn that this was a topic of conversation among my colleagues when we sat down for a coffee break during a shift. Most often one of us would have been travelling during their vacation and the remark would be something along the lines of “I drove all the way to X and back and didn’t see anyone stopping violators!” Maybe there is something to the remark “Where’s a cop when you need one?”

In rural British Columbia, the traffic enforcement units that I served on are required to cover long stretches of highway. Fort St. John was responsible for the Alaska Highway (97) from mile 33 to mile 147, Highway 29 from Highway 97 to Hudson’s Hope and all of the rural roads to the Alberta border. South Okanagan policed Highway 97 from the US border to Peachland, Highway 3 from the west end of Manning Park to Rock Creek, Highway 5A from Princeton to the Okanagan Connector and Highway 3A from Keremeos to Kaleden. Central Vancouver Island managed Highway 19 from Nanaimo to north of Bowser, Highway 19A from Parksville to Fanny Bay, all of Highway 4A and Highway 4 from the east to the west coast.

In all cases, it was difficult, if not unworkable to patrol from one boundary of the district to the other in a single shift.

The manpower complement in Fort St. John was a corporal and 5 constables. South Okanagan was staffed with a sergeant, a corporal and 10 constables. Central Vancouver Island manpower included a sergeant, two corporals and 9 constables. The majority of the on road work was done by the constables and administration by the sergeants and corporals.

That seems like a lot of resources until you consider that there were other demands for time that could include collision investigation, court, training courses, impaired driving investigations (before the IRP program this could easily consume half a shift) and the dread of us all: paperwork. Days off, annual vacation, sick leave and the need to cover both day and afternoon shifts spread us more thinly than we would have liked.

I can’t say that we were hidden from the casual glance of the travelling public either. Unmarked cars were rare in the fleet. They were almost always plain full sized sedans with black steel wheels and antennae sticking out of the roof. If you couldn’t spot one, it’s likely because you weren’t paying too much attention.

Information from the province regarding traffic policing resources and goals can be difficult to find. The BC Policing and Community Safety Plan devotes a few words to traffic and road safety while the report on Police Resources in British Columbia, 2014 does not indicate how police manpower is dedicated beyond how many officers are authorized for each location.

It’s not surprising that you don’t see flashing lights that identify traffic law enforcement in progress when you travel on BC’s highways. The task is a huge one and the number of police officers dedicated specifically to the job results in many kilometres of highway to patrol for each one. Focused enforcement targeting high collision locations and behaviours is necessary for efficiency and limits random patrols.

Cst. Tim Schewe (Ret.) runs DriveSmartBC, a community web site about traffic safety in British Columbia. For 25 years he was an officer with the Royal Canadian Mounted Police, including five years on general duty, 20 in traffic and 10 as a collision analyst responsible of conducting technical investigations of collisions. He retired from policing in 2006 but continues to be active in traffic safety through the DriveSmartBC web site, teaching seminars and contributing content to newspapers and web sites.

5 questions for retiring GM design chief Ed Welburn

5 questions for retiring GM design chief Ed Welburn

By Tom Krisher And Dee-Ann Durbin

THE ASSOCIATED PRESS

WARREN, Mich. _ During a visit to the Philadelphia Auto Show, 9-year-old Ed Welburn was spellbound by the 1959 Cadillac Cyclone, with its big fins and rocket-like front cones. Then and there, he vowed to become a designer for General Motors Co.

On June 30, he’ll retire as GM’s head of global design, a role that makes him one of the auto industry’s most influential designers. He is also one of the industry’s highest ranking African-American executives.

Welburn the sixth design chief in GM’s 108-year history reinvigorated design at the company. After GM shed excess brands like Pontiac in its 2009 bankruptcy, Welburn gave the remaining ones a fresh identity, turning out bold, chiseled Cadillacs and elegant Buick sedans. If you look closely, you might see his nod to the Cyclone’s tail fins in the 2010 Cadillac SRX.

Welburn, who joined GM in 1972, also is credited with pulling together GM’s 10 global design studios which had operated independently and working more closely with engineers and marketers from the very beginning of a car’s development.

“I firmly believe that the best vehicles happen when you have great collaboration between designers and engineers. If you don’t have it, you can forget about it,” he said.

Welburn still sketches every vehicle the company is working on, but doesn’t share his drawings with his team they still need to come up with their own ideas. For a high-ranking official in a cutthroat industry, Welburn is surprisingly soft-spoken and courtly. He favours tailored suits and cufflinks in an era where most designers are clad in jeans.

In his office overlooking GM’s historic design dome where every car has gone for final approval since 1956 Welburn says he feels like his work at GM is complete. He’s planning a two-week spin through Europe in his new Chevrolet Corvette, one of the vehicles he helped design.

Here are Welburn’s answers to questions from The Associated Press. They have been edited for length.

Q: Is it important to you that you were the first African-American chief designer at a major automaker?

A: It’s nothing that I dwell on or celebrate. It didn’t take me long to understand the first week that I was here, there was a responsibility I had. Everyone wanted to know what I could do. I was representing more than myself, right or wrong. There’s a certain amount of pressure that goes with that.

Q: What is your legacy at GM?

A: I believe that we have created a culture in which design and engineering really work together. You have to have that in creating the fundamentals of the vehicles, the basic architecture. If you get great proportions, then it’s much easier for a designer to style it. If you don’t have that great proportion, then designers do some bad things to try to make up for shortcomings. I think a huge part of (my legacy) is the collaboration between design and its partners, as well as establishing this very powerful global design organization.

Q: Have you been able to attract design talent to Detroit?

A: The challenge is attracting digital sculptors. They’re very talented and it’s a very limited pool. They’re sculpting in the computer. They can create just about anything, and every industry needs them, including the film industry. So we’re competing with them as well as Silicon Valley. Years ago it was very difficult to get anyone from California to come here. You create the right environment and they see what we’re doing. It’s not easy, but it’s a whole lot easier than it was 10 years ago.

Q: Of everything you’ve designed or been in charge of here, what car is your favourite?

A: There’s so many projects I love for so many different reasons. The Corvette project, the latest C7. With this one, the average age of the customers was getting higher, sales were going down. We needed to make a course correction. It needs to be obvious it’s a Corvette, but it needs to be obvious that it’s a new Corvette. I decided since we had designers in studios around the world, to offer up to every designer to submit their idea. Ultimately the design came from the Corvette team, but it was fascinating to see how each one of those studios interpreted it differently.

Q: With new ways of powering vehicles, will designs change?

A: It depends on the propulsion system. If it’s electric, I think it can give us more flexibility, the ability to put a greater focus on the interior space and comfort. Autonomous vehicles, as well, will do that. At the end of the day, a beautiful vehicle, no matter how it’s propelled, will win.

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