The Advantages of Buying a Manual-Transmission Vehicle

Keep Your Left Foot Busy, Save a Few Bucks

 

     When I was in high school, driving a stick-shift car was a badge of honor. But now, my friends wonder how I've made it this far without a car that does the work for me. Automatics are now the norm, and the manual transmission seems headed toward extinction. But here are a few practical reasons why stick-shift cars might deserve a second look.

Less Expensive

Cars with manual transmission will appeal to budget-conscious shoppers, because it costs an average of $800-$1,000 to upgrade to an automatic transmission. On the higher end, buyers interested in a Saturn Astra will have to pay an additional $1,325 to drive an automatic.

Also, the maintenance of a manual transmission offers some savings. According to Marc Uchiyama, assistant service manager at Honda of Santa Monica, the fluid for a manual transmission needs less frequent changes than on an automatic. And if a manual transmission ever breaks down, it's usually because the clutch needs to be replaced, a $1,200-$1,500 repair. Compare this to the $3,000 it costs to replace an automatic transmission and the savings is apparent.

Using a recent national gas price average of $4.10 per gallon, passing up an automatic could buy you about 195-244 gallons of gas. Put another way, if you bought a manual-transmission Nissan Versa over an automatic model, the savings would be enough to pay for six months of gas at that price.

Better Fuel Economy?

In the past, most manuals offered about a 5 percent improvement in fuel economy, the byproduct of the direct-drive transmission. But looking at current EPA estimates, it now appears that the numbers seem to be a wash. Why? While an automatic version of a car has a fuel economy advantage in the city, the manual version has the advantage on the highway. When the numbers are combined, they average out to be the same miles per gallon. But as the saying goes, the truth lies within. A person's method of shifting gears can significantly alter their fuel economy.

"Keeping the engine rpm low keeps [fuel] consumption low," said Dan Edmunds, director of vehicle testing at Edmunds.com. "Some folks will put the car in Neutral and coast up to a traffic signal to drop rpm as early as possible — a watered-down version of hybrid stop/start, if you will. Drivers of automatics will not do that because the whole point of an automatic is to simply slap it in 'D' and go about your business."

This freedom to choose how you drive is at the core of the reason why a manual transmission can get better gas mileage than an automatic. But because driving habits vary from one person to the next, not everyone will get the same results.

"An official EPA test consists of five specific driving 'cycles' designed to represent typical driving patterns," said Edmunds. "As a result, EPA fuel economy estimates can seem too conservative to those who drive in an efficient manner, and too optimistic to those with lead feet."

The electronics control how and when modern automatic-transmission shifts are optimized with the official EPA test cycles in mind, but — as with any set pattern — this may not always reflect how cars are driven in the real world. As a result, a driver of an automatic sometimes needs to manipulate the gas pedal to force a gearchange — thereby using more gas.

More Control, Less Distraction

Cars with manual transmissions also offer better control when driving because they have a faster shift response, and allow the driver to access extra power by downshifting on inclines. Through careful gear manipulation, a skilled driver of a manual transmission will have better traction in snowy and slippery conditions. A manual transmission also lets you downshift to use the engine to slow the car down, though this is generally not recommended because it accelerates the amount of wear on the clutch. Combine the faster shift response with the increased traction, and those few extra seconds could make all the difference in bad weather conditions.

In general, owners of manuals tend to be more attentive drivers: Changing gears requires a driver to pay attention to the engine and shift frequently, so the driver is less likely to zone out.

The Best of Both Worlds?

Many consumers may want the benefits of a manual but aren't willing to sacrifice the convenience of their automatic. This is where automanual transmissions come in. These cars do not have a clutch pedal and can function in both fully automatic and manually-shifted modes. For the most part, these cars are driven as automatics until the driver puts the transmission in manual mode.

The manually-shiftable automatic is the more common of the two automanual transmissions and is found on cars like the Honda Fit, Pontiac G8 and Mazda Mazda6. This type of transmission is essentially an automatic that lets the driver shift for himself. But in some of these vehicles, the car's computer will step in and make a gearchange if it's needed, such as upshifting when the engine hits redline. The chief complaint about many of these units is that there can be an annoying lag between when the driver calls for a gearchange and when it occurs.

The automated-clutch manual transmission has its origins in racing, and is primarily offered on high-end sport models such as the BMW M3 and the Mitsubishi Lancer Evolution MR. This transmission, which has a computer controlled clutch, offers lightning-fast shifts and allows the driver to concentrate on driving rather than clutch manipulation. Since these cars are geared toward performance, the shift quality in automatic mode is usually not as smooth as a traditional automatic.

As a testament to natural selection, and as gridlock becomes an ever-increasing part of life, our editors believe that automated-clutch manual transmissions are on their way to replacing the conventional manual transmission. But this technology has yet to be proven as far as long-term reliability, and it's usually more expensive. Manual transmission purists also argue that the lack of a clutch pedal reduces the driver's involvement and much of the enjoyment of driving a stick.

Uncertain Future

Despite the benefits, the number of cars with manual transmissions available in the United States is dwindling. And the fact that the newer automatics have caught up to, and in some cases surpassed, their manual counterparts in fuel-efficiency, explains the change.

"Automatic efficiency gains are the result of more efficient mechanical components, but really because of computerized shift control, throttle control and torque converter lockup," said Sage Marie, public relations manager for Honda.

The sales numbers for manuals paint a bleak picture for their future. Toyota has five models available with a manual transmission, but few are actually selling. Bill Kwong, spokesman for Toyota, says that manually shifted cars account for less than 2 percent of Toyota's total sales. He also attributes this wide margin to improvements in the quality of the automatic transmission, which has benefitted from compact designs and more gears — often up to six speeds.

"There's almost no difference when it comes to fuel economy," said Kwong. "The two overdrives in the Camry's automatic transmission really reduce the rpm," and save gas.

Final Thoughts

So who are these stick-shift cars best suited for?

There is no question that manual transmissions "resonate with customers who still enjoy the act of driving," said Marie.

Marie's comments hint at a larger issue. To many people, driving is just getting from Point A to Point B. The less they have to think about, the better. In recent years, consumers have been willing to pay more, get fewer miles per gallon and have less control of the vehicle — all for the sake of convenience. And though the advantages of a manual transmission aren't enough to cause a massive paradigm shift, today's gas prices and economy have more people scrambling to save every last dollar. It may seem daunting at first, but it's never too late to learn how to drive a manual transmission.

Cost Aside, It's a Matter of Priorities

Should You Lease or Buy Your Car?

     Is leasing a car right for you? This question is hard to answer. It really depends on your lifestyle and your preferences.

Certain lifestyles may work better with leasing than others. For instance, if you entertain business clients, leasing allows you to drive a luxury vehicle for less money (and there may be a tax write-off for certain professions). Other people just like to drive a brand-new car every two or three years. So ultimately, leasing isn't only a dollars-and-cents question — it's about personal tastes and priorities.

However, for some people, everything is a dollars-and-cents issue. If you are one of those people, or would just like to see how leasing a car stacks up against buying, we suggest you try our Auto Loan and Auto Lease calculators. After selecting a car, you can see an estimated leasing payment, an estimated loan payment and which financing method is recommended. Furthermore, you can see how your payment will change if, for example, the length of the loan is extended or the down payment is increased.

Pros and Cons of Leasing a Car

The lists below summarize the pros and cons of leasing vs. buying.

Advantages of Car Leasing

    * Lower monthly payments
    * Lower down payment
    * You can drive a better car for less money each month.
    * Lower repair costs (With a three-year lease, the factory warranty covers most repairs.)
    * You can more easily drive a new car every two or three years.
    * No trade-in hassles at the end of the lease
    * You pay sales tax only on the portion of the car you finance.

Disadvantages of Car Leasing

    * You don't own the car at the end of the lease.
    * Your mileage is limited to a set amount, typically 12,000-15,000 miles a year (excess miles are paid for at the lease termination).
    * Lease contracts are confusing.
    * Leasing is more expensive in the long run (as opposed to buying and driving until the wheels fall off).
    * Wear-and-tear charges can add up (paid at lease termination).
    * It's costly to terminate a lease early if your driving needs change.

Advantages of Car Buying

    * Pride of ownership — you can modify your car as you please.
    * Car buying is more economical in the long run unless you buy and trade-in regularly.
    * No penalty for driving excess mileage
    * Increased flexibility — you can easily sell the car whenever you want.

Disadvantages of Car Buying

    * Higher down payment is generally required.
    * Higher monthly payments
    * You're responsible for maintenance costs once the warranty expires.
    * Trade-in or selling hassles when you're ready to get rid of your car
    * More of your ready cash is tied up in a car, which depreciates, rather than an investment that appreciates.

SummaryIn a nutshell, leasing makes it easier to get more car for less money. You are essentially paying for a portion of the car, instead of buying the entire vehicle. So, like many things, leasing looks great in the short run. But if you take the long view of economics, you will see that leasing will eventually be more expensive. It is more costly because once you begin leasing, you wind up leasing again. This means you will always have a car payment and never own anything.

Now consider the person who buys a car. At the end of five years of car payments, the car now belongs to him or her. It might not have much value on the open market, but if you're willing to drive it for several more years, it becomes nearly free transportation until the wheels fall off.

 

 

Leases Will Be Harder To Find and Payments Will Be Higher

How Will the Pull-Back in Leasing Affect Consumers

   When Chrysler recently shocked the automotive world by announcing it wouldn't be leasing its vehicles anymore, it triggered a chain reaction throughout the industry. Ford and GM also announced restrictions to their auto leasing programs. And banks, such as Chase and Wells Fargo, which had leased vehicles for years, also decided to call it quits.

How does all of this affect the consumer? Will you still be able to lease vehicles? More importantly, will this type of financing still make sense?

The answers to these questions aren't completely clear yet and the fallout is still being felt. However, there are a few points that we would like to clear up and some advice we can offer.

But first, a little background.

Leasing's Appeal...and Its Danger

Consumers love auto leasing because it offers an easy way to get into a new car with a lower down payment and lower monthly payments than financing a vehicle to be purchased. This is because you are only paying for the amount of the car's value that you use. Typically, people lease for three years, so they only pay for the first three years of a car's life — which are definitely the car's best years.

Car dealers also love leasing because it brings customers back into the dealership at the end of the lease, every two or three years. Also, because many consumers are confused by leasing terms, dealers can more easily take advantage of them.

Manufacturers love leasing because it allows more people to get new cars, even as the cost of those cars rises in relation to their earning power.

But to make money on leasing, the manufacturers' leasing arms (as well as private banks that lease) have to think beyond just the lease period. What will the car be worth when it is returned to them? Accurately predicting the amount (called the "residual rate") will affect their profit on the vehicle, as well as the consumer's lease payment.

In the past, the automotive industry has been able to accurately predict the residual values of vehicles. But with rising gas prices and the sagging housing market, the residual value of vehicles (particularly large SUVs and trucks) has fallen sharply. Reports of manufacturers losing $5,000 per vehicle are not uncommon, according to Jesse Toprak, executive director of industry analysis for Edmunds.com. Instead of being worth 40 percent of their original sticker price, trucks and SUVs are, in some cases, worth only 28 percent of the sticker price.

Will Leasing Survive?

"I love new cars," a consumer lamented to Edmunds in response to news of the leasing troubles. "I want a new car every three years, sometimes sooner. I don't know what I'm going to do now."

Leasing is not dead. It is too valuable a tool for manufacturers, dealers — and consumers. But how will it change now that many of the biggest players are pulling back?

To some degree, leasing is a self-adjusting finance method. Now that resale values are falling, lease payments will certainly go up. So the short answer is that the days of screamin' lease deals are over for now. But the advantages of leasing are still there, at least in theory.

One advantage of leasing was that you could "drive more car for the money." A $500 monthly lease payment might put you in a BMW, whereas a $500 loan payment would buy a Honda Accord. In other words, you couldn't afford to buy the BMW — but you could lease it. This led to the criticism that leasing allowed people to drive cars they couldn't afford.

The upshot of the leasing trouble is that we might now have to take a closer look at what we can truly afford. This is similar to what has happened in the housing market. Loans were written that put people in houses they couldn't afford. When resale prices fell, the dream crumbled.

So what is happening in the auto leasing market could be called another "economic correction" or a wake-up call for lenders.

But what about those people who love a new car every three years?

Advice: Searching for a Good Lease

First of all, not many consumers will be affected. Leasing has waxed and waned, but was never more than 20 percent of all vehicle transactions. It was rising to the point where one in five people chose a lease in 2008. So, this restriction will still only limit a small percentage of the car-shopping public.

Many of the manufacturers have revamped their leasing programs. So if you leased in the past, don't assume the same rules apply. Additionally, many lease payments will be so high that consumers will have no choice but to go to a less expensive vehicle — one they can actually afford.

In addition, keep the following advice in mind as you shop for a new lease:

    * Credit requirements will be tighter. In some cases, only people with the best credit will qualify for manufacturers' leases.
    * The higher payment might still make sense if you can take the tax write-off as a business deduction.
    * Buying looks better than ever, especially with dramatic incentives in both cash and financing.
    * Carmakers will offer low-interest financing to try to match low lease payments of the past.
    * Dealers will urge people to buy rather than lease and extend the loan terms to 60, 72 and even 84 months. (Warning: This results in more "upside-down" buyers and more buyers will carry negative equity from one car loan to another.)
    * Check several banks, smaller leasing companies or your credit union for a good lease. (Our financing tab will help you get rates from different companies.)
    * If it suits your needs, look to foreign automakers, whose lease programs are stronger.
    * Consumers looking to take over someone else's lease can visit Lease Trader or Swapalease.

Advice: Ending Your Current Lease

If your current lease is ending and you are considering buying the vehicle, keep in mind that the residual value listed in the contract - the price for which you can buy the vehicle - may be out of sync with the current market. This could possibly work in your favor.

If you are currently leasing a fuel-efficient car, such as a Toyota Prius or a Honda Fit, the residual value might be so low you could buy the car at a bargain price. However, if you are leasing a gas guzzler, and want to buy it, the price will probably much higher than you could buy one for at a used car lot or from a private party. However, the leasing company might be willing to negotiate that price to sell it to you. Before you negotiate, check Edmunds.com True Market Value prices to make an informed offer.

Final Thoughts

Edmunds.com will continue to follow this emerging situation and bring you any changes as they occur. In the meantime, we offer an extensive leasing advice section including "10 Steps to Leasing a New Car" and a comparison of leasing, buying and buying used. Additionally, our Basic Lease Calculator helps you estimate what your lease payment will be. You'll see a Lease vs. Buy calculator there, too. The results may appear counterintuitive, but a detailed explanation can be found by clicking the link that appears at the bottom of the page once a vehicle is selected. The lease or buy recommendation is based on a broader financial picture, not merely a comparison of the monthly loan or lease payment.

The general turndown in the economy — and in the automotive industry in particular — has caused drastic changes, such as this pull-back in leasing. While a small percentage of consumers will be affected, informed car shoppers can still find a convenient way to lease or buy the car that's right for them.

Family Hauler Shoot-Out

The Roomiest of Them All?

As fuel prices soar, many consumers are reevaluating their choice of family hauler. Sure, we hear stories about people trading a Chevy Suburban for a Toyota Prius, but if they can manage that, they didn't really need the large SUV in the first place. What about those of us with growing families who really need three rows of seating? What are we to do?

Minivans became an instant hit with families when they were invented by Chrysler in the '80s. At some point they began a slow decline as cheap gas, the promise of go-anywhere adventure and perceived safety gave rise to the large, truck-based sport-utility vehicle (SUV.)

But a steady rise in gas prices and swirling doubts about the rollover stability of SUVs has given birth to a likely successor: the "crossover"-utility vehicle or CUV. Built on a carlike unibody chassis and usually employing front-drive mechanicals, a CUV is lower, lighter and more economical than an SUV.

Until recently, CUVs have been too small for full-fledged family hauler status, but new larger entries from General Motors and Mazda make us wonder: Are crossovers worthy of being the Next Big Thing in family hauling?

We aim to find out by analyzing the most important family-oriented characteristics of the above three vehicle types.

Three Rows and Garage Compatibility Assumed

Two criteria must be met to be part of our analysis: There must be three rows of seats capable of handling adults and the overall length must be less than 210 inches to be compatible with most suburban garages.

You might wonder about the three-row stipulation. Many families have two kids, right? We're assuming you still need the space for several reasons: mandatory car seats, carpooling with other families and visiting relatives. Small children spend a few years in car seats, which become a near-permanent fixture in the middle row. When grandparents or other "big people" ride along, they need third-row room and access — without having to remove those car seats.

This eliminates small and medium CUVs and midsize SUVs from our exercise because, with very few exceptions, their third rows can't handle full-size adults. On the other end of the scale, full-size extended-length SUVs like the Chevrolet Suburban and Ford Expedition EL don't make the cut because they are simply too long for most garages. The Chevrolet Tahoe became wildly successful precisely because it wasn't seen as "too big" at the time.

The entire population of the vehicles we considered in all three groups fell in a tight bunch between 199 and 207.7 inches long.

Factor #1: Passenger Room

The capacity of most three-row vehicles is seven or eight persons, depending on whether the middle row is a bench or separate "captain's chairs." Shoulder and headroom aren't usually a concern in any of them, so we've focused on legroom by looking at the sum total of all three rows.

Large SUVs might seem to have the advantage, but minivans come out best, particularly the 2008 Toyota Sienna (122 inches) and 2008 Honda Odyssey (119.2 inches). The 2008 Ford Expedition/Lincoln Navigator (117.9 inches) is the only large SUV to make the top three.

Crossovers have slightly less total legroom because longish hoods and rounded styling compromise their interior space. But the 2008 Chevrolet Tahoe/GMC Yukon trails behind them all because it's the only holdout not using independent rear suspension — a live-axle rear suspension impinges on third-seat space.

1st Place: Minivans (114.6-122 inches)

2nd Place: Full-size SUVs (105.9-117.9 inches)

3rd place: Crossovers (111.4-113.1 inches)

Factor #2: Passenger Access

Of course, floor and seat heights affect the ease of getting all passengers in or out. We measured the floor height near the rear seat of a 2008 Toyota Sequoia SUV at 23.5 inches above ground; a 2008 GMC Acadia CUV measured 19.5 inches and the 2008 Honda Odyssey minivan was just 16.5 inches.

Large SUVs offer running boards, and they help kids who can climb in. But you'll still have to lift younger children much higher to get them into an SUV-mounted car seat. For example, rear seat heights are 38 inches for the Sequoia, 33 inches for the Acadia and 31 inches for the Odyssey.

And then there are the rear doors themselves; minivans have sliding doors. There is no getting around the fact that these are superior. Kids don't door-ding the car in the next parking space, and you can open sliding doors using a remote — an available option on all minivans.

Standard-hinged rear doors are OK if kids can reach them, but some have grown very long to improve third-row access. The longer doors work fine for that, but tight parking spaces restrict the opening angle much more, and hence door dings are a greater concern.

1st Place: Minivans (low seat, door handle and step-up height, sliding doors)

2nd Place: Crossovers (moderate step-up, seat and door-handle heights)

3rd place: SUVs (high step-up, seat and door-handle heights)

Factor #3: Cargo Capability

Whether it's grocery shopping or a trip to the ubiquitous home-improvement or warehouse superstore, family vehicles must also haul.

Minivans lead the way in cargo loading because they have low floors and a low lift-over height. You need to lift something only 24.5 inches to get it into a Honda Odyssey. It takes a 30-inch lift to load a GMC Acadia CUV and 33.5 inches to get something into the back of a large SUV like the Toyota Sequoia.

Minivans and CUVs share the lowest roof lines, but minivans' floors are so low that they have the tallest cargo area height. A 38-inch-high opening allowed us to slide a clothes dryer-sized box into the Odyssey, but shorter openings prevented it from fitting in the Acadia (32 inches) or Sequoia (33 inches).

This combination of a low floor, tall compartment and boxy proportions means that minivans also score the best at maximum cargo capacity. Maximum capacities in the segment range from 142-149 cubic feet. This even eclipses the too-long-for-this-test Suburban (137 cubic feet), the largest in the extended-length SUV segment.

Only 121 cubic feet are available in the class-leading garage-length 2008 Sequoia. Crossovers sacrifice some space for sleek styling, but the biggest ones, at 117 cubic feet, still compete with garage-length SUVs.

Another key difference comes with all three rows of seats occupied. Volumewise, the Toyota Sienna provides 43.6 cubic feet of cargo capacity when the third-row seat is in use. The best crossover and SUV capacities are 25.5 and 28.4, respectively. The difference grows larger when, for the sake of visibility, we limit our focus to the volume below the headrests. We stacked eight 15-gallon storage boxes below the headrests in a Honda Odyssey, but the Acadia and Sequoia managed just two apiece. Using a minivan, then, an entire family can meet the grandparents at the airport and still have room inside for a sizable amount of luggage.

The absence of a permanent center console in most minivans allows 10-foot lumber to be laid flat on the floor — with the hatch closed and most seats unaffected. SUVs and CUVs have fixed consoles, so 8-foot lumber must be laid diagonally atop folded middle and third-row seats to be carried safely.

Part I focused on the cargo- and people-carrying capabilities of minivans, full-size SUVs and large crossover vehicles (CUVs.) Not surprisingly, the not-so-minivan excels in these areas. We think everyone should stop using the prefix "mini."

But more things must be considered to determine if something like a Buick Enclave or Mazda CX-9 is a suitable successor to an SUV or van.

Factor #4: Towing

Towing performance isn't important to everyone, but for those families who enjoy a boat or camper, it's an absolutely critical overriding factor when choosing what to buy.

Here, the rear-wheel-drive layout, full-size truck frame and V8 engine of the traditional SUV are a clear advantage. In fact, many trailers weigh so much that nothing else will do. Towing capacities for full-size SUVs range from 6,000 to just over 9,000 pounds.

Conversely, the front-drive roots, transverse V6 engine and unibody construction typical of minivans and most crossovers limit their towing capability. Most top-selling minivans can tow 3,500 pounds — an amount sufficient for a small boat or a pair of personal watercraft. Crossovers do better; some models can be configured to tow 4,500-5,000 pounds.

As always, towing capability varies greatly by model and specific towing options, so check carefully when purchasing. Be aware that some of the high-capacity towing options for SUVs include gearing changes that harm fuel economy in everyday driving, too.

1st place: Full-size, truck-based SUVs (6,000-9,200 pounds)

2nd place: Crossovers (1,000-5,000 pounds)

3rd place: Minivans (1,000-3,500 pounds)

Factor # 5: All-Weather Capability

This isn't a family issue, per se — it's more of a regional one. But snow traction is seen as safety, so it's a big selling point in certain geographic areas. Front-wheel drive may be good, but all-wheel drive (AWD) and part-time four-wheel drive (4WD) systems (particularly those with an auto setting) are much better.

All crossovers offer optional AWD, and full-size SUVs have always offered 4WD or AWD options. But of all the minivans sold in America today, only one, the 2008 Toyota Sienna, offers all-wheel drive.

Some observers remind us that while AWD vastly improves acceleration traction, it doesn't improve braking. While it's easier to get going, it's also easier to get going too fast. FWD drivers are usually more aware of poor road conditions.

1st place: Full-size, truck-based SUVs (four-wheel traction, extra ground clearance)

2nd place: Crossovers (four-wheel traction, always-on, center diff)

3rd place: Minivans (only the Toyota Sienna offers an AWD option)

Factor #6: Off-Road Capability

This differs from all-weather capability and it has more to do with having fun or exploring off-road trails than dealing with bad weather.

The gap between SUVs and CUVs is greater, because SUVs usually have a locking (or absent) center differential, a low-range transfer case and higher ground clearance. These allow a skilled driver to creep over rocks and get through deep sand and mud. Properly equipped, an SUV is the only type of vehicle suitable for off-road exploring.

CUVs don't have low range and their frameless undercarriages are more vulnerable. Their AWD systems are light duty and should stay clear of dirt roads that aren't reasonably maintained. Minivans, even those with AWD, have even less clearance and should stick to pavement whenever possible.

1st place: Full-size, truck-based SUVs (lockable drive, low range, high clearance)

2nd place: Crossovers (no low range, usually no locked mode, moderate clearance)

3rd place: Minivans (limited AWD availability, low clearance)

Factor #7: Safety

Safety is usually discussed in terms of crash survivability. But in fact, safety is comprised of two subparts: passive safety and active safety.

Passive safety assumes a serious accident will happen, and so relates to discussions of passenger-protecting features such as airbags, seatbelts and crumple zones. Crash tests carried out by the NHTSA (National Highway Traffic Safety Administration) and the IIHS (Insurance Institute for Highway Safety) result in the familiar "star" (NHTSA) and "Poor" to "Good" ratings (IIHS).

From this standpoint, manufacturers have by and large learned how to build safe vehicles. Looking at our three groups — minivans, CUVs and SUVs — there are no overriding advantages related to configuration; all three categories have numerous five-star vehicles to choose from.

Active safety pertains to accident avoidance. Here the configuration of a vehicle has a big influence on two related factors: emergency maneuverability and rollover potential.

The ability to maneuver around an obstacle instead of hitting it doesn't show up in accident statistics, because the accident was avoided. But certain patterns have emerged, such as the greater susceptibility of traditional SUVs to roll over in an attempt to dodge something. SUVs have historically carried a warning label on their sun visors for this reason.

On the ratings front, NHTSA introduced a new star-based rating to describe a vehicle's rollover resistance. The test has two parts. A measurement called the Static Stability Factor (SSF) describes how tippy a vehicle is by comparing its track width to its center-of-gravity height. The other is a driving test to see how easily the vehicle tips over.

To understand SSF, consider a piece of wood: the common 2-by-4. If you lay it down flat, it is very resistant to tipping over — a high SSF. But if you put it on edge, it's easy to knock over — a low SSF. NHTSA's rollover resistance ratings are based on SSF measurements.

In strict SSF terms, a Corvette or Miata can get five stars. SUVs, as we currently know them, usually score three stars. Minivans and CUVs typically score four stars, with minivans at the upper end of the bracket.

The dynamic driving test, known as a fishhook maneuver, uses a robot to follow a prescribed maneuver to measure rollover. But there is another factor: Automakers that fit electronic stability control (ESC) to the majority of a particular model get to use ESC during this test. Because ESC inhibits the broadside spin this test creates, the conditions that produce rollover are averted. A vehicle on the bubble between three and four stars in SSF terms gets promoted to four stars as a reward for passing the fishhook test, something that the fitment of ESC ensures on SUVs that might otherwise have trouble with this maneuver.

While ESC is a great feature that will save many lives, we're going to concentrate on SSF for this analysis. Why? ESC is available on all SUVs, CUVs and minivans in our consideration set, so it's not a distinguishing characteristic. But it isn't always standard. In cases where you end up with an example that doesn't have the ESC option, raw SSF is particularly important to know.

Since these vehicle types also share good crash test ratings, we're going to make our call based on SSF. Maneuverability and rollover resistance both favor the lower, wider vehicle.

1st place: Minivans (SSF range: 1.24—1.36*)

2nd place: CUVs (SSF range: 1.18—1.27)

3rd place: SUVs (SSF range: 1.14—1.20) * SSF = ½t ÷ h, where "t" is the track width and "h" is the center-of-gravity height.

Factor #8: Fuel Economy

This one is fairly straightforward. SUVs are larger, heavier and designed to pull heavy trailers, so they consume more fuel. Crossovers and vans are lighter and employ smaller engines, so they do better in fuel economy tests. Opting for the AWD version of any of these vehicle types hurts fuel economy slightly in most cases.

1st place (tie): Minivans (16-17 mpg city/21-25 mpg highway)

1st place (tie): CUVs (15-17 mpg city/22-24 mpg highway)

3rd place: SUVs (12-14 mpg city/17-20 mpg highway)

Wrap-Up

As expected, large SUVs score best when it comes to towing and off-road performance, and worst when it comes to fuel economy and rollover resistance. They hold quite a bit of cargo, but lift-over is high and minivans hold more. Still, if your lifestyle includes towing a camper or large boat somewhere, an SUV is the best choice.

Crossover advantages over large SUVs include fuel economy, ease of loading cargo and safety. Available all-wheel drive gives them the snow traction coveted in certain parts of the country. But styling to make them look cooler than minivans and sleeker than SUVs ultimately limits interior seating space and cargo capacity. Crossovers are a very good choice, but they are held back by compromises that some might not want to make.

If there is any surprise here, it has to be the fact that more families aren't buying minivans. They haul more people and cargo, are easier to load and for kids to get in and out of (sliding doors rule), use the least amount of fuel and have the best combination of safety factors. With the exception of the Toyota Sienna, their biggest drawback is the lack of AWD for those who want it in snow country. Other than that single regional exception, minivans are still the best family haulers, period.

Buying a Cars Tips for a Slow Economy

How To Find and Make a Good Deal in Tough Times

Whether you believe we're in a recession or simply a slow economy, the news hasn't been good. The housing debacle, credit crunch and tumbling dollar mean many consumers have a hard time making car payments and paying for fuel. As a result, more people need to get out of their car lease early, delay buying a new car, or buy a used car instead of a new one. And with gas prices near $4 per gallon, there will be more demand (and probably fewer deals) for compact and hybrid vehicles.

Automakers are also tightening their belts, closing dealerships, eliminating "twinned" vehicles and carrying some of their lowest inventory levels since 2002. That translates to less selection on the car lot.

So consumers are caught in a tug of war: Car dealers, most of whom already are facing hard times, need to increase their profitability — just as car buyers are trying to spend less. This affects the entire car-buying process, from vehicle availability to new car financing and incentives to lease deals and the price of used cars. Here's what you can expect and how to best take advantage of the slow economy's impact.

Financing Your New Car

Historically, automakers and dealers have pumped up sales with financial incentives, and this slow economy is no exception. Expect to see higher cash rebates (manufacturer-to-customer and possibly dealer-to-customer), and more zero-percent financing and low APR programs, particularly from domestic automakers.

While such auto incentives used to blanket an entire brand, this time around expect automakers to cherry-pick which models get big incentives. Understandably, the biggest discounts will be on large, gas-guzzling trucks and SUVs. Incentives will also vary from one geographic region to another depending on vehicle demand.

Rules of thumb for auto incentives:

    * Unless there's a zero-percent program or the interest rate is less than the prime rate, keep your term as short as possible. To help decide which program is better for you, use our Low APR vs. Cash Back calculator or this basic rule of thumb: If you'll keep your car three years or less, take the cash. Four years or more, take the low APR.
    * If you're considering switching brands, ask the sales manager (not just the salesperson) about any "conquest" rebates. This can mean up to $1,500 toward sweetening the deal.
    * Beware of the six- and seven-year car loans that are trickling down from very expensive brands to more mainstream ones, such as Toyota. Don't use a longer-term loan to get into a vehicle you can't really afford or to spread the cost of a negative-equity trade (being "upside down" on your current vehicle).
    * Unless your credit is good, be prepared to put down a larger down payment or look for a used car instead. It's more difficult than before for folks with below-average credit to find car financing, as banks and finance companies are tightening their standards.

Car Leasing

As a countermeasure against falling residual values, a number of manufacturers have overhauled their leasing programs. So if you leased in the past, the same rules may not apply. Additionally, many lease payments will be so high that consumers will have no choice but to go to a less expensive vehicle — one they can actually afford.

In addition, keep the following advice in mind as you shop for a new lease:

    * Credit requirements will be tighter. In some cases, only people with the best credit will qualify for manufacturers' leases.
    * Dealers will urge people to buy rather than lease and extend the loan terms to 60, 72 and even 84 months. (Warning: This results in more "upside-down" buyers and more buyers will carry negative equity from one car loan to another.)
    * The higher payment might still make sense if you can take the tax write-off as a business deduction.
    * Check several banks, smaller leasing companies or your credit union for a good lease. (Our financing tab will help you get rates from different companies.)
    * If it suits your needs, look to foreign automakers, whose lease programs are stronger.
    * Consumers looking to take over someone else's lease can visit Lease Trader or Swapalease.
    * Buying looks better than ever, especially with dramatic incentives in both cash and financing.
    * Carmakers will offer low-interest financing to try to match low lease payments of the past.

Used Cars Are Affected, Too

As the amount of money in consumers' pockets goes down, people who cannot afford the new car they want will look at less expensive new models, but will consider used cars as well ¿ possibly for the first time. Say you're a Ford guy with your heart set on an Explorer, but you can't afford a new one. You could consider an Escape, or you could simply buy a used late-model Explorer instead.

This means that older cars that are "clean" — in good condition — will hold their value and depreciate less quickly. For example, a very clean eight-year-old Honda Accord with 60,000 could sell for a few hundred dollars more than it used to, as consumers compete for quality used vehicles.

Rules of thumb:

    * Be mindful of when you sell or trade in your late model used car. If a manufacturer is offering employee pricing or heavy discounts on new cars, it may not be the best time to sell. People are less likely to pay top dollar for your used car, when they can easily get a new one for a bit more. Use Edmunds' Used Car Appraiser to learn your car's True Market Value® (TMV®).
    * If your current car is still under warranty and in very good condition, dealers will want it for their Certified Pre-Owned (CPO) programs. For now, buyers can find special finance rates through captive finance arms.
    * Because leasing has dropped off so dramatically during this slow economy, Edmunds analysts predict that there will be fewer high quality used vehicles in 2010 and even less in 2011.
    * If you want a greater selection, now is the best time to buy a CPO vehicle. Since there may be fewer cars on the market in a couple of years, this could potentially drive up CPO prices for high demand vehicles.
    * The window of opportunity for selling or trading in a compact for a great price is probably over. Since many people purchased compact vehicles when gas prices were at record highs, there are a lot more used compacts available on the market today.

So Where Are the Deals?

If you do nothing else before buying a new car, at least check the latest auto Incentives and Rebates and Deals of the Month for a head start. Remember, there are always bargains to be had, even in tough economic times.

For new cars:

    * Look again at larger vehicles. If you don't put a lot of miles on your car each year, the discount programs on these vehicles may more than outweigh the difference you'll spend in fuel.
    * Due to the weak dollar, luxury and midrange vehicles from European automakers may offer new incentives.

For used cars:

    * There are very sweet deals on recent model-year vehicles that didn't sell that well when they were new. Many of these are rental or fleet vehicles (former company cars), including Chryslers (like the 300) and minivans. Some examples: A 2007 Ford Five Hundred SEL four-door sedan with a 3.0-liter engine and automatic transmission had a $23,785 MSRP, and an invoice price of $22,031. You can buy it used at a dealer for around $13,880. Similarly, the 2007 Kia Sedona LX with a new MSRP of $24,295 can now be bought used for under $12,500.
    * Don't wait too long to buy: There may be less selection to choose from come summer/late summer than in years past, since people who don't have the money to buy a new car may choose to hold onto their cars longer.

Confessions of an Auto Finance Manager Section 4

In Defense of the Finance and Insurance Office

   Everything they sell there (in the F&I office) has a benefit to it — at the right price. The problem is that most people don't have the facts to negotiate intelligently for these products, so it becomes a guessing game. — Oren Weintraub, car buying specialist and former car dealer

While interviewing Nick James for the first three articles in this series, I often found myself wondering why car buyers even tolerate the finance and insurance process. It's time-consuming, frustrating and often costly. I kept thinking that F&I could be eliminated and the car salesmen could just draw up the contracts themselves. Customers would certainly prefer to deal with one person throughout the whole process.

After talking to industry experts I learned that the answer is twofold. Preparing contracts and arranging loans is best left to a financial expert. Secondly, as the contract is prepared, the consumer is in an excellent position to be sold additional products and services. They are, as Nick James put it, "in the 'yes' mode." And the money made in the F&I office is essential to the dealership and the salespeople.

As profit is squeezed out of the front end of the deal (many cars now sell close to the invoice price) and profit margins shrink (from about 6.5 percent gross profit on a new car in 1998 to 5 percent in 2007), revenue generated in the finance office is more important than ever before. The National Automobile Dealers Association (NADA) estimates that new cars are often sold at a loss now, with dealerships making money on used car sales, F&I products, parts and service.

F&I's "Vital" Statistics

According to 2007 statistics from NADA, 28.5 percent of the profit made from selling a new or used vehicle was generated by the finance and insurance office. This rose slightly from the previous year "partly from a renewed focus on F&I," a NADA report stated. The money made in F&I comes mainly from arranging loans but also from selling extended warranties and other products and services.

How much money is made on a typical sale? According to F&I Magazine, an average of $947 is contributed by the F&I officer selling dealer financing, and an extended warranty typically adds $795 in profit. Another $438 can be generated by selling gap insurance, which covers a financed car that's been lost or stolen beyond what regular insurance covers.

While most people aren't even aware they will visit the F&I office while car shopping, they'll spend at least 30 minutes there out of the 123 total minutes typically spent buying a car. Another 48 minutes are spent in the sales office and the rest is spent in the showroom, F&I Magazine reported.

Financing is the most often accepted product offered in F&I, with some 58 percent of customers agreeing to take dealer-arranged loans. The next most purchased offering is the extended warranty, with 30 percent of customers saying yes to this. Gap insurance, prepaid maintenance plans and theft deterrent systems are also commonly purchased by customers prior to signing their car contracts.

The Human Side of F&I

From these statistics, it's easy to see why the finance and insurance office is viewed as a profit center for dealerships in increasingly hard times. But what do customers think of their F&I experience?

"They hate it," said Oren Weintraub, a former dealer in the Los Angeles area for many years and now president of Authority Car Buying Specialists. "[The customer] spends all this time negotiating for a car and they're exhausted. Then, along comes this guy asking if he can sell you something extra for another $15 a month."

To be fair, he added that good F&I officers can alert customers to other financial safeguards such as gap insurance, which is increasingly important as car buyers tend to be more upside-down on their loans.

What about the value of the products sold in F&I? "Everything they sell there [in the F&I office] has a benefit to it — at the right price," Weintraub said. "The problem is, most people don't have the facts to negotiate intelligently for these products so it becomes a guessing game."

On the Front Lines of F&I

For another point of view I contacted Jon Garcia, an auto finance manager at Hesser Toyota in Janesville, Wisconsin. He has worked in the F&I office for the past four years following six years of selling cars. He said that he believes his knowledge of loan financing can "save money for the customer and still make money for the store [the dealership].

"I want my customers to go away happy," Garcia said. "If they don't, they might shop for a better rate and cancel the loan I sold them."

Still, Garcia acknowledges that there are abuses in the business. "There is a fine line," he said. "There are managers out there that are on a different pay plan. They will take a $2,000 profit on [an extended] warranty. But if you are planning on staying with the dealership long-term you don't do that."

A Changing Landscape

Customer complaints about rip-offs in F&I have led to increased regulations. In recent years, legislation has been passed that prohibits payment packing. As Nick James described in Part 3 of this series, packing payments means that the customer is persuaded to agree to a higher-than-needed monthly payment. The extra wiggle room created is then filled with products and services sold in F&I.

I called NADA's Washington D.C.-area office and a spokesman asked me to submit a list of questions about the abuses in the F&I industry, including payment packing. I received this answer via e-mail from Paul D. Metrey, NADA's director of regulatory affairs: "Unlawful practices have no place in our industry and need to be discouraged at every opportunity. NADA stresses this point in its Code of Ethics, speeches to industry groups, training material and through numerous workshops at its annual convention and presentations to dealers and dealer managers around the country."

Metrey's e-mail went on to say that NADA works with government agencies such as the Federal Trade Commission to educate dealers and eliminate unlawful practices. He added: "The overwhelming number of franchised dealers recognize the need to both reinforce these key compliance messages and ensure they are a central part of their employee training programs."

In other words, good dealers don't break the law. Specifically, good F&I officers, like Jon Garcia, want their customers to "go away happy" because he wants to stay in the business long-term. A friend of mine recently bought a new luxury SUV and said it was "by far the best car buying experience I ever had." And what happened in F&I? "He didn't even bring up the extended warranty," my friend said.

Still, unsuspecting customers are walking into F&I rooms unaware every day. I recently bought a car from a Los Angeles area domestic car dealership. My salesman drew up the contracts and presented them to me himself saying, "If I sent you into F&I here, you'd hate me. These guys won't take no for an answer." They are what are known in the business as "heavy hitters."

What is the average consumer to do to prepare for an encounter with a "heavy hitter" or even just a silver-tongued salesperson with a carefully crafted sales pitch?

Metrey wrote a response to this question: "We strongly encourage consumers to educate themselves about the financing process just as they do with the vehicle purchasing process." NADA has created AWARE to provide consumers with car financing tips and information in English and Spanish through an interactive Web site. Dealers have also stepped up training for their employees to enhance transparency in the auto finance department.

While the official message from the top is that consumer education is encouraged, Nick James said during our interviews that the informed customer was the one most hated by F&I officers. And every car salesman in the world has at one time or another scolded his customers by saying, "Just trust me."

What's a Car Buyer To Do?

The more I thought about the F&I office, the more I felt there was no easy resolution to its problems. While customers hate it, the dealer's existence depends on it, particularly in hard times. Furthermore, having an expert handle loans and contracts makes sense and allows the salesman more time and freedom with the customer.

Bottom line: When the F&I process is done right, and the customer is informed, it works.

I have one final piece of advice that will head off all other problems. While being educated on the process is important, it's also essential to pick your dealership and salesman carefully and pay close attention as your F&I officer presents your contracts. There are good people in the car industry. Find them and give them your business.

Confessions of an Auto Finance Manager part 3

Lessons From the Other Side of the Desk

Most people had no idea what they should be paying for a car, except that maybe their cousin had bought the same car and they knew what he paid. And that was exactly where the dealership wanted you.

At my new dealership, I started to make some serious money — six figures — which went a long way in the Midwest where you could buy a mansion on a lake for a $100 grand. I was still pretty young and yet I was advising people on loans, looking into their finances and working with large sums of money. I have to admit I was proud of what I did and it gave me a feeling of power.

And then I made a change that doubled my income. It had to do with a new sales technique, a method called "menu selling."

The Joy of "Menu Selling"

The way I had been selling F&I products was to roll out the items one by one, pitching the advantages and features of them. It was a long, grueling process for me and the customer. Menu selling revolutionized all that.

What I did was group all the products I sold into packages and give them fancy names like the Platinum, Gold or Bronze package. If the salesman had quoted a $400 payment, I would begin my pitch by saying to the customer, "I understand your salesman quoted you a payment of $400 a month. That will take the car today. But, let me take five minutes to go through a few options, and you can choose which one works best for you."

Then I'd say, "The first option is the Platinum plan, a five-year loan at 8 percent, which has a seven-year, 70,000-mile extended warranty, which more than doubles the factory warranty. It includes life and disability insurance; it also offers paint protection and undercoating. The payment for that is $480 a month." Then I'd describe the Gold Package which would have a payment of $440, and the Bronze at $420.

Here's the funny thing: half of all customers would pick one of the plans without asking any further questions. That means I just sold three things with a five-minute spiel whereas previously it took half an hour and I wound up sounding like a broken-down vacuum cleaner salesman.

The power of menu selling is that you are asking people to choose which of three things they want. Their focus is on selecting one of the three things, not realizing that they don't have to choose any of them. Choosing one of these packages was a big mistake for some customers. But it wasn't the only mistake they'd make.

Wrong Price Point

After a few years of closing deals in the finance and insurance office, I began to realize that 90 percent of my customers made the same mistakes when buying a new car. Because of this, I realized I could make even more profit than I chose to. In a way, I had to be self-regulated — I decided what a fair profit was and consequently what my commission would be. It was often hard because it was like a baseball home-run hitter passing up a fat pitch — I knew if I wanted to I could make more money and be the hero of the dealership for the next week. But I didn't want to hurt the customer, this person I had gotten to know and whose trust I had won.

Not all F&I guys felt this way. Some went for maximum profit on all deals and applied all kinds of pressure to the poor customer to achieve this. Some F&I managers were bullies who just wouldn't take no for an answer. And they made outrageous claims to back up their sales pitches. For example, when presenting the extended warranty, they might tell their customer that the financing that was being offered required them to buy the extended warranty. This was a lie. But how was the customer to know?

It sounds really basic, but the biggest mistake customers made was not knowing the price they should be paying for the car itself. And that was exactly where the dealership wanted them. Maybe their cousin had bought the same car and they knew what he paid, but they rarely did any more research than that. As the Internet has come of age, there are all kinds of ways to research price, including Edmunds.com True Market Value ® (TMV) pricing and forums where buyers share pricing information. If a buyer knows the invoice price of the car, as well as any incentives available at the time and allows the dealer a profit above that, they can estimate what they should pay. But even today most buyers don't take the time to do this. And they overpay as a result.

Packing Payments

Another big mistake I saw customers make was agreeing to be a "monthly payment buyer." The majority of car buyers are going to finance the car (instead of paying cash) and they want a payment that will fit in their budget. The salesman knows this and works in league with the sales manager and F&I guy to leverage their power against the customer. Here's how this tag team works.

Car salesman: What kind of monthly payment are you folks looking for?

Customer: About $400 a month.

Car salesman: Up to...?

Customer: Um, well, no more than $450.

Car salesman: Well, that's kind of low for a great car like this. But I'll see what I can do. I'll be right back. (The salesman leaves and goes into the sales office to huddle with the F&I guy and the sales manager.)

Sales manager (to F&I guy): How's their credit?

F&I guy: Over 700.

Sales manager: Awesome. (To salesman): OK, tell Mr. Customer that $500 will make a deal. (The salesman returns to the customer holding the sales deal sheet with the managers' scribbling on it.)

Salesman: Good news, folks. We can make a deal today for $500 a month.

What's just happened? Well, the sales office is preparing to pack the payments. We'll say that they could actually sell the car for $450 a month but they got the customer to agree to an extra $50 on the payment. That $50 a month "bump," extended over a five-year contract, is an extra $3,000.

Now, when I got the deal in the F&I room, I knew all I needed to do was find products and services to fill up that extra $50. In a way, the customer had already bought the things I was selling. All I needed to do was justify the extra expense. This was easy since I could sell them an extended warranty, inflate the interest rate or juggle the numbers to add up to the total payment.

The Most Dreaded Phone Call

I don't want to imply that things always went smoothly in the F&I room or that the customers were easy to deal with. Sometimes married couples got into fights right in front of me — he wanted to buy the car but she didn't — and they treated me like a marriage counselor. Also, since I worked in a small town, everyone knew each other. So if people got mad at me it was really uncomfortable. If they felt they were cheated or lied to, sometimes it escalated to a physical level. And believe me, in a small town they know where to find you.

There was one type of scenario I always dreaded because it led to some horrible situations.

As I mentioned earlier, we had some customers whose credit was weak but who might still qualify for financing. However, it could easily take a few days to shop all the banks and get a solid answer. We didn't want to let this customer get away (we stood to make a lot on their financing) so we would let them drive off in the car while we continued shopping for a loan. But if we were unsuccessful, things got sticky.

We had to call the customer and tell them to bring the car back to us. If they protested, we told them that they had signed a form for "acknowledgment of conditional delivery." This was a document we always had customers sign that said if we couldn't get the car financed at the terms we agreed on, then they would bring the car back. The customer usually said, "Sure, sure, whatever" and signed it, but later they seemed to forget about this form.

The most dreaded phone call in my business was when you had to call the customer and tell them to bring the car back. The F&I guys tried to push this off on the salesman, and they pushed it back on us. Sometimes I called the customer and said something vague like, "There are a few changes we need to make to the contract so we need you to bring your paperwork and the car back to the dealership." Other times, I was more direct: "We weren't able to get the loan financed so we need you to come back so we can discuss other options."

Customers often became really emotional when they had to return the car. They had already shown the car to their friends and family and had developed an attachment to it. Now the dealership was taking it away from them. It was an unintentional form of public humiliation.

In one case, I was dealing with this young hotheaded guy who had bought a pickup truck, and we had to call him back in. I had a feeling there might be trouble so I brought my sales manager into the meeting with me. When we told this guy we were taking his truck back, he actually jumped over the desk, grabbed the sales manager by the throat and started strangling him. We had to call the police and the guy was taken away in handcuffs. It was sad because he had his little boy with him and he saw the whole thing.

10 Things Not To Do in F&I

Over the years I put together advice for my friends and family when they were going to buy a car. In most cases, my advice was simply what not to do! Here is my Top 10 list that should get you in and out of the F&I room unscathed.

   1. Don't agree to be a monthly payment buyer. If you do, you'll quickly lose control of negotiations as they pack payments and hide the real cost of the car.
   2. Don't buy a car without first checking pricing guides such as Edmunds.com's TMV. Print out this information and take it with you to the dealership.
   3. Don't buy the extended warranty. The bumper-to-bumper warranty will last for at least three years/36,000 miles. The powertrain warranty will then cover all the things that make the car go down the road, often for up to 75,000 miles.
   4. Don't buy the extended warranty (if you really want it) for the first price they offer. Mark-up is about 100 percent, so there is plenty of room for negotiating.
   5. Don't enter the F&I room unless you have independent financing or you have recently checked your credit report and investigated what your bank or credit union will offer for a rate. Otherwise, how will you know what interest rate you deserve?
   6. Don't buy paint protection (it's just a glorified wax job) or fabric protection or VIN etching or LoJack (unless you have an irreplaceable collector's car). These are high-profit items for the dealership and can always be purchased somewhere else if you decide you really want them.
   7. Don't pass up gap insurance if you're leasing (unless it's already in the contract).
   8. Don't forget to run your monthly payment numbers using an online computer to get a rough idea of what your car payment will be.
   9. Don't believe that the F&I guy is really your friend, even though he acts like it.
  10. Don't believe the F&I guy if he tells you that you have to buy the extended warranty to qualify for low or no-interest financing. I've used this line a few times before. And it's not true.

Getting out of the Business

I never really planned to make a career out of being an auto finance manager, so after about six years I became restless and was looking for a change. I still wanted to finish my graduate degree. My sister had moved to the West Coast and I was tired of being landlocked in the Midwest. I quit my job and moved to the Los Angeles area. Initially, I went back to working in F&I but I found out that the job was much different there. The sales manager called all the shots and the F&I guy was nothing more than a glorified salesman hawking products. I missed the financial advisor aspect of the job. So I left the business altogether.

Looking back, I don't have any regrets about what I did. I helped people buy cars and I got them loans that enabled them to do that. But I do feel funny about all the mistakes I saw my customers make, mistakes they made that stretched their household budgets thin and put stress on their lives and relationships. While it struck me that the F&I office is a necessary part of dealerships, it's up to car buyers to educate themselves about how to safely navigate the tricks and sales pitches they'll encounter.

The final part of this series will cover a few more points and the dealer's side of the story. But for now, I hope my story has better prepared you for your next car-buying experience. And if the F&I guy questions your decisions, just tell him you got your information from an inside source.

Confessions of an Auto Finance Manager

Tricks of the Trade

Kurt Niebuhr for Edmunds

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While the customer was still on the lot with the salesman, I'd go out and take a look at them. That way, when I met them in the F&I office I'd be prepared to break the ice with some small talk.

F&I guys know that our customers are already in the "yes mode." They've just agreed to buy a car so it's our job to keep them saying yes to other things like extended warranties, fabric protection and additional alarm systems.

The office for my new job was in a mobile home parked at the back of the car lot. In most other dealerships where I worked the F&I room was usually in the back somewhere, away from the excitement of the showroom and the noise of the service bays. But what goes on in the F&I office is the lifeblood of the car business — deals are closed. Before you enter the finance office, a car deal has really just been a lot of talk. But in F&I, all the verbal promises are put in writing, the customer signs and the contract legally binds the buyer to make all the payments. So there's a lot of money on the line.

Dave, the guy who ran the finance office at my new job, wasn't the stereotype of the sneaky F&I guy. He had a good sense of humor and was very relaxed with his customers — a little too relaxed, I thought. If he just pushed a little harder it seemed he could've sold a lot more products. I was anxious to finish my training and be in charge so I could do things my way. And see how much more money I could make.

In the beginning, I just sat in the back of the room while Dave handled the customers. He usually introduced me to the people by saying, "This is James. I'm training him for this position. Do you mind if he sits in with us?" No one ever objected, and soon they forgot I was there. Meanwhile, I got to observe Dave's sales techniques, such as the way he started the F&I process.

Setting the Tone

Dave would casually glance down at the contract and then look up at the people as if he was surprised and say, "Oh! So you're the folks who bought that black Suburban. Man, that's such an awesome car! You're going to have a great time taking it on vacation this summer. And the four-wheel drive is good in the snow, too." What he was doing was showing the customer that he cared about their purchase and shared their excitement, like they were on the same team.

This opening set the right tone, which was important since most of the customers we got were pretty worn out by this point. Often they had been test-driving and negotiating all afternoon and, basically, they just wanted to get the hell out of there. Dave had to get them refocused on the excitement of the new car because he was about to try to sell them a whole slew of additional things.

Most salesmen know that once a customer starts saying yes, it's easy to keep them saying yes to other things. The customers we got in the F&I room had just agreed to buy a car. So there was a good chance they would keep saying yes to other add-ons. We called this being in the "yes mode," and we tried our best to exploit it.

Here's how Dave did it. He would start by asking the customer a question he knew they would say yes to. So he'd say, "Do you like this car?"

Obviously, they would say yes since they had just agreed to buy it.

"I bet you'll really enjoy taking this car on vacation."

Of course they said, "Yes."

So then he'd ask, "So I'm sure you'll want to buy an extended warranty to protect your investment?"

And they often said, "Yes."

Sitting in the back of that room I took a lot of notes, wrote out lists of forms that were needed and details I had to complete. Dave taught me the tricks of the trade mainly by just letting me observe how he worked with the customers. It was a psychological game that was partly a carefully scripted technique and partly just plain old salesman's intuition.

Running F&I on My Own

After only 10 days of training me, Dave went on vacation and I was left in complete charge of all the finance work for the entire dealership. I was excited to know I could do things my way. But there was a problem that worried me, a secret that only I knew. Sure, I was good with numbers. And by now I was a pretty good salesman. But I'm not detail-oriented. And this was a job that definitely needed strict attention to the fine points. It wasn't unusual for a car deal to involve as many as a dozen different documents, all of which needed to be signed in multiple places in just the right way. Plus, the dealership could get really busy; sometimes we sold a dozen cars on a Saturday afternoon. A straight cash deal could be wrapped up in only 15 minutes. But other transactions, particularly leases, could take an hour or more. If you didn't get everything right it would be rejected by the DMV.

Naturally, I didn't admit my lack of attention to detail. Instead, I made endless checklists to remind me to dot all the i's and cross the t's. But as I gained experience I became more confident. I even decorated my office to make customers more comfortable. I put up pictures of the beach and some inspirational sayings — fun stuff to relax people.

The Flow of the Deal

The F&I process actually started before I even met the customer. I would be given the credit application to run while they were still negotiating with the salesman. At this point, I'd go out and take a look at the people to get a feel for them. That way, when I met them in the F&I room I could break the ice by making some small talk. For example, if I saw one of them wearing a Green Bay Packers hat, the first thing I'd say to them was, "How about those Packers?" In my time in F&I I talked about all kinds of things I had no real interest in: deer hunting, football, hockey — even cooking.

If the customer's credit score came back over 700, we wanted to make sure they bought a car as quickly as possible and got them out of there. We would tell the salesman to "spot them" — let them take delivery on the spot — before their loan was even formally approved by the bank.

On the other hand, if the customer was a "deadbeat," meaning that they had really bad credit, we knew there was no way we could sell them a car. So the two ends of the spectrum — the really good and the really bad — were easy to deal with. But the vast majority of customers fell somewhere in between, and it required a lot of work to get them financed.

Dealership Financing

I'd say that three out of four people wanted to finance their car by taking out a loan or leasing it. The dealership had access to wholesale lending rates, called the "buy rate" and loaned this money to the customer at a few percentage points higher, which we called the "sell rate." This was a huge source of revenue for the dealership and it amounted to about 50 percent of the commissions I earned. So the incentive was high to inflate the interest rate and get the customer to agree to the loan at that rate.

Padding the interest rate was usually very easy to do because most of our customers had no idea what rate they qualified for. If I sensed that they were uninformed about their credit score, I knew I could offer them, say, two points over and they would agree to it. The customers I looked for were people who had good credit but didn't know it. Then I could say, "We ran your credit report and, well, we both know you've had a few problems. But you're nice people so here's what we're going to do for you."

A Lucrative Sales Pitch

After the loan was arranged and agreed to by the customer, I began to sell them an assortment of extra products and services. This was a grueling process but it was where a lot of my commissions came from so I had to summon my energy and give it my best shot. The biggest item for me to sell was the extended warranty.

Usually, I'd begin by asking, "How long do you folks plan on keeping your new car?" The answer I wanted was: "I'm going to keep it until the wheels fall off." If I heard this I knew I could easily sell them an extended warranty. But if they said they always traded in after three years I was pretty well screwed. Still, most people said "Five years plus."

I was reading an F&I magazine one day and I found a little detail that helped me make tens of thousands of dollars selling extended warranties. Here's how it worked. If the customer said they were going to keep their car a long time, I'd say, "Did you know that your new car has more computer chips in it than the first spaceship that went to the moon?" This had an amazing effect on people — they got goose bumps and leaned forward wanting to hear more.

Then I'd continue, "It's a sophisticated piece of machinery and it's expensive to repair. To give you an idea, a transmission problem could be $3,000 or higher. So if something were to go wrong — which we hope it doesn't — it could be very expensive to repair. Now, you have your factory warranty and then everything that happens after that is your responsibility.

By this point, a lot of people would be listening carefully, following along as I outlined the different warranty plans. I had a 50 percent sales record with extended warranties which was nice because the markup (the profit made by the dealer that contributed to my commission) was nearly double the actual cost of the warranty. The other thing that sold people on the extended warranty was when I told them, "It's cheaper if you buy it now and you can always cancel it if you change your mind. So you see there's really no risk." Of course, if they cancelled it, it became a "charge back" for me in my next month's paycheck, so I really hoped they didn't do this. But plenty of people never cancel something like an extended warranty once they buy it, often because they simply forget about it.

Shady Practices

After about a year at this dealership I began to see something that really made me mad. Every month we got a statement that showed how much we made in the F&I office. And it also showed how many charge backs we had, which were things customers had purchased but then cancelled. Anything that we sold could be cancelled except for "hard-adds," things that were physically attached to the car like running boards or upgraded stereos.

The accounting was done by this weasely guy who worked in a dingy, windowless office in the back of the dealership. His desk was a complete mess, with papers strewn all over the place. I had no idea how he could find anything in there. But he generated a monthly report that showed how much was made in the F&I room. And he also reported the number of charge backs that were deducted from our commissions.

After awhile, I noticed that on the months that I sold a lot of add-ons there also tended to be a lot of charge backs. It was like having my paycheck cut in half. Was he ripping me off? I couldn't prove it. But I knew I would never make the kind of money I wanted working there. Not only that, but the owner's son had taken over running the place and I just didn't see eye to eye with him.

In retrospect, the way it turned out was a blessing in disguise. I heard about an opening at a larger dealership across town. I landed a job there and hit the F&I jackpot.

Confessions of an Auto Finance Manager

In the Back Rooms of America's Car Dealerships

Introduction
"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 back hallway to a stark, cramped office with "Finance and Insurance" on the door. Inside, a man in a suit sits behind the desk. He greets you with a faint smile on his face. An hour later you walk out in a daze: The whole deal was reworked, your monthly payment soared and you bought products you didn't really want.

What happened to your great deal?

You just got hit by the "F&I Man," also called the finance officer. He waits in the back of every dealership for unsuspecting customers so he can increase the profit for the dealership and boost his commission.

In this four-part series, written by veteran auto finance manager Nick James, you will learn the F&I man's tricks and how to avoid them. When you're done, you'll be ready to safely navigate this crucial part of the car buying process, and the F&I man will never work his "magic" on you again.

— The Editors at Edmunds.com
Part I

From Selling Vacuum Cleaners to Selling Cars

In the Saturday morning sales meeting, the general manager treated this F&I guy like a hero for making so much money for the dealership. But I remember sitting there, thinking, "This isn't right — he just stole $6,000 from those people."

Believe me, I never set out to be an automotive finance manager. I was just looking for a good job with decent money so I could finish my education. But thanks to a few strange twists and turns, I went from selling vacuum cleaners door to door to being a used car salesman for two months to becoming an F&I manager for six years.

In that time, I made serious money while closing 6,000 new and used car sales and leases. I sat across the desk from hundreds of people as they nervously signed the contract on their first car, or upgraded to that shiny new truck or SUV they had wanted for years. I advised them on which loans to take and persuaded them to buy extended warranties, paint protection and undercoating. While doing this, I peered into the most intimate details of their finances and their lives: their salaries, savings and investments. Their mistakes were revealed to me, too: overdue bills, bounced checks, foreclosures and repossessions. In fact, I probably knew more about my customer 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. Of course, I did make a commission on the items I sold and the loans I wrote. And the dealership made a profit, too — what I considered a fair profit.

But I can't always say the same for the other people I worked with. There was this one guy called the "Shredder." A couple came in and wanted to use their trade-in as a down payment on a lease. They were told they were receiving an $8,000 credit for their trade-in. In actuality, they were only given $2,000. The next day, at the Saturday sales meeting, the general manager brought doughnuts, as he always did. On this day he brought a huge doughnut for the Shredder and treated him like a hero because he had made so much money for the dealership. But I remember thinking, "This isn't right — he just stole $6,000 from those people."

But the real point 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 — thousands of dollars are at stake. But with a little bit of knowledge and some preparation, the auto finance manager won't be able to lay a glove on you. How?

Before I get to that, I'd like to tell you a little bit about how I came to work in F&I. Then you'll have a better understanding of my world, and my advice will make a lot more sense.

The Worst Sales Job Ever

My father runs an accounting firm in Europe, and I could have worked for him and made an easy living there. But I wanted to be a self-made man, so I moved to the United States and completed an undergraduate degree at a small college in the Midwest. 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 began job hunting and landed a position as a vacuum cleaner salesman. I figured if I could succeed at a tough sales job like this, I could succeed at anything else I tried later in life.

I received a few days of training and then was given a demonstration model vacuum cleaner to lug from door to door. This was in the middle of winter, in the Midwest, with the temperature sometimes 20 below zero. I remember a few times that, when someone answered the door, my face was so frozen I couldn't even speak.

In my first week on the job, I was actually able to make five sales, so the company gave me my own vacuum cleaner, which they told me was a huge honor. I needed a better car to carry my samples around in, so I went to the local dealership. When I picked out a car and we reached an agreement on the price, I was told that I would be sent into the F&I office. I'd never heard of this before but I assumed this was someplace where I would sign papers.

While I was waiting, I overheard some of the car salesmen talking to each other. One guy said, "I made a grand on my last sale. That was sweet."

This was music to my ears. I mean, here I was dragging this vacuum cleaner from door to door, hoping to find buyers. But at the dealership, I realized the buyers came to you! I asked the sales manager if there were any openings at the dealership and he gave me a job in the used car side of the dealership — which was where the real money was. Most people don't realize it, but the profit is much higher in used cars than in new cars.

Ex-Con Car Salesman

In my new job, I became a member of a four-man sales team, and made a surprising discovery about them — they were all ex-convicts. One guy robbed a bank and got arrested a few weeks later. Surprisingly, he was a really nice guy. You almost felt you could trust him with your life, which you probably could at this point because he was so afraid of going back to prison.

Another guy on the team had robbed a convenience store with two other guys. After serving four years in state prison he was left with this lingering hatred for the sound of a guard's keys jingling as he walked through the cell block. He really jumped whenever he heard that sound. That was a real problem for a guy working in a car dealership.

The last guy in my team had been in prison for making pornographic movies. Oddly enough, he was the best salesman of the group. He could walk right up to anyone on the lot, strike up a conversation and make them trust him and feel completely relaxed.

It took me a few days to finish my training and then I started selling cars. Right away, I found that my vacuum cleaner selling was good preparation for this job because I'd learned the importance of 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.

F&I First Impressions

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 three finance offices we had in the back hallway of our dealership. The F&I guys looked like banker types to me since they always wore nice suits. A lot of them had the condescending attitude of a loan officer interviewing a person who is probably not going to qualify for the loan.

While I was annoyed with the arrogant attitude the F&I guys had, I was kind of fascinated by what they did. It was obvious 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 "back-end" profit (i.e., what was made in the F&I room) of $8,000! If the F&I guy got 15 percent of that, it was $1,200 — a lot of money for a half hour of signing papers. I began to think I might angle for a job in the F&I room since I was good with numbers and my sales skills were strong.

After only two months of selling cars I heard about a position in the F&I office of another dealership nearby. It was only an assistant position, with a minimum salary. But I decided it was just what I wanted. I was young, ambitious and wanted to make as much money as I could. I applied and got the job. My first thought was, now I'll find out what goes on in the F&I room — and how auto finance managers make so much money back there.