When You Shouldn't Sleep on a Car Deal

Here's a bit of advice: If it's near the end of the month and a salesperson offers you an out-of-this-world deal but warns that it "expires at the end of business today," don't write it off as a sales tactic and assume that the offer will be there for you the following day.

Shoppers can't be blamed for thinking that such talk is a ploy to build urgency. But sometimes what you're hearing is true: Incentives, dealer cash, and factory bonuses do run their course. And when they are gone, they really are gone.

A Civic for the Price of a Fit

I once worked at a Honda dealership as an internet salesperson. One Sunday evening near the end of the month, I was working with a couple who wanted a base trim level Honda Fit. They'd zeroed in on that car because they wanted something brand-new and inexpensive, and this was the least expensive model Honda offered. The wife and I had agreed on a sale price beforehand, so all that was left was for them to test-drive the car, pick out a color and fill out the deal's paperwork. The appointment was going to be a quick one.

Just as I was about to begin writing up the final documents, my boss called me over and asked if my customers would consider a Civic instead. Keep in mind that a Civic costs several thousand dollars more than a Fit.

I told the boss my customer's buying motivations, and said that we were just about to wrap up a deal on the Fit. He insisted I show them a Civic. If they liked the car, he said, he would "make it work." It's worth noting that when you have buyers ready to sign, showing them a completely different car is a big no-no, but this was my boss.

I asked my customers to test-drive a Civic and they fell in love with it. But they couldn't understand why I was showing them a car that was thousands of dollars more than they could afford. Frankly, neither could I.

While I was still demonstrating the finer points of the Civic, my boss walked over and made this offer: If they were ready to buy a car right now, he'd sell them the well-equipped Civic for the same price as the base model Fit. They could have it in any color in stock. Just pick one out.

My customers and I gaped at my boss. This isn't the type of switcheroo customers have long been warned about. They were thrilled and jumped all over the deal.

I'd like to say that we sold the car so far below market simply because we wanted to make the young couple happy and spread a little goodwill. But the real reason was a lot more pragmatic: We had a quota to meet. Because of a manufacturer-to-dealer incentive, we needed every single Civic deal possible, and this last deal would earn us a bonus from Honda. A big one.

Quotas Are King

Most shoppers understand that salespeople usually have monthly goals to hit, and some savvy shoppers leverage this information to get a better deal. Hence the shopping advice about visiting a dealership toward the end of the month, when salespeople are trying to hit their numbers.

What's often overlooked is the dealership's quotas. I can't count the number of times I've seen dealership quotas force management to make deals that simply wouldn't fly under regular conditions.

Take the following scenario: A big carmaker runs a program to sell off the inventory of a certain model. To nudge dealerships, the carmaker gives an extra "spiff," or incentive, to the dealer each time it sells a particular model. It may be set up like this, which is what the car industry calls a stair-step program:

Vehicles 1-25: $500 retroactive incentive payment per vehicle
Vehicles 26-40: $750 retroactive incentive payment per vehicle, with a maximum payout of $30,000
Vehicles 41-75: $1,000 retroactive incentive payment per vehicle, with a maximum payout of $75,000
Vehicle 76 and above: $1,500 retroactive incentive payment per vehicle, with a minimum payout of $114,000

If you're a sales manager who's stuck on deal No. 73, making those last three deals to hit the top tier can be the difference between getting a bonus check of somewhere around $75,000 and a bonus that's well north of $100,000 in dealer incentive money.

With numbers like that on the line, it's easy to imagine that a dealership would pull out all the stops to hit the top number, including selling cars with deep, deep discounts. In the car dealership, we'd call this "buying a deal."

In fact, when crunch time hits, some dealerships will go so far as to encourage employees to buy. (My wife and I both bought cars from my dealership one New Year's Eve). In some cases, the dealership will even sell cars to itself in order to hit goals.

These are last-ditch efforts, however. Before going gung-ho and marketing to employees, dealerships will search out customers, which is great news for you if you're in the right place at the right time and willing to do business on the spot.

Why You Shouldn't Go Home and Sleep on It

Conventional car shopping wisdom tells buyers that getting an offer, taking it home and sleeping on it is the way to go. And, usually, that advice pans out. But when incentives and bonuses are part of the picture, time isn't always on the buyer's side. These promotions (and the occasional crazy low offer) are nearly always tied to a deadline, and dealers make the most aggressive offers when that deadline is fast approaching. That means there may not be a whole lot of time to mull over the deal.

Clues to a Real Deal

It's hard to predict when these special incentives are available. Chances are a dealership's internal goal won't be widely advertised. But there are some signs to look for. And if the deal offered passes the reality check, take it and run.

• If you haven't already, take a look at the Edmunds True Market Value (TMV^®). If you're being offered a price well below TMV, you're on the road to a great deal.

• The calendar is a great indicator of sales madness: Is the month, quarter, season or year quickly coming to a close? Perhaps it is the last day of a holiday weekend. These are crunch times for your average dealership. Incentives, quotas and goals always have deadlines and the deadlines tend to align with the calendar.

• Look for advertised customer incentives. In addition to spelling out the deals that the carmaker is offering, they'll also list exactly when the deals expire. It's another clue to when a dealer may really want to slash prices.

• Is a car at the end of its design cycle? Is it going out of production altogether? The manufacturer may be offering a dealership something extra to get the outgoing model off the lot.

• When you're at the dealership, take a look around. Is the dealership especially busy? That may be a sign that a special sale is actually happening. Conversely, are you the sole customer in the dealership? That can be an opportunity, too. You may be the dealership's only chance to make the deal that will bring in the big bonus.

The easiest thing is to simply ask your salesperson why the dealership is willing to make an outrageously good deal. If the reason makes sense to you, and the deal is considerably better than your research says it should be, it may be time to stop shopping and start buying.

Ready or Not Is Up to You

I don't advocate making a car deal just because the person offering it to you says it's a good one. If you're not ready to sign on the dotted line, you should never allow yourself to feel pressured to do so.

But if you've done your research ahead of time and have a good feel for what the market price of your new car should be, you're also in good shape to know if the deal is truly magical — or just smoke and mirrors.