There’s an entire second process involved in closing the deal in the Business Office
The dreaded ‘Business Office’ Vlad the Impaler knew something about administering torture in 15th century Romania. So did the tribunal officers of the Spanish Inquisition. Automobile dealers today have their own means to extract what they want from their clients: the Business Office. It’s that little room – or perhaps just another desk – car buyers are led into after they think they’ve concluded their transaction, only to learn there’s an entire second process involved in closing the deal. By Mark Toljagic ▲
The “Business Manager” The Business Manager has two key roles. As an administrator, he or she reviews the customer’s credit application and discusses various finance options, and also checks the licensing and other legal requirements of the province. The other task is to sell the buyer an array of products that are meant to “add value” to the ownership experience. ▲
Vital profit centre The truth is, with profit margins on new vehicles shrinking, dealers are looking for new sources of revenue to keep their doors open. The business office – or finance and insurance (F&I) office – has become a vital profit centre by padding the sales contract with extra-cost items that may or may not be useful to the buyer. Let’s take a look at what the business office has to offer. ▲
Electronic Rust Protection These dubious black boxes are sold at outrageous prices – sometimes more than $1,000 – with the promise of preventing rust from forming anywhere on your vehicle. The theory behind “cathodic” protection is actually true: a small electric current can impede the formation of rust on steel that carries the charge. It works on ocean-going ships, but that’s because the hull is a continuous steel unit and it’s always submerged in water. But today’s cars are composed of an array of advanced metals and plastics, including steels that don’t conduct electricity well due to heavy coatings, as well as insulators between components, so the circuit is broken. ▲
Electronic Rust Protection The other problem is installation: these boxes are sometimes laughably affixed with double-sided tape and the leads are connected only under the hood and not around the entire body. One company came up with “radio frequency pulse-waves” to get around the wiring issue. Bodyshops sometimes find these devices installed on vehicles that have come in for rust repairs. Independent studies have shown the boxes don’t do much (some rust themselves!). If the business manager tries to sell you one, just say no. ▲
Traditional rustproofing Corrosion resistance has come a long way since your neighbour’s Datsun 510 developed a rusty hole big enough to push a basketball through, back in the day. Today’s models are composed of sheet-metal finished with a zinc-galvanized coating on both sides before the protective paint goes on. Car manufacturers confidently provide a minimum five-year corrosion (anti-perforation) warranty as a result. Rust formation is largely not an issue in the first five years as long as the paint or galvanized coating is not compromised. ▲
Traditional rustproofing An oily or waxy application under and inside the car’s cavities can provide effective protection from rust beyond the five years, especially as paint chips and scratches accumulate. Aftermarket companies such as Crown and Rustcheck sell good products without the big dealer markup, but so do local shops that offer an annual oil spray. Mohamed Bouchama of CarHelpCanada.com suggests rustproofing is money well spent if you’re keeping your vehicle a while, or even if you’re selling it after a few years since it provides ongoing protection for the next buyer. ▲
Road Hazard Warranty Road hazard and wheel warranties offer coverage for your automobile’s tires and wheels in the event of damage. If you often drive on roads with potholes or debris (welcome to frost-heaved Canada), or have bad luck parking with curbs, this warranty may be worth the outlay. That’s because all but the base models these days are adorned with alloy wheels and low-profile tires that are expensive to replace. Lightweight aluminum wheels are susceptible to dents and outright failures, thanks in part to stiff-walled tires that offer little protection from road imperfections. ▲
Road Hazard Warranty If your new car comes with run-flat tires, which negate the need for a spare tire and tools in the trunk, the road hazard warranty comes highly recommended. Run-flat tires can be notoriously troublesome, and owners frequently report multiple replacements in the first few years of ownership at a cost of at least $500 per tire (tires for SUV models are even more expensive). It’s an unwelcome expense most motorists are unprepared for after years of driving without ever thinking about their tires. ▲
Pre-paid Service Plan Dealers love to sell their pre-paid maintenance plans to new-car buyers, touting the convenience of having the scheduled maintenance outlined in the vehicle owner’s manual covered for a specific amount of time (say, three years) or distance. Some manufacturers will offer these plans free as a sales incentive. Paying for maintenance in advance means that the owner’s costs are fixed, adding stability to household budgets. But these plans usually tie the customer to the selling dealership, which is great for the dealer, but not necessarily great for the consumer. ▲
Pre-paid Service Plan Remember that scheduled maintenance these days requires little more than oil changes, tire rotations and inspections during the first three years or more. Most pre-paid maintenance plans do not cover wear-and-tear items such as the brakes, so it’s important to compare the cost of the contract against the manufacturer’s service requirements and what those repairs would cost at other service centres. You may also be limiting yourself to factory service schedules, such as 16,000-km oil change intervals, when you may prefer more frequent servicing. As always, read the details before signing on. ▲
Paint Protection Paint protection is largely little more than a fancy wax finish intended to make your new vehicle look especially fetching the day you pick it up from the dealer. What they won’t tell you is that you will likely have to put on the so-called “rejuvenator” application every few months. You can save yourself money by buying a polymer sealant wax at your auto parts store and apply it yourself, although professional detailers swear by natural carnauba wax. ▲
Paint Protection The most effective paint protection is not a wax, but rather a plastic shield that can be fitted on the leading edge of the hood, where it can deflect flying stones and grit away from the hood and windshield. If a deflector looks a little too ungainly, 3M makes a tough but almost invisible urethane film that can applied to the edge of the hood to prevent chips from taking root. Best advice? Simply keep your car clean by washing it from top to bottom – especially bottom – regularly. Washing underneath dislodges mud and debris that can trap water and start the ghastly rusting process. ▲
Fabric Protection Interior fabric protection comes up often in pitches in the business office, especially when the buyer has children. Mention an ice cream cone up-ended on the back seat of a $50,000 sport utility and parents are ready to tick off the box. But wait. What typically sells for $300 or $400 at the dealership may be duplicated at home with a $10 spray can of fabric protection. DIY formulas can bead most common spills before becoming stains, making them easy to absorb with a paper towel. Application is a little stinky, so it’s best to do it when you can leave the vehicle windows open for a day or so. ▲
Fabric Protection Bear in mind that some manufacturers, such as Fiat Chrysler and Hyundai, provide a fabric treatment straight from the factory, so any added protection is actually redundant. And many manufacturers are offering synthetic leather these days – made popular by the German automakers – partly because it can be wiped clean and dry easily. Real leather is a boon to busy families, too. Better yet, ban all drinks and snacks from your new car. ▲
Extended Warranty An extended warranty can kick in as soon as the new-car factory warranty has expired for uninterrupted peace of mind. But it is one of the costliest add-ons in the F&I arsenal. Prices can vary widely, depending on the vehicle, coverage and brand. An extended warranty is unnecessary if you’re leasing, since the factory comprehensive and powertrain warranties should cover the lease period. A long-term auto loan, say, 72 or 84 months duration, may warrant extra coverage, but be mindful of the cost, which typically runs in the thousands. ▲
Extended Warranty Better yet, do your homework by reading the online vehicle reliability reports before selecting your model. Many Asian brands are generally good for at least six years of trouble-free driving and don’t require extended warranties unless you put a lot of kilometres on your vehicle. Domestic brands typically are good for about four years, though there are certain troublesome models that may need extended coverage right after the third year. Buyers of European models should always obtain an extended warranty if purchasing outright, since repairs and parts prices can be astronomical. Unsure? You can always buy an extended warranty long after you leave the dealership, so don’t succumb to the up-front pressure. ▲
Theft Deterrent Most new vehicles come with some form of electronic immobilizer as part of the keyless entry system. While effective, the business manager will be keen to sell you more “security.” Window etching is a classic measure that many dealers claim is mandatory, but it’s not true. There’s no law that states you have to get your vehicle’s windows and major body parts labeled with a unique number to prevent harvesting by a chop shop. These days many stolen vehicles are being shipped intact overseas, rendering the numbers irrelevant. If desired, you can do it yourself by purchasing a $25 kit online rather than pay the dealer $200 or more. ▲
Theft Deterrent The hottest theft deterrents are electronic tracking devices that provide the real-time location of the stolen vehicle using common GPS satellite tracking. These devices require an expensive third-party monitoring contract, though the monthly fee is coming down rapidly, at least in the U.S. These systems are ideal for high-end luxury vehicles, but not really necessary for most buyers. If you have to park on the street overnight, a simple steering-wheel locking device (like The Club) can be an excellent deterrent. Better yet, get a manual-transmission car. Most Canadians don’t know how to drive one. ▲
The Bottom Line A survey of U.S. dealer groups showed that customers paid an average of $1,359 for F&I products in 2015, according to the trade publication Automotive News. Most Canadian buyers probably spend $2,000 to $3,000 before they are released from the business office, says Mohamed Bouchama. F&I managers often pitch the cost of a “three-way” combo of rustproofing, paint and fabric protection as affordable because it adds “only $15 to $20 per month to the loan payment.” But as Bouchama points out, that extra $20 multiplied by the 84-month loan term amounts to $1,680 – which suddenly doesn’t sound so affordable. ▲
Feeling good about your deal Bouchama likes to remind consumers that everything on offer in the business office is up for negotiation, including the cost of every item. If a two-year extended warranty costs $2,495 there’s nothing stopping you from offering $1,800. Remember, the Business office is a fat profit centre operating with enormous markup, so there’s no reason you can’t play the game like a pro. The other strategy is to simply say no to everything the business manager suggests. Almost anything that sounds beneficial to your auto purchase can always be bought through aftermarket retailers, often at a more competitive price. In the end, you want to drive away feeling good about your deal. ▲
Keyword: How to survive the ‘Business Office’ when buying a new car