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Why Does My Car Dealer Want To Buy Back My Car?

Last week I got a letter from our local car dealer (Hyundai) offering to buy our 2012 Sante Fe and giving out big incentives to purchase a new 2016 Hyundai vehicle. I recall opening a similar letter last year. It went something like this:

We want to buy back your Sante Fe. 

 

As you may know we have a certified pre-owned program. There has been a North America wide shortage of good, clean vehicles, in particular the Sante Fe. We have selected you because of your vehicle’s year and service history (Ed. Note: the vehicle has never been serviced here). It turns out the Sante Fe is in high demand!

 

We can offer you finance rates as low as 0% and rebates as high as $5,000 PLUS you are eligible for an additional loyalty credit of up to $1,500, AND all 2016 new models will be sold at the dealer invoice price! 

 

The deadline is May 31, 2016. With all of these incentives, we are extremely confident that we can help move you into a new Hyundai while maintaining a payment at or below your current budget!

The letter includes an “exclusive PIN code” so I can go online and tell them about my vehicle as well as my desire for “what’s next”.

All of this sounds very exciting but our Sante Fe will be completely paid off in four months and I have no desire to trade it in for another car payment. New car smell may be sweet, but not as sweet as being car-payment free.

Why Does My Car Dealer Want To Buy Back My Car?

So why is our car dealer trying to get us to turn in our lightly used vehicle for a brand new model? Will they lowball my used car and turn it around for a big profit? Are they just trying to drum up new car sales?

I asked a couple of experts to weigh-in on this offer and why my car dealer is trying to buy back my car:

First up we have Natasha Nystrom from the Financial Consumer Agency of Canada (FCAC). She says that Canadians usually trade-in new cars after four or five years.

“This might be one reason why your car dealer is approaching you with such an offer,” said Nystrom.

The auto finance market in Canada has changed significantly in recent years, doubling in size since the financial crisis. What’s more is that the growth of auto loan debt has now outpaced all other forms of household credit, including mortgages.

For more information you can check out FCAC’s recent research report Auto Finance Market Trends.

Ms. Nystrom says that upon receiving such offers, or when looking for a new vehicle, the FCAC urges consumers to spend as much time shopping for their car financing as they do shopping for the car itself.

You can reduce the risks of auto-financing by:

  • buying a car that you can reasonably afford.
  • choosing the shortest term loan your budget will allow.
  • making a larger down payment.
  • planning ahead: If you expect that your car needs may change in the near future, carefully consider whether buying a new car is your best option.
  • avoiding frequent trade-ins.

I also sent the letter and a few questions to car expert Mark Whinton from CarQuestions.ca. Mark was a little more blunt in his response:

“This isn’t anywhere near the deal you think it is,” he said.

Mr. Whinton says to beware of the incentives being offered. Most likely zero percent financing and a $5,000 rebate can’t be had together; you get one if you finance and the other if you pay cash – no combining.

“The $5,000 rebate would never happen unless you bought the most expensive model 2016, which you’ll never find,” said Whinton.

He broke down the rest of the letter, arguing that dealer invoice pricing is a useless term that means little to customers.

“Dealers get incentives and rebates every quarter on what they sell so there is no way a salesperson will ever know what they make on a car – only the sales manager and dealer principal know for sure what the margins are – they are not $1,000 or $500 or whatever ridiculously small number the sales person states they make on each car.”

I also asked about financing a vehicle and whether it’s best to go through the dealer or through your bank to arrange a loan.

The FCAC’s new online material entitled “Financing a car” speaks to this.

Loan arranged through a dealer

One of the biggest advantages of a loan arranged through a dealer is the convenience, but a dealership can be a high-pressure environment.

Most dealers will make loan arrangements for you with a lender. You can apply for and receive a loan directly in the dealership. Dealers work with various lenders and the lender usually pays the dealer a commission for arranging the loan.

When you visit a dealership, dealers can arrange financing for you with:

  • the financing division of a manufacturer
  • financial institutions, such as banks and credit unions
  • independent finance companies, such as those that specialize in providing car financing

Loan or line of credit from a financial institution

An alternative to a loan arranged through a dealer is a loan or a line of credit obtained by you, directly from a bank, credit union or other financial institution.

If approved, you will be offered an interest rate quote or a conditional commitment. You can negotiate the interest rate and terms with your financial institution.

If you have a strong relationship with your financial institution (you have a bank account, mortgage, credit card that are in good standing), you may be able to negotiate a better rate from your own financial institution.

Final thoughts

A co-worker received a similar letter this week from her Mazda dealer. Curious, she called the dealership to discuss the letter and potentially trading in her 2013 MAZDA2 for a new model.

The car is paid off and my colleague had no intention of taking on another $20,000 loan. Still she ended up spending three hours at the dealership test driving new models and listening to sales pitch after sales pitch.

I’m not interested in becoming part of the statistic of Canadians who trade in their vehicle every 4-5 years. Instead I’d like to enjoy being car-payment free for several more years before we decide to replace our second vehicle (a 2007 Tucson).

What’s your take on my dealer’s offer to buy back my car? Do you toss out the offer, or take the bait?

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30 Comments

  1. david toyne on May 20, 2016 at 4:09 am

    I can’t say that I’d be looking to buy a new car period. Why not buy your friend’s used Mazda 3? I find the new car smell quite unappealing actually, especially when you learn that they are actually VOC’s! https://en.wikipedia.org/wiki/New_car_smell

    • Echo on May 22, 2016 at 9:30 am

      Hi David, definitely not in the market for a new car (or a used Mazda, for that matter). We’ll enjoy a few payment free years of driving before we decide to upgrade our ’07 Tucson. The Sante Fe is here to stay!

      • Julie P on October 2, 2019 at 8:29 am

        I think I’ll keep my car and continue to make payments into my saving account until I have to junk the car. By then I should have the cash saved for a new car cash.

  2. John Bennett on May 20, 2016 at 4:14 am

    They want you to buy a new car. Pure and simple.

    Ignore the flowery prose: All they’re saying is “Trade in your old car and buy a new one. There are factory and dealer incentives, too.” The rest is pure fluff to make you feel special. This is just another variation on “Get ’em in the dealership”.

    • Robb Engen on May 22, 2016 at 9:32 am

      Absolutely, John. I don’t wish to spend hours at the dealership listening to all the reasons why the ’16 is better than the ’12. All I’m focused on is being car payment free in a few months.

  3. Dave Guthmann on May 20, 2016 at 5:12 am

    Got the same letter regarding my 2014 Sorento, about 3 weeks ago. I laughed when they said they’d put me into a new vehicle with a payment the same or lower than what I’m paying now. It’s already paid off… hard to get a lower monthly payment than that. Looking forward to enjoying 2.5 years of warranty and 8 more years of no payment driving.

    • Richard on May 20, 2016 at 11:19 am

      It would have been fun to go in and say “you promised to match my current monthly payment and that’s $0, what do you have available?” 🙂

      Unfortunately I don’t think I’ll be able to do that any time soon since the last two cars I bought were far too cheap to make anyone think I can buy another one. I “financed” both of them by going to an ATM to pick up some cash.

      • JB on May 20, 2016 at 12:39 pm

        I actually did that once. They didn’t believe that I paid the car off in full so I had to show my discharge letter.

        Sadly, they couldn’t honour it, haha.

  4. rummy on May 20, 2016 at 5:47 am

    any such things….it goes straight to blue bin from my mail box. If I need a new car; I will start noticing these flyers to get educated and part of my research.

    • Echo on May 22, 2016 at 9:33 am

      Hi rummy, that’s a good rule of thumb for 99% of flyers and mail of this kind.

  5. Marko Koskenoja on May 20, 2016 at 6:02 am

    I drove a 2001 Subaru Forester for 14 years until I sold it last summer. I assumed a lease on a 2014 Subaru Crosstrek because it was a good deal and the lessee gave me $2000 and new winter tires and rims to take it off his hands. I will likely exercise the purchase option in 24 months.

  6. Frost on May 20, 2016 at 6:30 am

    New cars are fine and dandy but the cheapest car you’ll ever ‘own’ is the one that’s paid for. Also, a new car will depreciate the second you drive it off the lot! So much for all the incentives and savings!
    I also love it when they say “only a small payment”, well add up all those ‘only small payments’ (TV, Internet, phone, cell, couch etc…) and you’ll find one big reason why saving for retirement is out of the question.
    Someone once told me “you’re richest when you’re debt free”.

    • Echo on May 22, 2016 at 9:34 am

      Hi Frost, I agree. I’m not interested in taking on another car payment. I’m more excited about putting $10,000 into my TFSA next year (after a few years of foregoing contributions).

  7. Jeff on May 20, 2016 at 7:37 am

    I had a neighbour who worked in the finance department of a car dealership tell me years ago that the only way it was worthwhile to buy a brand new car was if you kept it for at least ten years.

    • Echo on May 22, 2016 at 9:37 am

      Hi Jeff, that’s the plan with our vehicles. Our 2007 is just about there and with only 100,000 KM on it we can drive it for at least another five years before any noticeable problems creep in. The four-year-old Sante Fe has all the bells and whistles of today’s cars (back-up camera, heated seats, etc.) so there won’t be any fear of missing out – not until self driving cars become the norm 🙂

  8. Barry on May 20, 2016 at 10:19 am

    I still get notices from the dealer that “We are interested in buying your 2004 Mazda 6….” Really? It’s in great shape with low km’s, but I doubt they would give me anything for it, and it would never make it to their lot. I would love a new car, but I drive so little and as this one was paid for many years ago, I consider it to be “free”, other than the insurance, gas, etc., so I wouldn’t be interested in this offer. I think it depends on your situation, your finances, and your need for a new vehicle every few years (or in some cases if you have a lemon – get rid of it now!). A vehicle that’s 3 – 4 years old is pretty much at the tipping point for trade in value, so aside from the over-exaggerated incentives offered, this would be the time to trade up or sell privately. Otherwise, just keep the vehicle you have, and enjoy the “free” time.

    • Echo on May 22, 2016 at 9:38 am

      Hi Barry, good to know I can look forward to receiving these letters every year for the next decade 🙂

  9. Tawcan on May 20, 2016 at 11:02 am

    Very interesting the tricks these car dealers use to make you buy a new car.

  10. Richard on May 20, 2016 at 11:17 am

    Just another sign of how far ahead you are! The dealers know that most people don’t keep their cars for long and they want to be top of mind (and make it seem like they have the best deal) when someone is shopping. It might take a few letters like this but I’ll bet it helps them attract a lot of buyers.

  11. Madrigal on May 20, 2016 at 11:42 am

    A local branch of Mazda (Gyro Mazda in Toronto) sent me a “personal” note telling me it had a buyer for my car, which it services. I was curious and checked up, and it turned out there was no specific interest in my car, there was no price being offered, and the offers of special deals were highly exaggerated and extremely vague.

    When the Sales Manager realised I was not going to go ahead, he relaxed and told me candidly that the only reason I might have to do the deal was to buy the much-vaunted “revolutionary” new technology which came with the latest Mazda. But when I asked how the Mazda 2014 was different from my Mazda 2008 he came clean and admitted it was identical in all major aspects. He then encouraged me to stick to the Mazda I had.

    It might be a coincidence, but this honest fellow is no longer the Sales Manager at the branch.

    • Echo on May 22, 2016 at 9:40 am

      Hi Madrigal, there’s something you don’t see every day: an honest and transparent car salesman. No surprise that he moved on.

      • madrigal on June 14, 2016 at 1:19 pm

        Or he was moved on…

  12. Gary @ Super Saving Tips on May 20, 2016 at 12:35 pm

    I’ve gotten the same kind of letter for my 2013 Honda for the last two years. I bought the 2013 with the intention of keeping it for as long as it will run, and while I can’t say I wasn’t tempted with the idea of a new car, I threw the letters in the trash. No car payment always beats a new car.

  13. Diane on May 20, 2016 at 7:20 pm

    Personally, I make deposits to a bank account which will pay for my next car. I have done this as long as I can remember and have always paid cash for my vehicles. Make the payments to yourself in advance and you will earn interest instead of paying interest.

  14. Jaymee on May 20, 2016 at 10:06 pm

    These financing stuff is so complicated and full of “fine prints”. It’s just not worth the trouble for me for a depreciating thing. I subscribe to my rule that if I don’t understand it, I won’t put my money into it. I’ve owned used cars and paid cash for them…simple! I am still paying down my student loans so there is no way I’m signing up for another debt.

    I have many young friends who have gone out and financed brand new vehicles right out of university. I really don’t think this is a smart idea.

  15. Paul G. on June 3, 2016 at 7:05 am

    I have gotten letters and calls about my 2010 Toyota for the last 2 or 3 years.

    I noticed they came in December, which I think is a slow month for new car sales. I assumed the idea was to drum up new business in a down month. I was tempted to go in and get an estimate on my cars value, but never took the time to actually do it, knowing I’d get multiple sales pitches and all kinds of annoying pressure. The dealership did that for various maintenance programs when I bought the car so I know they can make me waste plenty of time.

    I also got the sales pitch that they’d match my current payments, I was tempted to follow up since my current payment is 0$, but I assumed they wouldn’t actually honor any promises in that regard.

  16. Eric Cameron on June 14, 2016 at 6:58 am

    We bought a Honda Accord in 1998. We retired it in 2014. That’s 16 years.
    My grandfather bought a Pontiac in 1946. I was driving that car in 1968. That’s 22 years. It’s amazing how long a car can last if you do decent regular maintenance.

  17. J.D. on January 30, 2017 at 6:38 pm

    I have been getting several calls (voice mails because I don’t answer) a week lately from dealership wanting to buy back my 2013 Corolla. They “have a shortage of used cars on their lot”. I immediately thought they just want to sell me a new car. No thanks. I’m good. As they know, I will get many more miles out of this car after it’s paid off. Nice folks, but nope.

  18. Dan Beane on August 24, 2018 at 9:46 pm

    I live in Austin, TX in the USA. I bought a 5-year-old Infiniti G37x a month and a half ago . I got a voicemail today about a vague thing, thinking it was a problem with the car. When I called back, a guy in the service department wanted me to come in so he could buy my car back. I was originally excited, but this was probably the usual scam that you described. I may die before I get rid of this car…
    Dan

  19. Barbara Harris on October 17, 2019 at 3:20 pm

    Has anyone traded a 1 1/2 year owned used vehicle for an upgrade?

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