Are Car Dealers Using the 4-Square Method to Outfox You?

Ralph00:00:00

Are you feeling overwhelmed and outfoxed by car dealers? Do you worry that you might be getting a raw deal when you're buying a new car? Well today, we're going to expose a common tactic used by car dealerships called the "four square method." This method can be confusing and manipulative, leaving you feeling unsure if you got a good deal. But don't worry, I'm here to help you navigate through this and come out on top. So stay tuned to find out how to avoid being outfoxed by car dealers and make a wise decision when buying your next car.

Podcast Announcer00:00:31

In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side. Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair. Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph00:01:08

Welcome back to the Ask Ralph show, where we help you escape the cycle of financial shame with confidence. I'm Ralph, your Financial Evangelist, and I'm excited you've chosen to spend some valuable time with me today. Together, we're going to make a significant impact on your life with today's topic. So today, we're discussing a crucial topic and that affects many of us. And that's car buying. Specifically, we're going to look at that four square method. A lot of people don't know what this is, but it's a tactic used by car dealerships that can leave you feeling confused and leave you feeling outfoxed. And here's my promise for you, by the end of this episode, you're going to understand how to avoid being tricked and make better informed decisions and ensure you're getting a fair deal. So stay engaged and let's empower you to be a savvy car buyer. Now yesterday, we talked about is your credit card costing you more than you think? If you missed it, you can catch up at askralph.com because we discussed how hidden fees and high interest rates can silently be draining your finances. It's a must listen to, so make sure you check it out. Now, today's topic is inspired by a question from one of our listeners. And this is, his name was Michael, and this is what Michael wrote. He said, "Ralph, I am really struggling with buying a new car. Every time I go to the dealership, I feel like they're trying to pull a fast one on me. They use this method called four square method and it confuses the heck out of me. I've been trying to get a fair deal, but it seems like the dealer is always one step ahead. I'm worried I'm going to end up with a bad deal that will put me in financial trouble. Can you help me understand what this method is and how to avoid being tricked? I am desperate for some guidance." Well Michael, when I read your message, I said, you know what? I am pretty familiar with this. I sort of become an expert in car buying. So thank you first of all, for sharing your question, because listen, and I can hear the frustration, I can hear the desperation in your words and listen, buying a car should be an exciting experience, but if you're not careful, it can quickly turn into a nightmare when dealers use these tactics that seem designed to confuse and manipulate you. Here's a truth bomb. That's their goal. The four square method can be particularly tricky, but don't worry, we're going to break it down for you today. And I'm going to give you some tools that help you navigate the process confidently because listen, I've seen this method used many times in my 30 years of professional experience. And even when my wife and I were out buying cars and I've helped countless clients avoid being taken advantage of. So let's get into this together and find a solution that works for you. If you have a question you'd like answered, just like Michael's, I'm going to encourage you to head over to justaskralph.com and you could submit your question there because here's a truth. I love answering your questions. And Michael's question, I was so excited about recording today because I just think this is the craziest thing ever, but I really want to help you master your finances. Now, before we get into the details, Michael, let's take a moment to reflect and sort of ground ourselves in scripture. And we're going to do that with a Bible verse that directly relates to today's topic. And it comes to us from the book of Proverbs chapter 14, verse 15. And it says this. "The simple believe anything, but the prudent give thought to their steps." Now Michael, I'm not saying you're simple. By no means am I saying that. But I like what this verse says because it says the simple believe anything, but the prudent, those who are truly prudent, those who study, those who understand, the people who are listening or watching today, give thought to their steps and this verse reminds us to be wise. It reminds us to be discerning, especially when we're dealing with people who might not have our best interest at heart. And I'm not saying that the car dealers are bad people, but their interest is in selling cars. That is their focus. That is what they're there to do. And unfortunately, you may have heard this before. When you go into the showroom, Hey, you've already taken a first step towards that. So as we discuss this four square method today, let's keep this verse in mind and let's strive to be prudent in our decisions. Now, I am so grateful for the opportunity to share my knowledge with you, Michael, and share the experience with you today. Unfortunately, I bought way too many cars and I completely understand what you're going through. And I'm also thankful for God's guidance in my life, which has enabled me to help others like you, Michael, overcome these financial challenges. So as we discuss this four square method and trust me by the end of this, you're going to be an expert at this. I'm going to tell you how to avoid being outfoxed, I pray. I truly pray that this information today will empower you to make wise decisions and find financial peace. And I'm going to encourage you right now, if you know anybody that's in the auto buying market or getting ready to do that, please share this episode with them. It will be a true game changer for them. So let's start by first understanding what in the world is the four square method and how would car dealers use it. Well, in simple terms, the four square method is a sales technique, and basically it's pretty straightforward. They take out a piece of paper and a salesperson draws four squares on a piece of paper. Now, each square represents a different aspect of the car deal, typically in the one square, you have the price of the vehicle and the other, you have the trade in value if you, if you're doing a trade in, then you've got another square with a down payment. And finally, you got a four square with the monthly payment. And see, the whole goal of this as a little psychological exercise. The goal is to get you to focus on monthly payment. That's listen, I was talking to somebody earlier today. The first thing most car dealers are going to ask you is what kind of monthly payment are you looking for? And as soon as you tell them that, they've got you, because they're going to want you to focus on that monthly payment and they can manipulate the other numbers to their advantage. I'm going to tell you about a client I work with. Her name was Beverly. She came to me because she was feeling completely overwhelmed after a car buying experience. And she went to the dealership. She picked out this car she really liked, she had an emotional connection to it. And then they presented her with that white piece of paper with the four squares on it. And the dealer just kept focusing on that monthly payment. And Beverly was so confused by the numbers that she ended up agreeing to a deal that really wasn't in her best interest and that's what happens. They put all this information on this four square and it's this psychological head game to try to get you captive to what they want you to do. So in Beverly's case, she felt trapped. She felt frustrated. But I work with her. She had the foresaw to walk out of the dealership and she gave me a call. We had worked together on some other things. And she says, Ralph, can I just come in and tell you about what's going on here? And for her, we found a better way. We found a better solution. And I'm going to talk about that today, because once you understand what this four square method, and just, if you want to take away anything else today, the goal of the dealership is to focus on that payment amount, because that's what most people are sensitive to. They're sensitive to what they can afford with that monthly payment. That's why they ask you that question. You might be saying, well, why do they always ask me this? Because you can do so many derivative things based on what you tell them you want for that monthly payment. Okay. So let's talk about, there are ways to avoid being tricked. And I want to talk about some of those tips today. The first one, and Beverly was perfect at doing this. Number one thing, listen to me on this. Do your research. Before you even go to the dealership, go online and research the car you're interested in. Look at its fair market value. Look at the typical financing terms. You can use resources like Kelley Blue Book or AutoTrader, get an idea of what to expect because if you know the fair market value of the car, that's going to give you a strong negotiating position and then help you avoid being taken advantage of because what they're going to do is they're, you're not going to, if you come in there, you have no concept of what the cost of this car is. And when I say no concept, understand the options, understand the packages that are available. A lot of the main car manufacturers have special financing. I'm going to talk about that in a second, but know what those things are. Know what the value of the resale value is. Maybe you don't want to buy this car because it's got bad resale value. So that's the first thing. Start with your research. The second thing, and I've talked about this on this show before. Get pre approved for the loan. Get pre approved, call your credit union, call your bank, whoever you deal with, because this is going to give you an idea of what interest rates you actually qualify for and help you avoid being pressured into a higher rate at the dealership. Because here's a deal. If you got a pre approved loan, it also gives you leverage in those negotiations. As the dealer knows, you've got other financing options. See, they use that four square because they can manipulate the rest of the numbers to get you. But let me give you an example here. Let me cut to the chase. Let's say you go into the dealership, you picked out this nice Toyota that you like and you say to the dealer, listen, my cap on payment is $500 a month. Well, guess what? Now they know. If they come up and they look at your trade, let's just say you have a trade in, they look at all these things and they say, Oh wow, we can get this person into this car at $400 a month, but we can add this, we can add that. We can knock the value of the trade down because we can do this. Well, if you know what you're going into, you know what you can afford, you know what you've been pre approved for, you know what the interest rate is, the payment is irrelevant. So understand that and get that pre approval before you go into the dealership. Now this is the thing that they were trying to do to Beverly. Number three thing, focus on the total cost. Don't just focus on that monthly payment. That is so easy because that's what people are manipulated by. That's what people are sensitive to. When I used to run a credit union, I used to say to my loan officers, Hey, first thing I want you to do is find out what the payment is that the member is willing to pay. But the problem is when you do that, you're not focusing on the other parts of the deal. So calculate the total cost of the car. Understand the interest, understand the fees because a lot of things, another thing a lot of dealers do, they pack in all these extra fees. They sell you this warranty, they sell you extended this and tire protection and glass etching. You got to know what is the total cost of the car to make sure you're getting a fair deal. Because listen, in the end, here's a big financial takeaway. The total cost of the vehicle is what matters most because it includes all of the expenses you're going to incur over the life of that loan. The payment is fine. That's relevant, but it's really irrelevant when you think about it. The total cost is what matters. And when they use that four square, they completely take your eye off of the total cost because they've got things in four different quadrants. Number four thing. Here's the thing. If you're going to take that four step approach, then a simple way to battle that, a simple way to beat them at it is to negotiate each item separately. Don't let the salesperson bundle in the price, to trade in the financing together. No, no, no. Tell them to stop. I want to start first, what is the price of this vehicle? Don't even tell them you have a trade. That's another little trick I'll throw out here as I'm going through today. Don't even tell you have a trade until you're almost done. And I understand why people want to do trade. It's simpler. Most people don't have the money to go cut a check to their existing bank or their existing finance company, have the title sent to them. There's too much time. So trading makes it so much easier. And the dealers know this. So negotiate each piece separately, because then you'll know you're getting a good deal. Take a look at the total cost of the car. If you've done your research, you should have a pretty good idea within a maybe a thousand dollars, even $500 of what you should be paying for the car and be careful they're not adding a bunch of junk fees onto that because this approach, by negotiating each item separately, it's going to prevent the dealer from focusing on one aspect of the deal because they can do that obscure the rest. It's like we talked about with that $500 payment. If you say to them, Hey, I'm focused on the $500 payment. Well, then maybe what they're going to do is they're going to play games with the trading value or they're going to play games with the interest rate. A lot of times they'll play games with the term. Like you might be thinking I'm getting a four year or a five year term. Next thing you know, this is a great one. I saw this the other day. One of my clients went in to get a car loan and he wanted to do a 72 month loan. Well, he had told the dealer he was willing to pay such and such. Well, when he got into the finance office to sign the paperwork, that loan was 84 months. Well, because the dealer knew he was price sensitive to that monthly payment. But when I, when he looked at it, when he asked the finance guy, well, what's the interest cost? Well, the interest cost was two points higher because of the longer term. There's more risk to the lender. Another thing I'm going to encourage you to do is separate that trade in. If you've got a car to trade in, handle that transaction completely separately from the new car purchase. One of the things that I would encourage you to do is maybe go to other dealers and say to them, Hey, I want to sell my car for cash. Now, a lot of people are hesitant to do that because they don't understand the impact of that. But if dealers can do this, this is really a great thing to do because then you're separating it out. Because listen, if you come into the car dealership and you've got a trade, let me tell you right now, the finance guy, the sales manager, they all got thumbs up in the air because now they got you because they can manipulate the heck out of that deal. By separating your trade, you're going to prevent the dealer from using your trade in value to obscure the actual cost of the new car, because here's a deal, right? They could say, well, yeah, this car's, your car's not worth so much, you know, so they're not going to give you much of a deal on this new car, because they're just lying to you. They're getting more for your trade than they're allowing, but they're telling you it's not worth it because maybe you're saying to them, Oh, you know, I've had some problems with this car. The check engine lights come on. Don't tell them that in the first place. But if you are really wanting to get the best deal, separate that trade because then you're going to ensure you're getting a fair value on your old car from somewhere else. Another thing I'm going to recommend you do is focus on the Out-the-Door. That's the OTD price. You might be saying, Ralph, what does that mean? Well, the OTD price includes all the costs associated with the purchase. The taxes, the fees, the add ons. You know I did a show about this where they kind of taking advantage of my mother. I'm encouraging you to check that one out, but you got to pay attention to the details because you might say, Hey, my cap, this is what my mother had done. She had said to the car salesperson, Hey, my cap is $300. Well, then we get into the finance office and it's $400 because they added on the taxes. They added on the fees, extended warranties and all those types of things. So focus on negotiating the final price at the beginning to avoid any of these surprises because you don't want these surprises because the out the door price is really the true cost of the car. Like we talked about a little while ago, that is what you really need to be thinking about. And when you're negotiating it, that's going to ensure you've got a clear understanding of all the expenses involved. They're not going to add on those junk fees at the end. Number seven, and this is the one that Beverly learned very well. You got to be willing to walk away. One of the things I encourage people, and it's going to sound kind of like it's kind of underhanded and funny, but go shop at car dealers with the intention of not buying a car. To just get yourself practicing the exercise. Go to multiple car dealers and sit down with the understanding that you're not going to buy anything. Because if you're not, and then if you do decide you want to do something, if you're not comfortable with the deal, don't be afraid to walk away. I've done that many times. There are plenty of dealerships out there. Now the salespeople are going to want to keep you there. They want to keep you focused. They're going to ask you, do you want something to eat? Do you want something to drink? Hey, we can do this today. You're next in line because here's the deal. They know this. If you have some separation, you've got some time to walk away from it. You might decide not to do it because here's the truth. Negotiation, this is one of the key strategies in negotiation. Walking away can sometimes be the best negotiation tactic because it shows the dealer that you're serious about getting a fair deal and not just any deal. Make them sweat. Look, it's not going to, Hey, what they're going to say to you is this, and I've heard it myself. Oh, you know, this car is hot. We may not have this car tomorrow. You know what? You better buy this now. You better do this deal today. We don't want you to have to come back tomorrow. This car could be gone. Chances are, it's probably still going to be there tomorrow. And then the dealer sales person going to start calling you and say, Hey Beverly, why don't you come back? I found some extra money in your trade. I found some this, I found some that. It's amazing how those things happen once you're willing to walk away and actually leave the dealership. Number, the next thing I'm going to talk about is ask for a detailed breakdown. A lot of times they won't do this because they don't do this on that four square method. They're just going to give you that trade in value. They're going to give you that price of the new car. They're going to give you that payment that you're looking for, the interest rate, but insist on a breakdown of all the costs, read it line by line. It aggravates dealers when I do this, but make sure you're looking at the price of the car. Make sure you're looking at the taxes, the fees, and all those add ons because it's going to help you understand exactly what you're paying for and prevent the dealer from sneaking in extra charges. And listen, they'll do that. Listen, I'm not bashing the dealers, but they're there to make money. And if you're not paying attention to the details, guess what? They're going to add additional charges to the deal. And you're not going to be having that great out the door price. Another thing I highly recommend is bring someone with you. Bring up trusted friend, bring a family member with you that can kind of pull you away from that emotional deal. Because listen, I've been there. You see this beautiful car, man, I got to have this vehicle. This is exactly what I want you, you rode in a jalopy and you're like, man, I really need this car. I've never bought a new car before and you know, you're so excited and see the dealer knows this. They want to keep you there. They want to make you go through the whole transaction. But if you bring somebody with you, it can be a second set of eyes, a second set of person to listen, might help you catch any red flags or manipulative tactics because having someone with you can also give you the confidence to stand firm in negotiations. You might have a plan ahead of time that says, Hey, you're your friend that you take with you. You could say to him, Hey, our code word is whatever, you know, let's go, I mean, I got to go to the bathroom. I've got to eat lunch. I've got to go pick up my kids at school. It gives you that confidence and that second set of eyes to really think it through. And number 10 on my list is take your time. Listen, the dealers don't want you to take your time, but you don't have to rush into a decision. If this particular car falls through, then so be it. There are others out there. Now I know during COVID that became a bit of an issue where there wasn't as much inventory, but we are past that. So don't rush into a decision. Take your time. Review the offer. Have them print it out and take it with you. Go eat lunch, go have dinner, tell them you're going to come back in a day or two, but make sure you understand all the terms and conditions. If you're feeling pressured or if you're feeling rushed, ask for more time to think about it. Remember for most people, this is a significant financial decision, probably the most expensive thing you're going to buy besides a house. And you have the right to take the time to make an informed decision and make an informed choice. So please, if you're listening to me, take these 10 things and put them into practice. Now let me get back to Beverly's story for a little bit more detail. Now, Beverly was a single mother. She was looking to buy a reliable car for her family. She had done some research. And she knew the make and the model she wanted. She already kind of understood what it was going to cost, but she was really nervous about negotiating with the dealer because she felt like, you know, like a, what they call that a Fox in a henhouse. So when she arrived at the dealership, the salesperson immediately started using that four square method. They sized her up. He drew the four squares on the piece of paper. He filled in with the numbers, focused on that monthly payment. He even wrote it in the center. And Beverly, she shared with me afterwards, she said, Ralph, I felt overwhelmed by these numbers. She wasn't a numbers person and she struggled to keep up with the salesperson's rapid fire explanations. Hey, this is what they do. They train every day to this. So as that negotiation continued, the salesperson kept manipulating the numbers in the squares. Well, we can change this and we can change this and it made it seem like, and this is what the dealers also do. I should have mentioned this a little earlier. They'll play games with these squares, they'll make it look like you're getting a good deal. Oh, let me cross this off. Let me go talk to the sales manager. I can get them. Oh, I'll get them to come down on this and they're not doing anything. They already knew this ahead of the time, but in Beverly's case, and this is what she said to me when she called me, she said, Ralph, I just feel like something's not quite right. She had been feeling that pressure. She was confused and she was worried about making the wrong decisions. But one of the things that saved Beverly, she had that presence of mind, and I hadn't even been doing my podcast at the time, so I can't say she listened to this, but you have no excuse. If you're listening to this, re listen to this, print out the show notes, whatever it takes, but have that presence of mind like Beverly did, and she just simply asked a car, the sales guy, she goes, Here's what I want to do. I want to break down of this whole deal. And then the, you know, of course the sales are what I need that we've, we got this four square thing right here. You said you're comfortable with this payment. I, you know, I'm giving you what you owe on your trade. And you said, you know, you researched the car. This is what it's worth. But she took the time to step away from that negotiation. And she consulted with me. She consulted with some other people. And together, you know, with the other people she'd already talked about, by the time she got to me, she'd already kind of knew what she was doing. She reviewed the offer and realized that the, and in this particular case, this is what was sinister about this one. When I helped her look at this, she realized the dealer had inflated the price of the car and lowered the trade in value because they were all focused on that monthly payment to make it seem more affordable. So when Beverly figured this out, she returned to the dealership and she was able to negotiate a better deal because here's a deal. The dealer, it's not a deal dealer is all run together there, but she was, she was able to negotiate a better deal because guess what? In the end, the dealer doesn't make any money if you don't buy the car. There's no incentive for them not to sell the car. So when she focused on the total cost of the car, when she separated that trade in and she insisted on that detail breakdown of the fees, she ended up getting a fair deal and she got a reliable car. She ended up getting the one she wanted and it met her family's needs. So now I want to share something with you from my heart. I know what it's like to feel weighed down. I know what it's feel like to be, you know, weighed down by financial struggles, that stress, that pressure, that car buying, this shame and that lonely feeling of thinking you're the only one dealing with it. But I can tell you something, you're not alone in this. Beverly wasn't alone in being in this car sale with this four square method. And guess what? You don't have to stay stuck. I do this show every single day. I'm here to remind you that there's hope and that there's a way forward, and that's why I would love for you to join me over aaskralphpodcast.com/newsletter. I want you to sign up for that and I'm going to send you a daily dose of encouragement with simple practical tips, just like we talked about today to help you make small steps towards financial freedom and reminders. And this is the most beautiful part of this. I want you to hear me now. I want you to remember that no matter where you're starting. Listen to me, God has a plan for your journey. And here's the best part. When you join our newsletter, you're not just signing up for a newsletter. It's not going to be something you're just going to get oh that sounds good, but you're stepping into a community of people just like you were facing the same thing, where people who are letting go of shame, they're finding hope and they're learning to live in God's freedom one day at a time. And I want you to be a part of that. So don't wait, do it right now. Head over to askralphpodcast.com/newsletter today and let's do this together. You are not alone and I'm here to walk this road with you. I can't wait to see you there. And don't forget to check out our daily blog at askralphpodcast.com/blog, where I go a little deeper. I actually get into some specific resources and some additional valuable insights that we couldn't cover in the show. Now, I want to take a few minutes before we wrap up to reflect on what we've discussed today with a few questions for you. I always like to end the show with some things that you can reflect on. So number one thing, what steps can you take to research a car's fair market value before going to the dealership? Are you going to take advantage of what we talked about? Are you going to look online? Are you going to go visit websites? Are you going to go see what cars are selling for? Ask yourself that simple reflection question. What steps can you take ahead of time to research a car's fair market value? And number two question, how can focusing on the total cost of the car help you make a more informed decision? Because when you do that and you understand that out the door cost, you're going to look at each individual component and you're going to understand just what you're getting. And number three, what actions will you take to ensure you're not pressured into a deal that's not in your best interest? Are you going to take a friend? Are you going to make a game of it? It's a funny thing, but you can make a game of it. Go to a car dealership when you have no intention of buying a car. Now people might say, Ralph, that's really sinister. No. It's okay. If you're not going to buy a car, that's fine. You get to see a car. You might, you might end up buying one in the long run. And here's the thing you got to understand. The four square method is a sales technique that can be confusing and manipulative. That's what it's intended to do. So avoid being tricked. Do your research, get that pre approval for a loan that we talked about and focus on the total cost of the car, negotiating each item separately, separate that trade in, be willing to walk away if the deal's not right and big ticket takeaway here is ask for a detailed breakdown of all the costs and fees. Bring someone with you and take your time. Please listen to me. Take your time. Take your time and make an informed decision. Now, tomorrow we're discussing, are these common banking habits draining your wallet? I'm gonna tell you about ways to protect your money and to not have your banking habits drain your wallet. So make sure you join me again tomorrow for another insightful and empowering episodes. So thank you for joining me today. Remember this. My passion is to help you achieve financial success. I want to see you live out your dreams and I want to see you grow in your faith. And I know together, working together, we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy out there and may God bless you abundantly.

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