Just like a store that sells products and keeps them on the shelves with an inventory, car dealers are no different.  Basically, all of the cars you see on their lot is their inventory.  And just like other retailers they buy the cars from Honda, GM, Toyota or whomever and then sell them at a profit.   So, how can a dealer possibly make a profit on a car they just sold for “factory invoice” meaning the price the auto manufacturer charged the dealer for the car?  Well, here’s how.  Dealer incentives.  When General Motors notices one of their latest models is not selling very well, they give the dealers “incentives” (i.e., cash rebates to the dealer directly) to start unloading these vehicles.  GM may charge a dealer $19,000 for a new Chevy Malibu.  Let’s say in a slow economy that dealer is having a hard time selling those Malibus for much higher than $19,000.  What does GM do?  They may send the dealer $3,000 per Malibu sold just to jump start their numbers of that model.  Dealer paid $19,000, sold it for $0 profit but received $3k back from GM and the consumer thinks he got the car at “dealer invoice” price.  Everyone here is a winner, right?  Wrong.  GM, as usual, is the financial loser here.  By giving back that $3,000 to the dealer they may have actually lost money on that car.  So now you can see why General Motors has been in such a financial quagmire for so long.  

In addition to the car company incenting the dealer to sell those cars, the dealer and/or the car company often give cash back, 0% financing or other perks to the consumer directly.  Why is this?  It’s because they will always have a continual need to sell model-year cars.  Do you really think GM gives cash incentives to dealers to sell used cars?  Of course not!  The car companies are always under tremendous pressure to hit certain sales figures per year.  Why do you think the Ford Taurus and Honda Accord battled so long for the title of “best selling car in America”?  That whole thing was a sham as well because Ford included fleet sales to car rental companies in their sales figures and Honda doesn’t even sell many to rental companies.  

So the next time you or a friend think you just got a steal by getting a car at dealer invoice, think again.

The more transactions you put on your card per month (and especially the more dollars on the card per month) the more likely the store is to make extra profits when and if you don’t pay off the balance each month.  Now, hopefully most readers of this blog pay off the cards each month or, better yet, don’t use cards at all.   But if you are in the majority of consumers who do not pay their cards off each month, happy days for Kohl’s!  They also know the age-old Las Vegas secret that not seeing your actual green money leave your wallet drastically increases your odds of spending it.  Kohl’s isn’t stupid, folks.  I have not even read Kohl’s annual report to shareholders, but I guarantee the credit card division is among the most lucrative division of the whole company if not more profitable than the whole company itself.

So, the next time you consider opening a charge account just for the initial 10% off your first purchase remember….if you play with snakes, eventually you’ll get bitten.

So we get the first (and will be the last) bill from Macy’s and it comes in two separate envelopes. So I think this is odd. Then I noticed something terrible. This card not only allows purchases in Macy’s stores like all department store cards, but is also functions as a full-fledged Visa (or in some cases Mastercard). My wife could probably recite the exact choice words I elicited from the dining room when I discovered this. Apparently this is a joint effort between Macy’s and Citibank. Others have reacted the same way I did when discovering this fact:

From Joe’s Journal:

Well, this summer Macy’s announced their plan to “flip” 3.5 million dormant store charge accounts to new Citibank MasterCard accounts. Apparently, this is legal under the fine print of the original Hecht’s and Macy’s store charge card agreements, though the agreements refer to this activity as “information sharing” between the store and the bank, rather than something more obvious like “giving you a seemingly unrelated all-purpose credit card many years from now when you least expect it.”

From a finance blog at the Washington Post a reader submits his similar story:

Looking for savings, Marc naturally took advantage of such an offer from Macy’s. But a few weeks later, he was surprised when he received a store-branded Visa card–not a private-label card that could only be used at the store–with a $10,000 line of credit. Since he had more credit cards than he needed, including one from Visa, he called to cancel and get what he wanted in the first place–a more limited store card.

Macy’s said it makes it clear in the credit application that the store will first consider you for a Macy’s Visa card and that’s what you’ll get unless you don’t qualify for it or you opt out at the cash register when you sign up for the card. But the credit card application is so full of fine print that you may not spot that caveat even if it is in bold capitalized letters. And in the haste to sign up for the discount, you also may not realize that you have a choice of a Macy’s Visa card or a more limited store card.

Does this sound sleazy? Does it sound like Citibank does not care about you? Well, hello!! They don’t. Keep in mind that most big-box retailers are doing everything in their power to make it easier to spend more money. A credit card does just that. Why limit your purchases to just Macy’s? Why not give everyone another card to add to the pile of potential consumer debt. Sears did this so well in the 80s with the Discover card that they ended up spinning off the whole division into another company.

The bottom line: getting the “added convenience” of your Macy’s card being a credit card also is neither convenient, nor a wise move.

In another Sears incident, one blogger details her story at length about how she had extreme difficulty getting her money back from a Master Protection Agreement that failed to provide coverage for her digital camera. The long and the short of it is that she paid for part of the MPA with a gift card and part of it in cash. When she went to get it refunded (due to Sears not even servicing digital cameras after all!) the store manager required her refund be given in the form of a store credit.

A former Sears appliance salesman basically created a Master Agreement Manifesto detailing the dubious nature of these offerings. Among the highlights I found unbelievable:

• the company holds weekly meetings to discuss MA quotas and techniques to sell them
• the salesmen are told to not give up selling the MAs until the customer says “no” at least three times
• a mathematical diagram called the bathtub curve which display high failure rates for products either in the first days of use or many years later thus making a curve the shape of a bathtub. Sears uses this curve to maximize profits on the MA by making the warranty end right when failures become more likely (in many products after three years)
• for many people the MA ends up being a waste of money because they lose it or forget to use it

As many of my posts stress, remember the following tips when buying from a major retailer. First, using their in-store credit card significantly increases the chances of you getting taken to the cleaners on interest charge if you miss a payment. Second, the extended warranties are a rip-off that transport cash from your wallet to the retailer’s pocket and end up providing you little and the merchant a lot. Third, loss leaders will often get you into the store for a free or cheap deal, but often you are enticed to buy more once in the store. Remember these tips for maximum savings for you.

1. He’d have a feeling or “sixth sense” as to when an item would be moved to the clearance shelf.
2. He would not necessarily act right when it moved to clearance, for it may go lower in price.
3. Once the price was low enough he’d check eBay to see how much identical items were fetching.
4. Once he knew it was almost a “sure thing” he’d buy some of the items and sell them on eBay for a 100% to 200% profit (these were heavily discounted when he bought them)
5. If the items sold well on eBay he’d investigate to see if other area Home Depot stores had many of them in stock and buy those. For the most part, all Home Depot stores have the same items in clearance (assuming the stores are in the same climate).
6. He’d call me to get in on the action if the profits were really good. I remember once driving to three different stores to find those lucrative electric heaters to re-sell. I bought and sold two for 100% profit each.
7. If for some reason the item did not sell on eBay he would take advantage of Home Depot’s (and Lowe’s) little-known secret that you can pretty much return anything without a receipt even years later for a store credit. Or with a receipt within 30 days for a full refund.

The reason his system was completely legal was because all of the items were for sale to the general public at all times. There weren’t any before-store-opening secret sales or hidden paper lists of what would make it to the clearance shelf. My friend Rich was merely a keen observer of patterns, policies and profits that passed through that store day in and day out. I can’t thank him enough for sending a little of that knowledge (and profit) my way.

1. Called my bank and asked them for a lower rate on my car loan. I did not have to threaten them or be mean in any way. I merely told them I thought a lower rate was possible since rates had declined recently. It’s mentioned in detail on how I did it and how my brother and father did it as well right here (last paragraph on the page).
2. Called my cable company and said “I’m jumping ship and going to satellite dish. What can you do to keep my business?” Wham! $20/month off my bill for three months. That was pretty cool. $60 with 5 minutes of work. I’m still contemplating the switch to satellite.
3. My wife and I found a cordless phone at Target we liked the other day but noticed the last remaining one had an open box and was clearly a return. We have no problem buying a returned item as long as it’s in near-perfect condition. When we were about 10 feet from the checkout we lucked out and the manager of the store walked by. “Could you discount this since it’s an open box?” Wham! 20% off on the spot. Saved us twenty bucks. Luckily we did not cave in and send that money right back to the store for our five-year-old’s life desire for the moment.
4. For one summer season I paid someone to mow our lawn. Three of us were all using the same landscaper. Finally one of us had the brilliant idea to ask him for a discount since we were giving him a convenient set of customers all within 100 feet of each other. He discounted each of our bills 30% per month. All we had to do was ask.
5. I have a business checking account at a local bank (only because the Greatest Bank Ever does not offer business checking). Apparently I did not pay close attention to that business account recently and some checks bounced. Now, since my personal bank account has been at the Greatest Bank Ever for 12 years now I was pretty uneducated about current insufficient funds fees (or “bounced check fees” as they are called). After seeing multiple charges for $33 per bounced checks I about had a myocardial infarction. I then drove to speak with the branch manager. I calmly and politely explained to her that I had been banking there for over a year and was pleased with the employees and customer service. I then just asked “is there anything you can do about these $33 fees for insufficient funds?” She immediately replied “sure, we can get rid of those.” Wow, enough said. Perhaps the bank treats “business” customers on a different playing field than “consumer” accounts, but the end result made me pleased, needless to say.
6. Technically this one was from my brother, but the concepts are still the same. My brother had been planning to buy a new washer and dryer for his apartment and his roommate wanted to buy a new big TV and stereo system. They agreed to go to Best Buy together and see what kind of a deal they could get knowing they were going to be spending upwards of $2500. After they had tallied the total cost of all the items they politely just asked the salesman on the floor for a discount of $500 off the total price. Remarkably, he gave it to them.

As mentioned at the start of this article, you needn’t be a high-pressure, manipulative customer to get these kinds of deals. Use some common sense, a little research and then just ask.

Let me just rattle off the stores in my area who have employees brainwashed to ask you at checkout to put your purchase on their 22% interest , God-forsaken, egotistically-driven, logo-emblazoned credit card. Well, they don’t use all those adjectives but I need to make this interesting. They are Sears, J.C. Penney’s, Kohls, Dicks Sporting Goods, Macy’s, The Gap, Old Navy and Ann Taylor. I’m not sure how the scheme operates but perhaps the employee gets a small commission for each sale put on a charge card or certainly a bonus for each new charge card opened. Any way you slice it, the odds are high that you well get hosed by putting your purchase on their card. Why is this?

• If you were going to pay cash at the checkout, they just talked you out of paying off that debt immediately. Well, duh! Now you have another bill on another separate credit card to remember to pay next month. Again, the score is now Kohls 1, you 0.
• I’ve said it before and here it is again. On average, a typical consumer spends 12% to 18% more when using plastic (debit cards included). Exactly the same philosophy as poker chips in Las Vegas. If you don’t see your hard-earned green bills in front of you, you’re more likely to spend it.
• You also just added yourself to their mailing and possibly phone list. DoNotCall.gov will remove you from their telemarketer list, but unfortunately there is no IAmHemorrhagingMoneyAt22Percent.gov to extinguish their confiscatory interest rates.
• Having all of those store department credit cards will eventually affect your credit rating. When my wife and I applied for our first mortgage in 1997 the loan officer asked “Why have you opened and canceled 12 credit cards in the past year?” and we truthfully admitted to doing it for the initial 20% discount when you open a new account at many merchants.

So before you put that Kohl’s or any other purchase on their store-branded card, think twice at how disciplined you will be at paying it off on-time, interest-free.