The Four Square
The four square is a reference to a worksheet which covers four specific areas related to the sale of a vehicle: the price of the vehicle; typical loan payments; trade-in valuation, and; lease price. This worksheet helps the dealer's sales team maximize the total profit to the dealership while segregating the separate elements of the deal itself.
Four squares are designed to elicit a reaction and to help make the customer focus on a given area. This helps the sales team to evaluate the customer and effectively work the customer to obtain the highest profit possible. Your best defense is to put on your poker face and only focus on the actual price of the vehicle, refusing to be distracted by intangible concepts such as down payment, monthly payment and how much they are offering for your trade-in.
This is the only part of the four square that a car buyer should be interested in. Until you have agreed upon a selling price for your chosen vehicle then you have no basis for consideration regarding financing or the valuation of your trade-in.
Without exception, you should always deal on vehicle price. No other factor is as relevant to the bottom line as what you are agreeing to pay for the vehicle. Dealer's will attempt to cloud the issue of price with other factors, such as financing and trade-in value, but you should maintain separation between what the car is worth versus means of payment. The two are mutually exclusive concepts and should be dealt with separately.
Don't let the dealer confuse the issue of price...
Determining a fair market price for a given vehicle should be a simple matter, but manufacturers and dealers intentionally confuse the issue of price as a sales tactic. If the price were the same everywhere you would have little incentive to shop around and would simply go to the dealer with the best reputation regarding pricing. As long as you cannot get a straight answer to the simple question of what a vehicle is actually worth then there is ample opportunity for a great deal of profit on each sale.
The dealer can only jerk you around regarding a fair price as long as you will sit in the chair. The dealer's first offer will likely be DSRP, or the price most advantageous to the dealer, as they prefer to start at the highest price and work down. If you have done your homework then you already know what the fair market value of your chosen vehicle is and can make a calculated counter-offer that's much closer to a realistic valuation of the vehicle you wish to buy. It is in your best interest to start at the lowest valuation and work up by very small increments, $25 and $50 at the most.
Don't give away the farm...
In poker it is often recommended that a person develop a poker face. The theory is that if people cannot 'read' your situation then you will be harder to defeat. This theory holds true in sales as well. Many people, when shown a four square with an exceptionally high monthly payment have a noticeable reaction, usually complaining that the stated payment is far more than what they were planning on paying. This gives the salesperson an opportunity to ask you what you were planning on paying, or worse, what you can afford to pay per month. Guess what? If you give them this information then you will likely be hammered to pay just what you said you can afford.
You should never, ever negotiate a vehicle purchase based on monthly payments or how much you can put down on the vehicle. How much you can pay monthly and how much cash you can put down on a vehicle has absolutely no bearing on what the vehicle you want to buy is worth.
Negotiating a sale based on monthly payments is the second most profitable method dealers use to sell their inventory, with the most profitable method being leasing the same vehicle. The monthly payment is a function of financing an agreed price over a specific term, and has nothing to do with the sales negotiation.
Again, If you have done your homework then a monthly payment isn't a factor for dealer consideration because you have already arranged your financing with your own bank.
If you must finance at the dealer, then you should already know how much you will put down and what your monthly payments should be according to your credit rating. You should save this information for the finance office, it will do you no good to negotiate the cost of the car based on how it will finance.
Remember that you are financing the cost of the vehicle, financing does not determine the cost of the vehicle, it only determines the cost of borrowing the money used to purchase the vehicle.
Don't wear blinders...
Dealers buy and sell cars on a daily basis. Chances are you only buy and sell cars every few years, so it is important to understand that you are at an extreme disadvantage in this arena. You might like your old car, but the dealer is going to use every opportunity to de-value your trade-in and get you to sell it for far less than it is worth. They will point out every dent, ding or scratch on the body to every oil stain and cracked hose under the hood while claiming the interior needs a lot of work to make the car saleable.
Many times a dealer can trick an otherwise savvy buyer into believing they will pay more than fair market value for their trade-in. Don't fall for this tactic, it will cost you hundreds if not thousands of dollars.
If you have taken our advice then you are ready for the dealer's dog and pony show regarding your trade-in and will be well prepared to negotiate a fair price, or have simply sold your car to a private citizen and bypassed the dealer trade scenario altogether.
At deal time it is important to remember that the value of your trade-in has absolutely nothing to do with the cost of the car you wish to purchase.
Leasing is not very practical...
For the average car buyer there is no reason to even consider leasing a vehicle. If you are the type who typically fall for leasing at a dealer you should sit down with a pen and paper and see just how much that lease is actually costing you annually and contrast this against what purchasing the vehicle will cost.
Remember, at the end of the lease you don't own anything and the dealer has another crack at selling you a new lease.