Play Four Square at the Car Dealership

Play Four Square at the Car Dealership

Four square is a popular game not only at elementary schools but also at car dealerships. When the sales manager pulls out his four square, you now you’re about to get into trouble.


The Four Square

As Carlos pulls into the dealership at the end of the test drive, his sales consultant asks him, “So, what do you think, you like it?” Carlos nods. “Awesome! Then if we can make the numbers work, you’ll be ready to take this car home today?

This is known as the test close and if Carlos indicates in any way that the answer might be yes, he’s likely to meet some variation of what car dealers call a “four square.” This document derived its name from the layout. In the old days, there were indeed four sections. While the layout varies from dealership to dealership, the four variables are always the same:

  1. the selling price of the vehicle
  2. the down payment
  3. the trade-in allowance
  4. the monthly payments.

Well, that seems fairly innocuous. Those are simply the variables that go into buying or leasing a used car. Yes, but here’s the thing: dealers know you want to pay the lowest price for your new car and also get the highest price for your trade-in, if you have one. It’s a zero-sum game: every dollar you save, they lose, and vice versa.

Carlos told his salesperson he was looking to purchase a new Tacoma with an MSRP of $29,126 (out-the-door, i.e. incl. tax and title). He would be trading in a 2005 Ford Ranger with 125k miles.

However, Carlos did his homework: he spent hours online researching and concluded a good deal would be $27,400 (out-the-door) for the Tacoma and $5,500 for his Ranger. He plans to put another $4,000 down and keep his payments around $330 per month. After looking at his budget and using an online auto payment calculator, he had a solid plan.

Let’s focus on the payment

When his salesperson showed him the numbers, they were way off. Full MSRP for the Tacoma (i.e. not a single $ discount from the $29,126), only $3,000 for the trade-in, which lead to payments of $407 per month with the $4,000 down.

It was as if the sales person hadn’t heard a thing Carlos had told him in the beginning. The sales person explained to Carlos that Tacomas are scarce right now, and how his car wouldn’t fetch more than $3,000 at an auction. “But don’t worry” the salesperson assured him. I’m going to make these numbers better.

Let’s focus on what really matters. Your monthly payment, right? That’s the purpose of the four square – get the customer to stop negotiating the sales price and trade-in value but sell him on the monthly payment and make him feel like a winner while pulling the Benjamins out of his back pocket It’s smoke and mirrors. Financial legerdemain.

The following table compares Carlos’ research with the dealer’s offer:

Carlos’ research Dealer offer
Tacoma 27,400 29,126
Trade-in -5,500 -3,000
Down-payment -4,000 -4,000
Financing amount 17,900 22,126
Interest rate 4.0% 6.5%
Term 60 months 84 months
Monthly Payment $329   $329


Carlos gets sucked into the trap. The sales manager extends the term to 84 months, which leads to a monthly payment of $302. BUT, Carlos had made a mistake: Carlos had told the dealer that he expects to pay around $330 per month.

The sales manager uses Carlos’ goal to pay $330 per month against him and raises the APR from 4% to 6.5%, which leads to the aspired to $329 per month. Confused about what just happened but reassured by the sales manager, Carlos signs the purchase contract: the dealership makes $4,226 dollars in front end gross profit, $1,000 on the interest rate mark up and everyone laughs their way to the bank. Except Carlos.

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