Negotiating With Car Dealers
15 November 2006There’s nothing the average consumer is more hapless about in my opinion that negotiating with a car dealer. The problem is that the car dealer is an expert at it, and you’re a novice. They do it dozens of times a day, and you come in once every few years at the most. I’ve seen some nasty tricks, and I know some people have to fall for them or they wouldn’t try it. So here’s a list of tips to help you get the upper hand:
1) Know how much your car costs based on different interest rates BEFORE you go into the dealer. This is important because car dealers like to take advantage of your inability to calculate interest in your head. They figure that they can negotiate around the monthly payment, which is what most people care about – and you won’t notice if you end up paying a lot more than you should. For example, going into one dealer I had figured out that if I paid 6% interest on the full MSRP of that car, I would pay around $250 a month. Want to guess the first offer the salesman opened with? Me paying $3000 down and $350 a month. That’s about a 25% interest rate, and I had good credit – but I couldn’t calculate that in my head. I just knew that it was way out of whack with the numbers I had figured out beforehand. You don’t have to be a math major to figure it out. Just go to this online calculator and plug in the numbers.
2) Don’t get your financing from the car dealer – go in with a preapproved loan. This is something most people don’t do, but it’s a good way to get rid of most of the tricks the dealer can use. The idea is to have your financing ready so that you’re only negotiating the PRICE of the car – instead of focusing on the monthly payment, where it’s easier to obscure what you’re really paying and easy to tack on financing charges of various kinds. Talk to your bank or go to a site like LendingTree. Also, you need to keep in mind that car salesmen don’t like this, and some have even resorted to scams to try to keep customers from doing it. One popular one is to claim that online lenders (or whatever local lender you have if it’s not well known) bounce checks and aren’t reliable enough for them to work with. If they start into this, tell them that if they can’t accept your loan, you won’t make a deal, and head for the door. They’ll turn around their attitude pretty quick – and if they don’t, you don’t want to deal with them anyway.
3) Figure out a maximum price you’re willing to pay. You’re going to have to negotiate on this at the minimum. But you shouldn’t go into a dealership blind. This isn’t a shopping trip. You’re not going there to decide what you want – you should already know, or at least have it narrowed down to a few choices. So before you go in, you should have a max price you’re willing to pay – and you should research it beforehand. I’ve looked at a lot of sites researching blog posts here, and looked through a lot for this post. But I’ve really never found a more useful site for what it was trying to do than this one: Car Buying Tips. Seriously, I was blown away by it. There is no way this post is going to be adequate to teach you everything beyond some basic tips. So before you actually buy your car, you need to go there and spend at least a few hours reading the site. And as far as getting your research together, it’s got several great resources as well. One is a tip they call making “The Folder,” which is a gathered set of reference materials you carry into the car dealership with you. Don’t be shy about it, because this is a great idea. Specifically, they have a list on there of various sites where you can get quotes of the MSRP and dealer invoice prices – so you know exactly what the dealer is paying the factory. They’ve also got a section where readers submit the deals they actually got on their car.
So in essence, what you do is go get the information from the various sites listed on “The Folder” page. They’ll give you both the listed MSRP (just to make sure it’s accurate when they tell you it at the dealer) and the invoice. You should make up an offer beforehand – which should be more than the cost to the dealer, but less than the MSRP. The dealer needs to make some profit, so if you go in and offer them $100 more than the cost, you’re not going to get a deal. 4-5% over the actual cost seems to be about standard for what they’ll accept (for the math impaired – 1.05 times the dealer’s cost). You can go lower if you want to push for a good deal, but be advised that you might have to go around to more car dealers to find one to take it.
How do you figure out the cost? Again, I’m going to refer to that site – which has a spreadsheet that will calculate it for you based on information available online. Figure this out, and tack on five percent. Go in, make a flat offer on a car, and make it clear that this is all you’re paying – no extra charges, no bells and whistles. If they want to make a deal at that price, fine. If not, you walk out – rinse and repeat.
4) WALK OUT. It’s amazing how many people aren’t willing to do this – either because of social conventions or because they don’t want to waste the time they’ve already spent. The single best negotiating tactic you have is to stand up and start leaving. Why? They’ll be desparate to keep you on the lot, and as long as you’re not being completely unreasonable, they’ll cave on something. And if they don’t? Who cares? What is the consequence to you of walking out? Absolutely nothing. The car dealer is not going to blacklist you. You can walk right back in to the same dealership tomorrow and they’ll start right back where you were. If they really can’t do your offer on the invoice and let you leave – then try another dealer in town with a slightly higher offer. If that doesn’t work, go back to the first one with an even higher one. Start low and move up, because it can save you several thousand dollars.
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One Response to “Negotiating With Car Dealers”
July 5th, 2007 at 5:50 pm
What do you do when a dealer actually pulls a bait and switch tactic or refuses to disclose certain information that they told you they would disclose?