Negotiating to Buy a New Car the Easy Way
Do you hate the thought of buying a new car because of the struggle you have to go through negotiating with the dealership? Relax. Negotiating to buy a new car is easy. Sure their sales people receive negotiation training, but you have the upper hand. Why? Because you can easily find out everything that they want to keep hidden. Information is the key to winning any negotiation. If you use the resources and approaches outlined below, you will negotiate the lowest possible price and drive away with a great new car.
First Find Out What the Dealer Paid for the Car
The true dealer cost is made up of two components - the Dealer Invoice less the Holdback.
- What the dealer actually paid for the vehicle is the Dealer Invoice. There are a number of good on-line sources for this including Kelly Blue Book (KBB.com) and Edmunds.com. (Be aware that the invoice may include an advertising charge for joint advertising campaigns. It is a real per car cost to the dealer, i.e. it is not overhead since it is paid only when a car is sold. It does show up on the invoice that the dealer gets from the manufacture, but it is not found on the online sites that give you dealer cost. It tends to run around $300-400.)
- The Holdback is the second component of true dealer cost. The holdback is a rebate that is paid directly to the dealer by the manufacturer for each car sold. Holdbacks for Chrysler, Ford and GM are 3% of the total price of the car. Holdbacks for foreign makes are 2%-3% depending on the manufacturer. Edmunds has a good Data Base of these.
Add In the Hidden Incentives to the Dealer and the Advertised Rebates
- Dealer Incentives: Surprise! In addition to the holdback there may be other hidden incentives to the dealer that you can only get if you know they are there. Otherwise the dealer keeps the incentive.
- Rebates: There may also be 'Cash Back' advertised rebates which they must give to you if you buy the car. (However, you need to know what the rebate is in advance since it will effect your opening offer to the dealer.)
These rebates change from month to month so you need current information. A good source for hidden incentives is CarDeals, published by the Center for the Study of Services. Call (800) 475-7283 and for a few dollars they will mail/fax you the most recent copy. Edmunds also has a good information set for both advertised and hidden rebates (which they call marketing support).
Determine Final Dealer Cost
Let's say that you have decided on a 'Roadster Supreme' with a sticker price, including all options and delivery, of $23,000. Your research comes up with the following information:
Dealer cost $20,000
Advertising charge 400
Holdback - 3% of MSRP -600
Hidden incentive -1,000
Actual dealer cost $18,800
Making the Offer to the Dealer
So what do you offer the dealer? My experience is that in general the dealer’s bottom line will be a 3% profit, which in this case would be $600 or a final sales price of $19,400. You could start at $18,800, and work your way up or you could start at $19,400 and just sit there.
Hardball Dealer Negotiating Tactics
- Authority Limits: This is the standard ploy where the salesperson says, 'I'll have to go ask the sales manager.' One way to handle this is to simply treat the salesperson as a messenger. Or you might play the broken record game, repeating your initial offer and telling the sales representative to 'go talk to the manager.'
- Keeping You Waiting: It's a common tactic to keep the buyer waiting, hoping that it will make him or her anxious and nervous. The counter to this is to be totally prepared, bring a book or some work to do, or make some phone calls on your cell phone. This shows that you are totally relaxed and unconcerned and will not be affected by their waiting game. One person I know brings an alarm and tells the salesperson that they have an hour to close this deal or she’s leaving.
- The Offer Check: Some dealerships demand that you give them a check to show your 'good faith.' This is ludicrous. If they tell you that they won't negotiate unless you give them a check, get up and head for the door. Their policy will change fast.
- Lowball/Bait and Switch: The idea is to quote you an unusually low price over the phone (or in an ad) to get you into the dealership and then, when you get to there, the salesperson says that the sales manager wouldn't accept the price or the salesperson 'discovers' that he left out a thousand dollar option package or that you don’t qualify for all the rebates in the ad. If you know your pricing, you should be able to spot the lowball right away. Deals that are too good to be true are always bait and switch.
Other Issues
- Add-ons You Should Not Buy: There are a number of items that some dealerships try to sell that you absolutely do not need. These can include undercoating, which can even damage the car; Scotchguarding, which you can do yourself for a few dollars; paint sealant and preparation charges (The factory pays the dealer for preparation).
- Extended Warranties: An extended warranty is insurance. We generally buy insurance for risks that we cannot tolerate. We accept a $500 collision insurance deductible because we can tolerate the risk of a $500 loss. Are auto repairs, once the car comes out of warranty, an expense you feel you cannot tolerate?
- Selling Your Used Car: You will almost always get a better price if you sell your used car yourself. The advantage of selling to the dealer is that you don't have the hassle, and in most states you only pay sales tax on the net amount that you actually pay to the dealership.
Unfortunately, every used car is different and every market is different. Both Edmunds and Kelly have good pricing information. You will discover variations in what they say your car is worth, but they will proved some guidance.
Think through your used car negotiation strategy before you go into the dealership. You might want to get an offer on the used car first, and then go on to the new car because, once they recognizes just how serious you are about getting a rock bottom price for the new car, they may become extremely stubborn on the used car price.
Putting It All Together
The bottom line is relax. Let all their tactics roll off you like water off a duck's back. It may take an hour or so for them to become convinced that to sell you a car they will have to drop to their bottom line, but eventually they will give in. You will get a great price and drive away with that wonderful new car. Enjoy!
Michael Schatzki © 2004. All rights reserved.
Michael Schatzki is a master negotiator who, for over 20 years, has provided sales negotiation training and coaching for thousands of people in the U.S. and globally. More than 75% of Mike's programs are for satisfied, repeat customers. The Negotiation Dynamics? system really works. Check out all of Mike's articles at: http://www.NegotiationDynamics.com. Mike can be reached at (888) 766-3530.
Written by: Michael Schatzki
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