Monday, July 02, 2012

Negotiating to Buy a Car


Buying a new or used car is one of the last bastions of the negotiated price. In some countries, negotiation is fairly commonplace in retail stores, but in America virtually all products are sold at a fixed price. Some of us are simply not comfortable negotiating and most of us are not very good at it.

As I have said in previous columns, the best way to buy a new or used car in on the Internet. You can do your research on which car is the best to suit your needs, get guidance on what kind of price you can expect to pay, and finally get quotes from several dealerships on that specific car. However, everybody is not “Internet savvy” and if you are not, you may find it necessary to walk into a car dealership and negotiate for the lowest price.

If you are not comfortable with negotiation, the best advice I can give you is to bring someone along with you who is. Car sales people and sales managers are trained experts in negotiation. This is how they make their living. Here are some tips for you if you decide that you want to negotiate the best price on a car.

(1)   If you have a trade-in, keep that separate from the negotiation. Negotiate the best price on the car you are buying and then negotiate the best price you can get for your trade-in. Don’t fall for the old “over allowance” on your trade-in ruse. This is where the dealer makes up the price of car you are buying higher so that he can make you think you are getting more for your trade-in.
(2)   Never buy a car on payments alone. Always negotiate the best price you can for the car you are buying and then calculate your best payment when you have negotiated for the best interest rate.
(3)   Be sure you understand how the dealer arrived at his retail price. Federal law dictates that a Monroney label be affixed to every vehicle with a manufacturer’s suggested retail price. Many dealers mark that up with another label, often referred to as a “Market Adjustment Addendum”. This markup can be several thousands of dollars.
(4)   Expect the first price you are given to be substantially higher than what you can buy the car for. Sales people and sales managers are trained to “start high because you can always come down”. Don’t be afraid to offer substantially less than the initial asking price. You should look at just like the car salesman does, but the reverse…”start low because you can always go higher”. If the salesman accepts your first offer, you probably offered too much. In fact, shrewd car sales people are trained to always ask for more money, even if the offer is good one. This is because they don’t want to “scare off the customer” by telegraphing to the customer that he “left some money on the table”.
(5)   If the sales person asks you for a deposit before he will begin negotiating, determine whether the deposit is refundable. Florida law requires a nonrefundable deposit be disclosed in writing on the receipt. If this is printed on your receipt, insist that this be waived in writing on your buyer’s order. If the dealer will not agree to this, be warned that he may be able to keep your deposit if you change your mind about buying the car.
(6)   Be prepared for a lot of “back and forth” when the salesman takes your offer back to the manager. When you get close to finding a mutually acceptable price, the manager himself will often come to talk to you. Don’t be intimidated stick to your guns even when they tell you this is “positively, absolutely the lowest price”. Even if you think you do have the lowest price, a great strategy is to get up, walk out of the showroom, and get into your car to drive away. This will often precipitate an even better price. When you try this, the worst case scenario is that you really do drive home, but you can always return and buy the car the next day for the last price they quoted you. They may tell you that you have to buy today, but nine times out of ten that is a bluff. The only exception is when there are factory rebates and incentive expiring.
(7)   The last day of the month really is a good time to buy a car. The salesman’s bonus money is maximized, the factory incentives are in effect, the managers are desperate to make their quotas, and it is the one time of the month when the buyer has the best edge in negotiation.

Caveat emptor “let the buyer beware” could have been written specifically for what you can expect when you walk into a car dealership to negotiate the best price. You are up against experts who negotiate for living. But, if you will follow my advice above, you should be able to hold your own and maybe even get a great deal. 

4 comments:

  1. on 7/7/12 your radio show had a question Do you drive your car with the fuel light on?
    in the 60's you would get rust in your filters today I have been told you would over heat the fuel pump what else shoul people beaware of.PS I do not run with the light lit but would like to know what other concequences there may be

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  2. The greatest challenge that buyers can face, especially inexperienced ones, in buying used cars is losing their head. It’s easy to tell yourself to not get intimidated by the salesman, but you might not remember this when you’re actually negotiating. It’s important for you to remember that you have the right to back out from a deal if you feel that you’re paying too much or that you won’t get the car that you want. You must also remember that you have the upper hand against the salesman because you have the money. Just like what Earl said, these salesmen are trained to ask for money, so don’t be afraid to play their game.

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  3. When I buy a car, I make sure that I pay with cash up front. If you have a specific amount of cash that you’re willing to spend, it’s easier to negotiate with dealers. It’s because you have a limitation, and the dealer will see that you’re ready to pay. There’s a greater chance that he’ll give the car to you at a lesser price.

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  4. Thanks for your post, Nita.

    I do agree that having a fixed amount that you will pay for the car you want to buy can save you from overspending.

    However, please remember that dealers make almost as much money financing cars as they make selling the car. As long as you have acceptable credit, the dealer would prefer that he finance your car through his bank because he will greatly enhance his profit. He may even reduce the price of the car you're buying to ensure that he can make the finance profit.

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