Monday, May 18, 2015

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: 
  • 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.  

  • 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. 
 
  • 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. 
  • 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”. 
 
  • 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. 
 
  • 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. 
 
  • 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.

1 comment:

  1. I have a different approach to buying a new vehicle. Before I contact a dealer I research pricing the vehicle. Essentially, I take invoice less all incentives, both to the customer and the dealer, less holdback. This amount becomes my starting number.

    I then check the many prices paid forums on the internet. If I find folks are paying less than my computed price, I conclude there must be some hidden dealer incentive. I adjust my price accordingly, but only downward.

    Once I have a price goal, I research dealerships attempting to weed out those which are reported to be questionable. I then contact several dealerships and ask for pricing. I only consider those dealerships which provide pricing. Any dealer who responds with a come on down, I ignore.

    I select one dealer and visit. When I visit, I immediately inform the sales person of my price. This does a couple of things. First, it eliminates much of the back and forth inherent in the traditional method of negotiation. Second, it puts me in more control of the process. We end up negotiating up from my number rather than down from the dealer's number.

    I do essentially the same for the financing as well as for the value of my trade.

    And as you have often commented, my price, both my goal and the amount I end up paying, is inclusive of any dealer fake fee, such as documentation.

    It is true, when buying a new vehicle the most important work is done prior to visiting a dealer. Also, all buyers should recognize their most effective negotiating tool is their feet. I do believe, a buyer cannot be certain he or she got the dealer's best price unless the dealer believes the buyer is walking out the door. I have found, in some cases, after I have walked out the dealer will soon contact me with a better price.

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