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Do you hate the thought of buying a
new car because of the struggle you have to go through
negotiating with the dealership? This page provides you
with all of the resources that you will need to make the
process easy, comfortable (yes, comfortable) and
financially rewarding. If you use the resources and
approaches outlined below, you can turn buying that new
car into the pleasurable experience that it should be!
Decide on the Car You Want
- Read the April issue of
Consumer Reports. If you don't subscribe, your
library has it, often in a hard bound edition.
Pay special attention to the repair records and
the crash reports.
- Shop around, do some test drives and decide on the car you want.
- Don't buy the car.
Come back here and let's do the homework that is
needed to ensure that you have the information
you need to negotiate effectively.
Find Out What the Dealer Paid for the Car
The true dealer cost
is made up of two components - the Dealer
Invoice and the Holdback.
What the dealer actually paid
for the vehicle is the Dealer Invoice. There are
a number of good on-line source for information
on the Dealer Invoice price including Kelly,
Edmunds
and others. You will get the MSRP (Manufacturers
Suggested Retail Price - the "sticker"
price) and the Dealer Invoice for the car and for
each option or option package available. Click on
any of the links above to get the invoice
information you need, print it, then click back
to this page and go on to the next step.
- 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. Click on the link
below and copy down the holdback for the car you
want. Then click back and go on to the next step.
Click Here
for the Edmunds'
Data Base of Current Holdbacks
Add In
the Advertised Rebates and the Hidden Incentives to the
Dealer
- Dealer Incentives: Surprise! In addition to the holdback
there may be other hidden incentives to the dealer. For example, the
2008 Saab 9-5 Aero has a $2,500 hidden
factory-to-dealer incentive that you can only get
if you know it is there to ask for. Otherwise the
dealer keeps the incentive.
- Rebates:
There may also be "Cash Back" advertised rebates which are paid
to you when you buy the car. For example, the
2008 Buick LaCrosse has a $1,000 advertised consumer rebate
plus "GM Purchase Bonus Cash" (amounts vary by
region) 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 to get the most recent information. The
best source for the hidden incentives as well as many of
the advertised rebates is CarDeals,
which is published by the non-profit Center for the Study
of Services. Call (800) 475-7283 and for a few dollars they will
mail you the most recent copy - a small price to pay
considering that the information could save you a lot of
money. Edmunds
also has a good information set for both advertised and
hidden rebates (which they call marketing support). The
best approach, since you have so much money at stake, is
to look at both as part of your planning process.
Determine
Actual Dealer Cost
- Put Together the Cost Data
Let's say that you have decided on
a "Roadster Supreme" with a sticker
price, including all options, of $22,500 plus $500 for delivery, . Your research comes up with the
following information:
| Dealer invoice |
$20,000 |
| Holdback of 3% of MSRP |
-675 |
| Hidden dealer incentive |
-1,000 |
| Delivery |
500 |
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| Actual cost to the dealer |
$18,825 |
- The Advertising charge
Some dealers participate in joint
advertising campaigns with other dealers in their
local market. They pay for this advertising by
assessing themselves an amount per car sold. When
it is added on, 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) and you will need to add it to the
calculation above to get the final dealer cost.
Choose the Dealer
Since all dealers have the same
cost structure for the automobiles they sell, you
should choose your dealer based on the convenience of
their location and the quality of their service
department. This latter is particularly important
should you need warranty work. Most manufacturers
conduct customer satisfaction surveys and compile a
customer satisfaction index (CSI) for each
dealership. Call the service manager of the
dealership you're thinking of buying from and ask him
what his CSI score is and how it compares to other
dealerships in his area. If it's great, he'll tell
you. If you get the run-around, that's a clear
warning sign. Also ask if he has recently won any
factory service awards.
Be Aware of Common Dealer Negotiating Tactics
- Hardball but not Unethical
Authority Limits. This is the standard ploy where
the salesperson says, "I'll have to go ask the
sales manager." What he is in effect saying is
"I don't have the authority to make a deal with
you. I have to get permission from somebody
else." This tactic is often combined with a good
guy/bad guy tactic where the salesperson plays the
role of the good guy and the sales manager is the bad
guy refusing to accept the offer that the salesperson
has made.
There are several ways to handle
the authority limit tactics. One is to accept it and
simply treat the salesperson as a messenger. For
example, you might play the broken record game,
repeating your initial offer and telling the sales
representative that he'll have to do better. When he
says he can't, then you might tell him to "go
talk to his manager." When he finally comes to a
price that you can accept, tell him that you want the
sales manager to confirm that he will stand by it. A
second approach would be to demand to talk directly
to the sales manager, bypassing the sales
representative.
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 ask to borrow the salesperson's phone and make
some phone calls. This shows that you are totally
relaxed and unconcerned and will not be affected by
their waiting game. Also, you might want to start the
process only an hour before closing since that puts
pressure on them, not you. Another alternative is to
bring a timer or an alarm clock, set it to go off in
a hour, and tell the salesperson that they have an
hour to close this deal or you're leaving.
Change the Negotiator. This is a variant of
the authority limit tactic discussed above except
that in this case, the salesperson now goes off to
hide and the sales manager comes in to try to close
the deal, in the process rejecting some or all of the
concessions that the salesperson has made. This is a
hardball tactic designed to throw you off stride.
Ignore it. You were always negotiating with the sales
manager anyway -- it's just that he now steps out to
act in person. Nothing has really changed.
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.
Reneging
on an Offer. This is something of an
ethical gray area. The basic rule in negotiation is
that if you make an offer and the other party accepts
it without qualification, you are pretty much bound
to stick to that offer and that should end the
negotiation. If on the other hand you make an offer
and the other person makes a counter-offer, you have
the right to withdraw your original offer and you are
no longer bound by it. Expect that the salesperson
never has the authority to make a binding offer
— that only the sales manager can confirm a
binding offer. Thus the authority limit game is not
unethical because it is the dealership, and not the
salesperson, that has the authority to make that
final offer. It only becomes unethical when the sales
manager himself, or the salesperson stating that he
or she has now been given authority by the sales
manager, makes an offer and then tries to renege on
it. At that point it's a good time to head for the
door. Usually they will come back and confirm the
offer that they originally tried to renege on.
Lowball
Bait and Switch. This is clearly
unethical. The idea is to quote you an unusually low
price over the phone to get you into the dealership
and then move to a higher price. The way this is
sometimes justified is that when you get to the
dealership, either the salesperson says that the
sales manager wouldn't accept it, or alternatively,
the salesperson "discovers" that he left
out a thousand dollar option package and really it's
a thousand dollars more than he quoted. If you know
your pricing from the section above, you should be
able to spot the lowball when the salesperson offers
it. The response is to review the options one by one
to make sure they're all included. If that doesn't
flush out the lowball, then tell the salesperson that
you want the offer approved in advance by the sales
manager before you leave the house and that if the
sales manager won't do it you're not coming. That
will also flush out the lowball.
Other
Issues
Undercoating. Given
today's manufacturing techniques,
rust-through is a very rare problem.
Furthermore, most manufacturers have 5-7 year
warranties against rust and corrosion.
Undercoating is something you almost never
need and could in some cases even damage the
car.
Extended
Warranties. An extended warranty is
insurance. The question is, do you need to pay
for this kind of insurance? We generally buy
insurance for risks that we cannot tolerate. We
will buy collision insurance in case we have a
bad accident, but we will accept a $500
deductible because we can tolerate the risk of a
$500 expenditure. Are auto repairs, once the car
comes out of warranty, an expense you feel you
cannot tolerate? If you feel you absolutely must
have an extended warranty, make sure that it is a
factory-backed warranty and not a third-party
warranty. Unfortunately, there have been some
horror stories about third-party warranty
companies going bankrupt, leaving customers
holding the bag. Also, remember that the price of
the warranty is negotiable like anything else.
Dealer
Financing. There is no reason not
to finance your car with a dealership if their
credit terms are better than what you can arrange
at your bank or credit union. Remember, however,
that the dealership can make a fair amount of
money by handling your loan, and you want to make
absolutely sure that it is a better deal than
what you can get elsewhere.
Once you finally reach agreement
and sign the papers, they will ask you to give them a
deposit to hold the car. If you're buying it off the
lot, they will need time to prep the car and complete
the title work. It's not unreasonable for them to ask
for a deposit to hold the car since they're taking it
off the market. If you're ordering the car, they will
also want a deposit to order it. The key here is to
never, ever bring a check to the dealership. Offer to
pay the deposit with your credit card (if they say
they don't take credit cards, look surprised and
say," Your service department doesn't take credit
cards?") Often the deposit will magically be
reduced because they don't want to pay the credit
card company the commission on the large sum.
Furthermore, if something does go wrong, it is much
easier to get your money back through the credit card
company than to get your check back.
No. No matter what you do, you are
not going to get a better deal on a Saturn. There are
also some dealerships that advertise "No
Haggle" pricing, although there are fewer of
these dealerships than there were a number of years
ago. With your knowledge of the dealership pricing
structure, you can determine whether the prices
offered by these dealerships are good deals or not.
Replaceability has to do with
whether or not a car is in short supply. If people
are lining up four deep to buy a Jeep Cherokee and
there aren't enough to go around, don't expect the
dealer to give you much of a break, if any, on that
car. In fact, some dealers will have an additional
sticker on the window marked ADP (Additional Dealer
Profit), or ADM (Additional Dealer Markup), and if
you really want that car right now you may end up
having to pay for it. Sometimes if you order a car as
opposed to picking one up off the dealer's lot, it
may be possible to negotiate a better deal even if
the car is in short supply. Fortunately, this
situation is relatively rare - for most cars supply
exceeds demand.
I am not a great fan of leasing. It is much
easier to negotiate when buying outright. If you
doubt this, read the December, 1997 issue of Consumer
Reports (your library will have a copy if you don't
subscribe). It details all the complexities involved
in lease negotiations including the danger that
substantial charges may be imposed at the end of the
lease.
That said, if you do decide to lease, you simply
must have leasing software, otherwise you are totally at the mercy
of the car salesperson.
You're almost always going to get
a better price if you sell the used car yourself. The
advantage of selling your used car to the dealer is
that you don't have the hassle, and in most states
when you trade in a used car and purchase a new one,
you only pay sales tax on the amount that you
actually pay to the dealership. Thus if you get
$10,000 for your used car and your state's sales tax
is 6%, you save $600 by trading it in to the dealer.
Unfortunately, every used car is
different, every market is different, and all the
books and services that purport to tell you what your
car is worth can only give you a ballpark figure. Go
to your library and look at the NADA book. Go to your
bookstore's magazine section and you will find
several other books to buy that will all give you
different numbers. Kelly Blue Book and Edmunds also have
extensive
used car data bases. As you peruse all of these
sources you will discover a wide variation in what
they say your car is worth, but the bottom line is
that your car is worth what your can get someone to
pay you for it.
Before buying any used car, it is
a good idea to get information on it's history. A
good way to do this is to go to CARFAX
and purchase a vehicle history report. You will get
information about prior owners, accident history and
lots of other useful information.
If you decide to trade it in to
the dealership, you need to think through your used
car negotiation strategy before you go in. Some
sources suggest that the best thing to do is to
negotiate the price of your new car and then bring up
the used car. The problem with that is that once the
dealership recognizes just how serious you are about
getting a rock bottom price for the new car, they may
become extremely stubborn on the price that they will
pay you for the used car. An alternative would be to
try to get a firm price on the used car first, and
then go on to the new car.
Putting
It All Together
The bottom line is relax and let
all their tactics and machinations roll off you like
water rolls off a duck's back. It may take an hour or
so for them to become convinced that you really
intend to get a good price, so bring a book or some
work to do so that you won't be wasting time or
feeling anxious. And then drive away with that
wonderful new car. Enjoy!
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