Negotiating to Buy a Used Car
(Updated March 6, 2010)

Do you hate the thought of buying a used car because of the struggle you have to go through negotiating? This page provides you with all of the resources that you will need to make the process easy, comfortable (yes, comfortable) and financially rewarding.

It does take a little more time and effort to negotiate a really good price on a used car than it does on a new car, but the positive impact on your bottom line can be huge. This page will take you through the entire process so that you'll know exactly what to do every step of the way.  Here are the topics we will cover:

Finding Your Car
Negotiating with a Dealer
Negotiating when Buying from a Private Party
Financing  
Selling Your Car to a Private Party
Leasing
Improving Your Negotiating Skills - Feedback

Finding Your Car

Set Up a Vehicle History Report Account

Your first step should be to set up an account with one of the two companies that provide vehicle history reports. When you are purchasing a used car it is essential that you know something about that car's pedigree - was it a rental car, a taxi, a police vehicle etc., has it been in an accident, was it totaled, has it been damaged by floods or other natural disasters and are there any current recalls on the car? You want to make sure that the odometer reading is accurate. And you want to make sure that the title is good - was the car ever repossessed or stolen, does it have a branded title (e.g., junked, salvaged or rebuilt) and is there a lien on the vehicle?

For many years one company, CarFax, had a monopoly on providing this information.  A number of years ago Experian, one of the large credit bureaus, developed a competing service called AutoCheck that provides the same information. For both services you enter the Vehicle Identification Number (VIN) for the car you are looking at and they will generate a report providing all of the above information and more.

You will inevitably be running reports on many cars so it makes the most sense to purchase an unlimited report package. The AutoCheck package allows unlimited reports for 60 days. CarFax no longer allows unlimited reports. You can buy single reports or you can buy a 5 report package good for 60 days at the same price as the AutoCheck unlimited package.

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. The National Highway and Transportation Safety Administration website also has a comprehensive database of crash test results on models dating back to 1991.
• A word about rentals. The highest levels of depreciation occurs in the first two years after a car has been purchased. Asking prices for two year old cars are usually 30 to 60% off the original list price of the car, depending on the model.  Therefore, late model cars that are one or two years old can be a very good deal because they tend to have low mileage and are still under the manufacturer's warranty. Individuals seldom place this type of car on the market. They are more likely to be available in dealerships. Dealers get these late model cars from two primary sources. The first is cars that come off of corporate lease programs and the second is cars that were in rental company fleets. Cars from corporate fleets tend to be okay, but you need to be very careful with cars that were in rental fleets. Renters tend to beat them up. The large rental companies such as Hertz tend to take care of their cars and turn them over with low mileage. If the vehicle check record indicates that it was a rental but it has low mileage, it may be okay, especially if it has a year or so left on its original warranty. You should probably steer clear of rentals that have more than 20,000 miles on them.

Find the Car You Want

When it comes to negotiating for used cars, time is definitely money. The more time you put in, the more options you will have. And the more options you have, the stronger your negotiating position will be. One of the things that makes negotiating for a new car somewhat easier than negotiating for a used car is that there is endless competition in the new car market. If you don't like the deal at one dealership, you just drive down the road for the next one and they will have the exact same car. This gives the buyer a huge advantage. The more you can do to duplicate that competitive environment for your used car the better. Therefore, ideally you would like to have two, three and possibly even more very similar cars available at the same time so that you have a large number of competitive choices available to you. I will show you how to use those choices to your advantage in a moment, but first you have to find the cars.

Not that long ago, if you wanted to buy a car you either wandered from dealership to dealership, or you looked for ads in your local paper, or you did both.  While you can still do that, the Internet gives you a lot more options.    Here are some sites where you can find what you are looking for.

craigslist - Click on the state you want to search in and then the region.  Under "For Sale" click on "cars+trucks."  In the search bar at the top put in the car you are looking for.  To the right of that is a drop-down menu with a default of "car&trucks all."  This list allows you to filter out ads from individual owners or from dealers.  You can limit the search further by putting in a minimum and maximum dollar amount.  Most dealer ads will have the the VIN in the ads.  Individuals often do not, so make sure to contact them and get it so you can run a vehicle check report on the car.  Some ads will have the owner's phone so you can call and begin the negotiation over the phone (see below for what you will be looking to accomplish on this first call), and for some you have to e-mail them via the "reply to" e-mail address at the top.

Vehix.com, Cars.com, CarsDirect.com - Most, but not all, of the cars listed on these sites are sold by dealers. For these sites you choose the make and model of the car you want and enter your zip code.  You will get a list of the cars available through the site.  You can usually order the list by year, mileage, distance away or price by clicking the headings at the top of the list or by clicking a drop down menu. Click on the car you are interested in and then fill out the short contact form.  Someone will call you and you can begin the negotiation over the phone.  (See below for what you will be looking to accomplish on this first call.)

eBay Motors - eBay motors has become a big player in the automotive world. Each year somewhere in the neighborhood of 200,000 cars are sold on eBay. You can buy a car with eBay Motors in two ways.  The first is to treat it as just another site with classified ads.  Because of its popularity, it has become a Mecca for dealers and others who want to place ads but are not interested in running an auction. For some models the majority of the listings are classified ads. To respond to an ad, just choose the make and model, and enter your zip code. You can order the list by year, price or mileage by clicking the headings at the top of the list.  You can also refine your search with lots of options in the column on the left. You can click on any of the listings that are classified ads, including those that have the "Best Offer" option, and then fill out the contact form. (you cannot submit the best offer unless you are registered with eBay but I don't recommend submitting a best offer. You are better off negotiating, as we will describe below, on the phone and in person.)

Your other option with eBay Motors is to bid in an auction. If you already buy and sell on eBay, buying a car on eBay Motors will fit a pattern you already know. If you are new to eBay, there is an excellent book called The Pocket Idiot's Guide to eBay Motors which you absolutely must have because there is a learning curve getting started with eBay and this book will save you a lot of false steps.  Remember also that bidding on auctions does not totally eliminate the possibility of negotiation. With eBay Motors' "Second Chance" option, if you are a bidder but the bidding does not reach the reserve price at the end of the auction, the seller may send you  a second chance offer which is negotiable and which you would handle as you would for negotiating with any individual seller.

Negotiating with a Dealer

Get a Sense for the Car's Market Value

Your next step is to get a sense of the car's value.  Unlike for a new car where every dealer has exactly the same cost structure from the manufacturer, the used car market is much more fluid.  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. N.A.D.A. (National Automobile Dealers Association), Kelley Blue Book and Edmunds 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.  However, they will give you a sense of the vehicle's market value.

Start the Negotiation Process by Phone from Home

Shortly after you fill out the contact form for the vehicle that you are interested in, you will get a call from a salesperson at the dealership.  There are several things that you want to accomplish during that phone call.

1. Basic Information - Make sure, if you don't already have it, that you get the sales person's e-mail address and the dealership's website.
2. Pre-Negotiate a Warranty - Unless the car is still covered by the original manufacturer's warranty, it is essential that the dealership give you a warranty on the car. Ideally you would like a 90 day / 3,000 mile warranty, but you should never drive off with a car that does not at least have a 30 day / 1,000 mile warranty. It should be a wraparound warranty, in writing, that covers everything without a whole bunch of slippery loopholes. Make sure that they agree to do this over the phone as the price of your coming in to see the car. Make it clear that you have an ironclad "no warranty, no visit to the dealership" policy. (They inspect these cars when they take them in.  If they won't give you a warranty, it means they don't trust the car.  Neither should you.)  If they tell you that this type of short warranty will cost extra you can simply say, "If you feel that you have to charge for a short warranty for this car, then I don't even want to look at it because it means that you know that something is wrong with car." Or you could say, "We are not negotiating price here. However, I should tell you that I haven't talked to anyone so far who has refused to include it at no extra charge." (This would be a true statement if you haven't talked to anyone yet or if everyone you have talked to has included a warranty. If some have included the warranty and some haven't, just change your response to say that a number of the people you have talked to so far included a warranty and those are the only ones that you are considering.)
3. Make It Clear That You Are a Price Buyer - Establish yourself as a buyer who is in control of the situation and expects a good deal. For example you might say: "I'm pretty much of a price buyer and will need you to be very aggressive to get my business. Is that something that you can do, or should I not bother coming in?"  Of course you will always get a response like "Of course will give you a good deal." Or "Don't worry about that, we never lose a sale on price." What they say doesn't matter as much as the fact that you've clearly established who you are in their minds.

The Dealer's Bottom-Line

The dealer's bottom line (which we call the dealer's Least Acceptable Settlement or LAS) is made up of several factors. These include what they paid for the car, how they view the market, how badly they need to move inventory, and potentially other factors. They will have paid less for the car if they purchased it directly as a trade-in than if they bought it at auction. Their market calculation depends upon how popular this particular model is. If the model is very popular they will give less of a discount because they expect somebody else will come in shortly who is willing to pay more. If the model isn't popular the reverse is true. If they need to move inventory to raise cash, they will give a greater discount then they would when they are not under pressure.

You may be able to find out if the dealer purchased the car at auction from the vehicle history report or they simply may be willing to tell you. But even then, you won't know exactly what the dealer paid for the car and you won't know how they have calculated the other factors.

Figure Out Your Own Bottom Line (Least Acceptable Settlement)

Your next step is to figure out your own LAS (A quick note on terminology. The term Least Acceptable Settlement is used for both the buyer and seller. The LAS for the seller is the lowest price that they would sell at and the LAS for the buyer is the highest price that they would pay.). This is the absolute most you would pay for the car that you are looking at. Because used cars are usually a good deal, you may even find that you would be willing to pay the asking price if you had to (don't worry, you won't have to). Your LAS may be a lower number simply because you don't think something is worth the price that is being offered. Or you may have some financial constraints such as a fixed amount that has been budgeted for a new car. However you calculated it, this is the point that you were going to walk away. Do a quick check by role-playing this in your mind. Imagine you are at a dealership and they have not come down to your bottom-line. Imagine yourself waving goodbye and walking out and meaning it.

To Trade-In or Not to Trade-In

If you are going to sell your old car when you but the new one, the first thing that you have to decide is whether you will trade in your car to the dealer or sell it yourself to a private party.  The advantage of selling your old car to the dealer is that you don't have the uncertainty of when you will be able to sell the car, and in most states, when you trade in a 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 $3,000 for your old car and your state's sales tax is 6%, you save $180 by trading it in to the dealer. The disadvantage of selling your old car to the dealer is that you're always going to get a much better price if you sell it yourself to a private party, and selling the car to the dealer adds a complication to your negotiation with them.

You will need to follow a different negotiating sequence depending on whether you will or will not trade in your car to the dealer.  If you are not going to trade a car in to the dealer, follow the sequence immediately below.  If you are going to trade-in your car, skip down to the trade-in sequence.

At the Dealership Without a Trade-In

Your primary leverage is to create risk for the dealer. As long as they think that this will be a pretty easy sale if they throw in a couple of small discounts, you are not going to get much. It is only when they become convinced that 1) you are a serious buyer but 2) you really might not buy from them unless they move down to, or close to, their Least Acceptable Settlement that they are going to start putting serious discounts on the table

Possibility 1: No Options - Quick Purchase - You are only going to look at one car. You are going to the dealership and you are going to buy the car today.

In this situation, you are at somewhat of a disadvantage since you have given up some important negotiating tools. However, there may be some critical need to move quickly which is overriding. The process and concept is simple. You do everything you can to get them to reduce their price and when you are convinced that they won't go any lower you accept the deal (assuming that it is at or below your LAS.).

Your first step is to try to get them to bid against themselves. This tactic is called the "you'll have to do better game," and is used by buyers negotiating with sellers all over the world. Basically, you tell them that their price is too high and that they will have to come down. When they come down, you say it's still too high and that they have to go further. And you simply keep this up until they stop making concessions. Of course, dealers have this game played against them every day and they are used to it. You can almost always get them to make one reduction off their price and you can sometimes get them to make one additional concession. If you get them to do more than that you are doing really well.

The salesperson's defense against the 'you'll have to do better game" is to ask the buyer to make a counter-offer. Getting you to make a counter-offer is a significant milestone for the salesperson because now you have made a commitment to buy provided that they agree to the price that you're asking for. Even though they have no intention of agreeing to your price, it is important to them that you have made that commitment as a buyer.

Frequently they'll ask some version of the question:

• "What will it take to have you buy today?"

The word 'today" is of huge significance to the salesperson. Their experience is that when people leave the dealership they usually don't come back and the sale is lost. So your response could be:

• "You mean buy it right now, don't go home and think about it, stop shopping around for a better price?"

And of course they will say yes. If they demand that you make an offer but don't phrase it in the 'buy it today" language, you can manufacture the message yourself with a statement like:

• "Well, my buy it today, don't go home and think about it, stop looking around price is $______."

The message that you are sending is that you really could go home and think about it (which of course you can't) and that you do have options (which you don't).

Where should your offer be? A good rule to follow would be 75% to 80% of the price at which they initially listed the car, unless of course they already have come down to that level or near it in which case you should go even lower. This will be met by screams and hollers and an attempt to get you to bid against yourself and come up without their having made any additional concessions. You on the other hand want to push them to make additional concessions now that you have put an offer on the table.

When you become convinced that they are not going to make any more concessions just because you are asking them to, it is time to play your last card, which is to bluff walking out. This is where you have to be a really good actor since you are actually going to buy the car today. You want to start the process of leaving in the slowest and friendliest manner possible. Statements like:

• "I really I have to take some time to think about this."
• "I understand that you've gone as low as you think you can, and now I have to consider all of my options."

Gather all your papers slowly, keep the conversation going, head toward the door as you keep talking with them, and see if they'll still come down some more. When they stop making concessions this time (or if they don't make any more concessions at all) then throw one last offer on the table:

• "Okay I'll tell you what. If you can come down another $______, we'll have a deal.

Get what additional concessions you can, if any, and then close out the deal.

Possibility 2: No Options - Slow Purchase - You are only looking at one car. However, you do not feel that you have to buy the car today and are willing to stretch negotiations over several days.

In this scenario you do exactly as you would have done in Scenario 1, except that here you really can leave because you have the time to stretch out the negotiation. If, as you are leaving, they panic and come down a long way, you can close out the deal on the spot. However, if they don't, then you actually do leave and continue the negotiation from home later on the telephone. From there you get them down as low as you think you possibly can and then close out the deal.

Possibility 3: Multiple Options Available - You have two or more acceptable cars that you are looking at. You are willing to take the time needed to use the leverage that this gives you.

This third scenario is really different. Here you really do have several options and you are going to use that to your advantage to negotiate a great deal.  In this scenario you plan to visit the two, three or more dealerships who have cars that interest you. You go through the process outlined above but this time you actually do leave saying that you will "have to think about it" and that you will "get back to them." (The only exception would be if they panicked and offered you an incredible deal that you knew no one else would match.)

The dealers will recognize right away what you are doing. Remember they sell cars all day long and they have seen this before. Some will try to prevent you from leaving by saying "This price is only good for today." Your response would be "I hope that's not true, because if it is I would have to disqualify you and buy somewhere else."

When you get back home, you will have three offers on three essentially similar cars. Let's say that the offers are $6,500, $6,300, and $5,900. Call the salesperson with the highest price and tell them that you just want to be "fair" to them.  Let them know that you have been offered $5,900 for a similar car and you just wanted to give them an opportunity to improve their offer if they wanted to. Make clear to them that if they do give you a better offer, "in fairness" to everybody you will also let the other dealerships have an opportunity to improve their quotes. Do not under any circumstances tell them the name of the dealership that is offering the low price. You should consider that confidential and proprietary.

The dealer of course will know exactly what you're up to. They absolutely detest the type of auction you are creating. They will tell you that "the cars are not the same" or that "they are not getting into an auction" or they may get angry, try guilt peddling, or whatever. Stay calm and cool and just keep reiterating that this is simply about "fairness."  You could have simply bought at the low price of $5,900, but because they were nice to you and took time with you, you thought it was "only fair" that you give them an opportunity to provide a better price (they should come down at least $100 and preferably a minimum of $200 to still be considered to be in the game).  If they don't want to come below that price you certainly "understand" their position, but you will have no choice but to purchase the car at the lower price that has been offered to you.

Once you have reached a point where nobody is making any lower offers, go to the low-price dealership and close the deal. Make clear to everybody that if they offer you a deal on the phone but then renege when you arrive in person, they will be permanently disqualified and that you will, under no circumstances, purchase a car from them. 

Now you can skip down to the section on your negotiating tactics since you don't need the next section which is about how to negotiate if you do have a trade-in.

At the Dealership When You Have a Trade-In

Your primary leverage is to create risk for the dealer. As long as they think that this will be a pretty easy sale if they throw in a couple of small discounts, you are not going to get much. It is only when they become convinced that 1) you are a serious buyer but 2) you really might not buy from them unless they move down to, or close to, their Least Acceptable Settlement that they are going to start putting serious discounts on the table.

With a trade-in, you are conducting two simultaneous negotiations. This gives the dealership a potential advantage that you need to neutralize. The salesperson would love to get you into a discussion about what your old car is worth, what the new car is worth, and how you are being totally unreasonable. They have the advantage in this discussion because they know the used car market like the back of their hand. Your knowledge is limited. The way to neutralize it is to merge the two negotiations and focus on a single number and only negotiate that single number. The number that you want to negotiate is the net amount that you will be paying. If you pay $8,000 for the new car and get $3,000 for your trade-in, then the net amount you'll pay is $5,000.

When they use the "Fair and Logical" tactic and show you the Kelley Blue Book and other information to prove why your number is impossible, you responded with the "gently irrational" tactic, saying something like:

• "I'm sure that that's all true, but unfortunately the only thing I care about is the check that I have to write you. This is the number that I need and how you work it out between the car I am buying and my trade-in, I'll leave up to you."

Possibility 1: No Options - Quick Purchase - You are only going to look at one car. You are going to the dealership and you are going to buy the car today.

In this situation, you are at somewhat of a disadvantage since you have given up some important negotiating tools. However, there may be some critical need to move quickly which is overriding. The process and concept is simple. You do everything you can to get them to reduce their price and when you are convinced that they won't go any lower you accept the deal (assuming that it is at or below your LAS.).

Your first step is to try to get them to bid against themselves. This tactic is called the "you'll have to do better game," and is used by buyers negotiating with sellers all over the world. Basically, you tell them that their price is too high and that they will have to come down. When they come down, you say it's still too high and that they have to go further. And you simply keep this up until they stop making concessions. Of course, dealers have this game played against them every day and they are used to it. You can almost always get them to make one reduction off their price and you can sometimes get them to make one additional concession. If you get them to do more than that you are doing really well.

The salesperson's defense against the 'you'll have to do better game" is to ask the buyer to make a counter-offer. Getting you to make a counter-offer is a significant milestone for the salesperson because now you have made a commitment to buy provided that they agree to the price that you're asking for. Even though they have no intention of agreeing to your price, it is important to them that you have made that commitment as a buyer.

Frequently they'll ask some version of the question:

• "What will it take to have you buy today?"

The word 'today" is of huge significance to the salesperson. Their experience is that when people leave the dealership they usually don't come back and the sale is lost. So your response could be:

• "You mean buy it right now, don't go home and think about it, stop shopping around for a better price?"

And of course they will say yes. If they demand that you make an offer but don't phrase it in the 'buy it today" language, you can manufacture the message yourself with a statement like:

• "Well, my buy it today, don't go home and think about it, stop looking around price is $______."

The message that you are sending is that you really could go home and think about it (which of course you can't) and that you do have options (which you don't).

Where should your offer be? A good rule to follow would be 75% to 80% of the price at which they initially listed the car, unless of course they already have come down to that level or near it in which case you should go even lower. This will be met by screams and hollers and an attempt to get you to bid against yourself and come up without their having made any additional concessions. You on the other hand want to push them to make additional concessions now that you have put an offer on the table.

When you become convinced that they are not going to make any more concessions just because you are asking them to, it is time to play your last card, which is to bluff walking out. This is where you have to be a really good actor since you are actually going to buy the car today. You want to start the process of leaving in the slowest and friendliest manner possible. Statements like:

• "I really I have to take some time to think about this."
• "I understand that you've gone as low as you think you can, and now I have to consider all of my options."

Gather all your papers slowly, keep the conversation going, head toward the door as you keep talking with them, and see if they'll still come down some more. When they stop making concessions this time (or if they don't make any more concessions at all) then throw one last offer on the table:

• "Okay I'll tell you what. If you can come down another $______, we'll have a deal.

Get what additional concessions you can, if any, and then close out the deal.

Possibility 2: No Options - Slow Purchase - You are only looking at one car. However, you do not feel that you have to buy the car today and are willing to stretch negotiations over several days.

In this scenario you do exactly as you would have done in Scenario 1, except that here you really can leave because you have the time to stretch out the negotiation. If, as you are leaving, they panic and come down a long way, you can close out the deal on the spot. However, if they don't, then you actually do leave and continue the negotiation from home later on the telephone. From there you get them down as low as you think you possibly can and then close out the deal.

Possibility 3: Multiple Options Available - You have two or more acceptable cars that you are looking at. You are willing to take the time needed to use the leverage that this gives you.

This third scenario is really different. Here you really do have several options and you are going to use that to your advantage to negotiate a great deal.  In this scenario you plan to visit the two, three or more dealerships who have cars that interest you. You go through the process outlined above but this time you actually do leave saying that you will "have to think about it" and that you will "get back to them." (The only exception would be if they panicked and offered you an incredible deal that you knew no one else would match.)

The dealers will recognize right away what you are doing. Remember they sell cars all day long and they have seen this before. Some will try to prevent you from leaving by saying "This price is only good for today." Your response would be "I hope that's not true, because if it is I would have to disqualify you and buy somewhere else."

When you get back home, you will have three offers on three essentially similar cars. Let's say that the offers for the net amount you will pay for the new car less the trade-in are $4,500, $4,300, and $3,900. Call the salesperson with the highest price and tell them that you just want to be "fair" to them.  Let them know that you have been offered a net price of $3,900 for a similar car and you just wanted to give them an opportunity to improve their offer if they wanted to. Make clear to them that if they do give you a better offer, "in fairness" to everybody you will also let the other dealerships have an opportunity to improve their quotes. Do not under any circumstances tell them the name of the dealership that is offering the low price. You should consider that confidential and proprietary.

The dealer of course will know exactly what you're up to. They absolutely detest the type of auction you are creating. They will tell you that "the cars are not the same" or that "they are not getting into an auction" or they may get angry, try guilt peddling, or whatever. Stay calm and cool and just keep reiterating that this is simply about "fairness."  You could have simply bought at the low net price of $3,900, but because they were nice to you and took time with you, you thought it was "only fair" that you give them an opportunity to provide a better price (they should come down at least $100 and preferably more to still be considered to be in the game).  If they don't want to come below that price you certainly "understand" their position, but you will have no choice but to purchase the car at the lower price that has been offered to you.

Once you have reached a point where nobody is making any lower offers, go to the dealership with the lowest net price and close the deal. Make clear to everybody that if they offer you a deal on the phone but then renege when you arrive in person, they will be permanently disqualified and that you will, under no circumstances, purchase a car from them. 

Your Negotiating Tactics

1. Have a Laser Focus - You want to buy the car at the absolute lowest price possible.  Your job is to stay totally, 100% focused on that outcome. Their job is to throw you off and use every trick in the book to convince you that what you want to do is not possible.  But of course it is possible. They sell hundreds of cars every month. Every week, week in and week out, some of those cars are sold at their low profit levels. They are used to it. It is included in their business model. They just want to keep the number sold at low profit levels to the minimum possible.

2. Set Your Mind to Be Calm and Patient - Patience is critical in a negotiation. The impatient negotiator always loses. Never fall in love with the car (or if you have, hide it well) and never be in a hurry.  Take your time.  Never let them rush you.  Be cool.

3. Stay in Control - Salespeople are trained to "take control of the sale." There is no need to fight this, just go with their flow for the most part. Only you can control you. Be nice, be friendly, but be firm. Remember that you have absolute and total control over the only two things that matter, your pen (no one can make you sign a piece of paper) and your feet (you can walk out any time you want).

4. Don't Ever Let Their Games Make You Angry - Getting angry will just throw you off and be to their advantage.  Expect tricks and game playing.  It just goes with the territory.  If you like, take out a pad of paper, write Dealer Games at the top and keep yourself amused by writing down each thing they try.

5. Time - Just 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.

Hardball but not Unethical Dealer Negotiating Tactics

1. Guilt Trips - "We have to make a profit too you know." "I have a mortgage to pay just like you do." "You are really being very unfair to us." "Do you really think that anybody could stay in business at the level of profit you're offering us?" Guilt trips are all part of the psychological warfare. Do not engage or argue. Just refocus the discussion back to the price of the car. You can say things like, "I understand what you're saying but we really need to focus on the issue at hand here," or "I understand fully, but it is your car and you will make the final decision as to whether or not to sell it to me." 
    
2. Authority Limits. This is a 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 your offer. There are several ways to handle the authority limit tactic. 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.

3. 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. This shows that you are relaxed and unconcerned and will not be affected by their waiting game.

4. 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.

5. 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.

6. Using the Kelley Blue Book Against You - When you go to the Kelley site, it clearly explains that its "Suggested Retail Value" is "representative of dealers' asking prices" and is a starting point for negotiations.  In other words, it is not even an average of what people are paying but an average of what dealers are asking for the car. Similarly, Blue Book trade-in values are on the low end.  Car dealers purchase their own "Official" version of the Kelley Blue Book.  If the sales person pulls out the Blue Book to show you how unreasonable you are being, just keep on going with your "gently irrational" strategy.

• Unethical Dealer Negotiating Tactics

1. "Sorry, but the Financing Didn't Work." This is by far one of the nastiest games that some dealers play.  They offer you financing that they know you don't qualify for (see financing below for some ammunition) in order to suck you in with a lower monthly payment. You take the new car, leave them your trade-in without having finalized the financing, accepting their statement that "we just have a few details to take care of and we'll get the rest of the paperwork to you shortly."  A week later they call you and tell you that the financing didn't go through because of your credit score and that really your payment is going to be much higher. At this point you have put mileage on the new car and your used car has already been sent off to auction. As a result it gets really ugly. If you choose to finance through the dealer, NEVER, EVER sign a blank piece of paper, or take your new car and leave your trade-in until every single aspect of the financing is completely signed, sealed and delivered.

2. Reneging on an Offer. 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. .

3. Losing the Keys to Your Car.  You don't see this as much these days but some unscrupulous dealers still will try to keep you at the dealership by either losing the keys to your trade-in or accidentally blocking your car so that you can't get out. When they ask for the keys to your car to evaluate it, just give them a spare car key, and if they should pull this trick, leave.  If they do this, they are totally unscrupulous and you want nothing further to do with them. Go somewhere else.

• It's Not Over Until It's Over

1. "I Would Like You to Meet Our F&I Manager" - You have a deal, you got them down to their LAS and you've signed on the bottom line.  You think that the negotiation is now over. As far as the dealership is concerned, it is only half over. Welcome to the world of backend sales. Every dealership has a Finance and Insurance Manager. They have two jobs. The first is to handle and make a profit on your financing. The second is to sell you a whole bunch of stuff that you don't need, at the highest possible profit. If you are not financing through the dealership, there is no need to have any interaction with this person. If they really get obnoxious about this, just tell them that you are not going to have any discussions with this person under any circumstances. If that means that they don't want to sell you the car, fine, they can just tear up the paperwork and you will go somewhere else. They will back down. If you are financing through the dealership, then you will have to talk to the F&I Manager. In the Financing section below is the information that you need to deal with the financing part of the transaction.

2. What the F&I Manager Has for Sale

• 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 off 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.

• Gap Protection - This is insurance on top of insurance.  The idea is that if your car was totaled or stolen, you might owe more on it than the car was worth and therefore more than your insurance company will give you.  This insurance covers the gap between the two.  Dealers will show you calculations indicating a very high gap.  This is usually nonsense.  To find the real gap use the Bankrate.com loan payment calculator which will show you your monthly payment and, if you click on the "Show Amortization Table" button, will give you a complete monthly calendar of payments that will show you for any given month how much principle you have paid, how much interest you have paid, and how much remains outstanding on your loan.  Look at the remaining balance at the end of one, two and three years and then go to Kelley and look up the "Retail Value" (which is what most insurance companies will pay) for the car you have purchased.  This will give you a ballpark idea of the gap, if any.

• Tons of Other Junk You Don't Need - Here is a site that sells this stuff to dealers.  You can get an idea of what they sell and what they tell the dealer to do to sell it to you in order to "maximize backend gross profit."

Deposit to Hold the Car

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 a 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.

Negotiating when Buying from a Private Party

Start the Negotiation Process by Phone from Home

Gathering Information to Make a Guess as to the Location of Their LAS - Use the first phone call with them to gather information that will let you make a guess as to the least that they might be willing to sell their car for (their LAS). You want to know such things as why they are selling the car, are they in a hurry to sell, how long have they had the car, have they bought a new car already, etc.  Make it a very nice, low-key conversation with you just showing interest in them and their car. You also want to use this first conversation to get them to agree that if you should buy the car, it would be contingent on having your own mechanic or an inspection service do a complete check of the vehicle before your deal is finalized.  Finally, you want to make it clear, very gently, that the address on the title, the registration and their driver license must match.  If they don't, it could be stolen.  Excuses like "I am selling for a friend who had to go abroad and he signed all the paperwork before he left" mean nothing since everything could be expertly forged.

Get a Sense for the Car's Market Value

Your next step is to get a sense of the car's value.  Unlike for a new car where every dealer has exactly the same cost structure from the manufacturer, the used car market is much more fluid.  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. N.A.D.A. (National Automobile Dealers Association), Kelley Blue Book and Edmunds 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.  However, they will give you a sense of the vehicle's market value.

Conducting the Negotiation

Your strategic approach to the negotiation will be in large part determined by their listing price for the vehicle.

• If They Start Very High - A good approach here would be to use the "fair and logical" strategy during your first phone call. If they have listed the vehicle for $11,000 and the average of the private party sales reported by Kelley and Edmunds is $9,000, you might say something like "I know that you like your car and have taken good care of it, but unfortunately you have priced the car a good bit higher than the market. If you go to Kelley and Edmunds, and average the prices that they are reporting for private party sales, you'll see that that equals $9,000, assuming the car is in excellent condition. The private party sales price would be fair for both of us. Does that sound reasonable to you?" If they do not agree to that on the phone, it probably does not make a lot of sense to go and look at the car in person. Unlike a dealership, individuals can get emotionally attached to a vehicle and emotionally attached to a price, and you may not be able to move them. If they do agree, make sure you bring with you the definitions of excellent, good, fair, and poor and the private party prices that applied to each. It is unlikely that the car really is in excellent condition and if it is not, you can negotiate a lower price based on its actual condition.

• If They Start Somewhat Above the Private Party Average - Here you could use the tactic described above, but that would limit you to the private party average. Instead, you should probably go look at the vehicle and then make an offer that is 10 to 20% lower than their asking price. If you can negotiate them down below the private party average, go as low as you can and then close the deal. If they refuse to go down to the private party average, you can then switch to the "fair and logical" strategy.

• If Their Listing Price Is at the Private Party Average - Here you might go and look at the vehicle and start 10 to 20% lower than their asking price. If they do make concessions, then you get them to go as low as you can and close the deal. If they counter with their own "fair and logical" strategy, because they have done their own homework and have the private party average available, then you can either agree to that or use the "gently irrational" strategy by saying something like, "You know, you are absolutely right. And maybe you should wait for somebody to come by who can afford that much. However, this is what I can afford to pay you and I can do it right now if you will agree."

• If Their Listing Price Is Low - Here you need to be a little cautious. On the one hand you don't want to say "Boy, your price is really low," but on the other hand you do want to be concerned in case there is something really wrong with the car. Assuming that the car is okay and they have all the proper paperwork, you could come in 5 to 10% lower. If they come down some fine and if they don't, grab the deal anyway.

• If Your LAS Is Low - An exception to all of the above is if your own LAS is quite low. For example, if you could only spend $8,000, you might tell them that over the phone at the beginning because if they're not that flexible it makes no sense for you to go and look at the car.

Financing

You must have a plan for financing before you walk into the dealership. If you don't, you could negotiate a great deal on the price of the car and then lose a lot of your savings back to the dealership on the financing side.

It is essential that you clearly understand your current credit worthiness. This will determine how low a rate you can get on financing.  First you need to get a copy of your credit report.  Under Federal law, you have the right to receive a free copy of your credit report once every 12 months from each of the three major credit bureaus - Equifax, Experian and TransUnion. The best tactic is to rotate among the three companies, getting one free report every four months.  That way you can stay on top of your credit history.  To request your free report,  go to www.annualcreditreport.com. If there are mistakes in the report, follow the process to correct them.

The second thing you need is your FICO score.  The FICO score is what most lenders use to determine how creditworthy you are. Lenders will obtain your FICO score from one of the three credit bureaus.    The FICO score at each credit bureau is different, based on the specific information that that credit bureau has in your credit report.  Unfortunately, the free credit report does not include your FICO scores; you have to purchase them separately.  The FICO scores for Equifax and TransUnion can be purchased from MyFICO (As of February, 2009, the Experian score is no longer available from FICO since Experian has decided to stop making it available to consumers.  They are still selling it to lenders.)   MyFICO also has a nice set of analytical tools that will allow you to identify any items that are negatively impacting on your credit score so that you can address them. There is also a very helpful short video that explains how to use these tools that you can watch before you purchase your scores.  (You will frequently see advertisements that promise "free" FICO scores.  These are not really free.  What you have to do is sign up for a "free trial" for something that will have recurring monthly charges.  If you don't cancel, usually in seven days, they will charge you credit card every month until you do cancel.)

Once you know your credit score, it's time to start lining up financing. You basically have three choices. You can finance through the dealer, you can use a bank or credit union, or you can obtain financing online.

In theory, there is no reason not to finance with the dealer if they can get you a good rate. In practice, however, if you have negotiated a rock-bottom price on your car, you can expect that the dealership will try to "get some of that money back" in the financing process. Therefore, using outside financing sources is usually better.

If you do finance with the dealership, make sure you that you verify independently what your monthly payment is going to be. Bankrate.com has an excellent loan payment calculator that you can use which will show you your monthly payment. Also, if you click on the "Show Amortization Table" button you will get a complete monthly calendar of payments that will show you for any given month how much principle you have paid, how much interest you have paid, and how much remains outstanding on your loan.

The Internet is a good place to obtain an auto loan. AutoCreditFinders is an especially good source since they specialize in finding credit for people with a variety of credit backgrounds.

There is no danger to your FICO score if you go rate shopping.  It is true that if you apply for multiple lines of credit such as credit cards in a short time period, this will negatively impact your score.  However, according to the FICO website, "most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score."

One last thought. Your loan coupon book will often arrive after the first payment is due.  Make sure you find out how to make the first payment without a coupon to avoid penalties and a blot on your credit record. 

Selling Your Old Car to a Private Party

Advertising Your Car - Not that long ago, if you wanted to sell a car yourself, just about all you could do was put an ad in the local newspaper. While you can still do that, you now have online options as well.  Craigslist has become the world's largest online classified ad service and it is free. If you want to know all the ins and outs about it, there is a good book that you can buy called craigslist 4 Everyone, but you really don't need it since using craigslist is so easy.  All you have to do is create an account, read through their help section and then put up your listing. Vehix.com also allows you to post free classified ads (although you can buy a Premium package from them as well).

1. Setting The Asking Price for Your Ad - Unfortunately, finding the market value for your used car is more difficult than finding the dealer invoice price for a new car.  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. N.A.D.A. (National Automobile Dealers Association), Kelley Blue Book and Edmunds have extensive used car data bases. As you peruse these sources you will discover a wide variation in what they say your car is worth.  You want to list your car at a high enough price that you will have room to negotiate, but not so high that you will scare away potential buyers. Ideally somewhere between the private party sale price and the retail price is probably a good place to start.  However, look at the current craigslist listing for your car.  That will give you a sense of what your competition is and how they are pricing.

2. Adjusting the Asking Price - Your asking price is like a market test.  If people respond to your ad, you are in the right zone.  If you are not getting any responses, you are too high for the market.  Cancel your ads and list again at a lower price.  Hopefully you will only have to do this once or twice at maximum to get into the sweet spot of the market.

You can also sell your car on eBay Motors. You can use eBay simply as a classified ad by listing it for a fixed "Buy It Now" price or with a "Best Offer," or you can set up an auction for it (with a reserve price, which is hidden, below which you won't sell the car), or some combination of all of the above. If you already sell on eBay, selling a car on eBay Motors should not be a problem, although eBay Motors has some unique features and rules. If you are new to eBay, there is an excellent book called The Pocket Idiot's Guide to eBay Motors which you absolutely must have because there is a learning curve getting started with eBay Motors and this book will save you a lot of false steps.

Once you have a prospect who is interested in your car, here are the key steps for your negotiation with a private party.

1. Gathering Information to Make a Guess as to the Location of Their LAS - Use the first phone call with them to gather information that will let you make a guess as to the most that they might be willing to pay for your car (their LAS). You want to know such things as why they are buying the car, what it is going to be used for, how long they've been looking, what other cars are they looking at, what appealed to them about your car, etc.  Make it a very nice, low-key conversation with you just showing interest in them and what they need. You also want to use this first conversation to get them to agree to come over and look at the car. When they do that, they already have made an investment of time and effort and you can be sure that they have a real interest in your car.

2. Don't Bid Against Yourself - Smart buyers will try to get you to bid against yourself. What this means is they will keep saying that your price is too high.  Every time you make a concession, they will just keep repeating that you have to go even lower. Buyers will sometimes even start this process on the phone by asking questions like "Can you go lower" or "Is your price negotiable?" Don't let this happen. The best response on the phone is "Everything is always negotiable." If they try to insist on your giving them a lower price on the phone, just tell them you can't do that until they have seen the car and made you an offer.
   
   When they come to look at the car they may again try to get you to bid against yourself and ask you for a lower price without making an offer themselves. Don't fall for this. Insist that they make an offer first. The advantage of getting them to put an offer on the table is that they have committed to buy if you accept their offer and this is an important milestone in the negotiation.

3. Set Your LAS - Make sure that you know what your LAS is. Don't try to figure out your bottom line in the middle of the negotiation. Be clear in advance as to the lowest price that you will accept and make sure that you will be really comfortable letting a buyer walk away at a price that is lower than that.  If you are not in a hurry, you can set your LAS higher and allow the lowball buyer to walk away because you have the time to wait for a buyer who will pay a reasonable price.  If you need to move quickly, you will set a lower LAS and maybe sell to that lowball buyer since that price will still be well above what you would get as a trade-in from a dealer.

4. The Fair and Logical Approach - If it is to your advantage during the negotiation to do so, you might print out the private party sale prices suggested by Edmunds and Kelley, and suggest that a "fair and logical" outcome would be an average of those two prices.

5. Keep It All Very Friendly - Finally, never get emotional and never get angry. Keep the conversation friendly and relaxed. It's not personal, they're just trying to do what you're trying to do, which is to get the best possible deal.

6. More Information on Negotiating - There is a lot more to being a first class negotiator than I can present here.  To get the full story, you are welcome to a complementary copy of my book Negotiation: The Art of Getting What You Want.  This book was originally published by Signet Books (Penguin) and sold more than 100,000 copies.  The second edition is completely revised and updated, and is now available as a free download.

How to Negotiate if You Are Leasing

When you lease, what you need to negotiate is the price of the car, NOT the monthly payment! What happens is that when you finalize the lease, the dealer sells the car to the leasing company at the price that you have agreed upon. (The price of the car is called the capitalized cost or "cap cost").  You negotiate the price of the car exactly the same way you would as if you were buying it (see above).

Unfortunately, this is where it gets complicated. The leasing formula usually includes the vehicle sales price, sales tax, title and registration, cash rebates, down payment, trade-in value, lease financing rate, lease term, residual value, money factor (the money factor x 2400 = the interest rate), acquisition fee, disposition fee, purchase option fee, security deposit and occasionally other items. When you sign the lease agreement it only shows the monthly payment. It is extraordinarily easy for the dealer to "make a mistake" in their favor.  In order to keep from getting flimflammed, you simply have to be able to do the calculations yourself.

Several lease calculators are available on the web.  Money-Zine and LeaseGuide have calculators that will do the job.  For a more comprehensive leasing software package go to Expert Lease Pro.  It is a very complete, reasonably priced package that includes a free Leasing Hot Line service which will provide answers to questions about the software or leasing in general. They will also help you analyze any specific deal that you are considering.

Finally, you do not have to lease through the dealership.  You can use an independent leasing company which will very often have lower fees and interest rates. LeaseCompare is a good place to start looking.  Their site is set up to give you quotes before you fill out any forms, which is a real advantage.  The also have an active user forum and provide live telephone support.

Improving Your Negotiating Skills

There is a lot more to being a first class negotiator than I can present here.  To get the full story, you are welcome to a complementary copy of my book Negotiation: The Art of Getting What You Want.  This book was originally published by Signet Books (Penguin) and sold more than 100,000 copies.  The second edition is completely revised and updated, and it is now available as a free download.

If you have any feedback or questions or would like to share your negotiating experiences, I would love to hear from you.  I also post answers to some of the questions that I receive on the Car Negotiation Tips Blog.

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