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