Car Negotiation Guide

It's sad how most people think they've negotiated a good deal from used car dealers. The biting reality is that over 90% are ripped off. So don't walk into the car lot until you've read this guide, or your hard earned cash may turn you into yet another dealer victim.

You spend your days (and likely nights) studying or working, saving up enough cash to buy a car. The danger is that Used Car Dealers have stacked the cards in their favour. You're walking into the dealers showroom without preparing properly is like walking onto a tennis court to play against a pro. It's time someone levelled the playing field.

This guide gives you the inside track and exposes the hidden tricks dealers use to line their pockets with your cash. Fortunately, unlike the tennis example (where you're going to get thumped), preparation can turn the tables and save you hundreds or thousands of dollars on your next car - not to mention earn you free extras. We don't cover car negotiations in our negotiation skills training courses, but as many clients have asked for car negotiation advice, we decided to share this article.

Step 1: Choosing the Right Car

Before you go tearing out to the dealerships, put on the brakes, sit down and figure out what kind of vehicle you need. Forget about what you want. Yes, we must admit, this doesn't come naturally to most of us. Bear with us; you'll be playing into the dealers hands if you don't do this first. Think about what is going to suit you best. There are 4 things you need to keep in mind when choosing the right vehicle:

1. Lifestyle: The car you're going to drive will need to suit your lifestyle. Your needs will be based on whether you are single, married, have children or are planning a family in the near future.
2. Location: Are you rooted close to the downtown, nestled in suburbia or tucked away in the rural wilds? You also need to think about what kind of commute you take to work and give some thought to weather and road conditions.
3. Hobbies: What do you do away from the job or college? Party a lot and need to play designated driver? Are you a hermit, seldom venturing away from the nest? Or do you like to race up muddy trails or slog your way up an icy mountain road to find that perfect virgin track of powder?
4. Income: Yes, there's no escaping the budget challenge. We will come through on our promise to save you money, which means you can afford more. Your might fantasise about owning that rugged Hummer, racy Jag, or classic muscle car. Stop for a moment and ask yourself: Is it really worth working for the car loan company to meet payments? What can you really afford to pay? Writing this figure down now, will go a long way to preventing the dealer from talking you into paying more.

Vehicle Choices

There are a dizzying variety of makes and models to choose from. These include the coupe, sedan, hatchback, station wagon, SUV, truck, crossover vehicle or hybrid vehicle. The best advice is not to initially limit yourself to just one make or model. Your well intending friends or family may advise you otherwise - sdon't listen! Availability can restrict your ability to negotiate a better price with the dealership. If for some reason you can't negotiate a good deal on one vehicle, you can always negotiate your next best option. Keep your options open. Yes, this does mean that you need to do some research on your favourite types of vehicles.

Who do you Believe?

So who's reviews do you believe? Not the manufacturers. They have a vested interest to be overly favourable. Look for independent reviews. If you have a head for numbers, then start remembering the key specifications so that you can compare each choice more effectively.

Take a Test Drive

There's only one way to know for sure whether you've found your dream machine. Get behind the wheel and take the car for a spin. The Test Drive will give you the best feel for the vehicle's performance and whether it meets your expectations and needs. Beware dealers who won't let you drive because of "liability issues".

See how the vehicle rides on both city streets and if possible, on the highway. Equally important is to check through the vehicle. Test the seats, knobs, buttons, seating capacity and comfort, and trunk or boot space.

DO NOT buy after test driving. Go home and do more research first.

Step 2: Researching Prices

Want to show the dealer that you understand his game? Some of these phrases are only relevant to new cars. Learn a few phrases and confidently drop them into the conversation:

Sticker Price

The sticker price is the price the manufacturer sets for the retail value of the vehicle. It's called the sticker price because it's traditionally been written on the piece of paper you see stuck to the car's window. The sticker price is attached to the vehicle when the car leaves the factory. Never pay the sticker price! Only fools pay the sticker price. Many dealer salesmen will point to the sticker price helplessly and claim it as their sale price. Don't walk away from salespeople who do this - run!.

Invoice Price

The invoice price is what the dealer pays the manufacturer. The invoice price is where you want to aim your sights.

The dealer is in business to make a profit. So the negotiated price you should pay will normally be somewhere between the invoice price and the sticker price. This is known in negotiation as your zone of possible agreement.

So whilst you're aiming for the dealers Invoice Price, he's gunning for the Sticker Price - this is normal and is known in negotiation as each side's Aspiration Bases.

How do you uncover the Invoice Price?

Your best source is through the internet. Most car buying sites list their invoice price. The better sites also offer several buying tools. These tools will automatically calculate option/packages and add them to the total cost of the invoice price.

Dealer Holdback Price

The Dealer Holdback Price is the amount the dealer receives from the manufacturer on every vehicle they sell. The holdback price is usually in the neighbourhood of 3% of the Sticker Price.

This is important to remember because the dealer holdback price effectively lowers the dealer's cost below the Invoice Price. The holdback price adds to the dealership's profit. So if you were skillful enough to negotiate the dealer down to their Invoice Price, they would still be making a sliver of profit..

In reality, trying to negotiate below the invoice price, leaving the dealer with their holdback price is highly unlikely. Use the holdback price when negotiating. Ask the dealer what their holdback price or percentage is. This will prevent the dealer from claiming that selling near invoice price will prevent him from sending his kids to college.

Dealer Incentives

Also known as Dealer Cash. Some car manufacturers will offer the dealership "hidden" cash rebate incentives on new vehicles. The purpose is to promote certain makes and models. How do you know whether your car carries some dealer cash? Some car web sites keep track.

How do you find the car you want?

Once you've decided on the make and model, next you need to decide what else you want from the car. This includes the colour, packages, options, and offerings.

Some car manufacturer sites also alllow you to search the available inventories on their dealer's lots from the comfort of your home.

A Friend in Need

Since cars are not the cheapest investment, you want to make sure you're thinking with your head and not your heart when the moment of choice arrives. So if you are the type of person who has in the past been swayed by a salesman into buying something you didn't need, or paid over the odds, then we suggest you take along a friend who is cool headed. Best you talk with your friend before the final "yes" decision. If either you or your friend are not comfortable, walk out of the dealership and take your time to think through the reasons. Often we get a gut feel that is hard to explain, but proves its value only in hindsight.

Is Time on your side?

The availability of the ideal vehicle is not something we should assume to be automatic. Dealerships can only store so many variations of vehicles. Salespeople can search for your ideal car with other dealerships. Or they can make arrangements to get a special order direct from the manufacturer. This process will likely require some patience and time.

However, if you can't wait and must have that car, you can still get a good deal. Remember that for every day a vehicle sits on the dealers lot, costs the dealer money. The dealer is being charged interest on every vehicle sitting unsold on their lot.

Final word on timing comes from the great suggestions coming through from diggers and other social media collaborators: Sales people are usually targetted on meeting monthly goals. These poor guys and gals earn or lose bonuses (often sizable bonuses) based on little more than the timing of that last car at the end of the month. You're out of luck if they've already made their quota. You're in luck if they are 1 car away. Bonus quotas are usually measured in terms of revenue, and not so much on profit. So provided they make the deal, it doesn't matter much to them whether they make a profit on your car. Your car will pay handsomely for profit from all the other cars they sold in the month. Yes, this is a gamble. Yes it's worth sniffing out the salesman to see if you can catch a whiff of desperation.

Play it Cool

On the other hand, if you know a particular dealership has the ideal car, play it cool. Don't show emotion to the salesperson. One strategy to consider is to begin by talking about a vehicle that has options and packages you know the dealer doesn't have in their inventory. Let them think you want the vehicle right now, and you can't wait for them to search and source it. Then reluctatntly give them an opportunity to present an alternative (which happens to be the car you really want). Of course if you're going to be making a compromise, then the salesman should meet you part way. How? By lowering their price or throwing in extras for free.

Loose Lips Lose Money

Veteran dealers are trained to size you up, ask you questions, and squeeze all the information they can in order to get you to say "Yes". So be careful. If you're the loose lipped type, then practice being the one to ask the questions. Just because they ask a question doesn't mean you are obligated to answer. Remember that no matter how charming and friendly the dealer may appear to be, it's more important to save money than make a friend of the dealer.

Steps to take before Negotiating Price

Luckily for you, there is a lot of fierce competition between car dealers. Not every dealer will ask for the same price.

1. The first step then is to either email or phone the dealerships and ask the salesmen to give a price for the type of vehicle you want to buy. This allows you to compare the price differences without the hovering presence and pressure of the salesperson.
2. Once you've found the best priced deal, make an appointment with the dealer. Salespeople are very familiar with the usual assortment of tyre kickers or just looking types, who breeze through their lots. An appointment tells the salesperson you are serious and in a deep buying cycle mode. When you meet with the salesperson, you can simply tell them what you are prepared to pay. Having done your homework, your market price knowledge puts you in the driver's seat.
3. Trading in a used vehicle: One of the first questions every salesperson will ask is whether you are planning to trade in your used vehicle.

One obvious advantages to you of trading in your used vehicle, is so you can unload it without the hassle of advertising and selling privately.

The disadvantage is you will almost always receive less money from the dealership. The reason? When a dealership is looking at your trade-in, they are calculating the value of the used vehicle based on the wholesale value of the used vehicle. The dealer's wholesale valuation of the vehicle is always less than what you might receive for the actual market value (the price you could get if you sold it privately). There can be a significant difference between the wholesale value and the actual market value of a used vehicle. If you think the dealer is giving you a good deal on your trade-in, beware! It's not unheard of for a dealer to inflate your trade-in value just to close the deal - IF you've not shaved their margins.

Trade-in sales gambit

One of the most common gambits that a salesperson will try is to slightly raise the wholesale value on your used vehicle (usually after talking to the manager "to see what they can do for you"). Look out. They will be making up the loss in another area. For example, by increasing the interest rate on the financing or by trying to flog extra options at a premium.

Don't let any salesperson change the price they originally quoted or claw back extras. Either leave the dealership, call their manager, or call them up on their tactic.

Negotiation Essentials Summary

• Ignore the sticker price (the most the dealership expects). The negotiating zone is anything above the invoice price, but much less than the sticker price. You should also deduct the holdback price from the invoice price. This gives you the actual cost the dealer pays to the manufacturer. The bargaining zone is anything above this price. You can put pressure on the dealer by making an opening offer on or near this price.
• Having done your homework and after receiving several quotes from the dealerships, take your lowest quote. Call the other dealerships. Simply explain that you are prepared to buy from them if they are prepared to better your lowest quote. When all dealers push back, you know you've found the best deal.
• A hard hitting approach you may wish to consider is to come right out and tell the salesperson, you know what they are making on each vehicle (provided you've done your homework first). This puts them on the backfoot and tells them that you are to be taken seriously.
• When you are ready to turn down a dealers offer, make them a final offer. Strengthen your position first by confidently stating that any other counter offer is unacceptable. Tell the salesperson that they should "Take it or leave it". Be careful to leave the door open for them to come back to you later. Tell them to call you if they can do a better deal. You may be pleasantly surprised.

Don't forget the Safety Options

Too many people lose their lives and loved ones every year on our roads. So please ask questions about the safety options. This can be yet another weapon in your armoury in levering the price downwards. Not every make and model has the same safety features. These include:

• Driver and passenger airbags
• Traction control
• Antilock brakes
• SIPS (Side-Impact Protection System)

Financing a new vehicle

If you have the full purchase price stashed away in your bank account, then skip ahead to "Signing the papers". There are 3 options to finance a new vehicle:

1. Cold Hard Cash

Having an abundance of disposable income on hand is the ideal situation. The reason? You won't have to dole out a bunch of extra money for interest, nor worry about factoring monthly payments into your budget. More importantly, by having cash to offer you have the flexibility to negotiate a better price (thanks for the great feedback diggers, please keep it coming!). Your advantage is in being able to choose whether you want to use your cash to do a deal without delay, or whether you can save more by keeping your cach and taking advantage of the dealers strong relationship with financing companies. Flexibility is too often underestimated in negotiation. The salesperson won't necessarily be more eager to negotiate with you to close the sale right away. So be careful to gauge whether the dealer is more keen for you to use financing or cash, and play it to your advantage. Don't play your cards too soon.

2. Obtain financing through the dealership

One of the two major lures used by many dealerships to draw you into their net is to offer:

• Zero percent financing, or
• Very attractive rebates.

Both of these are hooks and can catch the unwary off guard - they're not always what they seem. Zero percent financing will only be approved for individuals with a top of the line credit rating. If your credit rating is anything less than best, expect to pay a higher interest rate on a financed vehicle.

Rebates are another hook. By accepting the rebate now, you will have to accept financing terms using higher interest rates.
Manufacturer Financing Programs
Did you know that some manufacturers offer subsidised low interest financing programs through the dealership? These programs are expensive for the car manufacturers. They will in many instances offer a cash incentive to potential buyers who do NOT take up their low financing. Even though a dealership may be offering a lower interest rate than a lending institution, you may be eligible for a dealership cash incentive rebate which you might otherwise not receive. This puts extra cash back in your pocket.

3. Lending Institution.

The third option is to go through a known lender such as a bank or credit union. Find out from them, whether you can pre-qualify in advance for a loan, what their interest rate will be, and the period of time or term.

Insurance

Every new car buyer should be aware that cost of insurance can vary significantly. Not only will the cost vary from region to region but also on the make and model of the vehicle you are purchasing. When purchasing a new vehicle and your monthly budget is a crucial factor, scope out several companies on the internet. The last thing you want is to deflate your excellent deal on the car by not being able to afford the insurance.

Signing the papers

Even though you've negotiated the price, don't stop being vigilant. Don't blindly sign the papers they spread out for your eager pen. A clever dealer will still try to add to their profit margin, by talking you into last minute extra features. The most common ploys they might try on you include:

• Additional but overpriced insurance
• Extended warranties (A perennial favourite)
• Rust proofing or undercoating (Already comes with the vehicle - also usually grossly overpriced. You can annually rust proof your vehicle at shops that specialise in this, at a much lower cost)
• Paint and/or fabric protection
• Anti auto theft plans

Turn these down with a simple "No thanks".

Extra Charges

Be sure that you can tell the legitimate charges from the illegitimate charges.

Legitimate charges include:

• Sales Tax: known by a variety of names depending on the country or region where you are closing the deal.
• Applicable state/federal/provincial/territorial registration fees.
• Legally required and variable documentation fees.
• Factory delivery charges. Of course if it's already on their lot, then dig your heels in and negotiate.

Depending on the country where you transact the deal, other charges which might be added onto the overall cost of the vehicle include:

• Air conditioning tax
• Luxury tax
• Petrol or gas guzzling tax

Many or all of these extra costs may already be included in the initial price quoted by the car dealer. As this may not always be the case, it's best that you ask these negotiation questions early.

Illegitimate Charges

Less scrupulous dealerships may also try to slide across costs that are not legitimate. You should vehemently refuse to pay. These prices include:

• Administrative Fees
• Handling Charges
• Advertising Fees
• Additional Dealer Mark-up

Always refuse to pay these extra fees. Consider them absolute deal breakers. Advise the sales person clearly and directly that the deal is off if they don't sweep these charges off of the table. Walk away if necessary.

Read and ask Questions

As you review the paperwork for your new vehicle, trade-in ownership transfer, and new vehicle registration - make sure that you understand what you are signing. Read all these papers carefully. Do not simply accept the dealers' explanation. If there is anything you don't understand - ask questions.

Final Vehicle Inspection

Always do a final last minute and detailed inspection of the vehicle before accepting the keys from the salesperson. Scan the vehicle from various angles and look for scratches, dents, discolouration, or anything else which mars the exterior. Common signs of wear and tear can be seen on the top of the shift stick / gear stick and pedals. If these are worn, then ask more questions about the real mileage. Also look out for any fluid leaks and scan the interior one last time.

Happy Trails!

When you boil it all down, buying a car doesn't have to be a mine field. By doing your homework and research beforehand you can easily negotiate a better price on your purchase. Now that you know the gambits many salespeople typically try, you are better equipped to counter these gambits to your advantage. Most importantly, with proper preparation you will turn the tables on the dealers. Theirs is a competitive environment, and so long as you can take your time, you should be the one calling the shots. We hope that you get a great deal, and enjoy driving safely.

 

Negotiation Lingo:

Price Ranges: In negotiation, the maximum price the dealership (seller) hopes to get is known as the aspiration price. The minimum amount the dealership is prepared to accept is called their reservation price. As a buyer you also have your own price range where you are prepared to bargain. The overlap where you and the dealership will do the deal, is known as the bargaining zone. In this range you will agree upon a price.
Positional Negotiation Tactics: When you're unlikely to do business with the same dealer again, and you don't have a reputation to hold up in the car market - then it stands to your advantage to use negotiation tactics. We would not recommend your using positional negotiation tactics in your professional business negotiations.