Cars
Wheeling and Dealing
To be on sound footing when you shop for a new car, you need to know how the process works -- how dealers make their money, how much they paid for the model you want and the kinds of deals other buyers in your area are striking.
By Mark Solheim, Senior Editor, Kiplinger's Personal Finance
May 2005
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Score the best deal
The best way to get the best deal is to tell the dealer exactly how much you're willing to pay for the model you want and how much you want for your trade-in. You should also know the interest rate you qualify for at your credit union or bank so you can compare it with the dealer's offer -- which automatically eliminates any hanky-panky in that area. In other words, you need to do enough homework to avoid surprises.
And remember, the price, the trade-in and the loan are separate transactions, so negotiate each one separately. Never negotiate on the monthly payment because that's when the line between each transaction gets blurred. If the dealer wants to add an extended warranty that would bump up your monthly payment by "only" $25 -- and you're signing a 60-month loan -- you're paying an extra $1,500. Or the dealer may try to flip you to a lease and raise the price of the car because the monthly payments still come well within your budget. If you can't get the concessions you want or a straight explanation about any part of the process, walk away. Dealers need you more than you need them.
The purchase. You can get all the numbers you need from the Internet. Sure, dealers would be happy to have you agree to pay the sticker price, but they won't be shocked when you tell them you know the invoice price. Plus, it's an indication that you've done your homework and are serious about buying the car.
Tell the dealer you'd like to pay as close to invoice as possible. Supply and demand is a big factor in how low a dealer will go, so research the average transaction price in your area. For example, Chrysler's white-hot 300C is selling for close to sticker price, and many Toyota dealers are asking for a $2,000 to $3,000 premium on the Prius hybrid.
Shake off any notion that if you pay invoice, the salesperson and the dealership get nothing. Carmakers may offer the dealer cash to help sell certain cars. Dealers can also make money from the holdback. That's 2% to 3% of the cost of the vehicle -- money that carmakers refund to dealers to offset the cost of financing the car while it sits on the lot. It's rare that a dealer will cede part of the holdback, but it should strengthen your negotiating clout if the manager knows that you know about it.
Big dealerships make money on volume sales, so you're likely to get more price concessions from them. Dealerships that aren't part of large chains -- and 90% of the nation's 22,000 dealers fit that description -- need to make more money on each vehicle, but you may get more attention and better service. Either way, you're more susceptible to high-pressure sales tactics if you simply show up on the showroom floor. "When you first come to the dealership and there are eight guys standing outside smoking cigarettes and fighting over whose turn it is, you know you're in for a ride," says Mark Brueggemann, a former BMW dealer who now works for Kelley Blue Book.
Instead, negotiate with the Internet manager or fleet manager -- on the theory that those departments are more likely to offer discounts to generate more sales. Competition is the best motivator, so contact three or four dealerships. E-mail the Internet manager or call the fleet manager and ask for the dealership's best price (if there's no fleet manager, ask for the sales manager). Get confirmation by e-mail or fax. A strategy used by the CarBargains negotiators is to have the dealer bid an amount over or under invoice -- $1,000 over invoice, say, or $500 below invoice -- that's applicable to any car that matches your make, model and trim-level request, no matter what options are on it. Because the invoice on the car and the options will be the same for all dealers in the same region, any difference in price -- even for cars equipped with different options--will be consistent. When you've identified the lowest bidder, work with him or her to see if you can shave the price even more.
You may have some extra negotiating clout toward the end of the month, as car dealers try to meet quotas, or during heavily advertised sales. And if a car has been sitting on the lot a long time, the dealer may be more anxious to sell it.
Note that we haven't mentioned the test-drive. That's because it's better to separate the all-too-enthralling test-drive from the deal's hard dollars-and-cents reality. Make appointments to drive the models you're considering, then walk away and return to negotiate another day.