This is written for the purchase of a car from a dealer. Much of it applies to purchases of cars from private parties. Knowledge is power, and negotiation is a contest of will and power; be prepared.
1. Do your research. Know which car you want, what model, color, accessories, etc. You may have several different cars in mind. If you know someone who owns one of them, try to get a test drive from him/her. Much better than a short drive with the salesman with his snappy chatter to divert you from getting the feel of the car. Rent one if you can't find a friend willing to let you drive his/her baby.
There are several services which will sell you a rundown of the dealer invoice and dealer cost of the accessories. Consider investing the $$s for one of these lists. Know what the dealer pays, and know that there are customer rebates, dealer rebates, holdbacks and volume discounts that reduce the dealer's cost way below invoice.
Read the road tests in the car magazines. There are road test indices in Road & Track and Car & Driver. These give a few statistics and tell you which issue the road test is located in. Find a friend who keeps back issues or go to the library and read up on the car(s) you are interested in. Knowledge is power.
Watch the newspaper ads, especially the big ones for new cars that come out on Friday and Saturday. Watch for "one only at this price" specials. These are loss leaders and are part of the bait & switch technique. However, most states require the dealer to identify the specific advertised car(s) by stock number or VIN. They are required to sell these cars at the advertised price and they are usually below invoice.
2. When you know what you want, make a list of all the dealers within reasonable distance which sell that brand. Be prepared to shop dealers. Before you go shopping, decide if you are ready to buy right now. If not, don't go shopping; chances are you will end up with a car you don't want at a price you don't want to pay. At best, you will just waste your time and the dealer's time as well. These dealers are slick; it is their business to sell you something, even if you are "just looking around".
3. Adjust your attitude. Your mission is to buy the car you want for the best possible price. You are not going to the dealer to make a new friend. The salesperson is not there to be your friend, even if he says he is. He'll be laughing about how bad he screwed you and telling the other salespeople before you even leave the lot with your new car. Take everything they say with a bucket or more of salt. They will tell you anything to make the deal. If a promise is not on the contract, it is meaningless. Your attitude should be that of an informed, ready to buy (right car, right price, right now) customer. After doing your research, you will probably know more about the car than he does. It always amazes me how ignorant salespeople are of their own product. What ever you do, DO NOT fall in love with a particular car. If the dealer senses this, he knows you are hooked and will pay his price for the car. Keep cool, even if it is the 300th car you've looked at and it is the perfect one for you. Learn to keep a "poker face" and be prepared to walk away one or more times until the seller agrees to a reasonable price.
4. Go to the dealer with a copy of their ad in hand. If there is a loss leader advertised of the type you are interested in, ask to see that particular car. If they say it is sold or not available, ask to see proof of the sale. They will try to switch you to another similar car for "just a little more". It will be a lot more. Insist on seeing the advertised car; remember, you have his ad with the stock number or VIN printed on it. If it is available, and if it is what you want, test drive it and buy it at that price. It is usually below their real cost and they make up for the loss with a write-off to advertising. You will know if it is a good deal because you did your research, right?
Early on the salesperson will ask you when you are planning to purchase your new car. They want to know if you are a tire kicker and are going to waste their time. Your answer is "today, as soon as I find the right car with the right price". Remember, there are a lot of identical cars, but there is only one best deal.
Be prepared to walk away if they don't meet what you have determined you are willing to pay. You will be amazed how persistent they can be. If they sense that you are a serious buyer, they will follow you out to your car, enticing you with better and better prices. You may have to do this several times to get the right price--be patient; the money you save makes your time very valuable at this point.
The best time to go to the dealer is 1 to 2 hours before closing on the last few days of the month. The salespeople will be tired and most likely short of their quota for the month and they will be willing to truly deal to get another sale towards their quota. One dealer stayed open until 11:30 PM on New Years Eve to complete the sale before the end of the month and the end of the year. They ended up selling me the truck for $500 less than my opening offer to get the deal. Then they couldn't find one the color I wanted and I cancelled the deal four days later with a full return of the $5,000 deposit.
5. System houses. Most dealerships are system houses. This means that a salesperson will greet you and try to get you to pick out a car you like and take a test drive. He/she will then promise you a fabulous price if you will take it right now. He will ask what it will take to make a deal today. Tell him your first offer (your first offer should be about $1,000 or more below what you expect to pay). He will want to fill out a simple offer form which will list the car by VIN and will have the MSRP price and the dealer's add-on price on it. He will then write something like: Joe will buy this car today for $XXXX (your offer) plus tax & license (T&L) and document fees (docs). He will add a line for your signature. If you sign it and the salesmanager approves it, you are obligated to buy the car.
The salesperson will then offer you coffee or a coke and then take the offer to his sales manager. He/she will be gone for 10-20 minutes. It will take him/her less than 30 seconds with the sales manager to get the counter offer. Then he/she will go off and have a break, work another customer, whatever. The idea is to make you think he/she is really fighting for your price and to make you tired and impatient. It is not necessary to give them a deposit check at this time. If you do give them a check, they will use it to keep you from leaving. Tell the salesman you are a little short on time and if he leaves you in the office for more than 5 minutes, you are leaving. It will usually prevent him from taking his 20 minute break on your time. The longer they keep you waiting, the weaker your resistance becomes and the more likely you are to agree to a deal just to get out of there. Be prepared to walk away!
So now s/he finally comes back with a sad story about what a hot seller the car is that you want. S/he will also have a counter offer at some ridiculous price. Now you start to negotiate in earnest. Ask the salesperson to bring in the manager or whoever makes the decision on the deal. You are better off to get face to face with the decision maker. S/he has other deals to work and will want to get your deal made quickly. Be firm, keep insisting on your price. Be prepared to come up a little, but s/he should come down much more than you go up. Again, be prepared to walk away. After you have gotten up to leave several times, they see that a deal they have invested time in is going out the door. You are adjusting their attitude. If you don't get your best deal, walk on out and go to another dealer.
When you are close to agreement on the price, and the seller makes their final offer that fits your expectations, it is time for the "throw ins". The seller says "OK, we'll do the deal for $XXXX." You say "I'll agree to that price if you throw in X, Y, & Z". These throw ins can include: floor mats if not listed on the window sticker, a factory service manual, car cover, or any other accessory (including air conditioning and stereo) you want. Hit them with your full list and you will be amazed how many of these you will get. Be prepared to negotiate again. You can also agree to the price along with a few of the throw ins and an agreement to purchase any others you want at a 50% discount or at dealer cost. Get this agreement in writing on the contract or the "We Owe" list. If they agree to this, make sure you understand if there is a time or dollar limit on these extra purchases.
6. Finance and Insurance (or how they rip you off a second time). If you finally agree on a price for the car, don't let down your guard. You are not out of the woods yet. Most people make the mistake of thinking the deal is done and relax their guard at this point. You are very vulnerable if you think the danger is over. Your next stop with be with F&I (Finance and Insurance). There will often be a long wait for your turn in F&I. The F&I person will discuss your down payment, financing and insurance. S/he will also try to sell you an alarm, extended warranty, and interior and exterior protection packages. Don't buy anything the F&I person offers you with the possible exception of an extended warranty. These items are all extremely over priced and you will do better to do them yourself or go to the aftermarket. It the dealer has installed an anti-theft device on the car already, you are not obligated to pay for it, but they will want to add $500 or so to leave it on. It is usually a small device under the dash which has a receptacle for a small printed circuit board (PCB). If the PCB is not inserted, the car will not start. Tell them to remove it. You can get a much better alarm system after market with many more features. Make sure they remove all of the system, not just disable it and tuck it up under the dash where it will rattle later.
If you plan to keep the car past the original warranty period, consider the extended warranty, especially if the car is not a Toyota, Nissan, Honda or Mazda. The cost of the warranty is negotiable. The F&I person will have several prices for each level of extended coverage. You want the most coverage for the least amount of money. Be prepared to negotiate with him/her over the warranty.
7. Financing Your New Car. The dealer will have many sources of financing available. Interest rate is not as critical here as on a 30 year house mortgage. Financing is also negotiable. The better your credit, the better financing you can get. Know what your credit is and insist on the best deal. The advertised low rates are usually for 24 months with a large down. The longer the term, the higher the interest rate. Take your own calculator along and multiply the payment times the months for each option. Find out what your credit union and bank's rates are and get pre-qualified with them and then use these rates to bargain for a better rate from the dealer. They make money by placing the loans with their banks or other finance institutions. Don't be afraid to negotiate. If your credit union or bank has a better rate, use them. If you plan to use outside financing, the dealer will most likely have you sign a single pay promissory note (no interest) so that you can drive away now. They don't want you to leave without the car. They know that once you drive off the lot with the new car, you cannot return the car for a refund.
If you leave a deposit and leave without the car to get the loan from an outside source, the dealer knows that there is a good chance you will either change your mind or won't be able to get financing. If this happens, go back and get your deposit back ASAP. They will try to sell you on their financing and if it is acceptable, fine. If not, get your money back and leave. Most of the time they can match or beat any outside financing.
Don't buy their car insurance. Your existing insurance will most likely have a 30 day grace period for new purchases. Check with your agent before you start shopping for a new car if you don't know. The dealer will want the name of the company, the agent and the policy number and you will be required to sign a promise to provide insurance. Do not drive off in a new car if you are not certain that you are insured. Murphy's Law will get you for sure.
8. The Paperwork. The F&I person will take a credit application from you, fill out the forms, and all the other paperwork required by the government. If you are paying cash, you do not have to fill out a credit application although they will try to get you do one anyway. Don't give them any more information than necessary.
An important piece of paper is the one that lists what the dealer owes you for your new car, usually called the "We Owe List". It will list things that are not yet installed on the car, but part of your deal (floor mats, A/C, roof racks, etc.) If you made a deal for anything that is not already on the car or on this list, insist that it be placed on this list. It is equivalent of a cash voucher for the items. Some items may not be available late at night and you will have to present this document to the parts or service department when they are open to get the items.
9. Before You Drive Off In Your New Car. While you are in F&I, your new car should be in the detail shop for a final cleaning. If possible, have the freshly cleaned car brought to a well lighted area and closely inspect the fit and finish. Many cars are damaged in transit and poorly repaired. Do not be shy about insisting on your new car being perfect. If you find flaws that can't be fixed before you leave, make sure they are listed on the contract or the "we owe list" discussed above or insist on a different car. Make sure all the lights, bells and whistles work. They are a lot more interested in fixing things now to save the deal than they will be later.
If you have any doubts about the deal, back out before you sign, or at worst, before you drive the car off the lot. Once you leave the dealer with the car, it is too late to change your mind. When you drive off the lot, the car becomes a used car and the biggest chunk of depreciation just occurred.
10. Trade ins. It is almost always best to sell your car yourself. You will get more for it and it simplifies the new car deal. The dealer will determine an Actual Cash Value (ACV) and it will be less than you can get selling it yourself. Most people don't have a clue as to the value of their used car and often the dealer will give you far less than ACV. Check the classified ads for asking prices for similar cars and check the NADA (yellow book), or the Kelly (blue book). There are also other guides available. Your bank or credit union will have these books and will either look it up for you or let you do it. There are services for this available on the net.
If your car is not clean, low mileage and consistent with what the dealership sells, the dealer will either take it to the auction or wholesale it to another dealer or a lumpy lot. Each step along the way costs money, and it all comes out of the price the dealer pays you for your car. You will probably never know what the ACV is. The dealer will inflate the value of your trade in, but he won't give you as good a price for the new one.
It is however, more convenient to trade in your old car. If you decide to trade it in, try to get the dealer to tell you what he has determined the ACV to be. The best way to handle this is tell the salesperson that you are not trading in your car, negotiate the new car price without a trade, and then as an afterthought, ask him what your car is worth against that price. The dealer will give you a price. This price is also negotiable. When you finish this negotiation you will know what the ACV is and can make an informed decision then whether to trade it in or not.
Some axioms the car dealers live by:
Some people will say I'm being too cynical about all this. Maybe I am cynical, but my cynicism is based on personal experience and many talks with people in the car selling business.
Go for their throats! They are certainly going for yours.
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15 October, 2005