Negotiating Price: How Much Will a Car Dealer Come Down?
Nowadays, when it comes time to buy a vehicle, we really do have a lot working in our favor, and a lot of resources at our disposal. There are multiple websites we can use to browse prices, deals, factory rebates, regional discounts—the whole gamut. When buying a vehicle, most consumers can be pretty well informed. But can they deal? Can you wheel and deal with a pro?
Even armed with the Kelly Blue Book values and the Edmunds "True Market Value," and having looked at a million deals online and in the classifieds, when it comes down to it, and you're sitting face to face with a professional car salesperson who haggles every single day, multiple times a day—do you have the gall to haggle with him?
When he says "I'm sorry, but that's what the car's worth," do you have what it takes to say, “You’re wrong?” I'm inclined to think that many do not.
Negotiating Down From the MSRP
You will inevitably wonder: What is a good price for this vehicle? What is a reasonable offer?
Suppose the vehicle’s MSRP—manufacturer’s suggested retail price—is $35,000, and I offer $25,000, what might happen? Are they going to laugh in my face, take away the beverage they graciously offered me, and have security escort me from the dealership?
Probably not. They probably won't offer you a $10,000 discount either, but they probably won't kick you off the lot.
Negotiating Makes Me Feel Funny. Isn't the Price on the Car the Actual Price?
It shouldn't. And, no, it's not.
Purchasing a new vehicle is not just a big expense, but an investment, and it is definitely a negotiable endeavor.
Certain purchases are non-negotiable. Like when you walk into Walmart, you can’t walk up to the guy and say, "Hey, I know that TV has a $2,000 price tag, but I'll give you $1,500 for it." They will simply say “No.” and let you walk. Same thing at the supermarket, and so on. They know someone will be along in the next minute paying the posted price.
But when you're spending tens of thousands of dollars on something, you better believe you should be negotiating, and they DO NOT want to let you walk.
What is the Function of a Car Salesman? What Is His Goal?
Many people think his goal is to sell vehicles. Wrong!
Selling vehicles is a given at a car or truck dealership. The salesperson wants more than that.
The goal of the car or truck salesman is to make the dealership the most profit possible, while also satisfying the customer. This might seem like a subtle point, but the distinction is important.
Conversely, what is the purpose of the buyer? What is his goal? Is it to acquire a new vehicle? No. That's a given. The buyer's goal is to negotiate the most favorable deal on the vehicle possible.
"Profit" is not a dirty word. Remember that. Don't be bitter, or feel disenfranchised, or get upset that the dealership is going to make money off your purchase, and that the salesman is going to benefit from your sale. Be happy, because it’s quite possible that you can get a good deal, and at the same time the dealership can make money, and the salesman can make a living. There can be a real balance here.
"Excessive profit" is definitely a dirty word. Excessive profit takes equity away from the buyer. No matter what, you want to avoid negative equity as much as possible.
I'm sure many of you have heard, or will hear, from a salesman, that your new vehicle is "an investment". They will use that word “investment” as a way to persuade you to purchase certain upsells, like warranties, roadside assistance packages, leather seats, accessories, insurance, and all sorts of other stuff. And a new vehicle can absolutely be an investment, for several reasons, but it’s a low-quality investment if you pay too much for it: if you get taken on the purchase price, gutted on your trade-in, and wheeled all the way into the driver's seat by paying MSRP for a new vehicle and accepting the KBB value for your trade. Read on.
What Is MSRP, Anyway?
MSRP is an acronym that stands for Manufacturer's Suggested Retail Price. This number is decided by the manufacturer—NOT the dealer.
The MSRP serves as a starting price for negotiations. Sometimes the dealer will post an "Invoice" price for the vehicle underneath the MSRP and use this as a selling point.
An exchange like the following is common ...
"Look at the invoice price," says Frank, of Bayside Toyota. "We're only making a few hundred dollars selling you this car at this price, and plus, you're getting almost one thousand dollars off MSRP."
"Oh," says Sally, as she fondles her hair nervously. "That's not too bad. I guess you can't really do much better than that, right?"
Frank smiles, thinking to himself, Excellent. We're done negotiating. "Exactly. You know you're getting a good deal, and we've got to make a little something on the vehicle ..."
What Sally doesn't know is that Bayside Toyota gets a $2,000 rebate from the manufacturer every time they sell a vehicle like this. Plus, the Southeast Division of Toyota Dealerships rewards Bayside Toyota with another $3,000 of dealer cash incentive each time they sell a vehicle like this. Plus, this sale puts Bayside one vehicle closer to their corporate-mandated quota and dealer bonus check. Plus, they charge a $599.99 dealer fee (or something similar) on top of that.
Even at invoice price, the dealership might have anywhere between $2,000 and $4,000 dollars of profit to work with on a new vehicle. So imagine their margin at MSRP.
Strategies for Negotiating for a Car or Truck
You need strategies, because they have lots of strategies for how to sell to you. Some salesmen are highly trained salesmen, others are natural salesmen, and others are just going through the motions to feed their kids, but in general, salespeople have experience, knowledge, and a LOT of tricks of the trade.
What do you have? It better be more than jeans, a t-shirt, and some crumpled notes stuffed in your front pocket!
Here’s your plan:
1. Use the Internet
- Shop your vehicle on the various consumer sites
- Know what vehicle you want
- Know the MSRP
- Know the various options you want, which ones are most important, and what they cost (roughly)
- Find enthusiast forums for the vehicle you're about to purchase, join the forum, tell them what you're doing, and ask for tips and hints. You'd be amazed what people in these places know about the industry!
- Research your old car too, your trade-in. Know ALL THREE Kelly Blue Book values: Private Party, Dealer Trade-In, and Retail.
2. Know What You Can Spend
This seems like an obvious one, but whatever you do, DO NOT show up at the dealer without having firmly decided, yourself, "what your monthly payment could be.” This is a bear trap, and you will lose your leg.
3. Have Your Money
Deal with your own bank or credit union when it comes to financing. DO NOT go through the dealer. They use the terms of the loan as a bargaining trick, a price slider to confuse you, and in many cases they will mark up the interest rate they get from the lender.
Show up at the dealership with a Pre-Authorized Draft (a blank check from your bank, basically) and know that you are in charge.
Why are you in charge? Because you have the money.
I can just hear it now ... “But they have the car I want!” No. They have a car, a car that you want, and that they really want to sell you.
4. Be Upfront About Some Things
They will play psychological games with you. They're sizing you up, trying to figure you out, and trying to get you emotional about your purchase. Stay cooperative and down-to-earth. Let them know your intentions, and be honest about some facts. Tell them your name, and what you're looking for, and answer any general questions they might have.
- For example, "I am going to buy a Toyota Camry today," is an honest statement. It clearly shows your intentions, and answers an unspoken question the salesman has: Is this person buying, or just shopping? Think about it. If a salesman is trying to make a profit, and he thinks he is getting shopped, are is he going to offer his best discounts? Probably not. He offers his best deals when he knows a purchase is going to happen.
- "I'm working with several dealers right now, and I just want to be upfront about that. And, so far, I'm enjoying working with you." The first half of this statement had better be true, or I'm going to be VERY disappointed in you. If the second half of this statement is not true, do not buy from this dealership!
5. But Don't Show Your Hand
- Don’t get swept away right off. Supposing he shows you the vehicle of your dreams. It's perfect, it’s amazing. You think, “I NEED IT!” But what should you say? Something like, “OK, I see it comes with leather seats . . . that's pretty nice. The color is okay, not the exact color I was thinking. Not bad." Do yourself a favor and do NOT gush over the vehicle and beg to drive it. Wait for the salesman to offer the test-drive. You want to appear logical, calculating, and in control the whole time. Someone who is emotional is more inclined to throw logic to the winds. And they know this, and feed off of it.
- Be ready for this question, which they will definitely ask: "So what are you looking to spend?" Here, you have the advantage, because you know the answer. You know what you can spend, and you know what you want to spend. And they have nothing; that's why they’re asking the question. So don’t give up all you have unnecessarily.. If you can spend $25,000 to $30,000—the former being what you’d like to spend, and the latter pretty much breaking the bank—tell the salesman something like this. “Well, I really like this model, and this year, but this [other] model has this option that I really like. And you know, I'd like to come in right around twenty-two or twenty-three, depending on options and availability."
6. All the While, Watch the Numbers Carefully
Be ready with a pad of paper, and the whole time you’re in that cubicle working that deal, write down the numbers they tell you. You need to know the current figure of every number any time anything changes. That’s so they cannot inflate your trade allowance, and stuff it into the MSRP or the purchase price. Here are the typical numbers you need to be tracking:
- MSRP (generally includes options, processing, and destination fees)
- Purchase price
- Trade allowance (their offer on your trade)
- Dealer fee
- Title and registration fees
- Down payment
7. Be Confident
There are a lot of dealers, and that black, sleek, leather-trimmed V8 out there, with the word "Limited" badged on the back in chrome, is probably one out of 1,000 vehicles EXACTLY like it, that can be bought or sold at many other dealerships, besides the one that you're at.
If the deal is not going well ... walk out. Period.
So Here’s How You Cut the Deal
You just got back from the test drive. It was incredible. You could feel the engine rumbling in your belly. Just the fragrance of the barely-worn leather upholstery intoxicates you with anticipation.
The salesman looks at you. "So what do you think?"
You say, "It drives nice. I like this little feature, and this little feature, but I saw the sticker price. We're not really at my number yet."
This is when the "what-if's" start. The dealer looks at you. "Well, what if I can take $1,500 off that price? Would that help?"
"That's a start. I brought some notes, let's take a look at some figures."
Their first offer is just that. Their second offer is just that. It's the third offer, the fourth offer, and the stop-you-from-walking-out-the-door offer that you're trying to get to.
Use options to your advantage. They will try and get closer to your number by offering you less of a vehicle in some way, and unless your number is ridiculous, this is not an acceptable solution. You’ll say,"Well, I like this number we’re at, but this model doesn't have this and that, and your offer on my trade is a little low."
Get what you want for your trade, but don't be unreasonable. Since you’ve researched all three Kelly Blue Book values for your trade, you have a good idea what it’s worth.
Then he'll start throwing the what-if's out there again. What if I can throw in the DVD player, and the fancy tires, what if I give you X amount more for your trade. Would we have a deal then?
Don't say yes. Say, "We'd be closer."
He's going to ask "What is it going to take to earn your business today?" and at this point, after a few offers, a few demands, and a few counter-offers, you probably know what it would take to get you to pull the trigger—so tell him. Make him work for it.
"OK. I did it," says the salesman as he comes back from his brief meeting with the Manager. "We can throw in this bell, and that whistle, get it in that color, and give you this for your trade-in, but only if we have a commitment from you, right now."
Now you're almost at the end of the deal. You both know you're a couple turns of the screw away from a deal, and that's when you drop the competition bomb. "Well, I like where we're at here. I like the vehicle. This is a pretty good offer, I've made my notes” (and meanwhile you are actually doing that), “but like I said before, I'm working with a couple other dealers and this was my first stop on the list. So I need to at least see what they have to offer."
He suspects the other dealers are going to offer the same thing, but go that tiny bit further to make their deal better. So he's going to go that one step further himself, and sweeten the deal to keep you from walking. He's going to get up and leave again, and come back with a slightly better deal. This is the "closer.” This is as far as they will go, most likely. They will ask for a commitment.
If you like this last figure, then say, "Go back to your manager. Get a commitment from him, on this number (circle the number), with this trade figure, and these options, and if he says 'yes' we have a deal." This last request is insurance.
He'll come back with the deal you want.
So There It Is
When I started out on my own quest for a new vehicle, I not only researched the vehicle, but the salesmen, the dealerships, and the negotiating process—just like you're doing now. Research is worthwhile. It helped me seal an excellent deal.
I hope this review helps! It only scratches the surface of the techniques, strategies, and scenarios that could arise But I know I asked myself a lot of these questions, and the big one was "How much can I really get a dealer to come off his asking price without losing credibility and sounding stupid?"
The answer? See above : )
Be peaceful on your way,
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