Beat The Dealer
A Free Publication
by Ken Kreps
©2004, 2005, 2006, 2007, 2008 All Rights Reserved.
To read more articles and other works by author Ken Kreps, visit http://www.kenkreps.com.
Auto dealers have been ripping off their customers for years. It has become a way of life for many dealers and their salesforce.  It doesn't have to happen, and more particularly, once you understand their methods, it doesn't have to happen to you. As difficult as you may find this to believe, YOU CAN BEAT THE DEALER. I'm sure many of you think the dealer has the advantage in negotiating the price of a new car. Not so. Male or female, young or old, it really doesn't matter. You have the advantage. The dealer just doesn't want you to know it. Buying a new car need not be painful and, by following the steps detailed in this publication, you can get a great deal. Sound impossible? Read on.
In the following pages, you will find the complete, step by step process for getting the absolute best price when buying a new vehicle. I'll show you:
Please read this entire publication before setting out to buy any new vehicle. Beat The Dealer shows you what the dealer is actually trying to do when they sell you a car. The friendly sales person who seems to have your best interests in mind, actually has only one goal from the moment you walk through the showroom door, and that is to separate you from as much of your money as is humanly possible. Once you understand how dealers operate, and the methods they use, you'll be able to use the straight forward information contained in this publication to buy an automobile at the very lowest price. You need not be an expert negotiator to get a great price on your next new car, as the buying steps explained in this publication will do the negotiations for you.
I've purchased many new cars for years at prices ranging from one to five percent over the actual dealer cost. Those words "actual Dealer Cost" are important and this topic will be discussed later in this document. For now, however, just remember this. The dealer cost shown on an automobile's invoice is not a true representation of what the dealer paid for the car. They paid less, and often it was quite a bit less.
I will not be discussing trade-ins as I never trade an old car in on the new car. Instead I sell it independently from the new car purchase. The Edmund's web site (mentioned a bit later) can help you determine the realistic worth of your old car as a trade in. Remember, however, the better deal you negotiate on the new car, the less they will want to give you for the old car. Be firm and get what it's worth or do as I do and remove it from the new car purchase entirely.
While many of us treat the trade-in, the new car purchase and the financing of the new car as three separate transactions, dealers do not. To them it's all one transaction with the end result of putting as much money in their pockets as possible. It's for that reason I remove the trading in of the old car from the equation.
THE DEALER'S EDGE
The first thing you need to know is that dealers count on the fact that most people don't like the negotiation process. This is their edge and they play it for all it's worth. Some have gone to the no haggle, no negotiation plan whereby they post an already discounted (in their words) price on the car, saving you (again, their words) the headache of going through the negotiation process. DON'T YOU BELIEVE THEM!! Unless, it's a car that you simply must have (like a Saturn), don't buy a car from a dealer who will not negotiate. Find a dealer, offering the same car, who will negotiate and you'll save money.
Getting a great deal requires more than simply showing up at a new car showroom. You must do your homework before you ever step foot in the showroom. You need to know the dealer's cost of not only the automobile, but also any option you're interested in having on the car. You also need to know about and understand two other items called holdbacks and dealer incentives. I'll get to those shortly. The Edmunds Automobile Buyers Guide (http://www.edmunds.com) has a great free web site, showing the list price, dealer price, destination charges, dealer incentives, specifications, and reviews of every new car, foreign or domestic. A list of dealer holdbacks for every make of automobile may be found at The Edmunds Automobile Buyers Guide manufacturer holdbacks (http://www.edmunds.com/advice/incentives/holdback/index.html)
Once at their site, jot down or prepare on your word processor, a sheet containing the list price (MSRP) and actual dealer cost of the car that interests you. Be sure to include the same two figures for all options you want, plus the destination charge. Put the dealer cost column to the far left of the page as this is the column from which you will negotiate. The MSRP (sticker) price column has no real value in the negotiation process, but it's nice information to know. There are, by the way, web sites, other than Edmunds, that offer much of the same automobile buyers information. If you know of one or happen to find one that you like (by using a search engine), by all means use whatever information you gather from it that you want. My personal favorite is the on-line Edmunds Buyer's Guide as I feel it's the most complete site of its type around.
Here's a hard and fast rule. Never negotiate a price on a new car from the list price, down. The dealers love it when they see this is your negotiating strategy. When a person tells you they got a great deal on a new automobile and then tells you how much they got off the list price, they are actually telling you two facts. (1) They don't know a whole lot about buying cars and (2) they probably paid a good deal more than they should have for their new automobile. Depending on the car, most MSRP (list) prices represent a ten to fifteen percent profit for the dealer, over their actual cost. A few autos have a profit margin a few percentage points lower, but not many. Here's a second hard and fast rule. When buying a new car, always negotiate from the "actual" dealers cost, up. I know this is contrary to what many of you have done in the past, but it's the only way to negotiate the absolute best price when buying a new car.
We've all seen the display ads in the automobile section of the classifieds which have a sidebar showing the MSRP and a discount of $1,500, $2,000 or more off that MSRP. What should this tell you? It says this is either a car which is not selling well or one that the dealer wants to move before next year's models arrive. Either way, by negotiating from dealer cost up, there are even more savings to be had than are shown in the dealer's ad. Even when they're dealing with cars as described above, dealers will almost always try to make you think you're getting a better deal than you are really getting.
THE DEALER VISIT
Your timing as to when you visit a dealer has a direct bearing on your negotiation power. The best time is late in the month (two or three days prior to the end) and about an hour before the dealer closes for the night. Most states charge a floor tax for automobiles in the dealer's possession at the start of each month. Also, the dealer must pay interest each month to the bank or lending institution who financed the purchase of the car from the manufacturer. Like most of us, the dealers do not pay cash when they buy automobiles. If the dealer can sell the car before the next month arrives, they avoid paying the tax and/or the interest. Go late at night and have a good meal first. They've had a long day and want to go home while you, on the other hand, should act like you have no concept of time and have all night.
First comes the test drive. A word of caution: Even if you think this is the finest, most sophisticated automobile you've ever driven, do not get all gushy about the car in front of the sales person as this could tend to weaken your negotiating position. Some prefer to test drive the automobile in a preliminary visit and then go back later for negotiations while others like to do it all in one visit. Neither method offers an advantage over the other and, providing you're properly prepared, you should choose the one with which you feel the most comfortable.
After your test drive and other small talk preliminaries, go to your car and bring your worksheet to the negotiation table. Have it in a briefcase with a calculator, a note pad and a pen. You've already started to gain a slight advantage when they see you bring this in, as they know you're not an easy mark. Start the negotiations by telling the sales person you know what the car cost the dealer and you're prepared to offer them a fair profit of XX percent over their cost (plus the destination charges). The XX should be two to five percent depending on the popularity of the car, and the dealer profit should be between $400 and $1,000. One word of caution. If the car you want is one of the really hot sellers (usually one that hasn't been out a long time) you may not be able to negotiate at all. If there's a waiting list for the car, the dealer knows he'll sell every one he can get his hands on as soon as it comes in and, therefore, has no need to negotiate. There was no negotiation on the Dodge Viper when it first appeared and there was no negotiation on the Chrysler PT Cruiser when it first arrived. Dealers had such long waiting lists for the PT Cruiser that some tried to gouge the consumer by adding thousands of dollars to the sticker price. If you want such a car, my advice is to wait until the demand has cooled down or choose another automobile.
Start the process by giving the sales person your offer (which you've computed prior to visiting the dealer). Remember, use this formula to compute your offer: Actual dealer cost (see Actual Dealer Cost Section) plus the dealer profit percentage (usually two to five percent) you want to offer plus the destination charge. As an example you want to offer four percent dealer profit on an automobile that has an actual dealer cost of $20,156 and a destination charge of $450. Four percent times $20,156 = $806. Now, add the $806 to the dealer cost of $20,156 which gives a sub total of $20,962. Add in the $450 destination charge for a final total (and offer price) of $21,412.
They will usually counter your offer by saying they couldn't possibly sell the car for that price and then give you an offer which will be a discount off the list price. He or she may even laugh at your offer or make fun of it. Make it clear to them that you only negotiate from the dealer cost up and not the list price down. Restate the offer you gave them without changing it. By now they know you're a serious, well prepared and determined buyer.
Stick to your offer. They'll often say, "Hey, we came down $500, how about coming up $500?" This is an old negotiation ploy. Counter it by saying something like, "I'm really not here to negotiate further. You have my offer." Every time they come down, stick to your original offer. They're playing hardball and so must you. If they ask the old question "What must I do to get you to buy a car, tonight," answer by saying, "All you have to do is meet the price I have on the table."
Be prepared for the test drive and negotiations to take as much as an hour or two. If they mention it's late and they're sure you want to get home, tell them you have plenty of time. They'll try to rush you through the process because when people are rushed they sometimes make mistakes. Dealers will try to quickly get you to accept their terms. You, on the other hand, will firmly be showing them that the only way they'll be able to sell you an automobile is by accepting yours. If they try to speed things up, you should slow them down. Don't be smug or cocky & .just calm and very determined.
One of two things will happen. They'll finally agree to your price or it will be obvious that there's still a gap between your offer and theirs that cannot be bridged. Once this is determined, walk for the door. Don't say you're going to walk for the door, but thank them, get up and walk to your car and drive away. I've done this three times in my years of buying cars. Twice I was stopped at the front door of the showroom by the Sales Manager saying, OK, they would meet my price. The third time, I was able to get my price from another dealer. If they don't stop you from leaving, drive away and look elsewhere.
SALESMEN'S PLANS, PLOYS AND PRESSURES
The professional success of car salesman varies greatly. Some do very well and make high six figure yearly incomes while others barely get by. However, be they rich or poor, most car salesmen operate under a quota system. This is not a situation unique to automobile salesmen as most sales professionals operate under some sort of quota or target system. Car salesmen are under pressure from their sales managers (and the sales manager from the dealership owners) to sell a high number of automobiles each month. While the salesperson (many women also sell cars) may seem like they have your best interests at heart, ninety nine percent do not. What they have is a great desire to (1) keep their job and (2) make a high figure salary. To do this they must sell cars & .any car, even if it's not the car you had in mind when you entered the dealership.
Remember, the automobile sales person sells cars every day and you only buy one every few years. They know what buttons to push in your mind and when to push them. They do this with strategically timed questions that are carefully formulated to get the proper response from you so that they may, in turn, direct and control the sales process in their favor.
A favorite sales ploy which car buyers often run into is the sales person or sales manager asking something like, "How much are you prepared to spend on a car?" Never give an exact dollar amount as an answer. This is true even if you have a set figure in mind (and you should) that you will not exceed for your new vehicle. Instead, answer by saying, "I really haven't decided," or "That depends on the type of deal I get." Whatever your answer it should not be in the form of a definite dollar amount, but instead, should be very vague.
A variation of this same question is, "How much would you like for your monthly payments to be?" Again, never, but never answer that question with a set dollar amount and again, be quite vague.
The sales person wants you to answer these question because, once you have committed to a definite dollar amount, they can work from that amount and tailor the deal to meet the figure you committed to instead of the total sales price of the car. This allows them all manner of flexibility in inflating the total "out the door" price of the car.
Another ploy often used by car salesmen is to say, "You know, I have another party who wants to buy this car." He or she is implying that you'd better hurry up and make a deal or they can sell the car to someone else. The simplest way to combat this ploy is to tell the salesman to go right ahead and sell it to the other party and you'll be happy to talk to him or her about another car just like it. If they say they may not have one like it again for X number of days, counter by telling the sales person that you'll be back in that same X number of days, unless of course, you're able to find that car at a competing dealer. That usually put an end to talk about someone else being interested in the car.
Always remember, the sales person wants you to feel pressured into making a deal quickly. If they can get you to feel that pressure, they are in control of the sales process. Refuse to be intimidated and refuse to let them take control of the process.
Sooner or later, the sales person will do the old, "I have to talk to my Sales Manager," bit and leave the room. In fact, throughout the course of the negotiations, they'll probably do this several times. Depending on state laws (or the outright dishonesty of a dealer), some client rooms in auto dealerships are actually wired for sound so they can hear anything you say (to anyone with you) after you think you're alone. Or, more simply, they may leave the phone on the desk on intercom mode which enables them to hear every word that's said while they're out of the room. Use this to your advantage by making comments such as, "Nice car, but if they won't meet our price, we'll just have to look somewhere else." Obviously, many dealers do not resort to this type of tactic, but be aware that some do.
ACTUAL DEALER COST
Almost all automobile manufacturers offer their dealers something called a "holdback". A holdback is a percentage of the MSRP which the manufacturer rebates back to the dealer after the car is sold. This effectively lowers the total cost the dealer pays for the automobile. Holdbacks are usually somewhere between one and three percent. Really hot selling cars often have no holdback or a very small one.
You also need to know about Dealer incentives. This is still another discount of one or more percent, that automobile manufactures sometimes give to dealers once they have sold the car. These are usually given on cars that are not selling all that well and are not as numerous as are holdbacks. The on-line Edmunds Automobile Buyers Guide will alert you to both holdbacks and dealer incentives on any given vehicle.
Therefore, the actual dealer cost is computed as follows: Published (invoice) dealer cost (including all options) less the holdback, less the dealer incentive (if any). We've all seen ads which proclaim the dealer will sell you a particular car for "Only $50 over dealer cost and we'll show you the invoice." Now you know how they're able to do that and still make a tidy profit on the car.
When adding your two to five percent onto "actual" dealer cost (to determine your offer to the dealer), don't apply that percentage to the destination charge as it's a set and non-negotiable fee. Just add the destination charge, as is, to your offer. Mention the holdback percentage and dealer incentive to the dealer, as it's another clear signal you're a prepared buyer. Some dealers will deny they exist. Others will tell you your information is outdated or that they're not part of the negotiations. Don't believe them!! Holdbacks and dealer incentives exist and are part of the deal because you made them part of the deal.
ON-LINE BUYING SERVICES
You've probably seen the ads or visited the web pages of on-line automobile buying services who tell you they can save you money over what the average buyer pays for a car. This fact is true since the average buyer pays so much more than they should for a new vehicle, almost anyone who can save you anything can probably do better than the average buyer.
There are two types of auto buying services & .those which are free and those which are not. The free services often ask you to give them a good deal of information about yourself so they may have a representative from a local car dealer call you with a quote. Once you do this, you will, indeed, receive a call or e-mail and a quote from a local dealer. That quote will be a certain dollar amount off the MSRP for the auto in which you are interested. It may sound attractive, but it's usually far from what you can do for yourself by negotiating the price of the vehicle from actual dealer cost up. Also, the sales person will hound you until they are convinced you're not going to buy or until you do. Free buying services make their profit by steering you to dealers and by selling auto insurance, financing and other miscellaneous automobile related products and services.
For-hire buying services charge you a fee for, as many of them like to call it, the hassle-free way to buy a car. For a fee, usually between $100 and $200 dollars, they will negotiate the entire deal for you. They really don't do all that much negotiation. Instead, they have working relationships with dealers and pretty much know, in advance, what price they can get for you on a particular automobile. The price they come back with may also sound attractive, but again, you can do much better negotiating for yourself. Very large buying services often get a volume or fleet discount on all they buy, but except in rare occasions, even this is not usually as good as you can do for yourself. This type of buying service makes their money from the fees their clients pay and many also make additional revenue by selling insurance, financing and other services and products for automobiles. Dealers, by the way, love this type of service as there is no sales commission for them to pay. This allows them to offer the car for a little less and still make more profit and best of all, you paid the buying service fee, not them.
Both types of buying services keep close business ties with the dealers. Because of this the for-hire services are not going to lean on a dealer all that much for any particular car, because they have to do business with that dealer next week and so on. The free buying services are not going to lean on the dealer at all as they are merely a referral service.
There's an old adage that says, "If you want something done right, do it yourself." That certainly holds true in the case of buying a car. You are not trying to build a strong business relationship with the dealer and, therefore, can be much more aggressive in your dealings with them. Unless the very thought of stepping into an automobile dealer's showroom and discussing prices makes you ill, I suggest you avoid automobile buying services.
YEAR END CLOSE-OUTS
We talked about what happens before the new models, for next year, arrive. Now, lets discuss the opportunities which are presented to you after they arrive. This may be the one time each year when dealers lay it on the line with their customers. When next years models arrive, dealers really become motivated to move the remaining cars from the previous model year. Many, if they can break even with actual dealer cost, will sell the automobile for that price. They know when the new models arrive the older (but still new) models from last year will be much more difficult to move. If you can live with last years model (which, in some years, are changed little from the new model) offer the dealer his actual cost and see what happens. Not all dealers will sell it for that price, but many will. If they won't sell it for actual dealer cost, they will sell it to you for very little over that. I've known of some dealers who wanted so desperately to move last years models off their lot, they not only sold them for actual dealer cost, but also waived the transportation charges as well. If you're buying at the right time of the year and you don't absolutely have to have the latest creation off the assembly line, you can save big time at year end close-outs. One way to determine just how motivated a dealer might be to move last years models is to take a stroll around his lot and count the number of last years models you see. Make sure you look at all the lot (both front and back). If you see only a few of last years models, the dealer is motivated but probably not all that much. On the other hand, if you find a lot of new cars from last year, you have found yourself a highly motivated dealer and that's the type of dealer with which to discuss a close-out model purchase. One word of caution: Wait until the new models are actually on display before inquiring about automobiles from the previous model year.
ZERO PERCENT FINANCING
The latest buzz word to sweep the new car industry is "zero percent financing." What this means at face value is that a dealer will grant you an interest free loan if you buy one of their vehicles. It sounds like a great deal and in some cases, it is. However, as is true in most automobile transactions, everything is not always as it seems. Automobile dealers are not likely to sell many vehicles in which they do not find a way to turn a tidy profit and zero percent financing is no exception. Never forget that, as the person who controls the money the dealer wants, you have the final say as to all terms which make up an automobile purchase contract. You control those terms with your wallet and with your feet by how much you pay or by walking out the door if the dealer will not meet your terms. The ways a dealer, offering zero percent financing, may entice you to pay more than you should for an automobile are numerous and varied, with some of their more favored tricks being as follows:
Finally, please understand that some zero percent financing offers are exactly what they say they are, with no unusual restrictions. If you find such an offer on a vehicle you like, take it while proceeding ahead with the other proven methods, shown in this document, for securing the best price on a new vehicle.
First and foremost, you should study a zero percent financing offer from all sides before deciding to proceed further or walk out the door.
Leasing an automobile instead of buying it has been available and popular for quite a few years. I'm sure you've heard that the payments are lower when leasing than when buying and you need put little (or none, in some cases) down up front. Both of these statements are absolutely true. Now comes the dark side. If you drive a great deal, a lease will cost you a bundle. All leases specify a maximum number of miles that may be driven on the vehicle each year and you pay a penalty (usually fifteen or twenty cents per mile or more) at the end of the lease for all miles in excess of the total maximum allowed. You can buy the automobile at the end of the lease for its residual value or you can simply walk away. Well, maybe simply walk away isn't exactly the right phrase as you will pay for any real damage to the car as well as any excess mileage. Additionally, many dealers charge you a lease termination fee of anywhere from $250 to $500 dollars. Also, you need to know that buying an automobile at the end of a lease will cost you more overall than if you had simply purchased the same vehicle when it was new.
However, by mentioning these facts, it is not my intention to talk you out of leasing as opposed to buying your next automobile. Some people prefer to lease and, if you're one of them, that's your prerogative.
What I do intend is to pass on a little known fact about leasing. You can negotiate the price on a car you're leasing just as you can on one your buying. When you see an ad telling you the lease on a certain model is only $399 per month, that $399 monthly price is based on the full list price of the vehicle. You wouldn't pay list when you buy it & .don't pay list when you lease it. Use all of the strategies detailed in this document to negotiate the price and then once they've agreed to it, tell them you want to lease. Then duck!! No, even though they won't like what you're doing, they won't hit you but they may try to trick you with something called the money factor. Money factor is a strange term that means monthly interest, but it's used only on leases. Be sure the money factor (which is represented as a decimal figure) is equal to the going interest rate (which is represented as a fraction) you would have paid had you purchased the automobile. A quick and simple way to compare interest rates with money factors is as follows:
1) To convert a money factor to an interest percentage, multiply
the money factor by 2400 The resultant number is the equivalent interest
2) To convert a percentage to a money factor, divide the percentage amount by 24. The resultant number is the equivalent money factor.
Finally, be sure your lease is a closed end lease, meaning that you may walk at the end paying only for excess mileage, damage and any final fees.
As I said, leases are tricky and offer even more wiggle room for the dealer than do sales, but if you must lease remember the three rules of leasing. Negotiate, negotiate and negotiate.
No discussion of buying an automobile would be complete without mentioning emotion. Probably no other major purchase people make is as steeped in emotion as is the purchase of a new car. Remember, emotion is the dealer's friend and the buyer's enemy. Giving in to emotions while negotiating the price of a new automobile is the most serious mistake made by car buyers. It can literally cost you thousands of dollars.  Emotions can turn an otherwise well planned, well prepared, well executed automobile buying trip into shambles in a heartbeat. Suddenly we feel a rush of passion for that beautifully engineered piece of metal and plastic and all reason abandons us in a flash. We must have it. We see ourselves driving down the street as heads turn to admire our new, beautiful car. We imagine how good it would make us feel to get into that particular car each day. You can be passionate about your spouse, your children, your golf game, the local sports teams, and many other aspects of your life, but never let emotion get in your way when you're buying a car. The dealer loves it when you do, but treat it as a business decision, keep a clear head and you will come out many dollars ahead.
Also, a few dealers (fortunately, not many) will try mild insults to get you to believe they're not at all impressed with your knowledge or strategy. This type of dealer approach tries to make you believe they know much more than you do about buying autos. Actually, in most cases, they do know more than you do, but you know what you need to know to negotiate a great deal on a car. They may try to tell you your knowledge is wrong, out of date or simply that this is not the way cars are sold. Remember this & . If they weren't concerned about the strategy you're using, they wouldn't bother to insult you. Not many dealers resort to these tactics, but you should know that a few might.
When Barry Bonds steps to the plate, he knows he possesses the skills and know-how to knock the ball out of the park. It shows in his attitude and it is that attitude which allows him to excel. I once had a college professor who said that confidence and conceit are the same emotion with the exception that conceit is turned outward and confidence is turned inward. He was absolutely correct. The attitude and confidence with which you conduct yourself while in the dealership has a direct bearing on your success or lack of same, when you purchase a new vehicle. Don't misunderstand this to mean that you should be cocky or arrogant as nothing could be further from the truth. Car salesmen are just like everyone else in that they do not react well to smart alecks. Instead of being obnoxious, you should display a firm, confident and informed attitude as well as exhibiting that you are well prepared for the task at hand. When you have completed reading this document, you'll have the necessary knowledge to become well prepared, prior to your visit to the dealer. Above all, be polite. Remember, the majority of new car buyers do not approach the job like you will. You probably won't be the first well prepared buyer the salesman has seen, but he sees far more buyers who are not prepared than those who are. He (or she) may be a little on edge when they see you are unlike many car buyers. Therefore, being polite, resolved and business like will be to your advantage. On the other hand, don't be overly friendly by engaging the sales person in a lot of small talk. A little small talk at the beginning is fine, but then it's time to get down to business.
One final piece of advice. Act like you love the negotiation process. I really do, and have enjoyed the buying process of every car I've purchased. But, even if you don't, act like you do. The dealers hate that and it helps increase your psychological edge.
A final word of caution. After you have made a good deal on the new car, watch for the many add-ons they'll want to sell you (special protection for this or that and extended warranties). I always say no to all of those as they are high profit items for the dealer. Particularly, be on your guard for a dealer prep charge. This, in essence, is a charge for getting the car ready for delivery. It usually amounts to little more than, gas, oil and other fluids, a wash job, checking the air in the tires, removing the protective plastic from the seats and a short test drive. Many dealers want to charge you hundreds of dollars for this service. What makes this charge even more ridiculous is that the dealers are paid by the auto's manufacturer to do the dealer prep. It's a scam, pure and simple, and I have simply refused to pay it. They won't lose a sale because of it and most dealers will (if they have one) do away with it if you complain strongly enough.
Another charge some dealers try to collect is called an advertising fee. Some dealers tell you this is always passed on to the consumer. Of course we all pay for the advertising costs of every product we buy, from a soft drink to a new suit. But this cost is usually blended into the total cost of these items and is not charged as a separate fee. An advertising fee is simply another "gimme" for the dealer. I never pay it and neither should you (see addendum dated April 19, 2007 at the end of this article).
Recently, while buying a new car for a person, I was presented with an official looking "cost breakdown" that included the following items added to the dealer cost: Per unit (car) overhead including real estate costs for water, sewer, garbage, electricity and other dealer costs of doing business, B&O tax, the above mentioned advertising fee, sales commissions, the dealer's monthly interest to floor the vehicle, and finally, prep and handling including lot attendants and car cleaning supplies. The total for all of this was $1,731 which the dealer tried to tell me was overhead that should actually be added to the cost of the automobile. Of course, I ignored their fake official document, refused to pay it, and all such nonsense charges were dropped by the dealer. Some dealers, once they realize you are making your offer based on their actual cost will use this ploy to artificially inflate the dealer cost for the vehicle. This particular car was one of the new, high demand autos and I still closed the deal by paying 5% over actual dealer cost. MSRP for this particular automobile was 16% over actual dealer cost.
Also, watch the interest rate they want to charge. Many dealers will make up part of the profit they lost, due to your good negotiations, by an inflated interest rate (even from a bank, who often pays the dealer a finders fee or percentage kick-back for directing customers their way). Here's something you should know and tuck away for future reference. Most Finance Managers at auto dealerships work on some sort of commission or bonus arrangement, with this commission or bonus predicated on how high of an interest rate they can write into your contract. The friendly banter from the Finance Manager is done in such a way as to make you believe that the negotiations are done and he or she is just wrapping up the paper work. Not so. If you are letting the dealer arrange your new car financing, the deal is not over until an interest rate for your loan has been agreed upon. Just as the price of the car was negotiable, so is the loan interest rate. Again, do your homework. I strongly suggest you make buying a car and getting financing for that car, into two seperate transactions. Know what the fair new car interest rates are for your area and, if possible, visit your bank or credit union so that you have pre-approved credit before you visit the dealer. You should get the pre-approved credit in writing. Don't, by the way, mention to the dealer that you have pre-approved credit until after the dealer has agreed (also in writing) to your price.
Always get the final deal in writing from the dealer. The written agreement should include the exact itemized total price you are paying for the automobile as well as any promises, concessions, commitments or side agreements made to you by the dealer. Never, never leave the dealership with any dealer promise done in the form of a verbal agreement only. Doing so gives you no recourse if, after you've signed the sales papers, the dealer reneges on a verbal promise. Be firm a and tell the dealer that every detail of the purchase must be presented to you in a written agreement (signed by the dealer) before you will purchase the car.
It may sound as if I'm being unduly hard on automobile dealers. As previously stated, many are nice men and women and I mean them no disrespect on a personal basis. Dealers range from those who are extremely honest to those who are not However, buying a car is one of the last sales arenas whereby a price for the cost of goods is negotiated. To be sure, real estate also has its "asking" and "offered" prices (where usually a common ground is found somewhere in between), but the purchase of an automobile is still the last vestige of retail horse trading left in the United States. It's also the last type of major sale in which the seller knows some facts about the cost they don't want the buyer to know. You must be just as tough with the dealer as they plan to be with you if you expect to negotiate a good price on a new car.
OK. You now have the necessary information to go forth, do battle and come away with a great deal. Do the proper preparation, keep a positive attitude, have some fun and enjoy that new car.
Addendum, July 28, 2004
OLD DOG, NEW TRICKS
There is an old saying, which says, You can't teach an old dog new tricks. Maybe so in a lot of areas, but not when it comes to buying a new car. Yesterday, we took delivery of a new car from the dealer. It's the first new car I have negotiated for myself in four years. I've negotiated cars much more recently for others but not for our family.
The new trick is that for the first time, I did all the negotiations with the dealer entirely by e-mail instead of in person. What I learned from that experience is worth passing on.
Many of you may have noticed, when visiting a dealer's web site that they mention an Internet Sales Manager. Usually you can find an e-mail address for them under Contact Us and/or they will have a form you may fill out on their web site to request an e-mail quote on a particular automobile.
Or you can do like I did and use edmunds.com (or one of the many web sites like Edmunds.com) to receive a quote or quotes about the automobile you have in mind from dealers in your area. However you approach it, you will be dealing with the Internet Sales Manager.
I received an interesting response from a dealer near me, which while containing an attractive offer, was still not quite what I was looking for. The fact that the offer was that good, however, ($312 dollars over Dealer invoice) was my signal that here was a dealer who was highly motivated to sell cars. I countered with an offer that was $54 under dealer invoice. I told them this offer was good until noon, Monday (the next day) and, if I did not hear from them by then, I would assume they were not interested and look elsewhere for the car. While it would have been nice to get my offer, what I was shooting for all along was to buy the car at dealer invoice. This, by the way, was for one of the more popular automobiles sold in the United States.
The same rules about how to buy a car and how to handle the sales visit apply to buying a car over the Internet. And, make no bones about it, the dealer's representative will utilize the very same tricks in e-mails as they do in person. When I mentioned the 3% holdback on that manufacturer's complete line of cars, the Internet Sales Manager told me the holdback was returned to the dealer in a different way and didn't actually lower their price on the car. This of course was simply not true.
This particular auto manufacturer also was offering its dealers a $500 marketing support allowance on all models they sold like the one I purchased. Again, the Internet Sales Manager told me this wasn't true, when, of course, it was.
Russ (not the Internet Sales Manager's real name) came back and said they were offering me a great deal and were only making $312 dollars total on the deal. He then said I had been rude with my offer and he chose not to sell me a car at all. Internet or not, this is an old trick to which I responded I was sorry if his feelings had been hurt (knowing full well that they really hadn't been) and this was a business decision I was making, not a personal one and I had no intention of being rude. I also told him that my offer still stood within the same time frame.
He countered within a few hours that selling me the car for dealer invoice
(including the destination charge) was a low as he could go. Since
this had been my goal all along, I quickly sent an e-mail to him and accepted.
For those of you who still consider MSRP as a viable figure (I never do!!)
my final purchase price was $2,646 below the MSRP. However, this
dealer had also added a $3000 phony value added figure to the
car's sticker price, making that dealer's asking price for the car $5,646
more than I paid.
With the 3% holdback and the $500 marketing support allowance, the dealer made slightly over $1,300 by selling me a car at dealer invoice. While this is slightly over the $400 to $1000 dealer profit range I usually pay for new automobiles, I justified paying it by the fact that this particular car is one of (if not the) top selling cars on the market and all of its dealers will sell out their inventories within a few months. Still, had it not been near the end of the model year and the end of the month, my negotiating position would not have been as firm. Of course when they sell one at their marked up (by $3,000) phony list price, they make over $6,000 on that same automobile.
I don't at all fault the Internet Sales Manager for trying to get me to pay more for the car than I did. That is his job. Actually he turned out to be quite a nice and likeable guy when I met him to select a color and finalize the paper work. As we were doing the papers I asked him if anyone actually paid the $3,000 over the MSRP on the car I'd bought. He smiled and said, More people than you think. And then he added, That's why we can afford to sell the car to someone like you at dealer invoice. This means some unfortunate and un-prepared buyers paid over $5,600 more than I did for the very same automobile. This is as good an object lesson as any that it pays to know what you are doing when you buy an automobile. Walk into a dealership blind, dumb and happy and you are just asking to be taken to the cleaners.
Will I buy another car this way? I'm not sure. Since I love the negotiation process, buying a car this way is just not as much fun as it is in person. On the flip side, it is less time-consuming. The process took two calendar days, but my entire actual time on the Internet for the transaction was probably no more that 45 minutes to an hour. It's hard to get your price in that timeframe in person.
However, if you are one who really hates the process of sitting across the table from a new car salesman, buying this way may offer some real benefits for you.
I would offer one word of caution. You must do exactly the same type of preparation you would do if you planned to walk into a dealer and purchase a car. And, if you do not get the price you are looking for, you need to be prepared to walk, end the Internet transaction and look elsewhere. When I told him he had until noon, Monday to accept or reject my offer, I was dead serious. Had they not have accepted it by then, I would have began my search elsewhere. Never bluff when it's time to walk. Just do it!!
So, old dogs really can learn new tricks, after all and this trick was interesting enough to share with you.
Addendum, April 19, 2007
A NEW WRINKLE
As the car buying public becomes more sophisticated, with the advent of articles such as this, Edmunds.com, and other Internet resources, so then has the automobile industry in devising techniques to combat this more informed customer base. Knowing that more buyers are using the dealer invoice price to (1) calculate the dealer's actual cost, and (2) then use that actual cost to calculate their offer on any given automobile, the dealers and manufacturers have found a gimmick to artificially inflate the dealer invoice price. More and more, you will now see an item on a dealer invoice called an "advertising fee". In essence, many dealers are now saying that the manufacturer's cost of advertising is passed on to them and they, in turn, must pass it on to the buyer. As I have said earlier in this article, we all pay the cost of advertising everytime we buy a pair of shoes, toothpaste or anything else, as it is rolled into the final price. However, the automobile industry is one of the few places where we can see it as a seperate line item cost. This is, in a word, rubish, as either the dealer or the manufacturer will list this as a business expense on their tax forms and decuct it from their income. Deducting it from their taxes and charging the car buyer for it is double dipping, plain and simple. Edmunds.com and other similar Internet sites do not list the advertising fee as part of the overall dealer cost and this causes the buyer a problem. One way to combat this is to tell the dealer what their invoice price is (as stated in Edmunds.com). When the say, "oh, no," it's higher, ask why. When they mention the advertising fee, ask how much it is, and when they tell you, mentally deduct it from the dealer invoice price and tell them you will not pay for the dealer's or manufacturer's advertising cost as that is part of the cost of doing business. Be prepared for the salesperson to get a pained expression on their face and and shuck and jive into a long explanation as to why the advertising fee is part of their actual cost on the vehicle. As I have stated in almost all parts of this article, be firm and stand your ground, and always remember, the last thing they want to see is for you to get up and walk out the door.
Realistically, some dealers will tell you the amount of the advertising fee and others will not. If they will not then you will have to assume the difference in the published dealer cost you obtained from one of the auto Internet sites and the dealer cost they give you represents the advertising fee. Or if you feel they are really giving you a song and dance, leave and go to another dealer.
However you choose to handle it, this is a dealer tactic, of which you need to be aware.
Remember, when buying a car, Knowledge Is Power!!
This document does not, in any way, guarantee you will be able to purchase a new vehicle at any pre-determined price over and above the dealer's cost. Nor does it guarantee you will be able to purchase a new vehicle at any pre-determined percentage over and above the dealer's cost.