Believe it or not, car buying isn’t as much of a hassle as it used to be – the reason is simple: There’s so much available information through internet sites.
If you’re looking at a new car, it’s now possible to see exactly what the dealer paid – and, I’m not talking about the ‘dealer’s invoice’; that’s a marketing ploy, as is the manufacturer’s suggested retail price (MSRP).
The thing to remember is that car dealers like ‘moving parts’ in a negotiation. The more moving parts there are, the more they can manipulate. Moving parts include:
- The price of the car
- Trade-in value
- Fees and other add-ons
They’ll ask about whether you want to buy or lease and whether you have a trade-in.
Whether you want to buy or lease, whether you have a trade-in or not, you want to begin with this:
- It’s about the price, not the payments.
- You’re paying cash. If they ask about leasing, say “No, thanks.”
- You have no trade-in
You’ve just removed two of the moving parts. So, here are your steps along with my little story:
- Test-drive the cars you’re interested in at various dealerships. They’ll ask you about your trade-in and whether you plan to lease or buy. Remember: No trade-in; you’re paying cash. If you like a car you driven, ask for the literature on the car, including the `trim line’.
- Do your homework. Consumer Reports has an excellent car buying site, as well as a service, for both new and used cars. It’s worth paying for the reports on the cars you’re interested in. Once you’ve decided on a couple of candidates, it’s time to get your ducks lined-up. Whether you plan to lease or buy, you should know your credit score, which you can also find online. If you plan to finance, you might check out some local credit unions, your bank, or something like LendingTree.com and get pre-qualified for your loan. When you’re all ready with homework and financing completed, head back to the dealership(s). Take your homework with you.
- Re-Test, if necessary. Need to test-drive again? Do
- Get Extra Fees in writing. When the salesman asks you to sit down; remember negotiating isn’t about ‘winning’ or acting tough. It’s about helping him see your side; but begin with this:“Before we begin talking about the car, can you give me an itemized list of the extra fees that will be added to the price?” A reputable dealership will do it readily and easily. Mine was very cooperative. When I asked, he said said, “Sure!” and ran out of the room, returning in 30 seconds with a computer print-out. You can expect vehicle registration, license, etc.; but if `dealer prep’ charges are there, cross it off in front of him – they didn’t try to charge it in my case. You’ve just removed the last remaining moving part. Now, it’s about the cash price.
- The negotiation. It’s amazing what objective third-party numbers can do to solidify your position. Now, remember, the dealership has to make money. They have overhead, payroll, etc., like any other business; but, once armed with the true cost the dealership pays, you’ll know about how much profit you can reasonably build-in. As I said, the Consumer Reportswebsite will be helpful, here. Make your offer – of course, you’ll low-ball a little; but those third-party numbers and your transparency makes your case pretty compelling. And, of course, the salesman has no ‘moving parts’ to play with. It’s strictly about the cash price.
The last time I did this, the salesman was very nice; but, quick and adamant that he just couldn’t meet my price – big surprise.
I smiled and said, “I understand. You’re probably right! The car may indeed be worth more than this… I guess I’m simply negotiating for the wrong car!” I was packing my things as I said it. There was a $4,000 spread. But he insisted it was the right car, despite the fact I had done my homework on others.
Short version: He wanted to move that unit. The dealership came down $3,000, if they could handle the financing (he makes a commission on the financing, too). At the time I did this a little over a year ago, I had already put financing in place at a very low rate ; he came back and said he quoted a slightly lower rate with no prepay penalties, blah, blah, blah. That was fine with me. At that time, rates were SO low, it was questionable whether I should pay cash when I could use the money to add technology to my planning practice, since it would earn more there than I would be paying in interest.
Quick note: When you see 0% financing offers, the dealership is building the financing into the price knowing they can work with all the ‘moving parts’.
What if they don’t meet your price? You leave. After all, there are other cars and dealerships. Let him know, “I’m not saying `no’ to you; I’m saying this isn’t the right car. Maybe there’s another! Maybe you have it! Want to go test-driving?” He didn’t.
- We’re done. Extra add-ons were eliminated early, the price was settled, and the prequalifying allowed me to negotiate the price I wanted.
- If this were a lease deal, I would have worked it the same way. Once the price is established, I could have asked? “What would the residual value of a ___-month closed-end lease look like? Also, ‘What’s your lease factor?”
- If I were doing a trade-in, that would come up after everything else is settled. “I’m glad we have a deal!” Then, I’d stare out the window at my car. “I’m not sure my niece really needs it – maybe she’d rather have the down payment for another car. How much do you think my car’s worth?” – you did your homework on that car, too. I actually gave my car to my brother-in-law.
- The ‘business office’ stop should be a formality. The extra charges (vehicle registration, etc.,) have been previously disclosed and there’s no dealer prep. The price is set and the financing is in place. The ‘trade’ value, if any, comes off the price. The moving parts are done. My stop took four minutes.
You’ll find that reputable dealerships are easy to deal with because the amount of available information has actually made their job easier. When there’s transparency – everyone knows the real story – it’s easier to meet with mutual advantage. If they don’t want to share fees, etc. in front, it’s time to look elsewhere.
Jim Lorenzen, CFP®, AIF®
Jim Lorenzen is a Certified Financial Planner® and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. IFG provides investment and fiduciary consulting to retirement plan sponsors, and retirement and wealth management services for individual investors.
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