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My family wheels are pushing 200K miles and lights are starting to come on, noises are starting to come out, and I want to investigate a newer car before I sink money into repairing mine.

What are some tips when purchasing a new car?

I am going to get pre-approved for a loan from a bank or credit union, but I will still let the car dealer see if they can beat my existing offer.

I more than likely won't buy a new car, and whatever I do buy I expect to be able to pay off in cash in less than six months. (I hope to save up enough to do a cash deal and get myself a 2005+ model; but I am planning in case my current car up and dies sooner than later).

Any thoughts on negotiating over email with a dealership?

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2 Answers 2

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I read a really good tract that my credit union gave me years ago written by a former car salesman about negotiation tactics with car dealers. Wish I could find it again, but I remember a few of the main points.

1) Never negotiate based on the monthly payment amount.
Car salesmen love to get you into thinking about the monthly loan payment and often start out by asking what you can afford for a payment. They know that they can essentially charge you whatever they want for the car and make the payments hit your budget by tweaking the loan terms (length, down payment, etc.)

2) (New cars only) Don't negotiate on the price directly.
It is extremely hard to compare prices between dealerships because it is very hard to find exactly the same combination of options. Instead negotiate the markup amount over dealer invoice.

  • For common cars that they have a lot of competition on or too many of them on the lot, you might be able to get away with as little as $100 over invoice.
  • In most situations you will pay between $300-$1000 markup over invoice.
  • For high-demand or special order cars you might have to pay several thousand over invoice.
  • Ask to see the actual dealer invoice for the car before closing the deal. Sometimes they will claim they don't have it or can't show it to you. This is a lie. Walk away if they insist that it isn't available to show you. Something crooked is afoot.
  • Don't listen to sob stories about how much it costs to market and sell the car. The car dealership will 90% of the time make more money on the deal than the difference between the dealer invoice and the purchase price. The manufacturers have "holdbacks" which are extra bonuses for selling the cars, also they make money on the financing and other aspects of the deal.
  • This tactic requires you have a reasonably good idea of the invoice price walking into the deal so you aren't negotiating blind. Luckily this information is available in numerous places like NADA and Edmunds.com
  • This tactic also basically requires you to pretty much know what car you want when you walk into the dealership, or at least that you narrowed it down to a few. If you are still making up your mind, do not buy the car that day. You are at too much of an information disadvantage. Decide what you want; go home and research it on the Internet; then go back and buy it.

3) Negotiate one thing at a time
A favorite shell game of car dealers is to get you to negotiate the car price, trade-in price, and financing all at one time. Unless you are a rain-man mathematical genius, don't do it. Doing this makes it easy for them to make concessions on one thing and take them right back somewhere else. (Minus $500 on the new car, plus $200 through an extra half point on financing, etc).

  • To keep them from trying to mix the financing in the deal, just tell them you already have your financing worked out or are paying cash, even if you don't. It isn't like they are going to complain if you change your mind after agreeing on a price for the car to go with them for financing.
  • Don't let them re-open the negotiations on other items when discussing the trade-in, new car price, or financing terms.
  • See handling the trade-in below

4) Handling the Trade-In

  • Before you even look at a new car, get a firm written quote for your trade-in.
  • Alternately, you can do the same trick as the financing and claim you aren't trading in a car until you have completed negotiation on the new car price.
  • It is a good idea to bring with you quotes on your trade-in from other dealers to help your negotiating power.
  • Most car dealers will buy your trade-in even if you don't buy a car from them. They will argue that you will save on sales taxes by doing both transactions at the same time (reducing the purchase price by the trade-in amount). It is true that you will save money, but when you do the math the amount is trivial.
  • They want your trade more than they want to sell a new car, they make a much higher profit on turning around used cars than new ones.

5) 99.9999% of the time the "I forgot to mention" extra items are a ripoff
They make huge bonuses for selling this extremely overpriced junk you don't need.

  • Scotch-guard you can buy for less than $20 a can at a auto-parts store and spray on the seats yourself. You are a sucker to pay for it.
  • Rust proofing - Often just an overpriced wax job. If you read carefully the factory warranty usually protects you against rust for a number of years anyway.
  • Pin striping - Usually just a decal applied to the car, also very cheap to have done elsewhere.
  • Extended warranty - Usually a rip-off, but not as frequently as the other items mentioned. If it is 3rd party , not from the manufacturer, it is always a rip off.
  • Financing "Insurance" - For a few dollars more a month, they will give you insurance to make your car payment in case you become disabled or unable to make your payment for some other prescribed reason. Think about it, YOU are paying for insurance to prevent the LOAN COMPANY from losing money in the event you get into trouble. Not worth the money.

6) Scrutinize everything on the sticker price
I've seen car dealers have the balls to add a line item for "Marketing Costs" at around $500, then claim with a straight face that unlike OTHER dealers they are just being upfront about their expenses instead of hiding them in the price of the car. Pure bunk. If you negotiate based on an offset from the invoice instead of sticker price it helps you avoid all this nonsense since the manufacturer most assuredly did not include "Marketing costs" on the dealer invoice.

7) Call Around before closing the deal
Car dealers can be a little cranky about this, but they often have an "Internet sales person" assigned to handle this type of deal. Once you know what you want, but before you buy, get the model number and all the codes for the options then call 2-3 dealers and try to get a quote over the phone or e-mail on that exact car. Again, get the quote in terms of markup from dealer invoice price, not sticker price. Going through the Internet sales guy doesn't at all mean you have to buy on the Internet, I still suggest going down to the dealership with the best price and test driving the car in person. The Internet guy is just a sales guy like all the rest of them and will be happy to meet with you and talk through the deal in-person.

8) The sales guy has ultimate authority on the deal and doesn't need approval
Inevitably they will leave the room to "run the deal by my boss/financing guy/mom" This is just a game and negotiating trick to serve two purposes:
- To keep you in the dealership longer not shopping at competitors.
- So they can good-cop/bad-cop you in the negotiations on price. That is, insult your offer without making you upset at the guy in front of you.
- To make it harder for you to walk out of the negotiation and compromise more readily.

Let me clarify that last point. They are using a psychological sales trick to make you feel like an ass for wasting the guy's time if you walk out on the deal after sitting in his office all afternoon, especially since he gave you free coffee and sodas. Also, if you have personally invested a lot of time in the deal so far, it makes you feel like you wasted your own time if you don't cross the goal line. As soon as one side of a negotiation forfeits the option to walk away from the deal, the power shifts significantly to the other side.

Bottom line: Don't feel guilty about walking out if you can't get the deal you want. Remember, the sales guy is the one that dragged this thing out by playing hide-and-seek with you all day. He wasted your time, not the reverse.

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2  
+1 Excellent, detailed answer. –  Chris W. Rea Dec 29 '09 at 1:57
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+1 Agree very good answer! –  Zephyr Dec 29 '09 at 4:21
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Great answer for new cars but I'd really like more info for used/certified cars! –  d03boy Aug 20 '10 at 3:05
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Also, Edmunds sent a journalist undercover for an expose on car sales tactics. Fantastic (if long) read: edmunds.com/advice/buying/articles/42962/article.html –  awshepard Aug 24 '10 at 12:51
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@Casebash - Here's the new link edmunds.com/car-buying/confessions-of-a-car-salesman.html –  JohnFx Mar 15 '12 at 14:35

I wholeheartedly agree with the above, with one exception.

I sold both new and used cars briefly. Not all dealers have the same rules or policies, but the salesperson is NOT always the last authority on pricing. The dealership I worked for required the sales manager be involved in every price negotiation, no matter how much experience or time the salesperson had with the company.

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Thanks for the clarification. –  JohnFx May 9 '10 at 2:25

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