How to negotiate with the car dealership

How to negotiate with the car dealership

It's possible to get what you want in this world, but you have to summon the confidence to ask for it, and you also need to know how to make your request in a way that improves your chances of securing a positive outcome.

This is especially true when you're finalizing a transaction at a car dealership.

According to information published by IHS Automotive, an automotive research firm, the average American will purchase nine new cars over the course of a lifetime. That translates into nine visits to a car dealership to negotiate a purchase.

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If you've not yet had the chance to go back and forth with a car dealer regarding a vehicle purchase, it's likely you'll have that singular pleasure at some point in your future. The experience is more likely to unfold in your favor if you're prepared for it.

How to successfully negotiate with a car dealer

Unless you choose to purchase a car from a no-haggle dealership, you are going to need to negotiate the price, financing, and other upgrades.

Negotiation can save you money on your car purchase. It can also net you perks and bonuses that might not have otherwise been presented to you.

It's not an easy road to travel. Most people hate negotiating face-to-face with dealers. In a recent survey conducted by Accenture, a multi-national management consulting firm, 75 percent of those polled said they would consider conducting the entire car-buying process online if given the chance.

There are some compelling factors supporting this dislike for the negotiation process. Here are three reasons why car buyers have no love for sitting down with dealers to hammer out a transaction:

Negotiation can be confusing.This is no accident. Some salespeople will attempt to gain the upper hand in the process by throwing out jargon designed to leave you bewildered and unsure of yourself.

Negotiation places you in a high-pressure situation.Again, this is purely by design. It's nothing personal. The salesperson at the other end of the table wants to net the maximum amount of profit on the deal. By throwing you off your game and using tactics designed to intimidate you in subtle and not-so-subtle ways, he or she can achieve this goal.

Negotiation can take a really long time.No one enjoys spending hours in a car dealership, and salespeople sometimes use this fact to manage the transaction. If you've been stuck at the dealership for hours, the fine points of the transaction become less important, and your primary focus shifts to wrapping up the deal so you can get out of there and get home. The longer the process drags on, the more likely you are to agree to terms that favor the dealership.

Dealers use the three elements listed above to manipulate the negotiation process. Now that you know what these elements are, you can take steps to defuse them, and it opens the door for you to do some smart strategizing.

7 steps to saving money when buying a new car

You'll need some leverage if you hope to come out of top when negotiating with a car dealer. Get some by arming yourself with price quotes from competing dealerships.

Effective negotiation requires preparation, and this needs to be done long before you set foot in a dealership. Uncertainty and confusion will hobble you in the negotiating process, and the way to avoid this is to have a clear understanding of the facts of the deal. The following steps will help you to save money when negotiating your next car purchase.

1. Obtain a car loan if necessary.

Dealers often use financing as a negotiating tool, and they will sometimes use interest rates to distract you from your goal of obtaining the lowest possible purchase price for your vehicle.

If you're purchasing a car and need financing, get pre-approved for a loan from a bank, credit union, or third-party lender beforehand, instead of relying on the dealership to help you obtain a loan. This will help you stay focused on your goal of securing the best price possible during the negotiation process.

Don’t forget; you can always ask the dealership to beat your interest rate. Just make sure the remaining terms of the dealer-supplied loan are identical to the one you’ve already arranged.

2. Decide what to do with your old car

You can do one of three things with your old car: sell it yourself, trade it in, or donate it to charity. Decide what you want to do before going to the dealership.

Trading your old car to the dealership is an easy way to dispose of it, but it comes at a price. Value your old car using Edmunds, Kelley Blue Book, and NADA Guides. Average the trade-in values so that you understand how much less you will receive for the vehicle in exchange for the dealership making your life easier.

3. Conduct research regarding pricing

Your discussion with the dealer will revolve around price, so take the time to familiarize yourself with the pricing of the new vehicle you are seeking to purchase. It will be useful for you to understand a couple of terms:

Invoice price.In theory, this is the price the dealer paid the manufacturer for the vehicle. This price doesn't factor in dealer profit, it doesn’t take into account any rebates or incentives that are available for the vehicle, and it doesn't reflect dealer costs related to advertising and the preparation and sale of the vehicle. Some car companies provide a “holdback” that is designed to offset marketing and preparation activities, typically amounting to two percent of the car’s price.

MSRP (manufacturer's suggested retail price) or sticker price.This is the price the dealer would like you to pay for the vehicle. It's structured to provide the dealership with a certain margin of profit. Keep in mind it's possible for dealers to purchase vehicles from manufacturers at a price that's lower than invoice. Manufacturers sometimes offer incentives that reduce the dealer's purchase price, in turn increasing the potential for profit.

Figure out which options you'd like to get with your vehicle. Once this is done, use online pricing resources such as Edmunds, Kelley Blue Book, and TrueCar to get a sense of what prices are like in your area. Average the values from all three sources to create an average selling price, which will not take into account any rebates, incentives, or other offers.

4. Get competing bids

Contact the internet departments of the closest dealers selling the make and model of vehicle you want in order to request bids for the vehicle. Alternatively, work through a third-party company like TrueCar to obtain competing bids from multiple dealers.

These bids will represent a starting price for negotiations with the dealership where you would like to buy your new vehicle. Entering into the negotiating process with an average selling price from third-party research sources and competing bids from several dealerships will give you useful leverage during negotiations.

5. Choose a dealership

Consider buying your new car from the dealership you’re likely to use for warranty claims, recall work, and service visits.

You now know what third-party research sources think you should pay for your new vehicle, and you have bids from a range of dealerships. These prices likely fall closer to invoice price than MSRP, unless you are buying a hot new model in great demand, or a limited-production model.

Take your target purchase price and your bids to the dealership nearest your home or your workplace, whichever you believe will be the most convenient for making the deal and for scheduling future warranty, recall, and repair work.

To make your deal simple and fast, ask the dealership most convenient to you to match the best price you obtained when requesting bids. To save even more money, consider your lowest bid from a competing dealership as the starting point for negotiation, and work down from there.

Don’t forget that your prices from third-party services likely do not include customer rebates, factory-to-dealer incentives, and other programs that allow dealerships to reduce the price of the vehicle. Your bids directly from internet sales departments might.

6. Be strategic in timing your visit to the dealership

Plan to make your visit to the dealership at the end of the day. We mentioned earlier that salespeople sometimes try to wear you down by dragging out the transaction. You can employ a similar tactic by visiting the dealership an hour or two before closing time.

At that time of the day, the staff is tired and eager to go home, but not so tired that they'll refuse the chance to make a sale. By strategically scheduling your visit in this way, you're likely to reduce your time spent negotiating.

7. Make your case

Now that you've laid the groundwork, you're ready to pay a visit to the dealer to get yourself a bargain. Here are some tips to keep in mind regarding your visit:

Make it clear you've done your homework.Some car shoppers fail to do the research necessary to make a compelling argument when striking a deal. To avoid being presented with a certain type of sales pitch, you'll want to immediately establish you're not one of those car shoppers.

Explain that you've already arranged a car loan, that you’ve researched invoice price (and trade-in if you’re going that route), and that you've secured competing bids from other dealerships, but don't reveal what those bids are just yet. If you put those bids on the table too soon, the dealer may take the tactic of undercutting those offers by a marginal amount, and you may wind up paying more than you'd like for your purchase.

Open the negotiations by telling the dealer how much you want to pay for the vehicle, and why.

Focus on price, not monthly payment.If you focus on monthly payment as opposed to price, it opens things up for the dealer to structure a deal with a low monthly payment but a high purchase price. The dealer can accomplish this by simply extending the length of your loan.

Fix your gaze squarely on the total price paid to avoid paying too much for your vehicle.

Don't allow yourself to be pressured into making a decision.Dealers will sometimes tell car buyers an offer is only good until the end of the day. Don't be fooled. This is a tactic designed to pressure you into making a decision.

If you'd like to go home and think about an offer or discuss it with your significant other, let the dealer know. If the dealer is opposed to this approach, take your business elsewhere.

Heed your intuition.If your gut tells you this isn't a great deal for you, pay attention, and don't be afraid to walk away.

If you’re uncomfortable with your salesperson, negotiations, or the deal, you can walk away and try to buy a different vehicle on a different day.

There are lots of car dealerships out there. Things may not work out with this dealer, but you have many other choices to consider as you navigate your vehicle purchase.

Be flexible.An ideal outcome is one in which the dealer matches the price you've presented, but things may not work out this way, and you shouldn't let that stop you from getting a great deal.

If, however, you’re having trouble obtaining your desired price after visiting a few dealerships, you may need to reset your expectations with regard to your target purchase price. At this point, it's a good idea to close a deal with the dealership that came closest to your target price.

While it's important to set clear goals and objectives when negotiating, it's also important to know when to bend a bit in your expectations. It's possible to get a great deal even if the price paid is bit more than you'd hoped to spend.

Remember, you're in control of the situation

You hold the cards when negotiating with a car dealer. The right preparation will give you the confidence you need to land a deal you'll be happy with for years to come.

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