The Art of Negotiating the Best Car Deal
At some point in your new car search you will find yourself across the table from a car salesman or his manager. The difference between getting a great deal or walking away wondering if you paid too much comes down to your how well you negotiate.
There is a saying in the car business: "we do this every day, they do it once every couple of years, we should always win."
The biggest advantage the car dealer has is the knowledge that a car sale involves three negotiations, not one - the sales price, the trade price and the financing terms.
In the carefully choreographed dance that is taught to car salesmen all over the country, the key element is to identify which of these elements is the most important to the customer. They can then use this information to meet the customer's goals while making their profit from other areas.
Typically, this will take the form of eliciting a commitment in return for meeting a goal. For example, you will hear something like, "So if I can get you this payment, do we have a deal?" though the term in question can also be the sales price or the trade in value.
However, if the payment you desire is achieved by lengthening the loan period you have achieved nothing and may even be paying more for the car than you intended.
"When a sales manager or dealer looks at a deal, their experience allows them to see how much profit they are getting on the deal as a whole. Very few customers have the ability to keep the whole deal in their head throughout the different phases of the negotiation. So that even what appears to be a concession may not be anything of the sort," says former dealership owner Jim Smith.
He continues explaining, "We look to our sales people to provide us with a picture of the key buttons that we need to push to make a sale to each customer. While we train them to avoid talking anything about numbers on the demo and test drive, they are always alert for any information the customer let's slip about their thinking."
Listening for cues from buyers allows the dealer to bow to a buyer's primary goal, while still making a profit in other areas. Smith admits, "Knowing that a key to the deal is keeping a payment below a certain level or hitting a certain sale price is extremely valuable to us in closing the deal. For certain customers who are very attached to their old car, you may even be able to make a deal just by giving them an inflated trade-in value for their old vehicle and making your profit on the sales price. Rarely does a customer arrive with set goals in every area of the deal."
The key to making your best deal is to come armed with information on the best you can achieve in each area of the deal. Also making your commitments conditional with phrases like, "Well that price is acceptable, if we agree on the financing terms." Arrive at the negotiating table with an idea of the trade-in value of your vehicle, a competitive loan quote and on-line price quotes from several dealership on the car you want to buy, he says.
But don't share all your information with the dealer at one time. "The negotiation is a poker game. So be careful in revealing your cards. If you have a loan approved, keep that to yourself while negotiating price. This will allow the dealership to believe they can still make money on the financing, even if they have to concede money on the overall sales price. If you tell them up front that you have an approved loan, the terms of the sales price will become less negotiable. Because they will fear that they have to make all their profit on that part of the deal," says retired sales executive Dan West.
So the goal is to play the game back at the sales representative using the same exact tactics they use on you. Get the salesperson to commit to one area of the deal at a time on terms that meet the objectives that you have set after careful research. Once you get your price, it is time to negotiate trade-in value.
One relatively new development in the trade-in area is the valuations offered by large chain used car lots. These operators, such as Carmax, offer to buy your car based on their valuation whether you buy your next car from them or not. Getting such an appraisal, which is usually good for three days, effectively sets a bottom price for your trade. One thing to be wary of is you could lose some money if you trade in one location but purchase somewhere else. This danger exists in states where sales tax is calculated on the difference between the car you trade and the car you buy as long as the transaction is completed in one place. Naturally, you should wait until you hear what your dealer will offer on your trade before revealing that you have a figure in hand, just in case the dealer comes in higher.
Your final stop in the dealership is typically the finance office. Again, remember you are still negotiating. Nothing is decided until all areas of the deal are set. Let the dealer present you with the terms he can offer, then compare them to other loans you have been approved for. If the first offer is higher than a loan you have already been approved for, ask the finance office if they can match those terms. If not, just go ahead and buy the car with the loan you arrived with.
The key to know you got a good deal is to set goals for yourself in all areas of the deal and to know when you have met them. At some point, you will have to say yes and not look back. The more time you take before you negotiate to research what you can ask for in each area, the less regret you will feel later.
Published on Wednesday, January 2, 2008 - Email to a friend
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