By Kevin M
Buying a new car has never been one of my favorite things to do. It’s not that I don’t absolutely love the idea of having a new car, I sure do! But the flaming hoops you have to jump through at the dealership to buy a car takes some of the fun out of what should be one of the most exciting events of your life
Car dealerships offer an attractive and convenient package of services that make the car buying experience much easier:
- They have the new cars we want (aaahhh, the new car smell!)
- They’ll buy our old cars from us, sparing us the trouble of selling them ourselves
- They provide financing, saving us from having to shop at banks
One stop shopping at its best—but with this ease and convenience comes a high price. Because dealers have all the car buying bases covered, they also have the upper hand at the bargaining table. The minute we walk into a car dealership, we’re at a built in disadvantage. We want a certain car, and the dealer has it—along with everything else necessary to help us get it. How could THEY ever lose?
They can’t, unless we take steps to remove the power from the dealer and stack the deck solidly in our favor.
1 ) Make sure you aren’t “upside down” on your current car
Get the payoff balance on your car loan; get the approximate book value of your car (see #4 below). Compare the two; is the loan balance higher than the car value? If it is, you shouldn’t be buying a new car. In the car business, that’s called being “upside down”, and no small number of late model car owners are in that boat. Rapidly depreciating car values combine with low- and no-down payment financing to make it happen.
Car dealers will tell you that you CAN buy a new car even if you’re upside down. What they aren’t as quick to say is that the deficiency—the amount by which your loan balance exceeds the value of the car—will be rolled into the new loan, putting you in an even deeper hole.
2 ) Line up your financing in advance
Many people like the relative convenience of dealer financing, but this can work against us on two fronts. First, dealer financing is a major revenue source and they will pad it, raising the cost over the term of the loan. Second, relying on the dealer for the loan as well as the car transfers all of the bargaining power from us to the dealer.
Apply at your bank or another non-dealer source, and get a pre-approval letter. That letter will improve your bargaining power, and force the dealer to offer better loan terms than the bank if they want your business. That’s a win-win for you.
3 ) Have your down payment ready before you go to the dealer
Sell your old car, rather than trading it in. Carmax buys cars even if you don’t buy from them, and will provide a window during which their offer is good. At a minimum, get an offer before going to your dealer so you’ll know if the dealer offer on your trade-in is a good one.
4 ) Get the real value on the car you’re considering
Kelly Blue Book is a widely recognized car valuation service, and you can check values on their site for free. Get the value of the car you wish to buy so you’ll know what a good deal looks like. You should pay no more than the value indicated.
Get the value of the car you already own as well. They’ll provide a range of values, and the one that’s lowest will be most relevant. That’s the minimum value you should get from a dealer. Anything less, and you’ll know the dealer is cutting you a bad deal.
5 ) Don’t get locked into working with a single dealership
There are more than 20,000 car dealerships in the United States—that’s an average of 400 in a typical state. Take advantage of those numbers, and shop between dealers—and let the ones you’re working with know that you’re doing it. You have options—make sure the dealer knows it as well.
6 ) Refuse add on’s
Credit life insurance, extended warranties and undercoating—you don’t need any of these but the dealer will tell you that you do. Practice saying “no” before you get to the store!
7 ) Bring a negotiator in case the going gets tough
It’s sometimes said that “The man who represents himself in court has a fool for a client”; so it is when buying a car. Unless you’re a hard-nosed, seasoned negotiator, never go into a dealership alone. Bring along a trusted friend or family member who is, then step back and let them handle the give and take. Car dealerships are set up to weaken our bargaining power; never underestimate what you’re walking into when you enter one.
8 ) Be ready to use your “Nuclear Option”—get up and leave!
If the final deal isn’t to your liking get up and leave! Never forget that the salesman, his manager and the finance guy all need your business, more than you need their car. You can go down the road to the next dealer if the one you’re talking to doesn’t cooperate. The dealership staff know this, but will do a very credible job of convincing you that it isn’t true. Don’t fall for it! You have the power, and walking is the greatest demonstration of it – especially with a cash down payment and pre-approved financing in your hand.
9 ) Don’t lease a new car
Lease transactions are more complicated than straight purchases, and for that reason alone, they should be avoided. There’s too much room for fine print and gotcha provisions, none of which will work in your favor. With leases all of the good news—the money saving provisions—are on the front end. And you know what that means—all the bad news is on the back end when you’ll be trying to get out.
10 ) Keep your emotions in check!
You’re buying a car and the heartstrings are tugging; after all, in America, you are what you drive. But more important, you’re entering a business deal.–never forget this! Your emotions have enormous potential to put more money in the dealer’s bank account. Put your business hat on and stow your heart until the purchase is done.
So now you’re armed and ready to deal from a position of strength—now go cut your best deal on a car!
Can you think of any other strategies that will improve your bargaining position in buying a new car? Do you have a car buying experience you’d like to share—good or bad?
When I bought a new car, I negotiated the price and got them to email it to me in writing before I even showed up at the dealership. I did this with several dealerships until I got the price I wanted. Then, I went to the dealership I had selected to pick up my car. With this method, I got my vehicle around 8K under MSRP.
Julie – That’s a valuable suggestion. You’ve used technology, in this case email, to handle the negotiations. It’s easier to be tough on email than face to face, so this is an option if you don’t know anyone who can do the negotiations for you.
The dealers need to make a deal, and that’s our ace in the hole.
[...] Today found this great post, here is a quick excerpt : Buying a new car has never been one of my favorite things to do. It’s not that I don’t absolutely love the idea of having a new car, I sure do! But the flaming hoops you have to jump through at the dealership to buy a car takes some of … Read the rest of this great post Here [...]
Great tips. I would add “be willing to buy used.” The depreciation of new vehicles (once driven off the lot) is appalling. Why not buy something 2 or 3 years old and let someone else take the hit.
.-= Ken´s last blog ..Weekend Roundup =-.
Ken – Excellent point; but that’s tomorrow’s post!
I just bought a car and had a fun experience at the dealer. I had my hand forced a bit as my engine needed to be replaced on my toyota highlander (that I had owned for only a year and a half) so I used that as a bargaining chip to get a better trade in value- knowing all the bad press they have going on. I enjoy the wheeling and dealing aspect. Even though I get a little bored when they make you wait every time they need to check with the manager. thanks for the posting tips!
.-= Ted´s last blog ..The Car Buying Experience =-.
Ted, I understand from a neighbor who sold cars for a number of years, that the process of the salesman going into the managers office for a private pow wow is part of the game they play. The salesman goes in to “beg” on your behalf, fighting to get the coveted approval for the deal you want, but they’re both really on the same side of course.
If you’re a wheeler-dealer type by nature, you’re in a good position walking in the door. Personally, I think the best company to buy from is the one most recently injured–they’ll be more anxious to please the customer.
Excellent advice. There is no excuse not to be informed when you can find lists like this on the internet. Thanks again!
.-= Elliot Zovighian´s last blog ..Letting Yourself Down =-.
Thanks Elliot! That’s so true, all of the information we need is not only out there, but easy to find on the web. There’s no reason to allow ourselves to be put into a position of ignorance when we’re sitting in front of a fast talking salesman. He can’t make us do anything we choose not to.
You can avoid number 7 altogether by using internet sales. Many dealerships now offer internet specific sales with no negotiation necessary, and with KBB online you can check prices and look for deals. Internet sales managers are typically paid a bonus for volume and do not make the same comissions per car that a typical salesman will make.
If it is a used car, set up an appointment with your mechanic and take the car for a test drive and have it checked out. I bought my last car this way for 2k under blue book.
That’s a valid point, but some people are better at business than others, so I’d still have someone with a stiff spine if you don’t feel strong enough to do it yourself.
#2 is very important. Walking in with pre-approved financing gives you the upper hand in negotiations.
Mike´s last [type] ..Bad Credit Car Loans
Mike – it also forces the dealers hand if they want your business, and they do. The financing is an important part of the revenue stream for the dealership as well.
Valuable tips,i have that standup and leave policy and it worked mostly,but keep in mind you should use this tactics at the last round to squeeze the maximum out of them.At initial stage use normal negotiation tactics to bring them down and finally hit the nail with this technique.
Great list Kevin, along with Kelly Blue Book another site I used to do my homework and lock in the best price when I was recently buying a new car was truecar.com
This is a fantastically written article. It successfully clarifies all the queries of buying a car. Car purchase is not like buying a coffee from Starbucks. It needs much more research and analysis. Also, the right kind of attitude is very important. The dealer needs you to buy his car and you have several other options. Don’t forget this. It will help you to negotiate sternly.
Car Loans´s last [type] ..Instant Car Loans
Well put. The car dealer needs your business, and that’s your biggest advantage. They’re skilled at playing harball, but that’s just part of the game. Hang tough and you can get a solid deal.