GeekMBA360

I recently bought a new car. I had to admit that I hate to deal with car salesmen. It was one of my least favorite activities.

Unfortunately, I needed a car. And I didn’t want to get ripped off. So, I was determined to get a good deal while minimizing my pain. Here are 11 lessons I learned from hard-nosed negotiation with car salesmen.

1. Start price negotiation below invoice price. Dealers will tell you that they cannot sell you at invoice because they will not make any profit. Never believe what dealers tell you. They will make money if they sell the vehicle to you at invoice price because of dealer hold-back. My initial offer was $800 below invoice. Everyone thought I was crazy. The car salesmen laughed at my offer. But, I had done plenty of research online. I knew the market. Trust your data. Don’t let other people’s opinions and negotiation tactics sway you.
2. Set an one-hour time limit when you walk into a car dealership. This is a common tactic used by every car salesman I talked to: I made an offer. They said that they needed to talk to their manager. They then disappeared for 20 to 30 minutes. They would finally came back and said that they couldn’t take the offer. They asked for a compromise. They would then repeat this process. They wanted to make the negotiation process as time-consuming as possible so that the customer would give up in the end. Don’t fall into this trap. When you walk into a car dealership next time, tell them that you will only have an hour to talk to them. You must leave in an hour.
3. Plan two weeks of time to purchase your car. — test drive your desired vehicle in the middle of a month, but wait until the last few days of the month to purchase the vehicle. Car salesmen have monthly quota. You’re likely to get good deals in the end of each month. I bought my car three days before end of the month, and got a pretty good deal.
4. You should research car data on multiple auto web sites and forums. Don’t trust a single source. I mostly used Edmunds.com, and TrueCar.com. I also frequented Edmunds.com’s message board to check actual paid price reported by users in my area. TrueCar.com is a fairly new site, but it provides very useful reports of actual price paid by customers in your area. However, you should still cross check data across multiple sites.
5. Car dealerships don’t expect to make a lot of money from new car sales. Most car salesmen will tell you that they cannot sell you a new car at such a low price because they have a big building with a lot of employees and the owner has to pay the bills. But, they will not tell you that car dealerships make most of their money from used cars sales. They don’t make much money from new car sales since the prices for new cars are much more transparent. If you’re buying a new car, don’t let this argument sway you during negotiation. 
6. Don’t buy cars from a dealership with fancy building and flashy advertisements. One dealership I visited has a super nice building. It has a young lady whose job is to serve free coffees/cookies/drinks to customers. It’s really nice. But, someone has to pay for the ambience! If you’re a value buyer like me, stay away from those fancy dealers. They will charge you more. 
7. You can do much better than the Costco auto buying program. A common negotiation tactic I encountered at almost every single car dealership was that they would offer me the Costco car buying price as the lowest price. They said that it’s backed by Costco. It’s non negotiable. Since I’m a value buyer, it’s the best program for me. In my opinion, the Costco auto buying program is being abused by many dealers. Costco is damaging its brand by partnering with dealers. My advice: never buy a vehicle at Costco price. You can do much better than the Costco price.
8. Cut the price for dealer-installed options by at least half. It’s very likely that the dealer has installed several options on the car. Tell them you don’t want these options. The price they quote you will give them 50% or more margin. You can easily cut it by half, if not more.
9. Find yourself a good car salesman who takes care of customers. I once heard a quote: "when did car salesmen lie? When they moves their lips." However, there’re good car salesmen. They tend to stay at the same dealership for five years or more. They have established a happy customer base who will go back every few years to purchase cars from them. You should ask around for referrals. A good car salesman will make the purchase process much easier for you.
10. You want to be a tough negotiator, but not an unreasonable negotiator. Remember that car salesman needs to make a living as well. You should give them a reasonable margin, which is about 3-5% for new cars. 
11. Don’t negotiate for pennies. Here is the formula I used: if I can save $600 for two-hour negotiation, I’m making $300/hour, which is much higher than my paycheck rate. However, if I spend a few hours to save $100, it doesn’t worth my time. Keep your perspective during negotiation.

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• Will you still buy Toyota?
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• Should parents pay for the full amount of their kids’ college education expenses?

Excellent resources:

• Bargaining for Advantage: Negotiation Strategies for Reasonable People 2nd Edition
• Getting to Yes: Negotiating Agreement Without Giving In
• Getting Past No