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11 lessons from hard-nosed negotiation with car salesmen

March 1st, 2010 · 7 Comments

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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Tags: Personal Finance

7 responses so far ↓

  • 1 RMG - Alfa Spartan // Apr 6, 2010 at 4:35 pm

    Yes the famous Car Sales pitch. Never argue with a car sales price again rather it is a new vehicle or used. Something to keep in mind regardless of where you choose to make that purchase. For any purchase you take the asking price and go research to get the wholesale price along with the retail price and divide them by three which will give you the average amount of the average price of what that particular vehicle is actually suppose to sale for.

    Ahead of time you should write down the Vin# of this vehicle and as much information as possible regarding those options it may or may not come with.

    You take this by your financial institution and let them run the facts and numbers for you to see what they are willing to give you a loan amount for to pay for that specific vehicle.

    Once you have that number from your financial institution of choice, this is where you are able to negotiate for the purchase of any vehicle.

    The dealerships are truly in it to make money, but if you take this route you will never over pay for an vehicle again.

    See they can ask $26,000.00 for a $20,000.00 vehicle and you might think that it is a good deal, but a good deal compared to what?

    What are they comparing it to? They will tell you what ever they want to; so by taking the average and finding out ahead of time what your financial institution is willing to pay for that vehicle and not a penny more you will know exactly where you stand.

    Depending on the sticker price on the window added with the wholesale and retail comes out to say for example $23,000.00………., the institution says out of all the Vin# facts, options, etc……..they will only finance you $20,000.00

    So this lets you know they are asking about $3000.00 more then what the vehicle is actually worth. Keeping in mind the closing cost, taxes, etc….added will have you paying almost $30,000.00 – $40,000.00 depending on the interest rate that your credit and other financial charges which is what really makes the decision on how much that monthly payment / purchase will cost you.

    Regardless of your credit score, the first and most important step is to get the vehicle for the correct price and that is fair game.

    What financially happens after you have successfully negotiated the price of that particular vehicle truly depends on your credit score, but at least you paying on a vehicle at the respectful price and not paying on a vehicle and additionally added $3000.00 that you did not have to in the first place.

    So you now know that if the bank says the car is only worth $20,000.00 and they are asking $3000.00 more, then they need to explain to you why they feel you need to pay more for this vehicle. Thus, this is where the negotiation between what ever they can get up to $20,000.00 begins which means you should ask them as low as you want, but lets say the low average for this vehicle is starting at $18,000.00, $18,500.00, $19,000 ……but no more the $20,000.00.

    This process leaves room for them to make some money yes, but not take you to the cleaners.

    All in all, ask for them to pay the closing cost, wave those expensive paperwork fees, something for them to appreciate the fact you have chosen to buy from them.

    They will be stunned that you know how to wheel and deal as well, they will never forget you, ever!

    Your sales person will be running back and forth to that sales manager a few times, but you stick to your plan….:)

    Good Luck!!

  • 2 Roman // Jul 13, 2010 at 5:39 am

    Normally I wouldn’t comment on posts but I felt that I had to as your writing style is actually good. You have broken down a tough area so that it easy to understand.

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    Car Lease

  • 3 StevenTaylor // Jul 14, 2010 at 3:11 pm

    Negociating is one part of the entire deal, but when buying a new car you have to be aware that the car will need insurance and how much that insurance costs for your type of car. So I agree with being a tough negociator because a car costs money and a lot of money when you think about purchase, insurance and other maintenance tasks.

  • 4 Peter // Aug 3, 2010 at 9:51 am

    that's very useful tips. thanks for your share

  • 5 Marshallhayek // Aug 6, 2010 at 10:14 am

    There is also something else to think about when buying a car. Don't go to an official dealer ship for that car. You will never get the discount you want there. You should try a simple car dealership that has a good history and which can be trusted.
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    automotive dealer websites

  • 6 Used Transmission // Sep 23, 2010 at 5:41 pm

    I wanna find more info about this, anybody could?

  • 7 http://www.leasecar.co.uk // Nov 8, 2010 at 4:19 pm

    Great tips, whether its easier said than done we will find out.

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