ALT-9 The best way to Buy new Cars
There you are, sitting across from a car salesman in an office or a booth. He is representing the dealership, and you are representing your pocketbook. You're hoping to come to a meeting of the minds with him. He is hoping to keep you befuddled enough that you will to agree to outlandish terms. You forget this fundamental motivation of his at your cost!
What I am about to tell you is could easily save you thousands on the purchase of your next vehicle. By the way; "professionals" in the car business have already accused me of being a "turn-coat". I'm taking food out of their families' mouths, they say, by revealing all these industry secrets. "You wouldn't go down to the store," they argue, "and dicker with the clerk on the price of a loaf of bread!"
This sound-good' argument is forgetting some very important elements. First of all, we're talking about huge differences in the amount of money used in these transactions; a loaf of bread is a couple of bucks, while a new car is upwards of $20K and higher.
Second, the liability involved in the purchase of a loaf of bread is relatively small; if you discover that the bread you just purchased has a problem, for example, the store will almost certainly let you exchange it, or refund your money. Try getting a dealership to do that on some car they just unloaded on you.
Lastly, grocery store clerks are not paid a commission! Any time you're talking about buying some kind of commodity, regardless of what it is, and the transaction involves a commission-paid sales person, you have graduated from the no-haggle zone into that place where EVERYTHING is a point of negotiation. If car salesmen don't like that I'm giving you the tools you need to be a ball-buster, they should just go to work at a grocery store. How many of them do you think will give up $65K+/year to not have to worry about ball-busters?
The car salesman's agenda from the very beginning is to set up the groundwork to give you a very weak negotiating position. He's digging for information that he can use against you, and he is trying to get you so hot for the car that you'll take it at any price. He must do this because the negotiating position of the dealership is actually weak already. The dealership wants to sell you the car. If you hit the dealership at the right time, they'll actually be desperate to sell you a car!
What you want is a strong position of negotiation for yourself, and that starts with doing your research. I do not wish to be subtle about the importance of this! DO NOT go to the dealership to get information on the car you want! The statistic says you will very likely be driving the car home. And how can you get a good deal when you buy impulsively like that? You must have certain information before you ever subject yourself to those crazy cats at the dealership.
I recommend that you get both the Manufacturer Suggested Retail Price (MSRP) and the Invoice Price. Both of these are generally attainable at from several different internet sources. You can obtain information about rebates and incentives as well. You can even get the Fair Market Value of your trade-in, detailed into three categories: Trade-In value, Private Sale Value, and Dealer Retail Value.
Also, it's a very good idea to get the MSRP for the option packages. By law, new cars must have a posted window sticker. The window sticker discloses all the information about how the vehicle is equipped, but it can be rather cryptic and confusing when you're trying to read it standing out in the glare of the hot sun. Dealerships use this as an opportunity to mark up option packages. Armed with the invoice price of the vehicle and its options, you'll have a good number with which to start the negotiation.
While I'm on the subject, watch out for the dealer "bump". This is nothing more than extra bit of junk profit that the dealership puts on the window sticker, usually in an addendum. It will have some sophisticated sounding name like "Market Adjustment", or some other such crap. The dealership will also list any options they might have added to the car on the addendum. Just be aware, and be on the lookout. These mark-ups are the method that the dealership has to slap the un-savvy car shopper with high Front-End Gross.
The "pros" in the car business have a little credo they like live by; at least I'm sure they like it when they're the sellers. "Full Price is Fair Price." I wonder how fair they think full price is when they're the buyers? If their offers on trade-ins are any indication, then I would say theirs is a credo of convenience. It is VERY common for the window sticker to show a price, after the dealer bump, that is inflated by another 20% above the MSRP. Does that sound "fair" to you?
Please, please, PLEASE! If you know that you're going to finance some or all of the purchase price of the vehicle, please, BEFORE you go to the dealership, calculate the total price of the car and use an amortization schedule to get a good idea of your car payments! Make sure you can comfortably afford the vehicle. This is crucial, not only in your negotiation, but for your personal finances as well. Most people decide on a comfortable car payment, then go the dealership and ask the salesman to find them an appropriate car that fits their needs and budget. BIG Mistake! The salesman is going to show them a car that is perfect for their wants and much more than they need, make them fall in love with it, and then hold it over their head as the customer hurriedly tries to re-evaluate their monthly budget while being blinded from the glint of the sun off the shiny new car. Weak negotiation! Please, get the total price first, and calculate a conservatively estimated monthly payment. You don't want any surprises.
Your negotiation strategy will depend on your personal financial situation. You may be fortunate enough to have the cash on hand to buy the vehicle outright. This will greatly simplify the deal and give you a lot of negotiation power; you'll be negotiating what they call an Out the Door price (OTD, or Cash Out the Door, COTD). But here is an interesting twist as well; when you inform the salesman that you can pay cash, also suggest that you are open to the idea of financing. The dealership will be softer on the negotiation if they think they might have a chance on making some money on the Back End.
Unfortunately most people don't have $25K+ just kicking around. They will need some kind of financing. This is OK, because the dealership has a horde of lenders ready to help you get the car of your dreams. They make it extremely easy; only a minimal credit score is required, the customer signs and then pays for it for the next six years, or worse! You can do better!
Whenever possible, I highly recommend getting yourself pre-approved at a real bank. This is a little more legwork, but well worth it. With pre-approval from the bank of your choice, you will probably be able to get more favorable loan terms. And again, it simplifies the deal with the dealership; you're simply negotiating an OTD price. But remember to tell your salesman that you're still open to financing with one of their banks; suggest to him that you're not really happy with the terms offered by your bank. It is important to note that while negotiating the deal will be simpler, the actual transaction itself will be a little more complex. Once you have the terms of the deal ironed out, you have to call, or go back to, the bank so they can approve and fund the deal. It's a few extra steps, and sometimes it takes a day or two, but still, very well worth the extra trouble.
If you don't have the resources to simplify the deal down to an OTD price negotiation, you'll be relying on the lenders affiliated with the dealership. For most people this means they are "shopping for a payment". If you take my advice from earlier and get the total price of the car from an internet resource and then calculate an estimated monthly payment, you'll have everything you need to go into the negotiation with your eyes open.
Remember! Everything is negotiable! It boils down to a simple question of how bad do you want it, and how bad does the dealership want to sell it. I can tell how bad the dealership wants to sell. VERY! And you want the car, but you are going to be very careful not to get carried away with desire, RIGHT?! It doesn't hurt to demonstrate to your salesman that you're 'HOT' for the car. In fact, it helps! You want the salesman and the sales desk to take you seriously as a buyer. So tell them you want it bad! Play it up! But don't believe it yourself; you must be able to walk away at any time.
The secret to getting the dealership to say "yes" is you must be willing to walk away from the deal. That is the key to non-confrontational negotiation. If you want the car too much to be able to do that, then they will have you. I've done this tactic many times in order to get my clients a great deal on a car. We just get up and walk out. We never get three steps before the salesman, his manager, and someone from the sales desk are running out after us.
By the way one of the little tricks that the dealership will pull to avoid this very thing is to take your car keys. They'll offer this excuse: "We need your keys so the Used Car Manager can give your trade-in a thorough evaluation." They're hoping that you'll feel trapped; like you can't leave. They'll be slow to proceed until they have a key to your car, so give them a cheapie spare; do not give them your entire key chain!
And speaking of the sales desk, let me just take a minute to dispel any mystery surrounding that imposing "institution". The sales desk is manned by very experienced car salesmen. They are so "good" they can sell a car from the next room, without even seeing or talking to the customer. It is true that the desk will have the final word on how much money you will have to pay if you want to take delivery of the car. However, as you can see from my previous illustration, it is possible to play the desk just as easily as anything else. They're not gods up there after all, not matter how much they would like to believe it.
But those guys have done their homework! They know exactly how much money the dealership has in every car on the lot, new or pre-owned. Sales desks today use the internet to get precise vehicle values for the purpose of evaluating trade-ins. You should too! They have computers with amortization tables to calculate monthly payments. You should too! They know exactly what is coming to them in the form of rebates and factory to dealer incentives. You should too! With the touch of a button they can adjust the parameters of the deal to keep their grosses up. They know instantly how much the dealership stands to make (if any) when they plug your offer into the equation. They have the tools they need to scrutinize the deal from any angle. And that's why you need to do your homework as well. Would you go into battle against the Black Knight with just a butter-knife?
So now, at the negotiation table, you've done your research, and you know beforehand what you'll be willing to pay for the car. You're secretly armed with the information of the invoice price. Don't tell the salesman that you have this information. He'll just give you a jillion reasons why the information isn't accurate, and it will set him on his guard. Just let the salesman do his thing. Let him feel like he is in control. You want to lull him into a false sense of security.
Relax! Take a deep breath. Remember what's important! Maintain your geniality. A sense of humor will take you much farther in negotiation than hostility. Remember, you must be smiling when you kick the salesman in the crotch. Anything else would be mean and cruel.
At some point the salesman will whip out a form called something like Buyer's Offer to Purchase. It might also be called Purchase Agreement, or some variation of the two names. He will enter your information on the form, and then finally get the price for the car from the sales desk. He'll either physically go and get this information, or use the "special" telephone that might be in the booth or office. After putting the vehicle pricing information on the form, he will disclose it to you in the most confusing way he possibly can. He will at all times go to great pains to verbally obfuscate the details and terms of the deal, all while trying to sound warm, friendly, and knowledgeable.
Keep in mind that this pricing information, such as it is, is nothing more than the dealership's highball offer. Some people actually sign this initial agreement just as it is, fresh from the sales desk. I can't imagine what they must be thinking. Maybe they hate the thought of "playing games" so much that they decide it would be less trouble to just take it up the butt and pay for it for the next six years. For them, more than full price is a fair price. Why is it more than full price? Because that offer will consist of full MSRP, it will have the dealer bump, it will be "stealing" the trade-in (if one is involved in the deal), and it will include any other junk fees that the dealership thinks it can throw in without the customer going completely ballistic! And if the salesman has any reason to believe that he can get it, he'll add in even more. By the way, "pros" in the business have a real term of endearment for such customers. They're called "lay-downs". How would you like to be a lay-down? Or even worse, a "stone-cold flopper?"
So, here's your salesman "explaining" the figures on the Purchase Agreement; hoping that you'll lay down and be easy money for him. You smile patronizingly as he goes over the numbers using his fuzzy "new math" approach. He wraps up his presentation by holding out a pen to you with blind expectation. You take the pen, and for a second the tip of the pen hovers over the signature line. The salesman is holding his breath. Then your hand moves, you and start crossing off numbers on the form, and writing in the numbers of your counter-offer.
You've done your homework. You know what the invoice price of the vehicle is. You know the invoice prices for all of the options that are equipped on the vehicle. You have a good idea of the Fair Market Value of the car you're trading in, as well as the amount that the dealership will retail it for after you sell it to them. You know about all of the rebates that you qualify for. You are even aware of other incentives. You have taken this information and decided for yourself the amount that you will pay for the car you want. It will be somewhere between the invoice price and the MSRP, probably closer to the invoice price, I imagine. Getting the deal on these predetermined terms is your goal.
For the price of the vehicle you are buying, you write in an amount that is the invoice price plus the invoice price of the option package, plus about one hundred dollars, or two if you're feeling generous. This is a number that you had ready before you ever went to the car lot.
For the amount of the trade-in you put in a number that is right around dealership retail. It's a highball offer and it's intended to go down as you arrive at a meeting of the minds. You WILL NOT take less than Fair Market Value for your trade.For the down payment, you put in whatever amount you have predetermined on your own. The down payment is not really a point of negotiation between you and the dealership; the down payment is between you and your credit rating! Keep in mind that if you're financing through one of the fine lenders provided by the dealership, the lender will probably have a down payment requirement. This means that the bottom line number that you'll be monitoring during negotiation is the amount that you're going to be financing, that is, OTD price minus however much the lender requires you to put down. Make sense?
OTD Price [Negotiated vehicle price plus tax, tag, title]- Down Payment____________________________________________= Amount to be Financed
The purchase agreement form will probably not have any loan term information on it, but if by some slight chance it does, why not put in some favorable terms for yourself? And as for the monthly payment, for your initial counter-offer that is simply the result of your amortization based on your predetermined offer price.Then you sign the offer.
The salesman will probably be shaking his head, and he may have already interrupted you. Pay him no mind. It's doubtful that he'll have anything of any value to say at this time. And it's quite possible that he'll try to lay some clever lies on you. Pity him; he can't help it.
If the salesman is reluctant to take the offer back to the sales desk, go ahead and explain just a few of your numbers. Your goal at this point is for the salesman and the sales desk to continue to take you seriously as a buyer, hopefully without putting them too much on guard. At the same time, don't let him tell you any reasons why your numbers are wrong, or why you can't do what you're doing. Also, I do recommend sending some form of good faith gesture with your salesman as he takes your offer to the sales desk. A blank check is perfectly appropriate and it won't put you at any risk, and it will get the boys at the sales desk hopping!
Your tactics will not be mysterious in the least to the cats behind the sales desk. That means that unless your salesman strongly objects, they will send a sales manager back with the next offer. The counter-offer from the desk will probably be one last attempt to confuse or distract you. Or maybe it will be perfectly acceptable. And if it is, you know what to do.
Pay only enough attention to any counter-offers from the desk so that they can feel like you're giving them due consideration. Meanwhile, your counter-offers will be raised by small increments of $50 to $100 from the previous. (You'll lower the trade-in price by the same increments). Take whatever time is necessary to wear the salesman and the sales desk down. Believe me, it is the exact same tactic they're trying to use on you. Whatever happens, stick to your guns.
Negotiation Fundamentals:- Stay cool and relaxed. Always remember what is most important, and your smile will never fade.- Don't raise your offer until they counter. Why bid against yourself?- And finally, shut up and smile after you present an offer or counter-offer. Let them be the ones to break the silence with a counter-offer, or a yes'!
Don't be shy about expressing your willingness to go to another dealership to get a great deal on a similar car. Generally, they'll say just about anything to discourage you from doing something like that. But, if at any point they agree that it might be a good idea, take that as an indication that you might actually be a little too far away on your offer.
Whew, that was a lot of work, but wasn't it worth it? Hone your negotiation skills now. They'll serve you and those closest to you for the rest of your life.
