Negotiating Car Prices

There are certain events in life that we dread facing: going to the dentist for a root canal, asking our boss for a raise or going to the bank for a loan. But none top the list quite like buying a car.

Of course there are people who love buying a car; they enjoy the thrill of the hunt and the act of negotiation. These are the same people who like jumping out of planes and running with the bulls in Pamplona. The rest of us would like to just buy a car and avoid getting screwed.

For example, when you go to Wal-Mart to buy an item, you leave the department store knowing that you got the best possible price, but it's not like you had to haggle with the minimum-wage clerk to give you a better deal. With the dealer system in the auto industry, however, it's almost a given that you will need to haggle in order to prevent overpaying.

Sticker Price

The goal of negotiating for a new car is to try to get the largest possible discount off the sticker price. The sticker price is what a manufacturer, such as Ford and Honda, suggests dealers post as the selling price. You'll see the manufacturer's suggested retail price (MSRP) hanging on the window of all new cars.

This is a price that is rarely paid for by consumers, except at high-end dealerships (either you can afford a $60,000 Mercedes-Benz or you can't) and at Saturn dealerships that refuse to budge on the price because it's company policy.

Where do you begin?

You have to get creative to get a good discount. The worst thing you can do is walk into a dealership uninformed. If you are reading this, you obviously have access to the Internet. Take advantage of that and inform yourself by surfing the Web. Figure out which type of car you want and what options it has. In fact, memorize the entire model line.

For example, a Honda Civic has DX, HX, LX, Si, and SiR trims available in two-door and four-door models. Each has its own options. Knowing them will prevent any salesperson from offering you a model and then tacking on an option, when it would be cheaper to get a better model that already provides the option.

Obviously, before you even start negotiating, you need to decide which car you want to buy. So take the time to investigate what you're looking for, go to a dealership for a test drive and get an initial price quote. During this initial stage, never promise anything to a salesperson, never give a deposit, and never sign any type of contract. Don't feel pressured either -- if you do, inform the salesperson that even if the car were to cost you a penny, you would not leave the dealership with a car on your first trip.

Online services

When the Web began to weave itself, it held the promise of revolutionizing the way we shopped. For the most part, the revolution stopped before it started, except where car buying is concerned. If you have never delved into the world of e-commerce, this would be a good place to start.

There are services that will go out and locate the best possible price on the car you are interested in by submitting bids to multiple local dealers and getting them to duke it out -- all to win your business.

Use these services, even if they contact the same dealers. The more quotes you have, the better your odds of getting a sweet deal. Each car-buying Web site has its own list of dealers it works with, so you will get a better cross section of choices by using all of them.

And what does it cost you? Absolutely nothing, except a few minutes of your time (to fill out some forms). What you will get is a price that is likely to be significantly lower than the sticker price, while you sit at your computer. It's hassle-free shopping at its finest. If you are happy with the price, go to the dealer, sign the papers, and wave bye-bye from the rearview mirror.

While Internet-only bidding will give you a discounted price, a little extra work can bring you even more savings.

The Dreaded Negotiating

By now you have several price quotes from dealers, often with a contact person for each. What you have to do now is call them up and turn on the pressure to further outbid other dealers.

Don't be afraid to mention what other dealers are offering, even use the name of a salesperson. It shows that you are serious about buying, and that if the dealer you have on the phone doesn't entice you, you have a concrete offer you can easily take.

Usually, "Internet leads" from car buying services land on the desk of a fleet manager, Internet manager or (at a smaller dealer) a sales manager. The manager isn't concerned with making a commission. He just wants a sale because the dealer will make money on the holdback (the amount a dealer gets back from a manufacturer) and on selling large volumes of cars. Even if he passes it to a salesperson, it is usually to close the deal rather than generate commission.

More tips you'll need

More dealers are better: The more dealers you have in your area, the higher your odds of getting a good deal. Supply does affect prices. If your local choice is limited, manage your expectations. If there are many GM, Chrysler and Toyota dealers in your area, for example, then take advantage and play dealers against each other.

Know the dealer invoice price: This is the price manufacturers charge dealerships for cars (what Volkswagen charges Dealer X for a Jetta).

To be clear, the actual dealer cost is lower than the dealer invoice price because they get money back on the holdback charge, often 2 percent to 3 percent of the MSRP. Because a car dealership is a business, it has the right to make a profit, so aim to negotiate a price 2 percent to 4 percent above the dealer invoice to give you a good deal, and the dealer enough profit to cover his costs.

See them twice: Once you've test-driven a car, there is no need to return to a dealership except to sign your contract. Try to maintain negotiations on the phone -- you will be less intimidated and less likely to falter to pressure. Worst case scenario; you never speak to the salesperson again. Big deal, he hasn't seen your face anyway.

Tell them you mean business: Some dealers refuse to give you a price on the phone. Inform them that you are serious about buying and will do so rather quickly if offered a good price. Ask the salesperson for the address of the dealer as a sign of your interest, then ask for a quote. He will know you are a serious buyer.

Be prepared to travel: Call dealerships that are farther away from where you live or work. They will have to make it worth your while to get your business, since you have to travel farther. They'll usually offer a better price, but make sure it's enough to cover your gas costs. A $100 discount should be the very minimum.

Don't go at month's end: Going to a dealer at the end of the month is not effective. People rush to buy during this period, so dealers have higher traffic and their own "supply" of customers. It's more effective to go at the beginning of the month, especially on a sunny day when fewer people will venture into a dealership. Remember, salespeople love to start the month with high sales.

Make sure the final price is the final price: Compare apples with apples. Have all taxes and registration fees included in the final quote. I once had a really annoying dealer on the phone saying, "My final price is X," and then he added the small registration and dealer fees that he said the "government" forces him to charge. If they charge it and I'm paying for it, put it in my final price. Ask them, "If I were to buy this car outright, and had to get a certified check to walk out with my car, what would the amount on the check say?"

Don't fall for salespeople's lies: The whole "I'm insulted" bit when you ask them to lower a quote they claim is already "low" is old and tired and you don't have to accept it. One dealer had the audacity to tell me that his cost was only $300 below sticker price when I had the dealer cost in front of me that listed the dealer cost $2,800 below sticker price.

It's all worth it

Remember that in the end, you end up with a car at a lower cost. Saving money is never a wasted effort, and that's a good thing to keep in mind if you ever feel like incinerating every car salesperson you see.

Good luck.