Contrary to popular belief, McDonald advises car buyers to not negotiate a price for a new set of wheels starting with the invoice price and working up. He says, instead, to start with the sticker price and negotiate down.
McDonald gives an example of why a car buyer should start with the sticker and dicker downward. Let's say you want to buy a big SUV, like a Chevy Suburban or Ford Expedition. When gas prices go down one of these guzzlers sells for about $400 over invoice. "But when gas prices go up, past $5 a gallon, what happens?," asks McDonald.
If you negotiate with the dealer according to the principles of "fair market value," you might offer the dealer an offer below the invoice price you have researched on AOL Autos. And, says McDonald, they are likely to take it because the dealership has a dozen or more of those giant SUVs on the lot that are being financed. In other words, the dealer is paying interest on carrying unsold inventory on his or her lot, so it's in his interest to keep the vehicles moving through the lot. That is a situation that works in the buyer's advantage.
"They're happy to let a Behemoth go below invoice - because that's what the market dictates," writes McDonald.
Here are five more buying tips from AOL Autos and professional independent negotiators Ted Fenton and Wael "Y.L." Khalil on how to be a smart negotiator on your next purchase.
1. First do your research. Figure out exactly what you want before you start shopping.
Fenton's advice comes from holding every possible job in the auto-selling world. "I was washing cars at age 16 at a dealership, and worked my way up through sales, management and finance." he says. "Along that rise, I learned where the money is, what's negotiable, what's not, what all the tricks are, where they hide money. Depending on how the deal is structured, there are seven or eight places a dealer can add money onto a deal. Most people walk into a dealership and they are just concerned with the monthly payment. A dealer loves to hear a sentence like, 'I don't want to spend over $300 a month.' The consumer has just given the dealer license to rip them off. The customer also needs to figure out exactly what they want -- leasing, financing, model, color -- beforehand."
Khalil says, "It's all about your research. I find women are really good at research -- they just don't want to do the talking, not by themselves. I walk in and make sure she gets what she started with. It's all about the homework. I can have a 16-year-old with a checklist, have them call three dealers, and then I'll step in and do the deal. If they do research at home, you will be fine when you get to the dealer."
2. Call every dealer within a 100-mile radius and negotiate from home.
Once your choice of a vehicle is finalized, Fenton says, pick up the phone. "Get on the computer and contact 40-50 dealers, if you have to, within 100-mile radius of where you live. Look for dealers who have that exact model. Five to ten of those dealers will have those exact cars."
"All the negotiating should be done through the computer, the fax machine and over the phone," he says. "Some dealers say they won't give numbers over the phone. If they say that, call some other dealer. The car salesman and the manager want nothing more than to get you in the door. As a dealer, I don't want to give any numbers to any buyer unless they are in the door. But all you need is to get one dealer to say 'I will do this, this and this.' At that point you can call up other dealers. They will give you a lower price, lower points, anything to get the sale."
"Do not go to the dealership," Fenton says. "You do not have to go to a dealership to buy a car. As soon as you walk in, they try and sit you down in 'the box,' which is what dealers call a negotiation situation. Most people don't have those negotiation skills. How can they? The dealer is trained to sell."
3. Sell your car on your own.
If there is a trade-in involved, Fenton says, "The first thing I would say is to make an effort to sell car on your own. You'll get $3,000-$6,000 dollars more on your own. If you do decide to trade, don't tell them you have a trade-in until the very end. Drive to the dealer's after the deal is done and on paper, and say 'What will you give me for this car?' Just keep going back and forth where the dealers all get roughly within 100 dollars of one another. It will get to that if you do it correctly. You'll get to the best deal."
4. Play each dealer against the other.
Khalil says, "He who has the cash is the boss. There isn't a shortage of cars. If you don't give it to me for what I want, I'll go elsewhere. I don't have all day to go back and forth and back and forth. Part of their tactic is to wear you out. But I take info from one salesman and use it as leverage before we walk in. One says 'I can do a better interest rate.' Another will say, 'I can do that and nice carpet.' Let them play with each other. Let them fight it out, with you in the middle."
"I pit those guys against each other," says Fenton. "I say, 'Make sure you give me your most aggressive price.' That's how I get to the bottom dollar. That's going to be below invoice, depending on availability. The consumer also needs to understand that the dealer is essentially a broker for a bank, all of whom have different rates. The way the dealer makes money is to buy the loan, and mark it up. Most consumers don't know that they can negotiate. What I tell the dealers is you have to calculate this lease at your buy-rate. They all complain, but with me it's either you do it or don't you -- there are 20 other dealers."
5. Other than test-driving, there's no need to go to the dealership.
The only time you should be going to a dealership, says Fenton, is when you have already test-driven the car beforehand, you've made the deal and you're going to the dealership to sign the paperwork and drive the car home.
Khalil says, "I do all negotiating over the phone, 95% of it. And then I walk the customer into the dealership with all the e-mails and faxes in my hand. We walk in just to pick up the car. Deal is done."
When you must visit the sales lot, Fenton says, spend as little time as possible. "As soon as the salesman meets you, he's going to try to get control," he says. "I would go to the dealership and tell them I've got 20 minutes to 1/2 hour and I need to test this car and this car and this car, and then see. Tell them you're not buying today. The salesman's guard will come down and they won't try to sell you."
"You can test drive a car without giving the guy your e-mail address, fax number or even a phone number. You can also get up and walk out at any time," Fenton says.