Article Of The Week

The biggest mistake you can make in a car price negotiation is not to negotiate. If you take the sticker price as-is, you will get fleeced. So how do you negotiate to win? It’s not at all difficult to do, if you take an important first step.That first step is being informed. When it comes to car prices, most people are woefully ignorant.

For example, do you know what MSRP is? It’s the manufacturer’s suggested retail price. That second word is critically important. A dealer does not have to take the suggestion. He can charge more or less than the MSRP. Here’s how the process usually works.

The dealer buys cars from the manufacturer at a wholesale price, called the invoice price, or factory invoice price. The difference between the invoice price and the MSRP is profit for the dealer…sort of. Dealers have other costs, like the contributions they make to advertising. Those costs cut their profit margin. But they also have some things that pad their profits, like “hold-back” from manufacturers (essentially an incentive to sell the vehicle), documentation fees and selling trade-in vehicles. These profit boosters can allow dealers to sell below their invoice price and still make money.

What you end up with is the selling price of the car. It’s often in between invoice price and MSRP, and it is pretty flexible.

Once you know this stuff, it’s easy to see how to win.

First, find the car you want. Pick out the model, the features, the color and anything else you want.

Second, use Edmunds.com or Consumer Reports to find out the invoice price a dealer pays for the vehicle. That’s where you should start your negotiation.

Third, offer $100 over invoice for the car, not a penny higher, at least not at the beginning. But also know your actual price ceiling. If you’re willing to pay $500 over invoice, you need to have that number in your head.

Fourth, refuse to talk about monthly payments or financing. Stick to the total cost of the vehicle. Tell the salesman you’re ready to sign and drive the vehicle off the lot today if he takes your offer. That’s tough for a salesman to resist.

Fifth, do not be shocked when they try to resist. They will pull out every stop to get your pay more. They will talk about salesmen having to eat, the dealership having to pay their overhead, you not being fair. Let it all roll off your back. Stick to your price, and maybe reluctantly increase your offer by $50-100 up to your price ceiling.

Sixth, do not crack your ceiling. Tell them you’ll simply walk away, because you do not have to buy a car today. That will make them nervous. When they know you’re serious, they’ll be much more likely to give you a deal.

Seventh, throughout the entire process, keep your cool. Be nice, not confrontational. Smile. Be firm but pleasant.

If you go in armed with price information, stick to your guns and maintain a pleasant attitude, your car price negotiation might just have a happy ending for your wallet.

by Paul Ransom