Getting a Good Deal
Are you ready for a little dancing? If you think of the negotiating process of buying a car as a dance, you'll find it a lot more tolerable and you might even enjoy it.
It's just two people suggesting and redirecting. And remember: you have the advantage. You've got a long line of salespeople that would like to dance with you. If one isn't keeping up with your steps, say, "Good night," and find yourself another dance partner.
Here's another good attitude adjustment to make before you start on the path of negotiation: dealerships try to average a specific amount of profit on each car they sell. People who pay too much allow there to be people who pay too little. With some preparation and education, you can be among the latter.
Dealers will pressure you to make all your decisions in a single day. They've been doing this for a long time. They have all the scenarios mapped out. So when they react, they're doing so with the benefit of experience. For you, it's probably unfamiliar territory so that when you react, you may be acting with emotion. Dealers and salespeople know how to use that to their advantage. So slow the process down. Sleeping on a decision could save you some money.
Also, the more proactive you are and the more you take control, the better the result. Educate yourself. Understand how the car business works. Know what price the dealer paid for the car and have some alternate financing options up your sleeve.
Give some serious thought to the menu of bells and whistles that a dealer will present you. Do you really need a GPS system or premium stereo? If you don't, don't let the salesperson sell it to you. Speak the technical talk. Demonstrate that you're a person who knows what's what. No hood's going to be pulled over your eyes.
At the Dealership
When you arrive at the dealership, realize that you have a choice. First impressions are usually a very accurate indication of things to come. If you don't like the salesperson right off the bat, why waste your time? Feel free to walk away and head for another dealership. However, if you have a limited number of dealerships in your area, you may want to wait to pull out this move until the negotiations break down.
Some strong negotiation moves and redirects can help you come out ahead.
- Keep a neutral outward attitude. Don't sell yourself. If you give the impression that you could take it or leave it, a salesperson will work harder and be willing to give more to sell you.
- Avoid financing questions. Even if you don't have the money, tell them you're paying cash (they may not hold you to it). It will force the salespeople to concentrate on the current price negotiation and not get caught up in a long-term strategy to nudge up their profits.
- Be prepared to haggle for a while. The salesperson might try to tire you out with a prolonged negotiation session. Don't give in. Stay strong and save money. Keep in mind that an extra hour of persistence could save you a few hundred dollars.
- Watch for the good-cop-bad-cop move. The salesperson will tell you that they really want to give you the price you're asking for, but that it's the manager who calls the shots. Don't be swayed into believing that you both are on the same team ganging up on the big bad manager. After all, remember who signs the salesperson's cheques.
- Here's a power move: Ask to see the invoice. If the salesperson is dead-set against showing you the invoice, there's a reason why. They're probably offering you a bad deal.
- Shop for a car later in the month. There are a lot of bonus and rebate programs that are based on monthly sales quotas. If a salesperson or dealership is short on meeting goals at the end of the month, you might find more willingness to sell the car more cheaply to get the extra sale.
Let's talk price.
Before you talk price, there are some terms you should know:
- Dealerís Invoice Price
This is the wholesale price the dealer paid the manufacturer before any rebates or incentives. Do some research on this number. If you can find out what the dealer paid for the car, you'll know what the profit is on each car. Then you'll be ready to strike a compromise between letting the dealer make a living and getting a good deal for yourself. The Internet is a great source for this information. Use it to decide on a number you're willing to pay. Print out the invoice price when you find it and bring it with you to the dealership for back-up.
- Manufacturer's Suggested Retail Price (MSRP)
Also called the "sticker price," this is the number on the car window. It's the manufacturer's "suggested" retail price and is meant to be the jumping-off point for the negotiations that lead to an eventual selling price. Mind you, if the model you're interested in is in high demand, you probably won't get much lower than this number.
A rebate is a gift to buyers, extended by the manufacturer (or, in some cases, the dealer) to encourage them to purchase a particular make and model. Typically, rebates are stated as a reduction in the selling price of the car, but they may also be expressed as an offer for a better rate of financing. These are called "either-or" offers. Rebates are most often attached to the slowest-selling vehicles. Sometimes, they're a seller's solution for dealing with a surplus situation, and so surface as the end of a model year approaches. A customer should always ask whether there are any incentives on a vehicle.
- Sales Tax
The sales tax is the same tax that's charged on everything from staplers to underwear. This cost, of course, is non-negotiable.
OK. The big question. How much should you pay? Remember, this is a dance, not a science. So there is definitely no right or wrong answer. Offer somewhere around $200 more than the invoice price minus any dealer incentives. You probably won't get the car for that little, but it shows you know the playing field (or dance floor) and that you're prepared to negotiate.
Beware of the Add-On
The dealer will probably offer all kinds of add-ons after you've negotiated the price. The dealer makes extra money on almost every single one of them. You may find add-ons are included as if you have no other choice. You do. Feel free to refuse them. It will help if you know what these add-ons really are:
- Destination Charges Some manufacturers charge separately for shipping the vehicle to the dealer. You can't get around this. But check the sticker to make sure it wasn't already included in the price.
- Licensing and Registration Fees These are necessary, but call your province's Department of Motor Vehicles to make sure the dealer hasn't padded this price.
- Extended Warranties These are also called service contracts. Just buy a car with a good service history and an extended warranty should be unnecessary.
- Dealer Prep Part of a dealer's job is to get the car ready for you and it's one of the things the dealer gets paid for. Don't pay for this twice.
- Credit Insurance This insurance will pay off your car loan should you die while leasing it. As long as you have life insurance, this is also unnecessary.
There are many other fees that may be added. Ask directly what each one is for. If it seems unnecessary, it probably is and you should refuse to pay it.
When it appears as though a price compromise is inevitable, ask for more. Ask the dealer to throw in the floor mats or some other incidental extra. You might not get them, but you certainly won't if you don't ask.
The Final Steps
Now you've negotiated a price. Whew! You're almost done.
Before you sign anything, make sure the amount you have agreed to pay matches what you decided you could afford. Be sure to include the financing. Also, estimate the number of kilometres you drive in a month, divide that by the estimated kilometres per litre of the car you're about to buy. Then multiply that by the current price of a litre of gas. Add that amount to your monthly payment.
The dealer will want you to drive the car home that night. Don't do it. Give yourself a day to cool off. Go home and immediately call your insurance agent to get a quote for the car you're about to buy. Then add insurance to the monthly payment and monthly gas expenditure to make sure it still fits in your budget. If it's close, you can fiddle with the numbers to make it fit. But be realistic.
And if it doesn't fit, you can't buy the car. Don't make any exceptions here. You will do great damage to your financial future if you buy a car you can't afford. You may have invested some time into the negotiation process, but don't feel bad. Think of it as practice for the next round.
Once you have signed the papers, there is no way out. There is no "cooling off" period for automobile purchases.