Today we welcome Shannon, who you may know from the blog Financially Blonde. She will be filling in a couple of weeks while Cat takes time off to spend with her twins.
For many of us, the thought of buying a new car is about as pleasant as a trip to the dentist.
Even if we need a new car, we do not want to deal with the “hassle” of having to negotiate with car salespeople. In college, I had to read the book The Art of War, to help me better understand business negotiations, and I sometimes think it is a good resource when planning your next trip to the car dealer.
If you prepare and understand your “enemy” beforehand, then you will ultimately leave the battlefield (aka car dealership) victorious and feeling as though you waged a successful battle campaign.
Here are some tips to help you save money and come out ahead when buying a new car.
1) Do Your Research
If you know you need a new car, first you need to determine what type of car you plan to buy, a sedan, an SUV, a minivan, a hybrid etc. Then you need to decide what is important to you about the car, is it the fuel efficiency, interior space or functionality like four-wheel drive.
From there, you have a number of resources to compare various models. On the free side, you can check out Edmunds or Kelley Blue Book. Most new car purchases represent at least a $20,000 “investment” which I consider a serious investment and as such, it may make sense for you to pay for a research source like Consumer Reports, which costs around $29 for the year, to help you narrow down your options.
Whatever source you utilize for research, you should compare five or more models in the type of car category you are looking into and then narrow down your top two or three options, and a price range for each. It is important to note that the price you see online is always higher than what the dealer pays and typically on the high end of what the dealer would like to make, so you should aim to pay less than what they advertise online. Once you have this list prepared, then it becomes a waiting game.
2) Watch for Signs of “Weakness” from the Dealer
Once you know your target car, or at least your top two or three target potentials, now you start to wait for signs of weakness or as they are commonly called “Sales Events.” Sometimes their weakness isn’t called a sales event, it is represented in increased advertisements, especially around a particular make or model of car.
There are some car companies that always seem to be advertising; however, others save their advertising dollars for special events when they want to get your attention. The special event is a signal that the car dealers need to sell cars and they will be more likely to negotiate with you. And you should note that if you see advertising for your model car with one dealer, you could use that as leverage to try to get a good deal on the comparable model car with another dealer. For example, if you see that Honda is actively advertising deals for the Accord, you can mention that pricing to Toyota when looking at the Camry and get Toyota to match the Honda pricing. It’s fun to play the different dealers off each other.
3) Assess Your Strengths and Weaknesses
Just as you have to assess your enemy’s strengths and weaknesses, you need to assess your own. Car dealers have much more flexibility on incentives and financing deals that they can give based on your credit score. There are a number of places that you can go to check this for free like Credit Karma. If your score is a 700 or greater, you will have a strong seat at the negotiating table; however, if your score is lower than that, you may want to delay your purchase.
My Fico.com has a great resource that allows you to compare the increased auto loan costs to you based on your credit score. Sometimes a difference of only 10 points in credit score can lead to an additional $120 a year in finance costs. Also, remember that your current car is a great strength for you at the negotiating table. If you are leasing your car, the current lease provider will want you to stay with them and put you in another car; however, other dealers also have lease incentives to “win you” from your current lease provider. The same thing applies for your trade-in car; dealers will have various incentives depending on the quality of your trade-in.
4) Check the Calendar
Like most companies, car dealerships all have goals and sales targets that are typically based on the calendar. Therefore, if you time your purchase around the end of the month, end of the quarter or end of the year, you will find that you have much more negotiating room.
You will also probably notice that the sales events I mentioned before typically occur at the end of the month. The car manufacturers assess dealers on more than just the sales revenue that they generate, and if a dealer needs to make it’s goal in number of units sold or types of models sold, then they have even been known to offer deals at substantially below sticker price.
One of my former clients was a car dealership, and the cash manager from the dealership shared that there are a number of factors that go into the ultimate sales price of the vehicle, and typically the dealer has much more “wiggle” room than you think, so don’t be afraid to take advantage of that.
5) Determine Your Budget
Based on the numbers you determined from your research and your own budget, you need to determine how much money you have to bring to closing and how much you are able to pay on a monthly basis for financing. Once you have this number, stick to it like crazy glue. This budget number is your ultimate key to success in the battle versus the car dealer. If you have a budget number, then you force the dealer to meet you at your level. Either they will want to negotiate with you and make the sale or they will not, but you know what you are working towards.
I typically start by not sharing my budget to see where they want to start. At some point, I let them in on the budget after they have “played the game” for a while. I once had a salesperson say that he could get my budget number, but then when we ran the final numbers, I realized it was $20 a month higher because of taxes and I told him the deal wouldn’t work. He went back and got it another $20 lower. Your budget also makes your negotiating process less “painful.”
In the five cars that I have purchased or leased, on every single transaction, the dealer met my budget number or less, and it was always less than an advertised price. Again, you put the ball in their court and they will either find a way to make it work for you or they won’t, but if you follow the other tips, it is unlikely that they won’t.
Have you ever purchased a new car before? Did you feel as though you successfully negotiated the deal or did you leave money on the table?
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Photo by Emilio Labrador
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If you have saved for the new car purchase and plan to pay with cash, that can go a long way in negotiating a better deal. That’s what we plan to do with our next purchase.
Brian @ Luke1428 Absolutely Brian!! Cash is definitely king in most situations and if they don’t have to worry about getting financing approved, then it is better for the dealer.
Great tips! I think it’s especially true to be mindful of the calendar and the fact that they likely have sales quotas to hit, so if you can hold out until the end of the month you may be able to score a better deal!
colormefrugal Yes, sometimes it’s hard to be patient, but it is amazing how much more agreeable to deals the dealer is when it is the end of the month.
Great tips Shannon. The salesmen do have to meet goals so they might be more amenable to making a deal if you time it right. And your biggest strength is the ability to walk away…they don’t want that! Definitely do your research, the sales guys will know they can’t take advantage of you if you know your stuff.
A friend of mine is currently in the market to buy. She will probably have to replace 2 cars next week. I’ll be giving her these tips. Do you think it’s to her advantage to buy both cars from the same dealer? I bought my last car 3 years ago and I think I did well with the price.
I have purchased a new car before. I find the best time to go is a month after the new cars hit the lot. You can get the “older” version, which is still new for much less than you normally would.
Andrew LivingRichCheaply Yes, I once heard that something like 70% of new car purchases are impulse buys, so the sales people have the advantage in that case and if you do your research, you definitely put them on the defensive instead of offensive.
Raquel@Practical Cents Buying two cars from one dealer would definitely get you lots of mileage, but it also gives you a great opportunity to play two dealers off of each other and perhaps split the sale. She should think of it as a game like that and it will make the experience more enjoyable.
DebtRoundUp Yes!! I sometimes tell people to look at the dealers inventory online and if they have a number of “last year’s models” then you could get a good deal on those especially because there really isn’t much of a difference.
Negotiating new cars is tough. We found the dealers to be very firm on their price. It was pretty hard to get them to move at all. They were willing to throw in freebies like car mats and stuff but price was really tough.
Another tip: bring someone who is notorious for their negotiation skills with you! My husbands best friend is great at haggling dealers down by making them compete with each other. He’ll have one on the phone while he’s at one dealer. We fully intend on taking him if we ever decide to buy a new car, but I think we’ll always opt for new to us/used.
Great tips, Shannon! Car buying is definitely one area where haggling is a expected! But as you pointed out, to do it effectively you have to do your research first. I actually think car buying is a little easier these days for the consumer. In the past, it still seemed like a lot of power was in the dealerships hands. These days they seem to be more willing to work with you. You still need to put your game face on but I find more people are living the car lots feeling that they got a good deal.
My thing: Pretend to call dad and have him conveniently be at another car dealership. Shady, but it seriously cut off around $2k from our last car.
fitisthenewpoor Ooh!! I love the “pretend to call dad” play. Great idea!
ShannonRyan Yes, technology has definitely helped the consumer and with a little preparation, they really can get a great deal. Like most things in finance, if you put in some work, you can get great results. :-)
Miss Entrepreneurette A teammate is a great idea!! I hate to haggle, but I know that some people love it, so you get to let them indulge in their haggling fun while you benefit from the results.
BudgetforMore It is definitely tough, but there are times that they are more flexible and sometimes it is more of an art than a science (i.e. the right dealer and the right salesperson at the right time).
I hate car shopping. The last time was several years ago, but walking away has helped. Twice the salesman called us back with a better deal.
Of all those, determining your budget has to be the #1. Then again negotiating is also important..
Great post here :)
mycareercrusade Thanks! And yes, a budget is definitely key not only to keep you in good financial health, but to give the whole negotiating process a framework to work within.