Negotiating for a Car Dealership Discount: Strategies and Tips for Savvy Buyers
When it comes to purchasing a new car, understanding how to negotiate for the best possible price can save you thousands of dollars. The discount a car dealership might offer on a $40,000 car can vary widely based on several factors, such as the make and model, the dealership's inventory levels, the time of year, and current promotions. Generally, a typical discount might range from 5% to 15%, bringing the price down to approximately $34,000 to $38,000. However, during special sales events or to move out of season models, discounts can be even higher, even reaching up to 20%.
Control the Negotiation Process
It's important to understand that directly trying to talk down the price at a dealership can play right into the dealership's hands. Instead, focus on controlling the negotiation process by doing your research and knowing your worth. A knowledgeable buyer is the most formidable buyer a dealership cannot scam. Here are some effective strategies to help you negotiate successfully.
Research Pricing and Incentives
Invoice Price and Hold Back: Start by researching the invoice price of the car, which is the manufacturer's suggested retail price (MSRP) minus a holdback percentage. Most brands have a holdback of around 600 to 700 dollars, so subtract this from the MSRP. For example, if the MSRP is $25,000 and the holdback is 600, the initial price becomes $24,400. You can find this information online at sites like Edmunds.
Manufacturer Incentives: Check for any incentives from the manufacturer that might reduce the final price. If there's a published incentive of $1,000, subtract that from your initial price, bringing it down to $23,400. Adjust this price based on other prices you find in the market.
Compare Dealership Prices: Compare the dealership's advertised prices with those found on online price paid sites. If the advertised price or the prices paid by other buyers are lower, adjust your expected offer accordingly. Knowing that the average price paid for similar models is $23,000 indicates that there is probably a hidden incentive from the manufacturer, allowing you to negotiate further.
Understand and Adjust Fees
Be wary of the so-called "dealer fees," such as document processing fees, which are often designed to inflate the final price. Always ensure you are accounting for these fees. For instance, if the dealer offers the car for $24,000 with a $600 fee, the actual price is $24,600. Don't fall for this trap and adjust your offer accordingly.
Fake Fees and Hidden Costs
Only legitimate additional fees should be sales tax and registration fees, no other dealer fees should be charged. Recognize these as hidden costs and adjust your expectations accordingly. Always factor in the actual final cost of the car, not just the quoted price.
Research Financing Options
Do your research on financing options outside the dealership. Visit a bank or credit union to determine what interest rates and terms you can secure. Compare these rates with the in-house financing offered by the dealership. Often, the financing rates offered by banks or credit unions can be more favorable.
Read Dealer Reviews Cautiously
When reading dealer reviews, lookout for overly emotional feedback and biased opinions. Pay particular attention to comments related to the sales tactics used. Excessive pressure and rapid shifts to different sales representatives indicate a less reputable dealership.
Evaluate Trade-In Value
Research the trade-in value of your current car using reputable sites such as Edmunds KBB and NADA. This will give you a clear idea of what your trade-in is worth and help you make a more informed offer at the dealership.
Select a Dealer
After your research, select one or two dealers and make an inquiry. Choose one to continue with based on their response. Ignore dealers who refuse to provide a price via email or provide ridiculous prices.
During your visit, state your budget clearly. For example, if you want to pay $24,000 and expect $10,000 for your trade-in, the net amount you are looking for is $14,000. By stating your net goal, you force the sales manager to find ways to meet your expectations. If the sales manager offers a net value of $14,500, you might find that acceptable. If they come back with a net value of $16,500, you may decide to walk away, knowing that the decision was based on thorough research and a well-considered budget.
Finalizing the Deal
Once you reach an agreement, allow the finance and insurance (FI) manager to arrange the financing. If they offer better terms than what you found with your bank or credit union, take it. However, if they do not, use your outside financing option.
Note that some manufacturers offer captive financing, such as Honda Financing, which is often tied to their rebates. Use an online auto loan calculator to decide on the best course of action in these cases.
Lastly, decline any additional products offered by the FI person, except for pre-paid maintenance, which can be a good choice. Anything else, say no. The last thing you want is buyer's remorse when you realize your deal fell apart in the FI office.
The Bottom Line: Remember that the moment of control rests with you, the buyer. No sales person can steal that control with their training and tactics. Always maintain your stance and stand firm in your negotiations. Knowledge is your power in this process.