The Intelligent Negotiator (28 page)

The first thing you must determine is which vehicles would suit your particular needs. Are you looking for a minivan that can carry a number of people and lots of luggage, or a sports car, or a plain sedan? What make or makes of car are you willing to consider? The more flexible you are in these areas, the more walk-away power you will possess when you visit specific dealers. If you absolutely have to have a Chevrolet Corvette or a particular Mercedes, your buying options will be limited. On the other hand, if you would be pleased with a Honda Accord, a Toyota Camry, or a Ford Taurus, you can afford to be bold when you negotiate with dealers because of the many sources available to you.

Determine Dealer Cost

Once you have decided on the vehicle(s) that would satisfy your needs, you must determine the dealer cost for
those cars. Car dealers almost never give you this information. They always cite the Manufacturer’s Suggested Retail Price (MSRP) set forth on the sheet attached to a side window. They know that if they can anchor this figure in your mind, they can induce you to pay too much. Where can you obtain the information you need? There are various reputable sources you can use. You can visit your local library or bookstore where you will find several books (such as
Kelley Blue Book)
that contain dealer cost information pertaining to all current car models. These will tell you the base dealer cost and the dealer cost for all the popular options you may be considering. You can also obtain the relevant information through the Internet. If you access
www.autobytel.com
, you can gain entry into the Edmunds Buying Service (
www.edmunds.com
) that lists the dealer cost for the different vehicles and the available options. You can also go into the
Kelley Blue Book
database (
www.kbb.com
) and obtain the same information. For a fee of $12.00, you can telephone the Consumer Reports New Car Price Service at (800) 933-5555 and obtain the dealer cost for the exact vehicle and options you desire. These services also try to provide you with current information regarding dealer “holdbacks,” usually 2 to 4 percent of dealer cost, which dealers earn from the manufacturer if they sell their vehicles within specified time frames. You must try to determine what manufacturer rebates are being given to their local dealers. These may be reflected in publicly announced rebate programs, or they may be highly confidential. They may amount to hundreds and even thousands of dollars. You also want, if possible, to learn about manufacturer incentives given to dealers who exceed specified sales quotas. These may provide dealers with hundreds of dollars in profit when they appear to be selling vehicles at actual
dealer cost. Online services try to estimate the relevant dealer rebates and incentives.

Never make the mistake of allowing car dealers to establish their cost bases through their “invoices.” Invoices rarely reflect the actual dealer cost of vehicles. They are a mere approximation of what the dealer was charged when they ordered the vehicle several months ago. They do not include such critical factors as manufacturer rebates to dealers, manufacturer incentives, and dealer holdbacks. These may decrease actual dealer cost by $1,000 to $5,000 or more. Whenever dealers take out their “invoices” to show you how little, if anything, they are making on the proposed sale of the car you want, hold on to your wallet. You are about to be taken in a big way. This is why television and newspaper advertisements stating that dealers will show you their invoice sheets contain small print indicating that “invoices may not reflect actual dealer cost.”

Car Negotiating: First Round

Once you have obtained the critical information about dealer cost on the car you want, you can begin to negotiate. When you open buying discussions, salespeople always try to emphasize the MSRR. They want you to focus on that figure to induce you to think how much you are “saving” when they offer you a lower price. Ignore that figure entirely, and change the focus to the dealer cost. State the base cost of the vehicle you are considering and suggest an appropriate dealer profit of from $250 to $750, depending on the demand for the vehicle you are considering. Dealers will usually sell high-volume vehicles for $250 to $350 over their cost, but expect $650 to $750 over
cost for low-volume specialized vehicles. The salesperson will look pained and deny the size of your projected manufacturer rebate or incentive or the availability of the holdback on this car. He or she will usually understate this information to induce you to believe the dealer paid more for the vehicle than they actually paid.

Another relatively easy way to determine the lowest price most dealers will accept is to review the car advertisements in your local newspaper. Most dealers include ads for what I call “bait-and-switch” or “come-on” vehicles. They often list only one at the stated price, specifying the stock number of that vehicle. They include prices for the different models they sell, and this allows you to calculate their bottom-line price for the model you are seeking. The prices set forth in the “come-on” advertisements are as low as the dealers are likely to go for the vehicles listed. From car books or Internet sites, you can ascertain the dealer cost for the extra options you want and add those amounts to the advertised price. Even if the advertised car is an unacceptable color or not the exact model you wish to buy, you can still use the price of that vehicle as your guide. When salespeople mention higher prices, refocus their attention on the advertised car price. Force them to negotiate up from that figure, rather than down from their inflated figure. When you have talked them down to a number you find sufficiently close to the actual dealer cost, you have completed the first round.

Car Negotiating: Second Round

As soon as the salesperson gets your commitment to a specific price, the real bargaining games begin. For example, he will begin to write up the purchase contract and
then disappear to consult with the “sales manager.” After an absence of five to ten minutes, the sales person will return with a long face. He will indicate that the “sales manager” informed him that he had made a significant error that has resulted in a price below their actual cost. You will begin to feel sorry for the salesperson, who indicates that he almost lost his job because of this error. He will inform you that for several hundred dollars more, he should be able to convince the “sales manager” to approve the deal, even though it is still below the figure the manager expected. This is a ploy. For all you know, you are presently talking with the “sales manager,” who had merely gotten something to eat or drink when he went into the other room. Don’t allow this use of
Limited Authority
and the
Nibble Technique
to fleece you. Calmly restate your willingness to pay the previously agreed-upon price and nothing further.

If you are fortunate to reach a final agreement on the price you will pay, the sales person will write up a sales contract that contains pre-printed provisions that add on extra costs: vehicle transportation, dealer prep, and a “processing fee.” You are normally expected to pay the transportation cost, since the dealer has been charged for that item. The other two charges, however, are negotiable. They are dealer add-ons that are designed to enhance their profit. Most dealers perform minimal service on new vehicles, yet they try to charge several hundred dollars for this work. The “processing fee” of $100 to $200 should have been reflected in the amount of dealer profit you agreed to provide above dealer cost. Despite the fact that these last two items are fictional sums to enhance dealer profit, it is difficult to eliminate them entirely. If you can get the dealer to drop one or reduce both, you have done well. These extra charges are already printed on the purchase
agreement to be added to any price agreed upon, and it is hard to get dealers to delete pre-printed fee items.

Car Negotiating: Third Round

Only after you have agreed upon the final price and the degree to which you will pay for transportation costs, dealer prep, and processing, is it time to address the value of any trade-in you have. Try to avoid this issue until the end of your price negotiations. If salespeople are aware of your trade-in when they begin the negotiations, they will try to give you a less generous vehicle price. This allows them to look more generous when they make you an offer on your trade-in. By negotiating the final price before addressing your trade-in, you can determine the actual amount they are giving you for your current vehicle.

If you have negotiated a low price for the vehicle you are purchasing, car dealers are unlikely to be generous with respect to your trade-in. In most instances, they don’t plan to sell your vehicle through their used car department, but intend to sell it through an automobile wholesale service. As part of your purchase preparation, you should determine both the wholesale and retail value of the vehicle you plan to trade in. Books and Internet services (such as
www.edmunds.com
and
www.autotrader.com
) can provide you with this information based on the make and model, the odometer mileage, and condition of your vehicle. Only when your car is in relatively good shape is the dealer likely to retain the car for resale through its used vehicle department. If you think it is going to do this, you should talk in terms of a figure at the low end of the retail value. Otherwise, you must anticipate a number based on the wholesale value.

If you think your vehicle is worth substantially more than dealers are willing to provide, you may decide to sell the vehicle yourself. Use the same aforementioned sources to determine the approximate retail value of your car. You can also read the used car ads in the local newspaper to see what other people are charging for similar vehicles. Select an asking price for your car that appears sufficiently reasonable to encourage prospective buyers to contact you once they see your advertisement. If the stated price is excessive, you will generate minimal interest. All in all, remember this: It may be a hassle to sell the vehicle yourself, but if you are able to obtain $1,000 or $2,000 more than the dealer offered, you will come out well ahead.

Car Negotiating: The Final Ploy

After you have negotiated the vehicle and trade-in value—and have signed a purchase agreement—a few unscrupulous dealers use one final ploy to increase the price. When you return to the dealership with your trade-in to pick up the car you have agreed to purchase, they look at your trade-in and “discover” some scratches and dings they had previously overlooked. They will ask you if these occurred after they determined the value of your trade-in and suggest that your vehicle is worth less than the price stated in the sales agreement. Unsophisticated buyers who are psychologically committed to the new car they are buying may succumb and agree to pay several hundred dollars more for the vehicle. Assuming the scratches and dings noted by the salesperson now were present when the dealer initially appraised the value of your trade-in, this ploy is not only unethical but unlawful. You have a
legally enforceable purchase contract. If the dealer tries to use such a disingenuous game to alter the terms agreed upon, you can sue for breach of contract. When you encounter this tactic, emphasize the fact that the marks in question were there when the dealer originally evaluated that vehicle, and ask the dealer if he or she is refusing to honor the already executed binding purchased contract. At this point, dealers trying to use this ploy to obtain extra money will usually cave in and honor the sales price set forth in the purchase agreement.

If you personally hate to negotiate with car dealers, you can consider other options. One might be to visit a dealer that refuses to bargain. Saturn is the classic example. It sets firm prices for its cars and refuses to modify those figures. Many Mercedes dealers also have a no-negotiation policy. It would be painful for good negotiators to do business with these dealers, due to the apparent absence of any haggling. If you like to bargain, don’t refuse to visit a Saturn or Mercedes dealer merely because of this policy. While they may not negotiate over the price of their cars, they will negotiate over the trade-in you are offering and sometimes over the price of optional equipment. If it is late in the model year or late in the month and they are trying to obtain incentive payments, they will be more generous regarding your trade-in. They may even offer you a good deal on particular options.

Vehicle Purchasing Services

If you absolutely hate to negotiate with car dealers and can’t find one that sets a fair and firm price on each vehicle, you should consider the use of a vehicle-buying service. For a set fee—usually ranging from $100 to $400—you can
retain a service that will negotiate prices with dealers in your area for the specific vehicle you want to buy. These services have purchasing power by virtue of the repeat business they can give to accommodating dealers, and they contact several dealers in an effort to obtain the optimal price. Once they collect the relevant information, they notify you of the prices they have negotiated with the dealers and guarantee those prices for a limited period of time.

Some of the national buying services include: (1) Auto-Advisor, (800) 326-1976,
www.autoadvisor.com
; (2) Car-Source, (800) 517-2277,
www.carsource.com
; and (3) Car-Bargains, (800) 475-7283,
www.carbargains.org
. A.A.R.P. members can avail themselves of that organization’s Mature Advantage Auto Program, (800) 916-2887, to obtain beneficial dealer quotes. Check in your local area for similar services that may be available (such as CheckBook Magazine in the Washington, D.C. area). Other services available through the Internet include
www.carsdirect.com
and
www.autonationdirect.com
. A few less reputable dealers attempt to use the buyer-service price as a “bait-and-switch” tactic and try to convince you to purchase a more expensive model. Don’t let them do this; and if they seem hesitant to honor the price they have already guaranteed, contact the buying service for assistance. If dealers refuse to honor the prices they have quoted, the buying services will do business elsewhere. Most car dealers are unwilling to risk the loss of this lucrative market.