Everyone wants to get a great deal on their car, whether they’re buying new or used, or leasing. I recently purchased a body-on-frame SUV (a white Toyota 4Runner) to have a practical car that I can drive into the ground. And I fully intend to keep it for at least 250,000 miles. In a way, I view this as a challenge. Can I break the thing before it gets to a quarter million miles? Maybe not, but I sure will try.
Kidding aside, I wanted to get the most value out of the 4Runner, and that meant getting the lowest purchase price that I could for it. The less you pay, the lower your per-year or per-mile cost of ownership is, and the more cash you’ll have left over.
In this post we’ll go over the strategies that will help you get the best deal on a new car. We’ll approach this by looking at the normal progression of the buying process, and I’ll illustrate the steps with recommendations and lessons from my own experience.
Deciding You Need a New Car
We’ll assume you’re past this point. Either your previous car has kicked the proverbial bucket, or you’re getting one for a family member, or you just want to get a new car and your budget allows you to do so. Any of those are good enough to get you to the next step. This post is not about whether or not you should buy a car, or whether you should buy new or used (the subject of a future post), but how to get the best price you can after you decide to buy new.
Picking a Make and Model
The make and model that you go with will depend on your needs and wants, and how much you’re willing to spend to satisfy said needs and wants. That said, you should consider how the reliability, cost to repair, average fuel costs, and rates of depreciation of the car you’re considering will impact you financially. Similar to the point made above, this is not a normative post about what car you should get. I’m not going to tell you that you need to get a car with amazing gas mileage, because you may need a truck, or a sports car because you’ve earned it and it fits within your lifestyle. The type of car that fits your needs is unique to you and up to you to pick.
When you’re buying new, you need to get a sense of what actual market prices are for the vehicle you’ve chosen. You can look up the MSRP on the car maker’s website or on Google, and after that I like to use TrueCar to see what the average price paid and average savings off MSRP are for your make and model in your area. Once you’ve reviewed the TrueCar data, you’ll have an average savings off MSRP target to pursue, which you should try to beat.
In addition to your savings target, you also need to be prepared for a couple of items the dealership will try to upsell. The biggest ticket item is the extended warranty, and depending on the type of car you’re getting, you may want to avoid this entirely. To make an informed decision on the extended warranty and to be prepared for the pressure the salespeople may apply to this upsell, do a simple internet search for extended warranty prices for your chosen car. You’ll then have the ballpark figure for the cost in mind when you’re working out the deal.
Do the same research for paint protection, road-hazard insurance for your tires, theft protection, prepaid maintenance plans, or any other extras you may be interested in. Your default position on these, however, especially on a new car, is to avoid them at nearly all costs. You may choose to buy some of these services in the future, but your best bet is to forget about them for now. Don’t do it at the point of sale, which will likely be the most expensive place to purchase these additional services.
You should get several different quotes from dealerships in your area, and the nearest dealerships in major cities, where volume sales often push prices lower. I highly recommend that you do this over email. Requesting quotes online makes it much harder for salespeople to size you up based on the way you’re dressed, what car you show up in, who you’re with, how you look, and so forth.
Yes, the dealership folks can look your email up and find you on Facebook, but assuming you have some decent privacy settings it will be more difficult for the salespeople to make assumptions about you than it would be had you showed up in person. Quick note related to this: don’t show up to a dealership in an expensive car and expect to make much headway negotiating price. You can do it, but you’ll have increased the difficulty significantly.
You can collect internet quotes on TrueCar, which will do much of the work for you. Once you select your make and model and your geographic area, you can go through the prompts and have TrueCar send out quote requests. Then you can pick and choose which leads you develop. You can also email dealerships on your own. Many dealerships now have websites that include forms for internet quote requests.
Okay, now that you’ve got quotes, let’s move on to negotiation.
Negotiating the Purchase Price and Other Terms
Always be willing to walk away if you’re uncomfortable. As long as you’re willing to walk, you’ll have most of the bargaining power, within reason. If the price is out of line with price data in your area, or the interest rate you’re presented with isn’t what you expected, or you’re being upsold on high-priced warranty packages, or the salesperson’s manner simply makes you uncomfortable, leave. After you walk away, you can regroup, and you can always go back to restart discussions.
There’s no harm in walking so long as you’re polite about it. You can thank the salesperson, tell him that you need to think about it, and that you’ll get back to him. If there’s a term you’re not willing to agree to, say so. If you want to make up a third party that you need to discuss the terms with, that’s fine too. Make sure to break up the negotiation and take some time if you’re becoming uncomfortable or unsure. This applies to negotiating online, but more so to negotiating in person. If you’re negotiating in person, you always want to leave the dealership at least once to “think things over,” so the salesperson has an opportunity to flinch at the potential loss of commission.
Remember that you’re not on the salesperson’s schedule, you’re on your own, and don’t let them guilt-trip you about anything, whether it’s the concessions they’ve already made or their desire to go home and have dinner with their family. If there’s not enough time, never allow yourself to feel rushed. Politely reschedule instead.
Okay, so let’s say you’ve received internet quotes, but you’d like to do a little better. What do you write back to the internet salesmen?
This is actually very simple, and the online aspect helps a lot. It’s much less awkward to negotiate a price over email than in person or over the phone. It’s difficult for pushy salespeople to be pushy over email.
Be straightforward. Ask for the price to be reduced. You can use any of the following:
“Would you please improve the price?”
“I’m looking to spend $XX,XXX, can you help me get there?”
“Can you come down on that?”
And be willing to do this multiple times until you’re where you want to be. After reviewing the TrueCar.com data, you know what people are spending in your area, and what the average savings off MSRP are, so don’t settle for any less than the average savings. You can show the salesperson the website, point out the average savings, and explain that you want to do better.
Remember that this negotiation is win-win: you get a lower price, and the salesperson gets a commission. There’s always wiggle room in the price. You can also leverage the offers you’re getting against one another, to get the salespeople to make further improvements.
Now if you get to a point where the salesperson won’t move on price anymore, but you’re still not satisfied, walk away. You’ll get to the targeted average savings off MSRP on TrueCar with one of the salespeople soon enough. In my experience, if you request internet quotes, you won’t have to work hard at this at all.
After you’re satisfied with the price, ask for other parts of the deal to be improved in your favor. The dealer may be able to waive dealer fees, freight costs, tag registration fees, and so forth. Much of what you see on the invoice is negotiable.
If you’re told fees aren’t negotiable, tell the salesperson the additional fees take you above what you can spend, and ask for the amount of the fees to be credited against the sale price. In other words, the dealer should be able to help you by reducing your total cost by the amount of fees that must be documented as paid by the buyer. You’re unlikely to get 100% of the fees credited against the purchase price, but you’re likely to get some.
As part of your negotiating toolkit, be willing to ask your local dealers to match other offers, even if those other offers are from dealers outside of your area. Your local dealers will often match. They will because they want your business and because the dealerships receive incentives for the number of cars they move, even at discounted prices.
Another tip I would give here is not to fool with extras. Don’t ask the salesperson to throw in a first aid kit, or a cargo divider, just focus on the price. If the salesperson gives in on extras, they will find it harder to be more flexible with you on price, because they will feel like they already gave a lot, when in fact they only made a few small concessions. Focus on the overall price and big-ticket fees, and when those are sufficiently negotiated, you’ll be able to purchase the extras with a portion of the savings, if you really need the extras, that is.
Completing the Sale
If you’re completing the sale in person at the dealership, remember you have to be willing to walk away if the salesperson springs an unexpected, unfavorable term on you. Don’t let them pressure you into completing the sale that day. You can always come back a different day, and you can always go to a different dealership if you’re not getting the deal or treatment that you want.
People with experience in auto sales may tell you that the most dangerous place in the dealership for your wallet is the finance office. The finance office is where almost all the up-selling will take place, and some of these salespeople are going to pitch you hard, so you need to be prepared to say no and mean it, and then say no again and keep saying no until it sinks in with the salesperson that you aren’t going for it. They will try to sell you all or some portion of the following: paint protection, road-hazard insurance for your tires, theft protection, prepaid maintenance plans, extended warranties, and other extras.
Say no to all of it. All of it. And then say no again, and again if they keep asking. If you do want these services, don’t buy them at the dealer, because you’ll get a better price for the same services elsewhere, and don’t listen to them when they tell you that getting whatever services they are selling is only possible at the point of sale. If you’re uncomfortable, you can say no or leave.
Never feel pressured into adding thousands of dollars to your already multi-thousand dollar purchase price. If you feel uncomfortable, say so, end the discussion on that point, and ask the salesperson to move on. Don’t let the salesperson pressure you into buying something you don’t understand or something that you aren’t sure you need or want.
I’ll tell you about my experience with the 4Runner. The internet salesperson I dealt with in negotiating the purchase price was great. The salesperson who showed me the car and explained some of its features was good too. The guy in the finance office was a different story. While negotiating the interest rate on my loan, he gave me a song and dance routine, and made a big show about calling the bank and the guy at the bank giving him a hard time, when all I wanted was a measly 0.1% to get a bit closer to some other offers available from other car makers. We got there, after a bit too much fanfare.
To avoid this unpleasant sort of interaction if you choose to a finance (some guidance on whether you should finance is here), you should try to pre-negotiate your interest rate. Unfortunately, most dealerships won’t let you do this. You should insist on it, for transparency’s sake, and say you need to know all the terms up-front. If you can’t get this, do what you can by acquainting yourself with currently-available auto loan interest rates, what competing car makers are offering on similar models, and insist on a similar or better deal on your own rate.
Then came the part of the sale where you have to be the most careful, especially if you’ve had a long day and you’re understandably tired of car shopping. The finance guy began showing me how my monthly payment would be only a little bigger if I went with the premium extended warranty, and why this was a great idea.
I asked him how much the premium one cost over the entire loan term. Always ask this. Always, always add up all the payments, or any additional monthly payments that are offered to you when you are determining the difference in price between no warranty, with warranty, and so forth. He whipped out his calculator, and, with a straight face, did the calculation and said $7,000.
You must be joking. The car is $41,000, and you want me to pay $7,000 for an extended 3rd party warranty on a Toyota that already comes with a manufacturer’s warranty? How unbelievably stupid I must have looked that day. To be fair, he did say that most people get the base version of the extended warranty. So I asked him how much that was in total over the payment term life. He said $5,200.
I said no, thanks, I’m not interested. We went back and forth for a little while, but eventually he got it. He wanted to know my reasoning. I told him I didn’t think it was a good value, he shrugged, and we moved on. This experience left me a bit angry, because I don’t think dealers should be allowed to pitch extended warranties on new cars for $5,200 to $7,000.
Why not? Because I knew from my pre-car-buying research that these warranties typically sell for $1,500 to $2,000, and arguably are unnecessary on a new car that is covered by a manufacturer’s warranty. But in the finance office at the point of sale, the $1,500 to $2,000 range becomes $5,200 to $7,000, which you are aggressively encouraged to pay. This type of aggressive up-sell seems egregious to me, and should probably be prohibited by consumer protection laws, but that’s a policy matter.
So be aware that the salesperson may try to sell you things you don’t need at extreme mark-ups, and if there is a feature or service you really want, do your research and price comparisons before agreeing to anything. If you feel uncomfortable or unsure, just say no. It’s perfectly okay.
Of course, it goes without saying that you should read every word of what you’re signing, even when the salespeople encourage you not to, and if you don’t understand something, ask for it to be explained until you do. And don’t sign until you’re ready. Once you’re satisfied, execute the paperwork and enjoy the completion of the transaction. Auto sales closings have become somewhat too easy these days, but if you’re prepared and act responsibly, the streamlined paperwork is a boon.
By this point you’re at the end of your car-buying journey, and hopefully you’ll get the value you’re looking for out of your purchase. Enjoy the new car smell, but not too much, because there may be unfavorable health effects associated with said smell…so enjoy it a bit, but do air out your new car, too.
A Note About Leasing
In the future I’ll do a post on leasing versus buying, and how to figure out whether a lease is actually a good idea for you, and then how to not get totally ripped off completing the lease transaction. I got a good deal on a car I leased in the past, and although I’m unlikely to lease again because it’s harder to get a good deal on a lease than on a purchase (there are many more traps in leasing unless you’re very diligent about running the numbers and are happy to negotiate with dealers for as long as it takes), it’s all about the numbers, and if you’re going to lease, you’re probably going to want to do it with a car that depreciates very quickly, so German rather than Japanese, but that’s a topic for another time. Let’s just leave it at this with respect to my leasing tangent: leasing is not always the devil. As much as finance gurus love to unleash their wrath on auto leasing, rules of thumb don’t apply in every instance.
Other car posts on Mooseworth: