All too often, people buying a new car walk out of the dealership with a car they can't afford, a car they don't really want, or a car for which they paid far too much. This is not surprising, given that dealers are masters at applying high-pressure sales tactics. The key to buying the car you want at a good price is to do your homework before you enter the dealership and to negotiate effectively with the dealer. (If you're looking for a used car, see Nolo's article Buying a Used Car.)
Before you step into a dealership, decide which car you want to buy. Or, at the very least, narrow your choices down to just a few. There are many ways to comparison shop outside of a dealership. Here are some good starting points:
- Consumer Reports magazine publishes an annual car-buying issue. It compares price, features, service history, resale values, and reliability of numerous car makes and models. For a membership fee of about $26 per year or $6 per month, you can access this issue on Consumer Reports' website at www.consumerreports.org. Or get it from your library.
- Motor Trend magazine (at www.motortrend.com) and The Car Buyers' Art, by Darrell Parrish (Book Express), also have useful information for comparing vehicles.
- The Internet has lots of information about comparing and rating cars. Try Car and Driver magazine at www.caranddriver.com, www.edmunds.com, http://autos.msn.com, JDPower.com, and the Kelly Blue Book at www.kbb.com.
Understand "Dealer Talk"
The dealer is likely to throw some unfamiliar terms at you when discussing price. Before you start negotiations with the dealer, be sure you understand what the different "prices" really mean and where they are listed.
Invoice price. This is what the manufacturer charges the dealer for the car when it is first delivered. The invoice price is usually higher than the dealer's true cost because dealers receive rebates, allowances, and incentive awards.
Base price. This is the cost of the car without options. It includes standard equipment and the factory warranty. The base price is printed on the Monroney sticker.
Monroney sticker price. This is the base price plus the manufacturer's installed options with the manufacturer's suggested retail price (MSRP) for those options, plus the manufacturer's transportation charge. A sticker with this information, along with the fuel economy of the car (mileage per gallon), must be affixed to the car window and can be removed only by the purchaser.
Dealer sticker price. This is the Monroney sticker price, plus the suggested retail price of dealer-installed options and any dealer markup.
How to Negotiate With the Dealer
Often, the hardest part of buying a new car is negotiating price with the dealer. Here are tips on negotiating with the dealer:
- Know what you want before you walk into the dealership. Know what car you want (or a few you are interested in), what special options you want, what equipment you must have (for instance, automatic transmission or air conditioning), and what you can afford. Do some research. Then, stick to your guns.
- Use the invoice price as the starting point for negotiating. It is far better to negotiate "up" from the dealer's cost than to negotiate "down" from the asking price. You can find the dealer's invoice price and the dealer's true cost after rebates on the Internet from websites such as www.autosite.com, www.carprices.com, and www.carwizard.com. You can also get this information for a small fee from Consumer Reports (www.consumerreports.org or 800-888-8275).
- Don't buy in a hurry. Take time to compare prices at several dealers. And remember this general rule of car buying: The longer you take to decide and the more times you walk away from the dealership, the lower the price will go. Don't be afraid to negotiate over the phone after your initial meeting at the dealership. (Of course, you have to spend considerable time with a salesperson before you walk out -- they won't care until they've invested their time in you.)
- Leave the kids at home. You're apt to make a poor decision if your children are climbing on the hoods of cars or whining for their dinner.
- Resist the urge to buy more car than you can afford. Don't buy a more expensive car by financing it for a longer period of time. You'll pay a bundle in interest that way.
- Order your new car if the one you want is not on the lot.
- Don't make a deposit on a car before the dealership has accepted your price offer.
- Check dealers' prices using the Internet. If you know the exact model and options you want, email several dealers asking them to quote you their price. Include any dealer within driving distance. Once you've received the quotes, you may be able to negotiate among the dealers to get the best price.
- Negotiate the price of the car, not the monthly payment. If you tell the dealer that you can afford $400 a month, the dealer may "pack" the purchase with additional items to bring the monthly payment up to that amount. If the dealer asks what monthly payment you can afford, don't answer; switch the conversation back to the price of the car.
- Know your credit score before you apply for financing. Consumers often think their credit is worse than it really is. Dealers have been known to take advantage of this by signing consumers up for loans with high interest rates and fees, when their credit standing actually would qualify them for better terms. Before you sign the contract, ask the dealer, "Are you sure that this is the best interest rate and fees that I can qualify for?"
- As a general rule, don't buy extra products from the dealer. Before you sign the contract, the dealer's finance person probably will try to sell you undercoat protection, fabric protector, an extended warranty, a dealer-installed alarm, road-side assistance, and who knows what else. Generally, these add-ons make dealers a lot of extra money and give you little in return. Unless you have a genuine and specific need for one of these extra products (a possible example might be an extended warranty because you have a very long commute), don't buy any of them.
- If a rebate is offered, negotiate the price as if it didn't exist. Rebates come from the manufacturer and shouldn't be a reason to pay the dealer more for the car.
- Learn about the sales tactics dealerships use to get you to pay top dollar. Armed with this information, you will be better able to deflect the tactics and get a good deal. There are lots of books on this subject. A few include Don't Get Taken Every Time, by Remar Sutton (Penguin Books), and So ...You Wanna Buy a Car, by Bruce Fuller and Tony Whitney (Self-Counsel Press).