Like any other area of personal finance, buying a car is a numbers game. Informed consumers arrive at a dealership with an idea about a car’s storage capacity, performance, and how much they plan to spend in monthly payments. Those numbers are all important. However, you might be letting salesmen get the upper hand if you don’t think about a negotiating plan, too.
The negotiation that takes place during an auto sale is another numbers game. Trained professionals who work at the dealership take classes on the subject and spend most of their days honing their skills. They know how to gain the upper hand. If you rarely negotiate in your line of work and buy a new car once every 10 years, the numbers are stacked against you.
Peter Levy, founder of the consumer car-buying site Carjojo, dug into the many challenges you might face when negotiating a vehicle purchase. Using statistics from the field as well as studies in behavioral science, Levy found techniques that put shoppers on an even playing field at dealerships. Here are 10 tips for matching or beating salesmen at their own game.
1. Learn dealer buzzwords
If you asked most people about a car’s “invoice price” versus the manufacturer suggested retail price (MSRP), you will get confused looks. These terms become important when you look for the destination (or “delivery”) charge. An invoice price includes destination fees, so there is a chance the cost (usually over $800) will get added again to a sales contract. Whether it happens through carelessness or malice, you don’t want to pay twice. Also, keep an eye out for “dealer sticker price,” which is where you find other negotiable fees.
2. This year’s car at last year’s price
Since manufacturers always tweak new car models to correct problems, you may find a superior car that appears identical to another on the lot. Naturally, you want the newer car rather than the one that’s been there for six months. Carjojo allows you to spot older cars on the lot using data available on its website. Once you identify an older model you want, start negotiating on the price. When you hear the magic number, ask the salesman to apply it to the newer car of the same model year. This trick could land you a better car at last year’s price.
3. Working trade-ins and rebates
Car shoppers have several ways to reduce the price of a model on sale at the dealership. However, you need to keep the negotiation of financing or trade-ins separate from talks about down payments and overall price. You may want to sell a car on your own if the dealer’s trade-in price seems unfair. Likewise, keep an eye out for available rebates from the manufacturer (quoted in TV ads and in other promotional materials). Negotiate your price before getting to the guaranteed rebate.
4. Avoid bogus fees
Beyond necessary add-ons like destination fees, dealerships may include several charges that have no business on a sale contract. To shoot down any you might encounter, bring along the Consumer Reports list of fees you should always avoid paying. In addition to bogus charges like dealer prep and “pinstriping,” you might find yourself paying top dollar for insurance you would find cheaper elsewhere. Your price could drop by hundreds — possibly thousands — when following this advice.
5. Use precise figures
Scan automaker websites online and you’ll see lots of odd numbers. Ford Escape starts at $23,750; Chevy Silverado retails at $32,935; and Honda Accord carries the MSRP of $22,455. Peter Levy says to use the same tact when negotiating the price on a car. As proof, Levy cited a study done by Harvard that showed investors who used precise figures (e.g., $21,330) in negotiations ended up with better outcomes than those who used round numbers (e.g., $21,000). It’s a psychological trick salesmen will not expect.
6. Keep salesmen in the dark on financing
Auto dealerships make significant profits on service and financing, and buyers can use this fact to their advantage. Levy recommends keeping salesmen in the dark about loans when you negotiate an automobile’s price. His reason makes perfect sense: If salesmen think they can make money on financing at the end, they will be more flexible. Once you land a price you like, sweeten the deal for yourself by using a better rate from private (i.e., non-dealership) lenders or paying in cash.
7. Use home-field advantage
When you stand in the dealership, you are on the salesman’s home turf. They have several psychological advantages to use during the buying process. Sitting from the comfort of your own home, you neutralize most of the edge a salesman has. For starters, you can easily ignore any chumminess he could use to get you to sign. If you handle the negotiation via email, you will have time to verify any claims a salesman makes, thereby reducing the chance of agreeing to terms you could beat.
8. The monthly payment trap
When we rounded up the common lies salesmen tell, we highlighted the one where they say a lower monthly payment won’t cost more in the end. That claim is never true, so don’t accept it as a win when a dealer tells you he got you a better number. Respond by saying you want to focus on the vehicle’s final price rather than the monthly payments.
9. Take the deal off the table
Anyone who’s ever given a car salesman contact information knows you will hear from them again (soon). The potential for a sale — and thus a commission — makes any lead promising enough to try. Therefore, the time-honored practice of taking a deal off the table should work for consumers. If the negotiation drags to a standstill, declare you can’t accept the terms and head home. After crunching the numbers and figuring out what a lower price would mean in commission, a salesman will be in touch.
10. Negotiating in silence
A final, brilliant tip from Carjojo requires nothing more from a consumer than silence. While a salesman makes his pitch, let the price hang in the air without responding. The uncomfortable dead airtime may force them to consider their number a bad one, and in these cases a lower offer will follow. In effect, the salesman is negotiating with himself. Carnegie Mellon researchers described this process as the “concession timing effect,” and it might get you a cheaper car.