Negotiate From the Driver's Seat
Most Americans would probably rather have a root canal than haggle over the price of a car. In survey after survey, two-thirds of car buyers report that they “hate” the negotiation process. But be consoled if you’re negotiating the price for a car: The margin for error isn’t all that great. Most dealers markup cars as little as 10 percent for a low-end model and up to 25 percent for a luxury car. That’s nothing compared with markups of more than 100 percent for clothing and jewelry.
The time when some people lose the negotiating game is at the “back-end” of the deal. They assume the vital negotiations are over when they leave the lot or showroom floor to iron out financing details. All those options, including service contracts, rustproofing, paint sealants, credit life insurance, and credit disability insurance, may be the real moneymakers for the dealer.
Playing the Game
If you don’t want to haggle over the price, you may buy a car from a one-price dealer or hire an auto broker to negotiate a deal for you. But if you’re among the one-third of Americans who likes to jump in the ring with the pros, put on your boxing gloves and learn the game.
Although some dealers have responded to competition from no-hagglers by softening their sales approaches, be familiar with the different methods they may use. Sometimes you negotiate with just one salesperson. This person may invest more in your satisfaction than an official “closer” would. A closer is a person who takes over for the salesperson to complete the sale.
Know the Dealer’s Invoice
To find out how much the dealer has marked up the cost of a vehicle, you need to find out what the dealer paid the manufacturer for it. Check a resource such as Consumer Reports annual “New Car Buying Guide.”
A resource like this will often list the dealer’s “invoice” for the car and for options. The invoice, however, is not the whole story. “Holdbacks” and other credits that the dealer receives from the manufacturer almost always reduce the dealer’s true cost below the invoice amount.
The best thing you can do is fully research a vehicle you’re interested in to see if holdbacks or other incentives apply. And don’t be fooled into thinking that a car sold to you at “invoice” means it’s being sold to you at the dealer’s cost. There is almost always still room to bargain.
Popularity Has a Price
High demand means a higher price. If you want the most popular car of the year, be prepared to pay a little more. The upside is that a popular car may also reap you a higher price when it’s your turn to sell the car as a used model.
Almost everything is flexible in car sales—the price of the car, the price of the options, the loan rate and the extra services. But this flexibility doesn’t mean the seller will bend over backwards for you. The seller may try to make it seem as though prices are firm. Decide what you want in a car and what it’s worth to you, then negotiate a fair price.
Here are some suggestions to help you get the best deal possible:
- Time your purchase. The best times to buy a car are at the end of the month when dealers want to eke out a few more sales to finish the month strong, as well as during the holidays. Dealers spend lots of money advertising holiday specials, and they want to make sure to cover their costs.
- Don’t mention your trade-in vehicle until the sale on the new car is negotiated. At least, that’s what conventional wisdom says. This may or may not be practical in your case.
- Avoid answering sales questions about whether or not you’ll be ready to commit to a purchase that day “if the price is right.” Just say, “Maybe,” or, “I’ll think about it.”
- Don’t tell the salesperson if you’ve already arranged financing. He or she may offer a low price for the car thinking the dealership can make a profit by financing the purchase.
- Never tell the salesperson what you’re willing to spend in monthly payments for the car. In fact, never let the dealer know your bottom-line price. They won’t tell you theirs, either.
- Start bidding low. Offer a price that’s just above the dealer’s invoice price.
- Don’t panic if the dealer’s counter-offer is much higher than your first offer. Only raise your next offer by $100 or $200. Remember: You’ve done your homework. You know they’re making a profit and may be getting a manufacturer’s holdback, besides.
- Stand firm. The dealer should give you a lower offer to counter your second bid. Now you must decide whether or not to accept the dealer’s offer.
Crossing the Line
When negotiating, remember this simple rule: If the salesperson is still negotiating the car price, the salesperson is still making a decent profit. If the salesperson walks away from you, however, you’ve probably crossed the bottom-line price for the car. Don’t worry about hurt feelings. You’re negotiating for the best possible deal you can get.
When you want to sell your old car, shop around at a few different dealers to get the best price. And be sure to have it thoroughly “detailed” or cleaned before you do. Spiff up your car like you would spiff up yourself if you were going to a job interview.
Of course, you can decide to sell it on your own or through an auto broker instead. You receive the wholesale and not the retail price when you trade in your car to the dealer. Check the blue book for these values. But if your time is in shorter supply than your money, trading in your vehicle may be your best option. By trading a car in when you buy a new car, you also avoid paying sales tax on the value of the trade-in.
When you’re ready to talk price on a car you’ve selected, the salesperson will ask if you’re planning to trade in your current car—provided you own one. That’s the last question you should answer. If you tell the dealer you’re planning to trade in your old car, the dealer will want to lump the two transactions together, possibly putting you at a disadvantage. Here’s how:
Example: Marcy Stephens wants to buy a freshly minted sedan with a sticker price of $15,000. She tells the dealer that she wants to trade in her little 1998 coupe to bring down the price. The dealer offers to sell her the sedan, complete with options, for $9,000 plus her coupe. She’s ecstatic. The blue book value for her coupe is $5,000, and the dealer is giving her $6,000 for it.
|$15,000.00 Sticker price|
|- $6,000.00 Coupe trade-in|
|$ 9,000.00 Total price|
Sound good? Not really. People rarely pay the full sticker price.
If Marcy had negotiated her new-car price before mentioning her interest in trading in her coupe, her deal might have been sweeter.
First, she could have negotiated a discount off the sedan’s sticker price—say $2,500. For the coupe, she may have been able to negotiate to receive the blue book value of $5,000. Her total price for the new car would have been $7,500.
|Deal for the new car:|
|$15,000.00 New sedan|
|- $2,500.00 Discount|
|Subtract the trade-in:|
|$12,500.00 New sedan|
|- $5,00.00 Coupe trade-in|
|$7,500.00 Total price|
It’s Not Over Until It’s Over
Just when you thought you could let down your guard with the dealer, shake hands, and sit down for coffee in the office, you find you have several crucial negotiations left. You still have to find the best deal on a loan and decide whether or not to pay for an extended warranty, rustproofing, credit life insurance, and other extras.
Most car models, whether domestic or foreign, are sold in two or more “trim lines,” meaning a base price and a set of options. Trim lines vary and are given such names as standard, DX, and deluxe.
Sometimes it’s cheaper to buy a car in a higher-priced trim line than to buy a basic model and dress it up with options, but check out the available trim lines and the prices of options you want.
Options usually come in packages, and buying a package can be cheaper than purchasing options separately. But try to avoid being talked into options you don’t want.
Dealers offer financing for cars through auto makers or local banks. The upside to getting a loan through a dealer is convenience. The dealer can process your loan application right in the showroom office. The downside is that the dealer may mark up the loan for profit. Shop around for the lowest rate and then tell the dealer you won’t take anything higher. Your dealer will usually match the going market interest rate.
Extended Warranties or Service Contracts
Service contracts can be a significant profit item for dealers. They’re like insurance policies. And, like insurance policies, they’re designed not to be used.
An extended service contract supplements the manufacturer’s warranty that comes with the vehicle. Compare your warranty with the service contract being offered to avoid paying for services you’re already getting for free. Because competition for customer satisfaction has grown of late, standard manufacturer’s warranties have improved. Since a typical warranty covers the car for three years or 36,000 miles or more, you may choose not to buy more coverage.
A service contract, however, will extend the length of time parts will be repaired under warranty. That may be helpful if you’re planning to keep your vehicle longer than the time covered in the manufacturer’s warranty. Check to see if the extended service contract cancels automatically when you sell your car. If you want a manufacturer’s service contract, double check to be sure that the contract is indeed from the manufacturer.
What to Ask About Your Service Contract
- Does the company offering the contract have a solid reputation? Call the Better Business Bureau at (651) 699-1111 or (800) 646-6222 to find out.
- Do you have to prove you’ve followed factory recommendations for regular preventive maintenance in order for repairs to be covered?
- Is preventive maintenance covered?
- Are towing and rental cars covered?
- Do you need to pay up front for repairs before being reimbursed by the company?
- Do you have to take the car to specific mechanics?
- Is there a deductible fee for repairs?
- Does a company inspector have to view the car and diagnose the problem before it can be repaired?
- What repairs are excluded by the contract?
Many dealerships offer services such as rust protection, fabric protection, paint sealant, or theft protection. These items may be overpriced and may not produce the desired effect. For instance, “fabric protection” may be no different than furniture/carpet guard that a consumer can buy at a retail store. “Paint sealant” is sometimes just a high quality wax at a high cost. Rust protection warranties may be included in a vehicle’s factory warranty, making the purchase of the optional product unnecessary. These products often include complex exclusions, voiding the protection if the seams become rusted, or if only a portion of the metal experiences rust. Finally, “theft protection” is a product in which the VIN number of the vehicle is etched into the window of the vehicle, or branded on other parts of the car, usually at a significant mark-up in cost. The bottom line on protection packages is that they are often a high profit item for the dealership, but may be a low value product for the consumer.
You know the expression: Rust never sleeps. No matter how hard car makers try to keep it down with new technologies ranging from galvanizing steel during manufacturing to spraying cars with sealants once they’ve hit the road, rust eventually peeks through. It’s just a matter of time.
So the term rustproofing is misleading. Rustproofing may help stave off corrosion—for a few years, that is. Certainly cars on the streets today take longer to rust than those of old. But your question when buying a car is whether or not after-manufacturing rustproofing is needed.
Some experts say galvanizing during manufacturing makes additional rustproofing unnecessary. Galvanizing is a process of protecting the steel with a zinc coating that manufacturers say they’ve perfected in recent years.
To help consumers choose whether or not to buy additional rustproofing, the Better Business Bureau launched a thorough study of rustproofing practices. It found that 90 percent of vehicles already came with five-year corrosion perforation (anti-rust) warranties from the manufacturer.
Manufacturer’s warranties, as well as warranties for after-market rustproofing, apply if the rust starts on the interior of the car and eats a hole through to the outside. Surface rust due to stones, scratches, hail, and environmental damage are excluded from manufacturer’s and most after-market rustproofing warranties.
Credit Life and Credit Disability Insurance
Credit life insurance ensures that the finance company loaning you money to buy your car will be among the first of your creditors to be paid if you die before your car is paid for. Likewise, credit disability insurance ensures that your finance company is paid if you are disabled and unable to work to pay off your car loan.
These types of insurance are usually optional. If you wish to buy this type of coverage, remember that you do not have to purchase the insurance from your finance company. Shop for the best price by checking credit life and disability rates offered by insurance companies, which often have better rates.
Closing the Sale
Are you absolutely 100 percent sure you’re going to buy the car? If not, don’t put down a deposit. If you change your mind, the seller may have a legal right to keep the deposit you made.
Before You Sign…
Read the sales contract carefully. If the dealer made you a verbal promise, say, to throw in fog lights for the price you negotiated, be sure it’s in writing.
- Everything you and the dealer have agreed to is included.
- Both the dealership manager and the salesperson have signed the contract. Otherwise it might not be valid.
- All portions of the contract are filled in before you sign.
- The contract states that you can void the agreement and get your down payment back if all terms in the contract are not met (such as failure to deliver on a specified date).
Remember that you do not have a three-day cooling-off period in which to return the car! Before you sign the contract, understand that when you do, the car is yours! You must honor the agreement. You have no right to return the vehicle. If you decide you don’t want the car, you’ll have to absorb the depreciation and sell it again.
Give It the Once-Over
If your new car is being delivered from another dealership, you won’t have the opportunity to look over the vehicle you’re receiving. Before you accept delivery, make sure all the options and extras are on the car as specified in your contract. Also, test drive the car to be sure it handles like the one you previously test drove.
Minnesota’s Lemon Law
Once you sign the contract for your new car, you cannot return the car just because you don’t like it. But if it’s truly a lemon, the seller is obligated to service the car, and eventually, may have to replace it or refund your money under Minnesota’s lemon law.
The lemon law applies to those cars that are still covered by the manufacturer’s original new-car warranty, were purchased in Minnesota and are used at least 40 percent of the time for personal, family, or household purposes. The law also covers vehicles leased for more than four months.
The terms of the law are:
- The manufacturer has a duty to repair a motor vehicle in accordance
with the terms of the warranty if:
- The motor vehicle has a defect or problem that is covered by the warranty; and,
- The problem has been reported by the vehicle’s owner within the warranty period, or within two years after delivery of the vehicle, whichever comes first.
- The manufacturer has a duty to refund or replace a car that has substantial defects or problems. Under the law, if the manufacturer or its authorized dealer has been unable to repair a car’s problem after a “reasonable number of attempts,” the buyer or person leasing a car may go through a manufacturer’s arbitration program or go to court to seek a full refund of the car’s purchase price, minus a deduction for use of the vehicle.
A “reasonable number of attempts” is defined as:
- Four or more unsuccessful attempts to repair the same defect; or
- One unsuccessful attempt to repair a defect that has caused the complete failure of the steering or braking system, and that is likely to cause death or serious bodily injury; or
- A car that has been out of service due to warranty repairs for 30 or more cumulative business days.
More information on Minnesota’s lemon law is provided in Minnesota’s Car Laws: A Guide to Minnesota’s Lemon Law, Used Car Warranty, and Truth in Repairs Act published by the Minnesota Attorney General’s Office. Contact us to request a copy.