How to Negotiate for Car Discounts

by Kurt Schanaman

When you set out to purchase a new or used vehicle from an accomplished salesperson, you should keep two important facts in mind: 1. The advertised or posted price is usually higher than what the seller hopes to receive, because some buyers want to bargain. 2. The average buyer generally pays more than necessary because she/he didn't research the Manufacturer's Suggested Retail Price (MSRP) for a new vehicle, or the national standard price for a particular year, make and model of used car.

Once you have decided on the year, make and model of the vehicle you desire to purchase, write it down on a piece of paper, along with which options or special features you may want.

Research the national average price for the vehicle you are considering by looking up the year, make and model online, using the Kelley Blue Book, as well as the National Automobile Dealers Association price guide. These books list national average values of all vehicles, new and used. These books may be purchased, or you may access the listings for free at the respective websites: For Kelly's Blue Book Online, visit (www.kbb.com). For the NADA Price Book Online, visit (www.nadaguides.com). Enter all of the vehicle information and the results will provide you with prices (and, for used vehicles, for different conditions: poor, good, fair, excellent). These resources will also give you prices based upon whether the vehicle is being sold privately or via a dealership. Be sure to write down both the MSRP and the dealer invoice price. The MSRP is the manufacturers suggestion to dealers for what price they recommend the vehicle to be sold for at its maximum, and provides you with a reference for what that maximum could be. The dealer's invoice price shows you the exact wholesale price the dealer actually paid for the vehicle. In knowing the invoice price, you are able to see how much the vehicle has been marked up in price.

Use the information from your results in Step 2 to produce an information sheet. Be sure to include web addresses or names of book(s) you consulted to show that you have done extensive research on the vehicle. Take this sheet with you to the seller (dealer or private).

Set your "price point" -- for a new car with dealer rebate, about 10 percent lower than the marked retail price (not the MSRP) of the vehicle; for a $10,000 vehicle, for instance, you would subtract $1,000 (10 percent) from the $10,000, leaving you with your price point of $9,000.

Set your price point at 10 percent above the dealer's invoice price if you were able to find that information. This is the wholesale dealer price the dealership paid for the vehicle. If a dealer paid $10,000 for the vehicle, a 10 percent profit is a fair amount to begin your negotiation. In this case, you may know the dealer is asking $12,000 which would be a 20 percent profit margin. But, perhaps, the national average index price may state the vehicle, in its condition, is worth $11,500. In reality, the dealer may sell you the vehicle at $11,000 if he sees you are unwilling to "bend" to a higher price point.

Prepare to show your research to the salesperson if he/she seems to be complaining about your bargaining method, so you can show that you know the price is too high in relation to those national indexes. In so doing, you have established that you know the actual value of the vehicle and the price you are willing to pay. You are also telling the salesperson that the competition may get your business, making it much more difficult for the dealer to argue with your desired price point.

Tips

  • check Remember one little-known fact concerning dealerships: salespeople are generally paid bonuses (in addition to commissions), based on the volume of sales that the salesperson generates each month. A dealership may have been trying to move that vehicle for months with no results, and may be willing to settle for your price without argument just to "move" the vehicle to make room for a newer model.
  • check Use some common sense when thinking of what a fair retail mark-up is for an automobile. Consider that automobiles are high-value items already from the factories and cannot be marked up as much as less-valuable items. Although all areas are different, the average price markup on vehicles is about 15 to 20 percent, with 20 percent being the norm the dealers use to provide a "psychological" bargaining margin.

Warning

  • close Never attempt to negotiate a deal without first researching the national price index on the vehicle of your choice. Dealers set the prices far in excess of what the national average is, trying to gain an advantage over the "unlearned" buyer.

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About the Author

Kurt Schanaman has had several editorials printed by the Star-Herald Newspaper publication in Western Nebraska. He attended Western Nebraska Community College.