Had a big response to last week’s rant “How to Never Pay Retail Again”. Here’s how to use psychology to turn the tables on a car dealer next time the opportunity arises.
For most people buying a car is either the biggest or second biggest purchase they will ever make, so it makes absolutely no sense to me that you would attempt to negotiate with a seasoned car salesman without first figuring out your plan of attack.
Like anything you buy, you must keep emotion out of the sale. If you fall in love with the deal emotionally, the money will literally fall out of your pocket and into theirs. Easy to say, not always easy to do. But if you can master it, it has enormous rewards.
Like anybody who sells anything, the dealer’s job is to get the highest possible price for their car. Conversely, your job is to get the best possible price. After all, I’m sure you could find something to do with the $5000 you save next time you buy a car.
I have focused on buying new or used from a dealer rather than private sale. To me, I’ve always felt if you negotiate well with a dealer with all the backups and warranties they are required to provide you are way in front of doing the business privately. I do however advocate in all circumstances a vehicle roadworthy test, carried out by a qualified mechanic. I usually make it a condition of purchase. That’s irrespective of where you buy it.
1. You must do your homework/research! If you want to save thousands of dollars it’s absolutely imperative that you know as much as possible about the car you intend to buy, like their value, year, make, model. If you are vague and unclear it will be very easy for even semi-trained salesmen to sell you anything at any price.
It’s also wise to have a short list of features the car you want must have, like automatic / manual, sedan / stationwagon / ute / 4WD, 2 door / 4 door, 4 cyl / 6 cyl / 8 cyl, etc…
A great idea is to research the car yards after hours so you know exactly what they have got available and you can prepare your plan of attack accordingly and gather all the information you need to get the best possible price.
2. Figure out exactly what you budget is, and how much you are prepared to spend. Dealers love this, you come in expecting to spend $15,000 and walk out having spent $25,000. Again, the secret is doing your homework, being prepared and not allowing your emotions to override your bank balance. Instead, be logical and methodical.
3. Timing is everything when you are buying a car and want to save thousands of dollars. The two best times to buy a car from a dealer are at the end of the month and on major advertising days, usually a Wednesday and a Saturday. The reason why the end of the month is good is because sales targets need to be achieved, budgets need to be met, and the salesman are out qualified for extra bonuses.
Major Advertising days work well because there are actually two prices published for the same vehicle. The full price on the window off the vehicle, and the lesser advertised price, and it can be quite substantial. The reason dealers take a substantial amount off is simple, they are competing for your business with other dealers and they want the opportunity to up-sell you to another vehicle when you come in. And to do this they offer extremely attractive discounts. Anyway, there’s usually profit left in the deal for them even at the advertised price.
4. Every deal is negotiable! All vehicles have a list price, but this isn’t the price you want to be paying. As a general rule, the price of the vehicle consists of several different components, and they are…
a. The wholesale cost (what the dealer paid for the car)
b. Reconditioning costs (any costs incurred getting the vehicle ready for sale)
c. Dealers fixed expense levy or loads (this fixed premium is automatically loaded onto any vehicle to cover the day to day running costs associated with running a dealership)
d. Profit (this can range from a few hundred dollars up to ten thousand dollars or more)
Our aim is to purchase the car between the wholesale cost and below the dealer fixed expense level. Hence you could expect to save two thousand and anywhere up to ten thousand dollars off the normal list price.
So if you’ve ticked all the boxes above and you’ve got the car you want in your sights, you are ready to negotiate the best possible price.
5. First step to saving thousands of dollars is to submit your offer. If the car is between $15,000 and $20,000 submit an offer $6000 below the list or advertised price and tell the salesman that you will buy the car right now at that price, however, if he can’t do that, that’s fine, you’ve got other cars to look at and your in no rush anyway.
Don’t be surprised if the salesman attempts to talk you out of making such a low offer, that’s his job. The point being, the salesman knows if you walk out of the yard, it’s highly unlikely you’ll ever come back, you’ll most likely be sold by some other highly trained salesman from another dealership. At this point, the salesman will most likely involve the manager who will have a very good reason why they “can’t sell the car to you at such a ridiculous price”.
With that said, here’s how you respond. “I really appreciate your help and I know the car is worth more than I can afford but it’s impossible for me to go over my budget of xyz. As I said, there are other cars I haven’t looked at yet so I will take a look at them and if that doesn’t work, I might come back in a week or so.”
At this point in time, one of two things will happen. They will make an offer that is so good you won’t want to pass it up, or they will let you walk out the door.
Another tactic they may use is to offer you a discounted price but through in a bunch of extras like tinting, rust proofing, 6 months rego, fuel tank of fuel, etc. Again, at this point, if you think it is a great deal and you don’t want to pass it up, you’ve saved thousands and got some extras included, go for it.
However, if you are not interested in all the extras and you just want to get the best possible deal then keep on walking. The tell tale sign is if they allow you to keep walking. If they do allow you to walk, they most probably simply can’t do the deal. However, you may only be a few hundred dollars away from driving away in your new car. Here’s how you find out if you are.
An hour or so later give them a call on the phone and tell them you’ve found, beg, stolen, borrowed an extra $500, that that’s the absolute maximum you can afford to go to, and would that be enough to get the deal over the line.
At this point you are probably somewhere around the wholesale price to the dealer and your goal is to creep the price up in $500 increments until you find the point where they are prepared to do the deal as soon as their fixed costs are covered, or just before.
Now if you’ve used these negotiation strategies correctly, you should have at least saved $2000 odd dollars, even much much more. However, I would be reluctant to do the deal unless I was saving more than $2000, instead I would continue to negotiate elsewhere using these strategies over and over again until I got a deal I wanted.