How to Negotiate a Great Deal
So, you’ve picked out the perfect make and model of a car, decided on the must-have options, and are ready to make a deal (if not, take a look at our post about how to pick your dream car).
Negotiating the price of a car can be the most nerve-wracking part of the transaction. The confrontational nature of haggling and negotiating can cause stress while even after a negotiation, it can be hard to know if you actually got a good deal.
In this post, we’ll show you the basics of how the negotiation process works and provide some insider tips and tricks we’ve learned from decades of experience in the automotive industry to help you negotiate like a pro. If you’re still a bit nervous about negotiating on your own or simply don’t want to spend the time researching and haggling with dealers, book a free consultation with us to learn more about how we can negotiate a great deal for you!
The Landscape
Negotiating the price of a car can be tricky. The average salesperson at a dealership will sell over 10 cars each month, which is more cars than some people will purchase in their entire lifetime. Salespeople do this for a living and have a tremendous advantage over typical car buyers - they’ve seen it all when it comes to negotiating the price of a car and are trained to use a variety of tactics and psychological tricks to encourage customers to (1) buy a car and (2) pay the highest amount possible (many salespeople get a higher commission if the sales price is higher).
Several additional factors may also impact your ability to negotiate a great deal. For example, the more informed you are about the particular car you are searching for and the market for that vehicle in your area, the more likely you will be to negotiate a better deal. Timing also plays a factor. If you have plenty of time before you need to purchase a vehicle or are able to find a car that has been sitting on a dealer lot for weeks or months, you’ll give yourself a better chance at negotiating a lower price.
The impact of the internet has also changed the nature of car buying and negotiating in some profound ways. Dealerships have used the internet and special algorithms to price cars in a way that aligns with the market price. The rise of “no haggle” dealerships is tied to this in some ways. These “no haggle” dealers use their algorithms to determine a “fair” price based on relevant market data and state that they will not negotiate these prices, once they are set. Some dealers have also used the internet in more questionable ways. The most notorious of these is the “bait and switch” where they advertise a car at an amazing price online to get people to drive to the dealership. Once the customer arrives, the salesperson regretfully informs the customer that the car has already sold. Not to worry, the dealership has a very similar car available on the lot right now… it just happens to be several thousand dollars more expensive.
While dealerships have tried to use the internet to their advantage, it can also help consumers. Car shoppers can use the internet to get a sense of the market price, find the best cars and best deals, and even occasionally negotiate the price of the car before setting foot in a dealership.
Knowledge is Money
We’ve all heard that knowledge is power, but in a negotiation, it can also help you save money. There is a large imbalance in knowledge between an average car shopper and a salesperson. As mentioned above, salespeople are professionals - they are intimately familiar with the car market in the area, what prices are for difference models, and which cars are selling quickly. Before you begin negotiating for a car, it makes sense to spend time researching as much as you can about these factors to help mitigate the imbalance of information between you and the salesperson.
TrueCar and Kelley Blue Book
There are many great resources available online to help you study up on your chosen car. TrueCar and Kelley Blue Book are each a great place to start when trying to get a basic idea of the price of your chosen make and model. TrueCar allows you to search for cars listed for sale and then categorizes these listings based on what price category they fall into (“Excellent Price” or “High Price” for example) based on algorithms and sales data. Kelley Blue Book also lists vehicles for sale and categorizes by how good/bad the deal is; however, it also allows you search for estimated dealer value, private party value, and trade-in value for a specific make and model.
While these resources are useful for getting the ballpark value of a car, they each have shortcomings. TrueCar earns money from partnerships with dealerships, which can result in a conflict of interest. TrueCar works for the dealerships who provide it with revenue, meaning that helping the consumer (you) will not be its highest priority.
Both TrueCar and Kelley Blue Book also work better when shopping for brand new cars, since there are fewer variables (such as mileage, condition, private party sales, etc.) to compute. When determining used car prices, these websites can suffer. Kelley Blue Book may also struggle to provide accurate pricing based on options since it often uses generic options instead of the specific options and packages of your chosen vehicle. Finally, both websites can provide inaccurate information for certain specialty models since there is not a large sample of sales data and they rely largely on algorithms. For example, as of the time of this writing, Kelley Blue Book says that $55,000 is a “fair” price for a low mileage 2011 Porsche Boxster Spyder (a special, lightweight edition of the Boxster). However, the cheapest Boxster Spyder listed for sale is nearly $68,000, and one recently sold at auction for $68,500.
Because of these limitations, we wouldn’t suggest relying solely on these websites when negotiating at a dealership. That said, they are a great place to start building your knowledge base before going to a dealer.
Online Listing Websites
Online listing websites such as Autotrader and Cars.com are invaluable to estimating a fair price. You can use these websites to search for the listing prices of actual cars and even filter by location, options, color, etc. However, it is important to know that these are just listing prices, not necessarily what people are paying for these cars - so it may still be possible to negotiate the price down. These listing prices also do not include dealer-specific charges. Some dealerships will add on dealer fees, document fees, and fees for additional “extras” that you cannot negotiate. So, you may see two similar cars one is listed for $500 less than the other but will have $700 in fees, making it a worse deal.
These websites are very useful for understanding your local market and determining if it makes sense to drive a bit outside your immediate location (or consider shipping a car) for a better deal. They can also be great ammunition when negotiating with a dealer by showing the salesperson a similar car at a lower price.
Time is Your Best Friend
Good things come to those who wait… or so our moms used to tell us. It turns out that our moms were right - at least when it comes to buying a car. If you have a large amount of time before you need to buy a car, you can maximize your chances of getting a great deal. We understand that shift (wink wink) happens - your car may break down or you may be involved in an accident that totals your car and need to move quickly, but, if possible, we recommend beginning your car search as early as possible for these reasons.
Dealerships have relatively high holding costs (the daily expense with holding and storing unsold inventory) for their cars and are incentivized to sell cars quickly to decrease these costs and thereby increase their profits. If a dealership has had a car for a long period of time (more than a month or so), they may begin decreasing the listed price and be more open to accepting an offer below the listing price. If you are patient, you can see how quickly similar cars will sell and try to wait to see if a specific car decreases in price.
Dealerships also have incentives for selling a certain number of cars in a month or a year. Because of this, it can be beneficial to shop for a car near the end of a month or the end of the year since the dealership may be more willing to give you a discount so they can hit their goals. This is typically more applicable for new cars (as opposed to used cars) but may still apply to used cars in certain scenarios.
Negotiation Tips and Tricks
Now that you have armed yourself with knowledge about your desired vehicle and the car market, it is time to go to battle. Ok, that was a little aggressive - while negotiation can cause some anxiety, it really isn’t that bad… trust us.
At this point, you’ve spent some time researching your desired car, what a good price for the car is, and the market for your car. You have given yourself lots of time before you need to make your purchase and have noticed a few listed for sale near you (or further away, if you don’t mind paying for and arranging shipping) that fit your criteria and are reasonably priced. You may even research a few that don’t fit your criteria but that are priced better. For example, you may hate black cars because they are hard to keep clean… but the dealerships don’t know that. You may be able to find a black car that is priced lower than the blue car you have in mind and then use the black car as a negotiating tool, even though you wouldn’t actually consider buying it.
The Process
With the information you have discovered in your research, you should have a sense of your relative bargaining position compared with the dealership. For instance, if the car you want is desirable and selling very quickly, you may only be able to negotiate a small decrease in price or may not be able to negotiate at all, since the dealership knows that if you don’t buy the car, someone else will likely make an offer the next day. Conversely, if similarly equipped models are sitting on dealership lots for longer (even better if the particular car in question has been listed at the same dealership for several weeks), your likelihood of negotiating a meaningful decrease in price will be much higher.
The typical negotiation will consist of an offer followed by a counteroffer and then potentially more back-and-forth after that. In general, it is best to try to get the salesperson to provide the first offer, but this can be difficult since salespeople are trained to avoid negotiating against themselves. However, it is always worth a try, after conveying your sincere interest in buying the car for the right price, you can ask the salesperson about the best price they can do for you to see if they will offer any decrease.
If the salesperson won’t make any concessions, go ahead and make your first offer. Your offer should be quite a bit below what you are willing to pay but also not so low that the salesperson feels you are not serious about making a deal. While low, your offer should at least be somewhat supported by information - this is where your research about prices of similar cars will come into play. If you can point to similar cars that are priced lower, it will make your offer seem more palatable to the salesperson.
Then, continue going back-and-forth with the salesperson until you (hopefully) arrive at a mutually agreeable price. The salesperson will also likely leave periodically to “check with the manager.” This is a common trick used to make you feel like the salesperson is there to help you and the manager is the “bad guy.” There isn’t much you can do to avoid this - but just be aware of the game that is being played.
Throughout the process, ensure you are calm and respectful (in general, people like to work with and help nice people) but don’t be afraid to stand your ground. While you should try to convey to the salesperson that you are serious and want to make a deal as soon as possible (even though you hopefully have more time), don’t be afraid to walk away. We have had many experiences where we walk away after a salesperson is stuck on their “best and final offer” - only to have the salesperson run out to the parking lot before we prepare to drive away.
Try to Get Ahead on Your Homework
A great tip that can take some of the stress out of a negotiation is to try to negotiate a price before you ever set foot in a dealership either via email or over the phone. While many dealerships resist negotiating virtually, it can mitigate some of the pressure you feel when negotiating face-to-face and remove defeat you’ll feel if you spend the time and effort to drive to a dealership and walk away empty-handed - both are psychological advantages the salesperson has when you negotiate in person.
Simply call or email a salesperson at the dealership where your potential car is located. In your initial email or conversation, you should start by asking questions about the car to show you are truly interested. You can ask about the condition of the car’s interior and exterior (if the car is used), which options the car has, and the condition of the tire tread and brake pads (again, if the car is used). Then, you can jump into the general process described in the previous section. We would also suggest that you convey certainty and urgency to the salesperson to show him or her that you will absolutely come in and buy the car if the price is right. This will make the salesperson more likely to work with you, since they won’t feel as if they are wasting their time negotiating with someone who may never show up.
Don’t be Afraid to Bluff
Just like the subtitle says - it’s ok to pretend you are a poker player and bluff a little bit. Don’t get too out there, otherwise you may not be convincing, but it’s ok to act like you’d just as soon drive two extra hours to save $700 on a car at a different dealership or that the heated and ventilated seat option that is a “must have” for you, really doesn’t matter that much. The point here is just to provide the impression that you have plenty of other options out there and won’t hesitate to walk away from a bad deal.
Speaking of Walking Away…
Another great tactic at your disposal is to threaten to (or actually) get up and walk away if the salesperson will not come down to a price that works for you. Most car buyers are hesitant to leave after they sit down with a salesperson - typical car buyers subconsciously focus on the fact that they have spent time and effort to drive to the dealership and begin negotiations and may feel disrespectful if they end the conversation.
Salespeople know this and attempt to use it to their advantage, so go ahead and tip the scales back in your favor by just getting up and walking away. Even if you drove a long distance to get to the dealership, you can always come back in 30 minutes and accept the higher price. Walking away gives you the opportunity to reanalyze the deal away from the pressure of the salesperson and decide objectively if you can afford a higher price. We’ve also had countless experiences when the salesperson is “working hard” to get the manager to drop the price and having no luck. Then, magically, once we leave, we get a call that the manager has accepted our lower offer.
Check Your Attitude
Your attitude and personality can also have an impact on your negotiation. First, ensure you stay calm and collected throughout the process. Salespeople can attempt to use high pressure tactics in order to keep you off balance and increase the odds you will pay more. Just remember that there are plenty of other cars out there and there is no need to have this exact car today. If you need to, excuse yourself to go to the restroom so that you can get your thoughts back in order.
Additionally, research has shown that people are more likely to do negotiate more with people that they like. Because of this, it is usually in your best interest to be as friendly as possible to the salesperson to increase the chance that they work harder to help get you a better price. However, you also want to be firm when necessary - to ensure that the salesperson doesn’t get the impression that you will agree to a high price.
Financing
Cash is queen. Gone are the days where dealers would accept less money if the purchaser paid in cash. These days, the dealers may receive a commission if they sign a customer up for a loan with a partner or get manufacturer incentives if a customer purchases a car through the manufacturer’s credit arm. Because the dealer can make more money when you finance, they are more likely to accept a lower price for a vehicle if you finance the car with them.
For this reason, we nearly always recommend using financing when purchasing a car - even if you can purchase the vehicle in cash. However, if you go this route, always ensure that the loan does not have a prepayment penalty - this way, even if you had planned to pay in cash, you can take advantage of the special finance deal and then simply pay the loan off in a few months. This can be a good idea as well, as interest rates, especially on used vehicles, rise.
Financing is another area in which it pays to do your homework. While some dealerships will have incentives or partnerships with lenders to provide a competitive rate, others will not. It is never a good idea to show up unprepared and simply pick one of the options the dealer provides. On a 5-year, $50,000 loan, an interest rate increase from 6% to 7% will cost roughly $1,400 more over the life of the loan. We always recommend doing some research and getting pre-approved by a lender before arriving at a dealership. Lendingtree provides a good interface to compare rates from various lenders and to provide a baseline of what interest rates are available based on loan amount, duration, and credit score of the borrower. If the dealership offers a competitive rate, it may make sense to use their preferred financing for simplicity and to take advantage of any finance offers; however, if the dealer offers an uncompetitive rate, you can use your preapproval letter to try to negotiate the rate down or just use the lender who preapproved you if the dealer will not negotiate.
Dealing with Trade-Ins and “Extras”
When it comes to trade-ins and backend “extras” (such as extended warranties or paint protection), preparation is very important. You should have a baseline understanding of what these cover, which you might want, and how to use these items in a negotiation. For starters, we recommend negotiating the purchase price of the car independent of trade-in value and “extras” and then negotiating these separately (or bringing them in after negotiating the purchase price if this can be beneficial to you). Remember that the dealership is always looking to make money, whether from reselling your trade-in at a higher price or selling you an extended warranty and the salesperson will often get a higher commission for selling these extras and plan accordingly.
Trade-Ins
You are likely familiar with the general idea of a trade-in. If you currently have a car and are looking to purchase anew car, you may wish to trade your old car in to the dealership when purchasing the new vehicle to decrease your out-of-pocket expense for the new car in a very easy way.
The first step is to determine whether you plan to trade in your current vehicle. If the car is paid off, for example, you have storage space and insurance is not expensive, it may make sense to keep the car. Alternatively, while more labor-intensive, it may make sense to spend the time to sell your car privately since you are more likely to get a higher price selling the car rather than trading it in. While Kelley Blue Book values and Autotrader listings will not carry a lot of weight when negotiating with a dealership, they can be useful when trying to determine if it is worth the effort to sell your car. In most cases, we recommend just trading your car in, since the private sale process can take quite some time, you must ensure that you use the correct documents so that the title and ownership passes to the buyer (so that you are not liable for parking tickets or accidents caused by your car after it is sold), and you will likely be contacted by many scammers and spammers online. However, if there is a substantial difference in private sale price and trade-in value, you may decide that selling your car is worth the headache.
If you do decide to trade your current vehicle in, once again, you’ll want to arm yourself with knowledge and, ideally, other offers. Kelley Blue Book, Carvana, and Carmax will often provide an actual offer to buy your car. We would recommend trying to get an offer from at least a few of these vendors to use as a bargaining chip when you arrive at a dealership. It of course is less convenient to utilize one of these services, since you’ll need to drive your old car there, hope they don’t decrease the offer value for minor scratches and dings, and then find a way home, but if the offer is substantially more than what the dealership is offering, it may be worthwhile.
Finally, as mentioned above, we always recommend negotiating trade-in value after negotiating and establishing the price of the car you want to purchase. This is helpful because it gives you two “levers” to pull when negotiating the overall deal. If you state upfront that you have a car to trade in, the salesperson will try to lump any change in price (either decrease of sale price for the new car or increase in the trade-in value of your current car) so they can make the most money while letting you think you have a good deal.
For example, let’s say you are looking to buy a car with a $55,000 list price and plan to trade in your current car that has an approximate trade-in value of $15,000. The salesperson might say that there is nothing they can do to decrease the $55,000 sale price, but they can give you a deal on the trade-in and increase the price by $1,000 to $16,000. Because you are $1,000 better off on the overall deal, you may feel good enough to agree. Alternatively, if you avoid the question about a trade-in, the salesperson will be more likely to negotiate the purchase price in order to earn your business. You might negotiate the purchase price down by $1,000 to $54,000. Then, after this is done, mention your trade-in. If the dealership offers $15,000, you can use this second negotiating “lever” to try to increase this. They may agree to pay $15,500 for the trade-in, meaning you are now $1,500 better off on the overall deal.
Backend “Extras”
These are the additional packages and add-on options that you will likely encounter at the finance department, after negotiating the sale price of your new car and trade-in value of your old car. The most obvious example of these extras is an extended warranty on the vehicle. Other examples include wheel and tire packages, paint protection, GAP insurance, and windshield replacement packages. We cover these in more detail below but first want to provide a few tips for how to think of these extras.
First, these are nearly always negotiable and can be negotiated similarly to the price of the car. For example, if the extended warranty is a bit out of your price range and the salesperson refused to negotiate, just mention that you’ll forego it and then begin discussing other extras or moving the financing process along. This might give the salesperson the push he or she needs to drop the price by a few hundred dollars.
Second, dealerships are in the business of making money and wouldn’t sell any of these extras if they did not, on average, make money on each of them (we know… big shocker). That said, we find that there is some value obtained for peace of mind which may make these extras worthwhile. For instance, let’s say a 3-year extended warranty costs $4,000. If the dealership sells ten of these warranties, the majority of buyers will not use $4,000 of value (otherwise it would not be profitable for the dealership). Perhaps three buyers make no warranty claims and five buyers make claims for $500 or less; however, the last two buyers may make claims for $6,000 or more. The warranty is still profitable for the dealership and most buyers will lose money on them - but if you are one of those two people that has issues with the car, you’ll be happy you paid extra for the warranty. For some people the peace of mind of knowing they are covered is worth the price of the warranty.
Third, and sorry to keep droning on about this, but it pays to prepare before you ever set foot in a dealership. You’re already ahead of the curve by being prepared for these to be offered - many folks think the negotiation is over once a price is agreed upon and are surprised when additional costly items are discussed (once again, giving the salesperson an advantage). But we also highly recommend spending some time to think about your personal preferences and what extras you really want and have a realistic chance of saving you money. Are you risk averse, making an extended warranty more valuable to you? Do you live in an area with terrible roads with dishwasher-sized potholes on every surface street, making it much more likely you will take advantage of a wheel protection package? Try to price out what each item would potentially cost. If one wheel on your new car costs $1,500 and the protection package costs $1,600, it may be worthwhile. Alternatively, if ceramic coating costs $1,000 from a third-party but $1,500 at the dealership, you may wish to decline this option.
Wheel and tire replacement packages - these packages cover the costs of replacing a damaged wheel or tire if you run over a nail or bend your wheel on a large pothole. Note that there is usually some form of deductible involved and these packages will often NOT cover normal wear and tear like aging or bald tires.
Ceramic coating or paint protection - ceramic coating is a liquid polymer that is applied on top of your paint that functions somewhat similarly to an extra layer of clear coat. Other paint protection products function similarly. These can help protect your paint from sun damage and minor scratches; however, it can often be much cheaper to have these applied by a third-party service provider.
GAP insurance - gap insurance may be offered if you finance your vehicle. This insurance functions to protect you if your vehicle is stolen or totaled, and you currently owe more on the car than it is worth at the time of the theft or accident.
For example, you may purchase a $50,000 car with a small down payment of 5% ($2,500) and a 60-month loan term (we will ignore sales tax and other expenses for this example). The car may depreciate by 25% ($12,500) in the first year of ownership, and in that year, you will have paid down around $8,000 of principal. Your car is now worth $37,500 ($50,000 purchase price, minus $12,500 in depreciation), but you will have $39,500 remaining on the loan ($50,000 purchase price, minus the $2,500 down payment, minus the $8,000 principal you have paid down via monthly payments). If your car is totaled or stolen, the insurance company will pay you $37,500 minus any deductible, but you will still be on the hook for the remaining $39,500 of the loan, forcing you to come out of pocket a minimum of $2,000.
Gap insurance is typically cheap (around $20 per month) but also requires a combination of factors to ever be used - it will typically only be helpful if you have a small down payment (under 15% or so) and long loan term on a car that depreciates quickly. Gap insurance may make more sense if you are buying a brand new car (that depreciates at a faster rate than a used car), especially if it is a brand that depreciates faster than average (Maserati, for example). Otherwise, we would not typically recommend it.
Overall, each customer will feel differently about which extras are worth the money. By being prepared, knowing that a salesperson may try to “hard sell” you on these options, and understanding which extras may make sense for your budget and level of risk tolerance, you will be in the best position to take advantage of extras you might use and calmly decline extras that will simply make the dealership extra profit.
Conclusion
We hope this article has provided a useful overview of the negotiation process and tips you can use to ensure you get a better deal. The biggest takeaways here are (1) do you research ahead of time to ensure you are prepared and have the most leverage possible when entering a car dealership and (2) remain level-headed throughout the negotiation process, use the confidence gained by doing your research, and never being afraid to walk away. Negotiating is much more art than science, and there are no hard and fast rules that will apply in all situations - but taking a methodical and well-researched approach will give you the best chance at getting a good deal. Finally, if the process still seems a bit overwhelming or you’d just like to avoid the time and effort required to negotiate a good deal, book a free consultation with us to learn more about us and how we can negotiate the entire deal for you.