Bargaining for the Best Deal on a New Car

by Gary Foreman

Bargaining for Best Deal on New Car photo

Don’t get taken for a ride at the dealership when buying your next car. With these tips and a little preparation, you can hold your own against expert dealers and bargain for a great auto deal.

Dear Gary,
We normally buy used cars and trucks but we decided to buy a new truck from a dealer. What advice would you give us to deal with the new car dealers.
Sheryl

Sheryl is about to travel one of the more interesting roads in America. The one that leads through a new car dealership.

And her actions could save or cost her thousands of dollars.

It pays to be prepared

Just like the Boy Scouts, Sheryl will need to be prepared. She’ll want to check out safety and reliability records for different models. Consumer Reports does a good job.

She’ll also want to spend some time at dealers checking out various makes and models. Tell the salesperson that you won’t buy that day. If you buy a car the first time that you see it, you’ve almost certainly paid too much.

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Get wise on the price guides

Next Sheryl will want to collect pricing information. Edmunds.com is a good resource. In fact, you’re wise to compare the price guides. You’d be surprised how often they differ.

Sheryl will learn that there’s more than one price for the car she wants to buy. The ‘invoice price’ is what the dealership pays, but it’s not their true cost. They’ll receive rebates, discounts, incentive awards and allowances from the manufacturer that will reduce the cost. Often the rebates are large enough so that the dealer can sell to you ‘at invoice’ and still make a reasonable profit.

At the dealership Sheryl will encounter the “Manufacturer’s Suggested Retail Price” (MSRP). That’s shown on a large label on the window. It should include retail price, transportation charges and fuel economy.

Finally, there’s the “Dealer Sticker Price”. That includes MSRP plus any dealer preparation items like undercoating. Generally these items are very profitable for the dealer.

You’ll find the largest difference between invoice and sticker prices on the most popular and least available models.

Don’t let your ego do the shopping

Part of the goal of your research is to decide which make and model is right for you. Don’t let your ego decide what car you’ll drive.

Sure, you want something that’s bigger, faster or sexier. What you need is something to carry people and cargo.

Make sure that you can afford the car you want.

Be ready to deal with the toughest salesperson on the lot

OK, now Sheryl’s ready to visit the dealer and begin dickering.

Before we start, let’s get one thing clear. There are many fine, honest car salespeople. But, selling cars is a very competitive business. And some dealers and salespeople are more willing to pressure the buyer than others.

The goal here is to learn how to deal with the toughest.

Follow these two very important rules for the biggest savings

The first rule is to travel in twos. You’re much less likely to succumb to sales pressure if you have a spouse or friend with you.

The next rule is simple, too. Buy near the end of the month. Both salespeople and dealers have quotas. Although every deadline isn’t at the end of the month, many are.

Watch for these hidden costs

Sheryl will need to watch the add-ons. Many of them are extremely profitable for the dealer.

Don’t be pressured into sealant packages and other high margin options. If you want an option, get competitive prices from after market suppliers before you talk to the dealer. (See 7 Car Dealership Fees and Services to Avoid.)

Also watch for duplicate charges. For instance, the invoice price should include freight. Make sure that it doesn’t show up twice.

Never skip the test drive

Take a test drive in the car that you’re considering. Quality has improved, but you still might find that there’s something wrong or the equipment isn’t exactly what you expected.

Make dealers compete against each other

You want two or three dealers to know that you’re ready to make a deal. The right deal. Let them know that you’re shopping and will compare offers.

Even if the specific make and model you want is only offered by one dealer in your area you can still set up competition. Just select a similar model from another manufacturer. Use the competing car to get the price of your favored model down.

Remember, you can negotiate anything. Don’t believe that they can’t budge on any particular item.

Don’t stay too long in the dealership

Tell the salesman that you only have one hour. After it’s up, excuse yourself and leave. You can always resume negotiations where you left off tomorrow.

The fact that you’re willing to leave will help get the salesperson to their lowest price more quickly.

Don’t fall for this tactic

Some dealers will offer to let you take a car home overnight.

They want you to fall in love with the car and to stop shopping. They also hope that you feel that you owe them something.

Don’t do it.

Know how to recognize when the dealer is at a rock bottom price

How do you know when the dealer is really at the rock bottom price?

Generally, if you can stay close to invoice you’ll be doing well. Typically if the dealer’s offers are close, that means you’re near the bottom.

Don’t lessen your deal with your trade-in

Once she knows what she’ll pay for the new car, it’s time to talk trade-in. Don’t discuss it until now. During her research, Sheryl should check the value of her car. The Kelley Blue Book or NADA will provide the necessary info. The dealer’s goal is to make money on both cars. Your goal is to minimize that.

If your trade-in is fairly new, it’s worthwhile to wash and wax the old cruiser. Dealers claim to be smart in buying cars, but there’s still something helpful about making a good first impression.

Consider taxes before deciding whether to trade-in or sell your car. In most states the amount subject to sales tax is the price of the new car minus your trade-in allowance. With sales tax running 6% or more in some areas, a $10,000 trade-in could save $600 in taxes.

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Sign before you drive away

Be sure that you have a completed, signed contract before you drive your new car from the dealership. It’s much easier to spot errors and make corrections now.

Get financing first

If you’re financing the car that’s another whole negotiation. Have a commitment from your bank, credit union or other source before you begin to talk to the dealer’s financing manager. (See Why It Helps to Get An Auto Loan Before You Go To the Dealer.)

Focus on the interest rate. Not the monthly payment. When they ask you how much you can afford each month, that’s to get your attention away from the interest rate you’ll be paying.

If you should have trouble, the Federal Trade Commission may be able to help. You can contact their Consumer Response Center at 1-877-FTC-HELP. You might also want to check with your States’ Attorney. Many states have laws to protect new car buyers.

Your car is typically the second most expensive item you own. This is one purchase where extra time and effort pays big dividends. I hope Sheryl gets a great deal on her new wheels!

Reviewed August 2020

About the Author

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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Subscribe to After 50 Finances, our weekly newsletter dedicated to people 50 years and older. Each issue features financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven't saved enough.

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You deserve a comfortable retirement.

Subscribe to After 50 Finances, our weekly newsletter dedicated to people 50 years and older. Each issue features financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven't saved enough.

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