Car Buying for Women-Negotiation

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Ready to Buy

You have finally narrowed the choice to one make, model, and trim level (or a couple levels based on the final price).  Now it is time for serious negotiations to start.  You can do this all by phone and email.  Negotiating as much as possible up front will save you time and aggravation at the dealership.  I highly recommend shopping dealerships to see who will give you the best deal.  Car dealers don’t make money unless they sell cars.  You don’t have to buy from them, so let them work for your business.  There are several factors that will influence the deal offered to you by any particular dealer.  Day of the month, month of the quarter, end of the year, model year, incentives to dealer from manufacturer, time vehicle has been on the dealer lot, and more.  There are some things dealers won’t tell you, but you can find out here.  Knowledge is power.  Make sure you know as much as possible.  Take notes and know that some salesmen will say anything to convince you to buy. If a deal is not what you want, don’t buy!

How to Negotiate

The first thing you need to keep in mind is that you are only negotiating the price of the vehicle you want.  If you have a trade-in, this does not affect the cost of the new vehicle.  Your trade should be negotiated as a separate transaction after you agree on price for the new vehicle.  Alternatively, you can make and “out the door price” deal which factors in your trade, but you still need to determine how much you should pay for the new car.  You will also need to know the value of your trade, but we will address that in another section. 

Don’t get caught in a common scheme by car salesman who ask, “how much do you want to spend each month?”  If you tell them xxx, then no matter what the car you are looking at actually costs, they will figure out a way to make the “payment work for you”.  You can end up paying way more than the car is worth (or costs) if an unscrupulous salesman/dealer makes the term too long, or the interest rate too high, or various other tricks (adding extended warrantees, care plans, special paint treatments), as long as they meet your monthly payment criteria.

Determining How Much to Offer

Let’s use the Mustang GT premium example above as our model for pricing purposes.  We will be assuming that there are currently no dealer pricing incentives on the vehicle for simplicity sake.  In actuality, there are large dealer discounts at this time and I will address this at the end of the article.*  For now, we will use a simple pricing structure with only manufacturer rebates in the equation.  If the sticker is $51005, and the invoice is $48405, there is $2600 in wiggle (negotiation) room for the dealer to discount the car without “losing” money.  Notice I put “losing” in quotes.  This is because the dealer does not actually pay this amount for the car.  There are other factors such as dealer holdback, incentives from manufacturer, time on lot, and more inflating this price.  What is dealer holdback?  This is a percentage of the MSRP (usually without options) that the manufacturer pays the dealer on vehicles.  It can occasionally be based on invoice, again without options, or a flat fee.  Holdback tends to be around 2 or 3 percent.  There are several high-end manufacturers that do not have holdback, so you need to know if your particular manufacturer does or doesn’t have this particular item.  Holdback can sometimes be negotiated off the price of a new car, so make sure you look up this information before you ask about it.   Information on holdback is not always readily available, so you will need to research through Edmunds, KBB, cars.com, etc.   

In general, unless a car is a special high ticket item, or very popular and new (model) that demand can’t keep up with supply, any particular one can be purchased for at or near invoice price.  Yes, invoice.  Don’t let the salesman at the dealership tell you they are losing money, or this is a highly sought-after car that someone else is coming to look at, or some other tale.  

Because information is readily available online dealers try to come up with new ways to inflate the prices of their vehicles or selling tools.  They can, will, and do lie.  I know that seems harsh, but I have experienced it time and time again.  Knowing how much the car costs and what you want to pay gives you a place to start negotiations. 

Remember, you can be doing all this negotiating from your computer at home.  There is no need to go to the dealer for this part unless you want to.  Please do not go alone.  I cannot stress this point enough.  You need someone with you to be your advocate, and to stop the salesman sharks from trying to rip you off.  I personally never go to the dealer until I am ready to take a car home, and sometimes I don’t even do that.  Several dealerships will now deliver.  This has been a become great way to buy cars.  Why?  First of all, you already test drove and picked out exactly what you wanted.  Second, you will feel much more in control in your own environment.  Third, they meet you on your terms, when you are ready.  The pressure is minimal!  This is not for everyone, so I recommend you save the ship to home buying for when you are more comfortable with the whole care buying experience. 

Now, let’s put a price on our Mustang.  If the invoice is $48,405, and the holdback is 3% ($1452), you can make an offer well below invoice, say $47,500.  This is BEFORE you factor in any rebates or offers.  Those are direct to you from the manufacturer and have nothing to do with the selling dealership.  There may be dealership only offers, but that doesn’t apply here.  If you qualify for the $750 retail cash back, and $500 rebate, or any others, you can use those to “pay less” by using them as down payment.  You can also factor them in to what your final offer will be.  For example: $47,500 less the two rebates (1250 total) is $46, 250.  This is the price without tax, tags, and title fees.  It also does not include the dealer processing fee.  This fee is NOT mandatory, and it varies from state to state, but I have never seen a dealer willing to not add it to the deal.  This is an insurance policy of built in profit that each dealer charges.  There is another, an advertising fee (generally around $400-$600) that the manufacturer passes onto the dealer.  I don’t like to pay this fee, and I have gotten it discounted before, but that is a tough battle that I don’t recommend you try until you get comfortable with the entire process. 

Now that we have an amount to offer, $47,500, we can calculate taxes (best estimate), and add in tags, title, and dealer processing fees.  Sales tax is calculated on the vehicle price, before rebates, less any trade value (in some states not all).  In MD it would be 6% of 47,500 assuming no trade.  The dealer processing fee a taxable charges per MD MVA, so the full amount that is taxed is $47,800.  Tax in this scenario is $2868.  Tags are approximately $187 (depending on vehicle weight in MD), and title fees are another $120 (title fee $100 lien fee $20)  This brings our total to $50,975.  If we then subtract the rebates, we are at $49,725 as an “out the door” (OTD) price.  From the original sticker of $51,005, you are $1320 over invoice and $1280 under sticker (MSRP) as an OTD price.  As a comparison, if you paid MSRP for this car,  You would tax the full amount of $51, 005 plus the dealer processing fee of $300 or $51,305.  The tax on this amount is $3078.3.  This would give you a total purchase price of $53,440.30 after you subtract your rebates of $750 and $500. This is $2435.3 over MSRP and $3720.3 more than the scenario where you were offering a price under invoice.  As you can see, this is a big savings.  Even at 0% financing for 72 months, this would make a difference of $51.67 in a car payment.  

The numbers I used here were hypothetical.  You may be entitled to more rebates or customer incentives including promotional interest rates. Sometimes those promotional rates are in place of the rebates.  This means you get either the rebates, or the low interest rate.  This is why you want to calculate your car price before you even look at interest rates.  It may be cheaper in the long run to take the rebates than the lower interest rate depending on the amount of cash rebates.  It is almost always best to have your own financing when you are ready to purchase, because then the dealer can’t agree to your price but try and get more money from you with a high interest rate.  Yes, they will try.  This is another way for them to make money on the deal.  They get credit or perks from manufacturers and banks for sending them loans.  Don’t help them.  Have your own financing if possible, even if you apply online through the manufacturer for a promotional rate.  

How can you decide which is better, the rebates of the interest rates if you have to choose?  Do the math. For example, the manufacturer offers an additional $5000 off or 0% for 72 months.  If you take our 47,500, remember this is the taxed amount because rebates are taxed, we will have the same numbers above and be at $50,942 before all rebates.  If you subtract the previous $1250 in rebates and the new $5,000 in rebates offered from the manufacturer, your new OTD price will be $44,692.  You will have to finance this amount at current loan rates based on your credit.  Assuming you would qualify for the promotional rate from the dealer, you would have very good credit.  Rates for new loans at 72 months as of post time are as low as 2.99%. This would give you a payment of $678.84.  If you took the Promotional interest rate of 0% instead of the $5,000 rebate, your payment would be based on the $49,692 amount from above.  Your payment in this case would be $690.17.  As you can see, it is cheaper to take the rebate in this case than the promotional financing.  You will need to do the calculation each time as the numbers used here were hypothetical. 

You will also get asked about GAP insurance.  Yes, you need this.  What is it?  This is an insurance that covers the difference in the value of the car between how much you owe and how much the car is worth in the event of an accident that totals the vehicle.  This also applies to theft.  The second you drive that shiny new car off the lot it loses thousands of dollars in value.  Without gap insurance you will be upside down in value and have to pay money if something happens to the car and you no longer have it.  The dealer will try to charge you a lot of money for GAP insurance, sometimes upwards of $1000 dollars.  This is too much!  This is another way they try to make money on a deal.  Credit unions charge around $299 for GAP insurance.  Use this information to bargain them down. 

You now have an amount you want to offer, and OTD price if you want to negotiate that way, and you may even have financing.  At this point in the car buying process, it is a little like juggling or give and take.  You will need to bargain the price against allowing the dealer to finance or throw in some perk you want.  Do you let them finance in exchange for a little more money off?  Are they throwing in an extended warrantee or GAP insurance at a low price?  Car buying is a fluid process that is not a done deal until you sign the contract.  Do not sign anything without reading it first.  If something doesn’t make sense or the numbers don’t add up, do not sign!  If you are not happy, do not sign!  If you are not sure, do not sign!  If you did not turn around and look at the car after you parked it, do not sign!  Remember, you will in most cases pay for this for several years, make sure you want it! 

*I mentioned that for simplicity we would not factor in dealer to consumer discounts.  At the beginning of the article I noted that time of month, time of quarter, and time of year all make a difference in how willing a dealer may be in reducing prices.  This is because the more cars they sell, the more money they make from the manufacturer.  Dealers have quotas that they must meet, and bonuses that they can earn for all kinds of performance measures.  How close they are to a given bonus will greatly influence how willing they are to strike a deal.  End of car model years you will often find large discounts as dealers try to clear out those cars to make way for the new model year ones.  If you don’t mind a car that is a model year old, you can often get great deals on these cars.  That being said, dealers can and do have large discounts on many different makes and models of vehicles that reduce prices well below invoice.  Those dealer incentives do not have anything to do with manufacturer incentives unless stated by the manufacturer.  When calculating your offer on a vehicle that has a substantial dealer discount, you are probably already getting the best deal.  You can and should get your additional rebates, and you can try to get holdback if it is a factor.  If a dealer is desperate to make a deal, it may happen!  

Next installments:

Trade in values and negotiations

Used car buying tips

XO, Coco

Please read the first article in this series, Car buying tips for women.

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