Car Negotiation
A Car negotiation is when two parties have a discussion to settle on the purchase price of a new car. In a negotiation each party tries to obtain the most favorable outcome for themselves on a transaction while compromising to accomplish both parties’ goals. In car purchase negotiations, the car salesman’s goal is to earn the biggest commission possible and therefore he/she wants to sell a car for the highest price possible. The car buyer’s goal is to obtain a car at the lowest price possible.
Elements of a Car Purchase Transaction
There are several elements of a car purchase transaction and if a car salesman compromises in one area, they will do their best to make up the dollar amount in other areas. Their commission is typically based on a combination of all these elements.
Sale price of the new car: This is the final price that is agreed upon for the car purchase transaction. This price is typically somewhere between the MSRP (Manufacturer's Suggested Retail Price) and the invoice price (the amount the dealer pair for the car from the manufacturer).
Financing: This is a loan provided to the car buyer that allows them to purchase a car for more money than they pay as a down payment. Car dealerships provide these loans to consumers as well as most banks or credit unions.
Trade-in: The car dealer will often purchase the car buyer's used car and apply the agreed upon dollar amount to offset the amount paid for the new car.
Extras: Car dealerships' financing departments will typically try to sell additional items to car buyers while financing arrangements are being made. These extras include items like extended warranties, paint sealant, rustproofing, VIN etching, and fabric protection.
Car Dealer Negotiating Tactics
Monthly payment selling: The car salesman will ask the car buyer how much they want their monthly payment to be. Once that amount is in the buyer's mind, the salesman can change around other factors of the deal like interest rate, length of loan, and amount of down payment in order to have the financing payments meet the desired target amount.
Low trade-in value: The car salesman will often low-ball the amount they are willing to pay for a trade-in. Many car buyers are unaware that this is negotiable and will accept this amount without question.
Sale of extras: Car dealership financing departments make their most money from the extras they sell when financing arrangements are being made. These items usually have a high margin built into the price.
Car Buyer Negotiating Tactics
Understand a reasonable target price: Services such as TrueCar and Edmunds TMV allow car buyers to research the cost structure of new car as well as view aggregate data on what people are currently paying for cars. Understanding what the average amount that other people have paid for a car allows a car buyer to have a reasonable target price to obtain and can assist in negotiations.
Separate car price, trade-in, and financing: Car buyers can negotiate the elements of the car purchase separately to get the most out of each component and prevent the salesman from combining these items to confuse the total cost of the deal.
Make dealers compete: Car buyers can use online pricing services to request car quotes from multiple dealers simultaneously. They can then negotiate over email with all the dealers to create a competitive bidding situation.
Changing Industry
With more and more information available online, car buyers are becoming much more educated and demand more from car dealerships. Most dealerships have established Internet Departments to advertise their inventory and attract new buyers. Cars are undergoing more commoditization as car buyers utilize their ability to efficiently contact multiple dealerships via the web to find the best price.