Knowing how to negotiate car price is critical when buying a new or used car, or when trading in or selling your old car, and negotiating car price does not need to be complicated. By taking a common sense approach to research, by understanding market factors that drive car prices, and by realizing that your time has a monetary value, you can quickly and successfully negotiate car price.
First, establish what your time is worth. The answer is different for everybody, but the longer you take negotiating car price, the more time you are spending working the numbers when you could be doing something fun with people you love.
Next, realize that the laws of supply and demand dictate car price, and these laws are valid at the local, regional, national, and global levels. If a devastating earthquake strikes Japan, halting the manufacture of parts and stopping assembly lines, the event has a ripple effect on the prices of affected vehicles all around the world. In a local level example, strong consumer brand preferences might dictate special rebates on less popular models that are in significant supply and window sticker markups on more popular models that are in short supply. By employing common sense to understand the fundamentals of supply and demand and to recognize how they impact car prices is important to successfully negotiating car price.
Another tip is to negotiate car price with the right person. You want to work as closely with the decision maker as possible, whether that person is the sales manager at the dealership, the proprietor of the used car lot, or the owner of a car being sold privately. Working with people who cannot make the final decision when negotiating car price costs you money in terms of what your personal time is worth.
Finally, performing simple research can help you establish a reasonable target when negotiating car price. Below, we will explain how to negotiate car price for a new car, and how to negotiate car price for a used car.
How to Negotiate Car Price for a New Car
The Manufacturer’s Suggested Retail Price (MSRP) is irrelevant. You will always pay less or more than this, depending on the laws of supply and demand. In the vast majority of cases, you will pay less, but you require a baseline value from which you can negotiate car price. This baseline value is called invoice price, which is widely considered to be the price that the dealer paid the factory for the car. But that’s not true because many other factors impact the price that the dealer actually pays for the vehicle.
Invoice price is the value from which you start negotiating car price. Once you know what invoice price is, you can subtract any rebates or incentives that are available on the model in your region to arrive at a fair price to pay for the vehicle. Forget about money associated with “dealer holdback,” or “spiffs,” or other bonuses that may be paid to the dealer or salesperson. Remember, your time is worth money, and trying to establish accurate values for such things could cost you more in time than you might gain by nickel and diming the dealership for a few hundred dollars. Keep it simple, and you can quickly negotiate car price and get on with your life.
If you are buying a new car for which incentives or rebates are unavailable, invoice price is the best price for the car. Depending on the laws of supply and demand, you may pay more than invoice for the car, and possibly even more than the MSRP. For example, when the 2010 Chevrolet Camaro first went into production, consumers who wanted to be the first on their block or in their town to own one paid dearly for the privilege. Today, it is easy to buy a Camaro for invoice price, or less, especially now that Chevy and Ford are competing for the sales crown in the sporty coupe segment.
We strongly recommend using multiple sources of information to establish invoice price and to learn about available incentives, rebates, or low-rate financing deals. Autobytel and other online sites provide excellent resources for this information. Each of these car price publishers can help you establish a target value for negotiating car price.
If you are negotiating car price for a new car that is available with a choice between or a combination of rebates, incentives, and low interest rate financing, you will need to perform some basic math to determine the best price. For example, if a car is offered with a rebate of $2,500 or zero-percent financing for 48 months, it is possible that you can save more money over the life of the car loan than you can by negotiating a car price that is discounted by an extra $2,500.
How to Negotiate Car Price for a Used Car
Negotiating car price for a used vehicle is easier than negotiating car price for a new vehicle, even though the buyer must take vehicle condition and mileage into account, in addition to laws of supply and demand. By performing a simple vehicle search for the year, make, and model of the car you want to buy on a automotive websites, you can easily see the average price at which cars like the one you want to buy are currently selling.
To further ensure that you can negotiate car price with success, bolster the results of such a classified ad search by determining the retail and trade-in values of the year, make, and model of car you want to buy. There are many sources of these values, and we strongly recommend consulting them while establishing your target price.
Using these methods is also helpful when you are trying to establish a fair value for your old car, whether you plan to trade the car in to the dealer or sell it on your own. Remember, the dealer or other potential buyers will negotiate car price with you when it comes to the value of your old car, so the more information you have the better off you will be when it comes to extracting maximum value for your old vehicle.
There is one rule of thumb to keep in mind when negotiating car price for a used car, whether you are buying or selling. A dealership will pay less for a trade-in than you can get by selling privately, and a dealership expects more for a used car than most private sellers. The reason is rooted in the fundamentals of business.
By accepting your trade-in, the dealer is also accepting the responsibility of re-selling the car, which involves a significant amount of effort in terms of paperwork, vehicle preparation, and marketing. Therefore, to offset that cost of doing business, the dealer will negotiate a car price that is less than you could get if you took on that cost of doing business yourself.
When buying a used car from a dealer, the vehicle is likely in better condition than a car sold by a private seller, and may even be certified with an extended warranty. The dealer is also taking on the responsibility of transferring ownership to you. Therefore, used car prices paid to dealers are typically higher than used car prices paid to private sellers to offset these costs of doing business.
Finally, when it comes to negotiating car price for a used car, remember that in most cases the seller is eager to sell the car to you. Whether the used car is at a dealership or is being sold by a private owner, the longer the car sits unsold, the longer the dealer or owner has cash flow locked into a depreciating asset. You can use this simple economic fact as leverage when negotiating a car price for the used car.