One of the most intimidating negotiations people experience is the purchase of a car. Often times you are trapped at a dealership for several hours working to hammer out a deal. Multiple factors go into the price that the dealership is willing to offer initially and ultimately get down to – the price they paid to acquire your car, how long that car has been sitting on their lot, how their sales have been that month, time of the year you are looking to purchase, your credit score, your trade in, etc. As you would expect, the salesperson you are working with is going to do whatever he can to maximize his profit while making you feel like you are getting a great deal so he does not lose the sale. So how do you put yourself in a strong position to come out with the best possible deal in this negotiation? Gather information prior to the negotiation and operate from a strong position!
In any negotiation, the party that comes out on top is typically the one who either has the most information or has the most leverage. Buying a car is typically one of the largest purchases a household will make in their lifetime. In most cases it does not need to be an impulsive or immediate transaction. It is a purchase that you know you will need to make in the future and have time to plan for it. If you walk into a dealership cold and uninformed, you could very well leave thousands of dollars on the table. So how do you find information to obtain the upper hand?
It starts by understanding how a dealership calculates the cost of a car. There are a number of terms that you will come across
Leverage is an interesting concept. At times, you come head to head with an individual that can dominate a negotiation due to circumstance. For example, imagine if you are walking your dog and it suddenly gets attacked by a rabid owl, tearing a hole in Fluffy’s back. You rush your dog to the vet and the vet says it is going to cost $500 to fix Fluffy. Although there is actually an opportunity to negotiate here, most people would just suck it up and say fix Fluffy at any cost due to the perceived urgency of the situation.
When buying a car, the salesperson will often try to add a sense of urgency to the deal to make you sign on the line that is dotted. She may say that the deal she is offering is only good that day or that there are dealer incentives that are set to expire. The truth is, there is often a better deal if you are just willing to WALK AWAY. If you are in a buying position and have the credit to pull the trigger, the last thing a dealership wants you to do is walk across the street to their competitor and give them an opportunity to drop their price to your desired level to close a deal. By threatening to walk because the deal is not good enough, you can establish leverage. The vast majority of the time, they will go back to their manager and sweeten the deal to ensure you stick around for a purchase.