Everybody wants to learn how to do better car deals. I swear, I can't give a talk on any aspect of negotiation without getting at least one question about car deals. It's depressing to deliver a brilliant, witty and insightful lecture on trade negotiations with Outer Mongolia, only to discover that what everybody really wanted to hear about all along was car deals.
In truth, there is very little I can add to the many excellent books and articles which have been written about car buying. Nevertheless, because this is a negotiating issue of such fervent interest -- it touches almost everybody's pocketbook, after all -- this book would be incomplete without a discussion of car deals. Let's bow to popular pressure and take a whack at it.
Automobiles are still one of the very few consumer products sold in the United States on which it is customary to bargain over price. And next to our houses, they're the most expensive things we'll ever buy. Some 15 million Americans will negotiate for a new car or truck this year, agreeing to pay, on average, about $20,000. New car prices continue to escalate dramatically. Automakers now routinely increase their prices several times per year.
It doesn't take a genius to see that some big money could be saved through better negotiating. But car salesmen routinely tell me that fewer than one in four buyers have any idea what they're doing. The rest are lunch.
New cars. We love new cars, but we hate buying them. Survey after survey has confirmed that consumers loathe the rug-bazaar atmosphere of most dealerships. In response, automakers are experimenting with a number of new initiatives -- "no-haggle" dealerships, "value-priced" cars, and "warm and fuzzy" sales approaches (giving salespeople sensitivity training; calling them "customer-assistance representatives" or "associates") designed to make new car buying less of an ordeal.
No-dicker car pricing (also known as standardized, one-price, single-price, haggle-free, no-haggle, no-hassle, no-negotiation, and non-negotiable pricing) certainly isn't new. In addition to its standardized parts, Henry Ford's Model T had a standardized price. General Motors reincarnated the practice in 1990 when it introduced its Saturn line with an interesting twist: a discounted, but basically non-negotiable price. GM's no-haggle experiment with Saturn has proven extremely popular, and now each of the Big Three American automakers sell some models with no-haggle prices. Early surveys indicate that the no-dicker sticker increases sales and profits for some dealers. Not surprisingly, customer satisfaction is also higher.
Alas, the comfort of no-dicker pricing is purchased at a considerable cost to the consumer. Customers at haggle-free dealers pay more for their cars than buyers who bargain skillfully. And no-haggle dealers can, and do, boost profits by cutting staff, adding inflated fees, pushing expensive extras, offering costlier financing and leasing, and paying less for trade-ins.
"Value priced" cars are another effort by the major automakers to curtail their dealers' new-car haggling. The manufacturers load these cars with the most popular options, and sticker-price them less than the same models without those options. Customers, naturally, demand the value-priced models and flock to the dealers who have them. The trick is that the manufacturers sell these value-priced cars to their dealers at prices only slightly below their factory window stickers. The dealers have no choice but to demand virtually the full sticker price in order to make a profit.
Is the sun setting on new-car haggling? Don't count on it. Even though automakers have spent millions trying to persuade their 23,000 U.S. dealers to be nicer, it hasn't worked so far. The manufacturers' charm-school reforms are defeated by their own incentive systems which reward volume and turnover -- "moving the metal." The most successful dealers know that what really "moves the metal" is the hard sell: creating feelings of excitement, desire, and urgency in their customers. Protected by state laws which greatly restrict manufacturers' ability to dictate sales practices, dealers stand on their right to use every hard-sell trick in the book. Less than 10% of the nation's new car dealerships have experimented with fixed-price selling. Many who have tried it have reverted to more traditional practices. For the foreseeable future, haggling for new cars won't end. The dealers won't let it.
This is very good news for negotiators. Smart bargainers who are willing to forego the comfort of no-haggle dealers for the thrill of matching wits with a car sales-person can pay hundreds -- if not thousands -- of dollars less for the same vehicle than their not-so-savvy neighbors.
Let's briefly explain how car dealers make money when they sell new cars. There are five main sources of potential profit: markup, trade-in, financing, "packs," and fees. Just like any other business, car dealers buy low (from the factory, at whole-sale) and sell high (to consumers, at retail.) Markup is the difference between wholesale and retail. They can do the same thing when they take a car in trade. They buy low (from you, at wholesale) and, after cleaning the car up, spraying Armor-All all over the interior and silicone on the tires to make them shine, they sell high (to other consumers, at retail). If the dealership arranges financing or leasing for you, it gets a hefty referral fee from the bank actually making the loan or lease. The longer the term and the higher the rate, the bigger the fee. "Packs" are the small but especially profitable items that dealers push late in the negotiation, when customers have that new-car smell deep in their lungs. They include extended warranties, vehicle protection packages (paint sealant, rustproofing, fabric protection, door guards, etc.,) tinted windows, anti-theft systems, and other extras. Finally, a host of mock-official "conveyance," "document preparation," "dealer preparation," and advertising" fees are added and the deal is totaled up.
After all is said and done, getting the best price on your new car boils down to a four-step process:
1. Decide on the car you want.
2. Find out what the dealer paid for it.
3. Commit yourself to paying no more than a few hundred dollars more
than that.
4. Avoid the gauntlet of ingenious dealer gimmicks (trade-in, financing,
packs and fees) designed to get you to pay more.
The first step, deciding on the car you want, is not as easy as it sounds. There are currently more than 300 models to choose from, most of which are available in a number of different trim lines. Each trim line, in turn, has a different set of standard and optional equipment. You should visit the showrooms twice: once to shop, and once to buy. For now, you're just shopping. Ask the receptionist at each dealership for the name of the top salesperson, and work only with that person each time you visit. The best salespeople make extra money on the dealer's bonus plans, which reward the largest number of cars sold, irrespective of profit. The prospect of this bonus money will encourage the salesperson to be a little more generous on your deal.
Take lots of test drives, ask lots of questions, eyeball some window stickers (but don't take them seriously) and collect lots of glossy brochures. The more time each dealership invests in you, the more flexible it will tend to be later during the negotiating end-game. Don't answer any questions about when or why you need a car, how much you're willing to pay (monthly or in total), other models you're looking at, other dealers you're visiting, whether you'll be trading in, or if you'll be needing financing. Don't leave any deposits for any reason, and don't even think about buying at this stage. When you've collected enough information, make a leisurely choice.
When you've selected your car, your next task is to find ou
