How I buy cars
Many people have negotiating tips and suggestions on how to buy cars. There are many ways to do it. Here is how I do it when buying from a dealer and it has been successful so far.
This method works best when buying a new car or if there are substantially identical used cars available. Let me also take the time to warn that you probably shouldn’t be buying a new car in general, but people do, so here is how I have done it and how I have helped others who were set on buying a new car.
Line up your financing
Before setting foot in a dealership, determine your budget and get pre-approved for a high-quality loan. High-quality meaning low or competitive interest rate for a length of time that is good for you. See my other article about how to do this. Credit unions are usually good here but some major banks also have good programs like Capital One’s “blank check” program.
Now you know what the most you can afford is and your money is lined up.
Talk about price and features only
Whenever the car salesman tries to talk about payments, steer the conversation back to price. You already have your financing lined up. You don’t need to go through them. Discussion of payments is often a diversion tactic to get you to spend more either through a higher car price or higher interest loan. If you say you can afford $500 per month, they are going to price the car or shop a loan for you to pay $500 per month for 72+ months at a high rate or overpriced car. Terrible.
When discussing price, always ask for the “out the door price” which includes taxes and any dealer fees (I know many fees are bs… stay with me). If you were going to write a check to drive off with the car paid completely, what is the price? Your financing is already lined up. As far as they are concerned, you are a cash buyer.
The reverse auction
Here’s the trick. This works in areas that have more than one competing car dealer with the same type of car for sale.
Tell the dealer that you need them to give you their best possible price and that you are going to decide who to buy the car from at the end of the day.
My typical conversation goes like this: “I have decided I want this car with these features. I am going to buy today. I am getting quotes from several dealers today and whoever is lowest will get my business today. I will not share your price with them, nor will I give you their price. Give me your best possible price.”
They will not like this. If they don’t cooperate, start walking away. They will likely change their mind and give you an offer. Also, be nice and let them know if someone else beats their price, you’ll call them back at the end to let them try one last time.
Head to the next dealer and repeat. Now that you have a price, the next dealer is going to ask you for it so they can try to offer just under it. Do not give the other dealer the price. Stick to the original story and ask them to just submit their best offer. If their offer is higher than what you already have, tell them that they are not the lowest price and give them one last chance to revise their offer (or start to walk away to add some drama). Maybe raz them a little for not giving you their best offer the first time – “I thought you already told me your best price. Is this really your best price now?” Note their final offer and move to the next dealer.
At the end of the day, proceed with who gave you the lowest price.
If one of the salesmen took time for test drives and teaching you about the car but their price was only $100 more than the lowest dealer that didn’t have to do any work, consider giving them your business. They are also just earning a living and did more work than the others. The first dealer may also raise this concern. If you are there when they open, they know they are the first. Assure them that you will give them the courtesy of one last chance at the end to beat the other dealers and if they are very close to the other best price, you’ll still buy from them.
Closing the deal
By now you have the best possible price and the dealer is probably not making a fortune off you. They still have ways to extract money from you.
You will be presented with the contract and there will be items on it such as “Document preparation fee” that you will want to have removed. You should expect to see taxes and there may be a delivery fee that can’t be avoided (depending on the company) but these should be accounted for in your “out the door price” you were given earlier and compared to all the other dealers.
You will be taken to a room where you will make your payment to get the car, but now you’ll be dealing with someone other than the friendly sales guy from before. This person’s job is to get you to buy stuff you do not need. Repeat after me: No. Just ignore what they offer, and say “No” always. They will want to sell you an extended warranty, maintenance plan, etc. Always decline. They will talk about how there is so much construction going on and if you run over a nail it will cost hundreds of dollars to replace the tire and maybe the wheel, too. They will say that their extended warranty is the best possible price and that their cars magically break after the original warranty expires (why would you buy that?). I have even had a dealer try to sell me a maintenance plan with lifetime oil changes for my electric car (electric cars don’t use oil).
Always say no. They are trying to sell you high-margin products that you DO NOT NEED. They will act angry, sad, etc. No, no, no.
Pay for the car at the original quoted price with your cash or through your pre-arranged financing and move on with life.