Many of you know that I'm an "aspiring polymath". And I do indeed have substantial knowledge on myriad subjects. Case in point...
BACKGROUND: Over a decade ago, for 4 weeks, I was a car salesman in the legendary 'major leagues' of car sales: Cerritos Auto Square (which is the largest collection of big car dealerships in the world). I had one week of amazingly eye-opening training and then went on to become the second highest seller (by units) and the second lowest (by profit) out of the over two dozen salesmen. I was moving a lot of cars by giving customers really good deals (which massively hurt my personal commission).
The dealership allowed its finance guys to slimely "repack" a few of my deals (e.g. They advertized 1.9% financing and I sold a car for a decent price that enabled a fair commision for me. But then they rearranged the terms with the customer that didn't actually lower the customer's monthly payment but, on paper, did lower the agreed-upon sale price (and thus my commission) while simultaneously and equivalently increasing the loan rate thus increasing their paper-profit on financing alone (in short: they increasied the finance guy's commision at my expense). I hated it all around and so I quit. But I learned a lot about negotiations and, of course, car sales. I have since kept-up a bit reading how that industry has evolved up to now.
So here's some nerdy advice for buying new cars...
First determine which car your want.
Then research to lock the lowest price and then lock the best financing terms.
ASSUMING YOU KNOW WHICH CAR YOU WANT...
(if not check out tips for finding the right car for you: http://www.edmunds.com/car-buying/10-steps-to-finding-the-right-car-for-you.html )
AND ASSUMING YOU HAVE A LOT OF TIME & ENERGY TO HUNT FOR THE BEST DEAL...
1) Find out the dealer invoice price on the exact car you want (it's ideal if that car is "in stock" at a local dealership). Go to Kelley's Blue Book - http://www.kbb.com/ and http://Edmunds.com AND THEN CHECK THE CURRENT INCENTIVES: http://www.edmunds.com/car-incentives/
NOTE: Print everything out and bring them with you to establish your credibility & savvy with the salesman.
2) Try to get lucky by searching for your desired car on the local dealerships' individual websites. Often their "internet deals" (that are designed to attract customers) are better than anything you could negotiate on your own. You might as well also check http://Cars.com , http://CarsDirect.com and their competitors.
3) On one of the last days of the month (when they're trying to hit their goals/bonuses), go to a big local dealership (it can't hurt to check their Better Business Bureau rating on http://www.bbb.org/us/ ). Test drive the car to determine if you indeed want it or not. If they have different options on your test drive car then be sure to use your iPhone/Android Smartphone to check the web for the invoice price on that one with those options. NOTE FOR SoCal RESIDENTS: Cerritos Auto Square is really the biggest collection of large car dealerships in the world. Theoretically you can get the best deal there because of the volume. But be forewarned, they also have the biggest shark salesmen.
4) After the test drive, the salesman will likely invite you to sit down inside to discuss the deal. When he asks "How much do you want to spend on this car?" then you reply with a price that is no more than $500 over "dealer invoice" price (or, more importantly, the effective dealer price considering their current incentives - whichever price is lower) for that exact car (regardless of their higher sticker price or MSRP or even Edmond's "True Market Value"-> remember that dealerships get numerous additional hidden incentives/bonuses from the manufacturer to sell you the car, like for every 29 they order sometimes they can get a 30th car delivered for free).
This "$500 over lowest effective dealer invoice price" reasonable lowball offer might mean a $100 commission for the salesman personally (not to mention get him closer to his own bonus goals) so it is totally fair. You can offer even less (e.g. only $100 over lowest invoice, but then the salesman might make a mere $20 so his pride could get in the way). Consequently, determine whatever your first lowball offer is, make it to the salesman, then close your mouth and wait for his response (don't negotiate against yourself).
5) If he says "You can do better than that." then you can playfully reply with industry jargon "Just make this deal quick so I can give you a perfect score on the CSI and you can get another 'up'. Otherwise I'll go elsewhere."
NOTE: They do care about the "Customer Satisfaction Index" surveys. And an "up" is like an "at bat" in baseball. A car salesman is lucky to get 3 "ups" per day and often actually sells fewer than 10 cars per month.
> Or you can simply and politely say "Ok, if you don't want my business then I have to say good-bye. Thank you for your time." and then ACTUALLY LEAVE the dealership. It is very unlikely that he will let you leave without at least running your offer by the sales manager. If he does let you leave then call ahead to other dealerships to check if they have your desired car in stock and try to buy from them.
6) More likely, one or more dealerships will come back with a counter-offer that is somewhere between their list price and your lowball offer. Unless the car is in crazy demand you should be able to get it for no more than $500 over invoice price (or effective price considering current factory to dealer incentives whichever is lower). Stick to your guns, this is a hard negotiation and as the buyer you have the leverage (especially in this economy).
NOTE: The more flexible you are on color and features the lower the profit you can offer the dealership. But, in any event, only buy the car you are actually happy with since saving an extra $100 or so won't likely bring you continued happiness on a car you don't like.
7) If every dealership lets you leave then remember that one of them will likely call you back later with a better offer. If they don't call you back and you do return then you should be aware that they will think they have real negotiating leverage on you (which will likely hurt your deal).
8) Before you actually test drive any car, get your FICO scores (e.g. from MyFico.com) to see how good your credit rating is. Anything over 700 should easily entitle you to the best possible loan terms. Between 700 and 600 there can be substantial variance. Below 600 gets pretty damn bad. Below 550 means scary onerous interest rates.
9) It's good to check with your bank (and others) beforehand to see what interest rate they would give you to buy a new car. Dealership financing is a big profit center for them. They regularly find banks to finance your loan at a low interest rate and then sell it to you for a higher interest rate and pocket that difference as profit (often more than the profit difference between what they paid the manufacturer and what you ostensibly paid them).
NOTE: Even if you get a great deal on the price you can still get burned on the financing (e.g. Depending on the loan amount, accepting an 8% interest rate when you were entitled to 4% could easily mean unnecessarily giving up thousands of dollars of your money in extra profit to the dealership over a 5-year loan).
10) Be sure to double-check whatever interest rate the dealership offers you with your own "loan calculator". Here's a good one...
NOTE: If their monthly payment offer is higher than what the calculator says it should be then they just tried to trick you by raising the sale price when they finalized the interest rate. SO ALWAYS CHECK THE MATH!
P.S. There are additional special considerations if you're:
a) trading in your old car
b) leasing
c) buying a very high-end brand
d) considering dealer add-ons or extended warranties
So do plenty of research.
My friends should always feel free to hit me up for personal advice (on any topic, really).
NOTE: For even nerdier tips check out these websites...
- http://www.carinfo.com/carbuyingtips.html
- http://www.fightingchance.com/
- http://www.carbuyingtips.com/
- http://www.insidercarsecrets.com/financing.html
GOOD LUCK AND GOOD KARMA TO YOU.
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