How to Negotiate the Best Deal on a New or Used Car

There are many ways to negotiate a car deal, but most of these come down to the buyer and seller’s goals. If you’re looking for a budget-friendly ride with good gas mileage, then you’ll want something used that has less than 100k miles on it. And if your goal is getting an affordable vehicle worth more money in trade-in value at the end of your lease or loan term, then buying new will work best.

The “how much will a dealership come down on price on a used car 2021” is a question that many people are asking. There are many factors to consider when negotiating the best deal on a new or used car.

A vehicle, like a home and a college degree, is often one of the most costly items you will ever buy. Unlike college tuition (which cannot be negotiated) or a home (which is usually negotiated via a real estate agent), haggling over the price of an automobile necessitates immediate, face-to-face engagement.

The experience may be stressful and anxiety-inducing; most of us don’t exercise our negotiation abilities on a daily basis, especially when dealing with auto salespeople, who are frequently quite skilled at what they do. Customers often have only the vaguest understanding of how auto dealerships generate money, which adds to the anxiety brought on by a lack of expertise. They are at a strategic disadvantage as a result of this.

Knowing how auto dealerships make money, how this knowledge can help you empower yourself in the transaction, and the essential methods for getting the greatest price on a new or used vehicle are all topics we’ll cover today.

How Do Automobile Dealerships Make Money?

A consumer wants to spend as little as possible for their new vehicle, while a car salesperson wants to earn as much money as possible on the transaction. To guarantee that you’re dealing with the dealership on an equal footing, you need to understand how they generate money. With this information, you’ll be able to see where there’s more wiggle space in the negotiation and where there isn’t; where the transaction is flexible and where the salesperson will apply greater pressure. So, let’s have a look at it.

A car dealership generates the majority of its revenue from four sources:

Purchase of new automobiles. You would believe that the majority of a dealership’s revenue comes from these gleaming showroom centerpieces, but you’d be mistaken. Dealers often sell new automobiles for close to the invoice price, which is the amount paid by the manufacturer. The sole profit they get is from “dealer holdbacks,” which the manufacturer pays the dealer after a vehicle is sold. These holdbacks are generally 2% to 3% of the car’s invoice or sticker price (MSRP — Manufacturer’s Suggested Retail Price), or $500 to $750 on a $25,000 vehicle. Other bonuses or incentives may be offered by the manufacturer to the dealer. However, the dealer will only be able to keep this money if they didn’t sell the automobile to the customer for less than the invoice price. As a result, dealerships often lose money on new vehicle sales in the hopes of making up for it in the other revenue-generating sectors outlined below.
Automobiles for sale. Dealerships often earn more money on used automobiles than on new cars since the difference between what they paid for the car as a trade-in (or at an auction) and what they sell it for to the customer is greater. There’s also greater leeway on the retail price since used vehicle values vary by year, condition, location, and other factors, but new automobiles all have the same MSRP. Even if the dealer has to spend in giving a trade-in a tune-up/clean-up, the profit margin may be several thousand dollars (though it can also be considerably smaller), depending on what they purchased for the trade-in and how deep of a discount they’re prepared to give the buyer.
Finance and insurance are two different types of financial services. You generally think of a dealership’s finance department as an afterthought, something to do after the major automobile purchase is closed. Dealerships, on the other hand, generate about 37% of their gross income from F&I goods including financing and warranties. It is a significant source of revenue for them.
Service and parts are available. A dealership’s service department is where it generates the bulk of its money — around 44% of total revenues, to be precise.

To put it another way, auto dealerships generate less than 20% of their revenue from real vehicle sales.

Let’s utilize what you’ve learned about the breakdown to help you negotiate a price on a new or used car.

How to Get the Best New or Used Car Deal

Vehicle salesman will often attempt to package the cost of the car itself with the cost of financing/warranties/add-ons/trade-in/etc., so that the whole cost of the “product” is hidden. However, you should not only break down each expense, but also negotiate all of them.

How to Get the Best Deal on the Car’s Purchase Price

Obviously, this is the most difficult nut to crack; successfully negotiating a lower purchase price for your automobile may save you thousands of dollars.

Make sure you do a lot of homework. You owe it to yourself to conduct a lot of study since it’s such a major investment that will affect your everyday life for many years. This essay isn’t about deciding which automobile to purchase; that’s something you’ll have to figure out for yourself, and it’s something you should do first. Consumer Reports (together with your budget) can assist you decide which manufacturers and models to choose, as well as which automobiles are often excellent value for money.

Use Edmunds and Kelley Blue Book for price information after you’ve decided what you want to purchase. They’ll provide you specific information depending on year, make, and model, as well as condition, mileage, and other factors. Keep in mind your area; the cost of living, like everything else, has an influence on automobile rates. Vehicles are less expensive in the Midwest than on the coasts, particularly secondhand vehicles.

Walk into the dealership knowing how much other people have paid for the vehicle you want, the invoice price, the MSRP, and your “walk away price”: the highest you’re willing to pay.

Keep your cool. Even if you’re going for a test drive in your ideal automobile, don’t get all giddy about it. Because the salesperson knows he has power in the transaction, he will feed the flames of your emotions, causing you to cease thinking sensibly about the purchase. Act unconcerned; point out flaws in the vehicle – “It’s fine, but this isn’t the color or trim package I was hoping for.”

Allow the salesperson to take the initiative. Those figures are hardly ever definitive, even with web searches and sticker prices published on autos. Everyone participating understands that they’re only a beginning point. As a result, a salesperson is likely to inquire, “What sort of budget do you have?” or “How much were you hoping to spend on this vehicle?” Even if a lesser price was on the table, once you toss out a figure, you can’t go any lower.

So, when it comes to bargaining, Rule #1 is to make the other man spit out the first figure. If the dealer asks you to specify a price first, respond with, “Well, what’s the very greatest price we can get for this car?” (Listen to Brett’s conversation with veteran FBI negotiator Chris Voss to brush up on your general bargaining abilities.)

Know how much time off you’re entitled to. When it comes to automobile purchases, the key issue is how much you can negotiate for off the sticker price.

It differs depending on whether you’re purchasing a new or used vehicle:

New. As previously said, a salesperson isn’t lying to you when he claims he can’t go below the MSRP of a new automobile since he won’t earn much money if he does. It is appropriate to request a 5% discount on the invoice price. He’ll almost certainly counter, and you’ll finish up somewhere in the middle between the invoice and sticker prices.
Used. There may be greater wriggle space with secondhand autos. Put something like a 20% discount on it. You’re unlikely to receive that, but it’s a nice starting point for negotiations.

Prepare to go through many offers and counteroffers, and don’t be afraid to “offend” the salesperson with your requests. What does it matter? In a few years, you won’t even remember his name. You’re both there to make a deal, and you’ll both gain if you do.

Check out a few other vendors. Use the approach of noting that you can obtain a better offer down the block if necessary. Just make sure you have evidence to back up your allegation. Play the dealers/lots against each other to discover who is the most interested in your business.

Concentrate on the entire cost rather than the payment amount. The salesperson may present you a worksheet with a monthly payment schedule. The monthly payment may be reduced to meet your budget by extending the loan for 6, 7, or even 8 years, making the automobile seem more reasonable than it is. A long-term loan, on the other hand, will simply accrue more interest over time and wind up costing you a lot of money. So simply concentrate on the car’s real pricing.

If you have a trade-in, wait until the end to discuss it. If you’re trading in a car, you’ll want to do your research to figure out how much you can expect to receive for it. However, you don’t want to bring up the fact that you’ll be trading in your previous car straight away.

What is the reason behind this?

You don’t want the trade-in value to make it seem that the new vehicle is cheaper than it is, which the salesman will almost certainly attempt to do by slipping it in as a line item on a cost sheet. And a salesperson may give you a great bargain on your trade-in, which might distract you from the fact that he’s giving you a bad deal on the new vehicle you want.

Whether the salesperson asks if you’ll be conducting a trade-in right away, say something along the lines of, “Yes, I have a vehicle to trade in, but I’d prefer to nail down the price of the new car first.”

Other rebates and incentives should be considered as extras on top of the “regular” bargain you would have obtained on the automobile anyhow; don’t allow these bonuses become the discount.

Know every number and inquire about the “out-the-door” or “off-the-lot” pricing. If you’re given a quote, be sure it’s precise and includes all costs and extras. Make sure you’re looking at the “out-the-door” or “off-the-lot” pricing, which is how much it will cost to drive the car off the lot and into your garage. It’s usually not the same number as the sticker price.

Consider other negotiation topics. Consider negotiating additional products to help balance some of the expense if the price is fixed — the salesman can’t come down much lower than he already has, and it’s still a little more than you intended. You may now bring up your trade-in and attempt to get a better deal than what they first provided. You can also negotiate special features (leather seats, towing package, etc.) or a maintenance package — have them throw in a year or two of oil changes (though be realistic about how willing you are to drive to the dealership maintenance shop rather than your local Jiffy Lube for this) — or perhaps the pricey 30K, 60K, or 90K servicing.

The majority of the terms of the deal are negotiable – don’t be scared to ask.

Don’t be scared to take a step back. Keep in mind that you are the one in control of this transaction. Even if it may seem that way after an hour or two of haggling, you cannot be compelled to purchase a vehicle. If you and the salesperson can’t come to an agreement, go away; the salesman may decide to match your pricing after all, or he may contact you later if they’re having a special offer. If not, the car or the dealership may not be right for you.

What Are the Advantages of No-Haggle Pricing?

Many dealers and specialty lots now offer “no-haggle pricing,” knowing how unpleasant the negotiation process may be for many customers. In principle, this implies that the sticker price is the amount you pay for the automobile – no haggling with a pushy salesperson required.

Is it, however, really no-haggle? Are costs raised as a result of this convenience?

In general, that advertisement claim is correct. They are adamant about not negotiating the vehicle’s selling price. If they allowed wiggle space, news would get out, and they’d lose their claim to being a no-haggle shop.

Is it, however, worthwhile? That, of course, is dependent on the costs! You know how much you want to spend and what a good bargain is since you’ve done your study. If you can discover a decent price at a no-haggle lot and save the hassle of negotiating, that’s fantastic! If you can’t locate a decent bargain, go to a different lot and see if they can top the no-haggle people’ price.

Also keep in mind that only the sticker price of the automobile is non-negotiable. Loan rates, maintenance plans, trade-in values, and vehicle improvements are all still up for negotiation.

For some people, the convenience of not having to negotiate is worth a little price difference. It certainly won’t be for those who like a little bit of combat and want to save every cent they can. It all boils down to the car’s pricing in the end.

How to Get the Best Financing and Optional Extras

As previously said, most individuals believe that bargaining over the car’s price is the only “genuine” portion of the transaction, and that all the paperwork in the rear is merely the anti-climactic conclusion. You can sort of rest after the automobile price is fixed, right?

Wrong.

As previously stated, financing, warranties, and other add-ons account for a large amount of vehicle dealership revenues. As a result, the dealer may exert greater pressure on you to enroll in these financial programs than they did on you to purchase the automobile. So be cautious as you leave the gleaming showroom and enter the fluorescent-lit offices of the dealer.

If you need a loan, try obtaining one from a third party. The interest rate the dealer offers you on a loan is negotiable, just like everything else in this process. If you get a bank loan first, you may negotiate that rate as well, using it as leverage with the dealer’s finance person, and eventually choose the one that is better.

Keep in mind that if a dealer knows you won’t be financing via them, they’ll be less accommodating when it comes to negotiating the car’s price. So wait until you’ve shook hands on that element of the contract before revealing this information.

Purchase NO ADD-ONS. You’ll be sold on signing up for the dealership’s financing plan, as well as a million different “crucial” add-ons like warranties and various protections for your new car — from undercoating to seat protection to free windshield replacement — in addition to being sold on signing up for the dealership’s financing plan (which most insurances cover, sometimes even on an annual basis).

Don’t purchase any of them as a general rule. If you truly want something, you can usually get it for less money somewhere else.

If you don’t purchase these products, the finance person will undoubtedly make it feel like the end of the world. Remember, that’s pretty much all they do, and they’re probably really excellent at it. Don’t fall for their ruse. It’ll be weird, but just keep claiming you don’t care.

Stand your ground, knowledgeable customer, throughout this portion of the purchase, as well as throughout the process!

Listen to our podcast with a veteran FBI hostage negotiator on all things haggling:

The “how to negotiate used car price when paying cash” is a question that many people have. The best way to get the best deal on a new or used car is to negotiate the price.

Frequently Asked Questions

Can you get a better deal on a new or used car?

A: The answer is no. But, when you set up a car loan you can get a better deal than what the dealer offers.

What is a reasonable amount to negotiate on a new car?

A: The price of a new car can vary depending on the manufacturer, model year and condition. You should try to negotiate for about 15% off your desired purchase price, but this may not be possible with every dealer or even some models.