Haggling: Negotiate Up From The Invoice Price

Negotiate up from the invoice price, not down from sticker price.  MSRP is an ambiguous figure that you can ignore, unless you're looking for a vehicle in short supply.  Demand for a newly-introduced auto (usually a sports car) may easily outstrip supply, and dealers are under no obligation to sell any vehicle for less than MSRP, especially one that's hard to find.  They'll only do it if they can't otherwise sell the car.  And that's the case with you, the smart car shopper.

You already know the invoice price from your research.  You're aware of the 2% to 3% holdback the dealer will receive from the manufacturer when the vehicle is sold.  High-volume dealerships qualify for additional manufacturer discounts, making them more willing to sell vehicles near invoice.  You'll need to allow the dealer to add some gasoline and advertising costs (usually $200-$400) to their invoices totals, and you're willing that they should make a reasonable profit (roughly $500 on $25,000).  Get favorite dealer distraction topics out of the way by mentioning that you might get your financing from the dealer but you're also looking around; and that you might trade in your car but haven't decided yet.  Repeat that your interest is in their asking price, based on dealer invoice.

If you negotiate up from dealer invoice, as suggested, the actual price negotiations shouldn't take long.  Don't offer higher bids unless the dealer reciprocates with lower prices, and keep your price increases under $100 a crack.  Know your target price, and be prepared to walk if you meet a negotiating wall.  Take your salesperson's card and leave your card; repeat that you want to buy in the next few days; and go to your next appointment.

Used Vehicles: A Higher Price Is Not Necessarily Better (Or Worse) - Negotiating for a used car is similar to new vehicle negotiations except that there's no dealer invoice.  Although dealers itemize every single expense resulting from refurbishing a used vehicle, they don't show you that worksheet.  Franchised dealers make their biggest profits from used vehicles.  On the plus side, they usually have the cleanest, lowest mileage used cars, and often offer factory certified used vehicles (a manufacturer's certification is usually as good as most third party extended warranties).  Smaller, non-franchised, specialist dealers don't make nearly as much profit, but their expenses and overhead are significantly less.  Their warranties are not generally as good, and they may not have repair facilities. 

Successful Negotiating depends on your knowing the fair market value of the vehicle you're interested in.  Come equipped with your mechanic's report.  You are at a slight disadvantage here because the dealer knows your mechanic has approved the purchase; but you know of other cars if this deal doesn't work out.  So haggle.  Knowing what fair market value is, you could offer 85%, and stop at 90%; or you could start with subtracting 100% of the repair cost from the asking price, and haggle up to 50% of the difference (the price difference between the asking price minus repair estimate and the fair market value minus the repair estimate). 

Show the dealer your mechanic's estimate.  If you're buying a car with an asking price of $8,000 dollars (with a fair market value of $7400) and your repair estimate is for $1200, I suggest offering the dealer $6,200 to start with.  Don't offer more money unless the dealer comes down an according amount.  Keep your increments to no more than $100 a shot.  If you don't have an agreement when you reach your limit, walk, politely, leaving your phone number, and go see the next candidate.  

Dealing With Business Managers, Finance Officers, Your Trade-In, & Private Sales are on the next page >