How to negotiate car price: An ex-car salesman shares insider tips

I once worked as a car salesman. I learned a few key things when I worked in that trade, including:

1. You don’t need a full set of teeth to be a winning car salesperson.
2. The nicer a salesperson is to a customer, the more that customer overpays.

As you can imagine, I also employed the complete car salesperson’s playbook during my time in the industry. And I’m happy to now give you the CliffsNotes of that playbook so you can successfully negotiate with even the slickest dealers.

Be prepared

Source: Tenor.com

Don’t step into a showroom without knowing your preferred car’s reliability, safety, and pricing information. Determine exactly which makes, models, years, and trims you want to buy in advance. And whatever you do:

Don’t ask the dealer for recommendations

Remember: Your priorities and the dealer’s priorities are completely different.

• You want a great deal on a car that fits your budget and your lifestyle.
• They want to make you overpay for a car you don’t need so they can get it off the lot.

You should always be telling the dealer what you want — never the other way around. And for help choosing which car to buy, follow these three tips:

1. Check both professional and user reviews on sites like Edmunds, Kelley Blue Book, and Consumer Reports (Consumer Reports is a paid subscription, but worth it for car shoppers).
   
2. Ask real owners about their long-term ownership experiences on sites like Reddit and make/model-specific forums (e.g., miata.net).
   
3. Once you’ve narrowed your list to three to five cars, test drive your top picks at a local Carmax. Carmax is a low-pressure environment where you can test up to five cars from different manufacturers in a single afternoon.

Decide on new or used

My personal recommendation is that you buy a gently pre-owned car from a manufacturer known for reliability, like Hyundai, Toyota, Lexus, or Mazda. Here’s why:

1. Used cars are cheaper. Pretty self-explanatory.
2. New cars depreciate quickly. Brand new cars can lose up to 40% of their value after year one.
3. Used cars are just as good. A well-made used car will last over 200,000 miles with regular checkups and oil changes.

But that’s just one opinion. To help you decide, check out our articles: When to buy a new car (or a new used car) and The case for buying a new car.

Know the value of your trade-in

A typical dealer dialogue might go something like this:

“All right, here’s the final out-the-door price on the 2021 Malibu. Just so you know, we’re barely breaking even on this sale — you’re getting a great deal.”

“Great! I’m excited. Oh, and does this include the value of my trade-in?”

“Yes, we took off another $1,700 for your trade-in.”

“Great!”

At this point, you might be feeling relieved that you got anything for your old beater, with its stained seats, mystery leak, and rear window that won’t roll up.

But in reality, your trade-in was worth at least $4,000 to a dealer, or $5,000 in a private sale. You may have negotiated $2,000 off the price of the Malibu, but the dealer just shaved $2,300 off the value of your trade-in to get their money back (and then some).

Before doing a trade-in, always take a few seconds to determine the True Market Value of your car. If a dealer attempts to skimp on your trade-in, don’t be afraid to take your old car somewhere else. It might be a hassle having two cars for a bit, but the thousands more you could earn will make up for it.

Read more: The 5 best ways to sell your car

Don’t mention your trade-in until the last minute

This is the car-buying equivalent of requesting double chicken at Chipotle only after you’ve gotten your first scoop. This prevents the knowledge of a second scoop from influencing the size of the first scoop.

Burrito psychology aside, why should you hide your trade-in from the dealer?

If a dealer knows you have a trade-in, they’ll do one of two things:

1. Mention your trade-in value at the very last minute, when you’re eager to leave and less likely to negotiate.
   
2. Offer more than you were expecting for the trade-in, tricking you into thinking you got a great deal overall when in reality, they overpriced your new car by $2,000.

Call (or email) first

Automakers and dealers do everything in their power to make car buying an emotional experience. They have you sit in plush new leather, soak up new car smell, and punch the gas and hug the turns on the test drive. The salesperson hopes that, by the time you start talking price, you’ll want the car so badly you’ll agree to the first number thrown at you.

If you ask for the dealer’s best price over the phone, you axe their edge. But be warned: Good dealers will smooth-talk you into making an “appointment” at the dealership without giving a price. Just tell them politely, but firmly, that if they can’t provide an out-the-door price over the phone, you’ll be taking your business elsewhere.

Talk price, not payment

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To become an effective negotiator, you first need to familiarize yourself with the different prices for a car, including: 

• MSRP aka “sticker price”. The MSRP, or manufacturer’s suggested retail price, is what the automaker thinks the dealership should sell the car for. Keep in mind, however, that the dealerships and carmakers are totally separate entities — Mazda salespeople are not Mazda employees — so they’re not required by Mazda to sell at the MSRP.
• Invoice price. The invoice is what the dealer pays the manufacturer for the car. If Mazda sets the invoice price of a Mazda3 at $20,000 and the MSRP at $21,000, their intent is for the dealer to make roughly $1,000 on every sale, not accounting for upkeep costs, marketing, etc.
• Market price. The market price is what consumers are paying, on average, for the car. Most of the time, car buyers are paying somewhere between the invoice price and the MSRP.

So why did I bring up the three prices if they’re seemingly arbitrary? Because I don’t want the dealers to use them against you. Here are some common phrases you might hear:

• “The price is above MSRP because we’ve had to adjust for market value.”
• “We’ll barely make any money on this sale, I can’t go lower.”
• “Between you and me, our invoice was $27,655 on this one, so I really can’t go lower.”

Bologna!

These are all “false summits” in your negotiation journey — the dealer trying to trick you into thinking you just got the best price, and you shall not pass.

Ask for the OTD

In the negotiation process, dealers try to lower the monthly payment by extending the loan term rather than cutting the actual purchase price.

There’s a simple solution: Tell the dealer you’re only interested in the OTD (out-the-door) price. OTD is dealer-speak for the final, all-in price of the car including all taxes and fees. Literally speaking, it’s the exact dollars and cents you’d have to write on a check to own the car.

Even if you intend to finance the car, you still want the OTD price first, not the monthly payment. Another big reason for this is that you don’t want to finance at the dealer. More on that later.

Create a bidding war between dealers

Once you’ve researched and determined exactly which make/model/year/trim you want, head to sites like Cars.com, CarGurus, and AutoTrader to find nearby dealers that have them in stock. Make note of each car’s stock number at the dealer, too. This will not only save time but will let them know you’re smart and not a sucker.

Then, follow these steps:

1. Ask dealer 1 what their OTD price is for their car.
2. Tell dealer 2 what dealer 1 offered, and ask if they can beat it.
3. Tell dealer 3 what your best offer is, and ask if they can beat it.

And so on, and so forth.

This method works so well because it:

• Allows you to pre-negotiate the best possible price over the phone, so all you have to do is walk in and pay
• Strips dealers of their manipulation tactics
• Saves you thousands of dollars

Skip the extended warranty and dealer-installed extras

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Consumer Reports found that the majority of buyers never use their extended warranties. And those who do still end up losing money, since the average price of the warranty ($1,214) exceeded the average cost of the repairs they covered ($837).

Instead of buying an extended warranty, just buy a reliable car with a good factory warranty and take care of it. I generally advise my friends to buy from Hyundai, Toyota, Lexus, and Mazda, and to avoid cars from Italy and the UK at all costs. If you’re considering a German or American car, do tons of research and know the car’s True Cost to Own.

Read more: Four questions to ask before you buy an extended auto warranty

Another way dealers scam the unsuspecting is through “recommended extras,” like tow hitches and window tinting. But like jewelry on a cruise ship, dealership extras are hilariously overpriced.

To illustrate, here are approximate prices of the most common dealer-installed extras, and what you’d pay for the exact same service down the street:

Don’t finance through the dealer

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You wouldn’t negotiate with a car salesperson without knowing the car’s average price, and you shouldn’t blindly negotiate an auto loan either.

If you can, get your credit report before buying a car (you can learn how to in our article: How to get a free credit report & credit score). Then apply for an auto loan online, or from your local bank or credit union, and take the approval with you to the dealership. You may get an even better rate from the dealer this way.

Read more: Where to find the best auto loan rates

Summary

Landing the best possible rate on your next car definitely takes a little bit of work. But the thousands you could save make it well worth the time and effort.

It’s all about knowing how much the car you’re buying (and trading in) is really worth. Luckily, there are a number of tools that can do that math for you. Take it from someone who has been there: It’s entirely possible to beat car dealers at their own game.

Read more:

• Get the best deal on a new car with one simple email
• The 5 biggest mistakes people make when buying a car