I once worked as a car salesman. I learned a few key things:
- You don’t need a full set of teeth to be a winning car salesperson.
- The nicer a salesperson is to a customer, the more that customer overpays.
As you can imagine, I also learned the car sale’s playbook during my time in the industry. And of course, I’m willing to share exactly what I learned.
- This tip will save you: $5,000+, buying the wrong car.
Even if you deflect the sleaziest sales schemes dealers dish out, you can’t get a good deal without some homework. Don’t step into a showroom without reliability, safety, and pricing information. Know exactly which makes, models, years, and trims you want to buy – and whatever you do…
Don’t ask the dealer for recommendations
A common (and costly) mistake many car buyers make is they let car salespeople make recommendations.
Objectively speaking, this is a terrible idea simply because your priorities and their priorities are completely different.
- YOU want a great deal on a great 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.
For example, let’s say you walk into a Subaru dealership. You know you want a Subaru, you’re just not sure which one. So you explain to the salesperson that you’re looking for something comfortable, with good ride quality and room for kids and a dog.
They recommend a Subaru Ascent, the company’s new three-row SUV. They talk up the smooth transmission, compliant ride, and show you how the third row folds down. It checks the boxes, so you start signing the paperwork.
If you’d done your own independent research, you’d know that the 2021 Subaru Ascent ranks #2 on Consumer Reports’ ignominious list of the 10 Least Reliable Cars.
So why didn’t the salesperson warn you?
Simple. Their priorities and your priorities are different. The dealer is trying to move product, regardless of quality – and customers who don’t know better, who don’t do their own research, are easy targets.
You should always be telling the dealer what you want – never the other way around. And for help determining which cars you want, follow these three tips:
- Review 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).
- Ask real owners about their long-term ownership experiences on sites like Reddit and make/model-specific forums (e.g. miata.net).
- 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.
Should you buy new or used?
This is an age-old question with a very complex answer.
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 are a few of my reasonings:
- Used cars are cheaper. Pretty self-explanatory.
- New cars depreciate quickly. Brand new cars can lose up to 40% of their value after year one – money you’ll never see again.
- Used cars are just as good. A well-made used car will last over 200,000 miles with regular checkups and oil changes – meaning a 2019 Camry with 18,000 miles on it is less than one-tenth through its lifespan.
I will say this – don’t let a dealership sell you last year’s model for this year’s price. In December, all current year models will instantly lose $4,000+ in value by simply being last year’s model. Yet dealers won’t reduce the price until mid-March.
Know the value of your trade-in beforehand
Another very common mistake is letting the dealer undervalue your trade-in. This one really sneaks up on customers because, by the time they’ve negotiated a great rate on a new car, they’re so eager to get rid of their old car that they take the first price offered.
“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.”
At this point, you might be feeling relieved that you got anything for your crappy 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).
Do this: take a few seconds to determine the True Market Value of your car. This is a free tool offered by Edmunds that can help you avoid lowball offers.
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.
Oh, and don’t mention your trade-in until the last minute
If you plan to trade in your existing vehicle, don’t let the dealership know it until you have already agreed on the price of the new car. Tell them you definitely don’t have a trade-in and then act like you changed your mind.
This is the car-buying equivalent to 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?
The reason is simple: knowledge is power, and dealers will use the knowledge of your trade-in against you. Specifically, they’ll use it to manipulate you into paying more.
If they know you have a trade-in, they’ll do one of two things:
- As illustrated above, they’ll sneak in your trade-in value at the very last minute, when you’re eager to leave and less likely to negotiate.
- They’ll actually offer, say, $1,000 more than you were expecting, tricking you into thinking you got a great deal overall – when in reality, they overpriced your new car by $2,000.
In short, if you hide your trade-in until the last minute, you give the dealership one less tool to use against you.
Call (or email) first
- This tip will save you: $3,000+ by avoiding manipulation tactics.
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, by the time you talk price, you want the car so badly you’ll okay the first number thrown at you.
But if you ask for the dealer’s best price over the phone, you ax their edge. Lucky enough to snag a telephone quote? It will almost always beat a quote from the showroom.
But be warned: good dealers will smooth-talk you into making an “appointment” at the dealership without giving a price. 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
- This tip will save you: $1,500+ by not letting the dealer hide higher costs in your monthly payments.
“Payment” is a car salesperson’s favorite word – and not just when it refers to his commission check. Dealerships love to quote cars in terms of the monthly payment, leaving the purchase price out of the equation until the papers are signed.
In the negotiation process, dealers try to lower the monthly payment by extending the loan term rather than cutting the purchase price.
There’s a simple solution: tell the dealer you’re only interested in the out-the-door price. Out-the-door (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 in the section below.
How much will a dealer come down on price?
- This tip will save you: Up to 20% off sticker ($10k on a $50k car).
Without further ado, let’s dive into what you really came here for, and start shaving thousands of dollars off your out-the-door price.
To become an effective negotiator, you first need to familiarize yourself with the three different prices for a car. Yep – TVs have one price, cars have three. It’ll make sense in a minute.
- 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.
Here’s where things might deviate from other guides you’ve read. Tradition dictates that you should
- Determine the invoice price of the car you want.
- Negotiate as close to that number as possible.
Here’s a common conversation I’ve heard countless times:
“How much for the Mazda3?”
“Not including tag and title you’re looking at a sticker of around $20,995.”
“I read online that your invoice price for a Mazda3 is around $20,000. Is that correct?”
“We don’t usually share our invoice prices with customers, but just between you and me, that sounds about right.”
“So would you take $20,200 for the car?”
“For that price, we’d barely make anything on the sale. But let me talk to my manager…”
“He says yes, but you have to come in and buy it today.”
Don’t get me wrong, $800 off MSRP is a good start. But this person absolutely could’ve gotten a much lower price.
What the buyer didn’t know in this case is that the dealership gets:
- A $2,500 rebate from Mazda on every Mazda3 they sell by a certain date.
- Another $2,500 rebate from their parent dealership network.
- A $500 bonus for nearing their quota.
- Finally, they’ll add a bulls*** $500 dealer fee onto the customer’s invoice.
All things considered, while the Mazda dealership technically paid an invoice price of $20,000, with rebates and incentives they actually paid around $14,000. An $800 discount, then, just barely scrapes the surface, cutting just $800 out of their $7,000 profit from a sale at MSRP.
The dealer was happy to make a $6,200 profit – and believe you me, they’ll get their $800 back by undervaluing the trade-in, tacking on dealer fees, or selling an extended warranty (more on those in a bit, too).
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.”
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.
Create a bidding war between dealers
One of our writers at Money Under 30, Chris Butsch, is a total car nut who also brokers car deals on the side. He’s used this tactic to save his clients between $4,000 and $13,000 on every sale.
His strategy for getting the best possible deal on a car reads like something out of Sun Tzu’s The Art of War. Instead of going to battle with your enemy, get your enemies to exhaust each other in battle first.
Here’s how it works.
Once you’ve researched and determined exactly which make/model/year/trim you want, head to sites like Cars.com, Edmunds, 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:
- Ask dealer 1 what their OTD price is for their car.
- Tell dealer 2 what dealer 1 offered, and ask if they can beat it.
- 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 all their tools, fees, and manipulation tactics.
- Saves you thousands and thousands of dollars.
Best of all, there’s no real negotiation involved at all. You simply ask for the best possible price, over and over. It may take 14 phone calls, but the thousands you’ll save will be worth it.
Skip the extended warranty and the dealer-installed extras
- This tip will save you: $1,200 on a pointless warranty, $1,000 on tempting extras.
Here’s the thing about extended warranties
Dealers always recommend you purchase an extended warranty, while money experts and Consumer Reports tell you to avoid them.
Does that tell you something?
Extended warranties are overpriced bunk. Consumer Reports found that the majority of buyers never use them, 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).
The best “warranty” is buying a reliable car with a good factory warranty and taking 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. German and American cars are a mixed bag – if you’re considering one, do tons of research and know the True Cost to Own.
Dealer-installed extras are a hysterical ripoff
Another way dealers scam the unsuspecting is through “recommended extras” – things like tow hitches and window tinting.
But like jewelry on a cruise ship, dealership extras are hilariously overpriced. They’re really just a last-ditch effort for the dealer to swell up their profit margins.
To illustrate, here are some of the most common dealer-installed extras, what they charge, and what you’d pay for the exact same service down the street:
Extra Dealer charge The other guys
Window tinting $495 $150 at a tinting shop
Ceramic coating $2,000+ $500 at a body shop
Nitrogen-filled tires $100 Free at Costco
Tow hitch install $695 $147 on eBay (same hitch)
- This tip will save you: Potentially $5,000+ when the dealer breaks first.
Negotiations are tests of willpower. Who will cave first? Dealerships make you wait to get you dreaming about your new wheels. Why not bite back? Car salespeople’s commissions are based on volume. They want to sell lots of cars fast. And unless you’re shopping for a rare model, there will be plenty of cars left tomorrow.
With every day that goes by, the dealer will grow anxious wondering whether you changed your mind or found a better deal. Use time in your favor to get dealers to provide even more price concessions.
Don’t finance through the dealer – go rate shopping
- This tip will save you: $1,000+ over the course of the loan term.
You wouldn’t negotiate with a car salesperson without the car’s average price; you shouldn’t negotiate an auto loan without information, either. If you can, get your credit report before buying a car (you can learn how to in our article: How To Get A (Really) Free Credit Report & Credit Score).
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.
Landing the best possible rate on your next car definitely takes a little bit of work. But the thousands you could save because it is 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.