Negotiating for a Used Car
Negotiating.
The very word makes most people cringe. Add the words used cars, and some people run in terror. But negotiating doesn't have to be a grueling experience. With the right preparation and a few simple rules, negotiating can be fun and exciting. And if you make a good deal, it gives you a great sense of satisfaction.
There are different negotiating styles for different personalities. And if you use Edmunds.com True Market Value pricing, you can avoid much of the haggling. We'll address this point in more detail later.
Here are three simple rules that should carry you safely through the negotiating process:
Know the numbers before you begin negotiating
Always be ready to walk away from a deal you don't like
Make a low offer and sweeten the deal by small increments
Let's look at each step in more detail.
Rule 1: Know the Numbers
By now, you should know the approximate value of the used car you're considering. Just knowing this value will make you a better negotiator. After all, if you know the car is worth only $12,000 and the dealer is insisting it's worth $14,000, it will be difficult for him to convince you to buy it.
Rest assured that the dealer will give you all kinds of reasons to justify his price. The dealership's overhead is expensive, they had to clean or repair the car, your Internet figures are "way off," and the like. But if you have looked up the TMV of the car on Edmunds.com (and included all options and allowed for the mileage) you should be very close to the right price.
Before you leave for the car lot, you should print out Edmunds.com True Market Value page for the used car you want to buy. If you have been shopping for some time, you will have also gained first-hand knowledge of car prices in your area. Then when you spot the right car, at a good price, you can make a competitive offer.
Rule 2: Always Be Ready to Walk
If a dealer knows you are in love with the car you just test-drove, you will be in a weak position to negotiate. But if he thinks you might walk away without buying, he will treat you carefully. Open negotiations by saying, "I'm ready to buy today if we can reach an agreement on the price." With this phrase, you are striking just the right balance. Why? You are letting the dealer know that you're serious about buying a car, not just "kicking tires." A dealer is more apt to give you his best price if he feels he might have a solid sale right then and there, as opposed to throwing a higher price out to someone whom he feels is just wasting the dealership's time.
There are people who say that the best way to get a good deal on a used car is to walk out three times. We don't believe the process has to be that drawn out. And it doesn't have to be confrontational either. But you do need to let the dealer know that you will walk out if you don't get the price you want.
Jumping ahead a little, here's a simple tip. After you've made your offer to the salesperson, and he's taking your offer to his manager, get up and leave the sales room. It shows that you don't feel under obligation to remain under their control. Go look at the cars in the show room. Or go to the restroom. Or tell them you need to get something out of your car. It's a little show of force that will help you make a good deal.
Rule 3: Make a Low Offer and Sweeten the Deal Slowly
The best way to explain this rule is to use some real numbers. Let's return to the car-buying exploits of Edmunds.com editors John DiPietro and Phil Reed.
John and Phil had located a 2000 Mazda 626 LX for $12,595. When Phil's financing was delayed, they continued shopping and spotted a newspaper ad for a 2000
Phil called the number listed in the ad and learned the Mitsubishi was at an Acura dealership in Southern California. Although the price was listed as $12,500 he asked the dealer what it was selling for. "We have it listed for $12,995," the dealer said. When Phil said it was listed in the newspaper at $12,500, the dealer corrected himself. "We haven't got the new listings yet," he explained. "Anyway, it's the end of the month. And the car's been on the lot a long time. So come on down and take advantage of me."
Using "CarFax"
A valuable resource when used car shopping is the service known as CarFax. If you enter a car's Vehicle Identification Number (VIN number) you can obtain a report of the car's history. Most significantly, you will find if it has a "salvage title." This means an insurance company, probably because of an accident, considered it a total loss. But you may also learn if there were any recalls and how many owners the car has had.
The CarFax service costs $14.95 for a single car. But you can get an unlimited number of reports during a two-month period for $19.95. Our recommendation is that you initiate this service at the beginning of your car buying process and check every car before you seriously consider buying it.
Phil and John drove to the Acura dealership and test-drove the Mitsubishi. Together, they inspected the car as carefully as possible without taking it to a mechanic. (In part two, we explained that if a car is still under factory warranty, has been well-maintained and has a solid reliability record, it isn't essential to take it to a mechanic before buying it. However, if you have doubts about the car's mechanical condition or don't feel confident evaluating this yourself, have it inspected by a mechanic.)
Making an Opening Offer
When the salesman was out of earshot, Phil and John decided they would try to get the car for $11,800 and open by offering $11,500. When the salesman returned Phil told him he was ready to make an offer on the car. He explained that they had already made a deal on a Mazda 626 LX at another lot. The deal on the Mazda was for $12,595, and he really liked that car. But he said he also liked the Mitsubishi and would buy it if the price were an improvement over the Mazda. Therefore, he said, he was willing to pay $11,500.
The salesman received the offer with a puzzled frown. He asked if the offer was "out the door." Or was it before tax and license? "Before tax and license fees," Phil said. The salesman invited them inside, and they went into a sales room. The salesman pulled out a "four square" worksheet (used by car salesmen to negotiate) and asked a series of questions. Phil had already stated that he was a cash buyer, with no trade-in, so this step was simple.
The salesman began searching for a way to make the deal more attractive to the sales manager. Did Phil want to buy Lo Jack or an extended service warranty? He declined both of these offers.
Finally, John said, "We know this is below your asking price. But take it in to your boss and see what happens."
The salesman left. While he was gone John, a rabid car enthusiast, busily inspected the new models on the showroom floor. Phil went to his car to get his cellular phone.
The salesman returned moments later with the four square worksheet. Phil's offer of $11,500 was circled with a large question mark beside it. Apparently, this was the manager's way of saying that it was just too low to consider. The salesman once again began explaining that their initial asking price was $12,995. So for them to consider such a low offer was out of the question.
Phil countered by reminding the salesman that they were there because of the advertised price of $12,500. Furthermore, he said, the Mazda really was a great car at $12,595 and he was tempted to return and buy it. However, Phil admitted that the $11,500 offer on the Mitsubishi might have been low so he increased his offer to $11,800. The salesman left to take this new offer to his sales manager.
Don't Be Distracted When Negotiating
Moments later the salesman returned with the news that they would consider selling the car for $12,295 if Phil bought a Lo Jack contract or an extended service warranty. Phil said he wasn't interested in either of these extras and his offer was still $11,800. The salesman said without the extras, they wouldn't be making enough money on the deal to make it worthwhile to sell the Mitsubishi at that price.
So far, Phil and John had been in the salesroom for about 45 minutes. Phil began feeling that they weren't making enough progress on this deal. He said, "I think $11,800 is a realistic price for this car, but apparently I'm wrong. I want to apologize for wasting your time. I guess I'll have to go back and buy that Mazda."
The salesman said he felt they were actually very close to making a deal. They just needed to make the transaction more profitable for the dealership. He once again talked about the service warranty and the Lo Jack. Again, Phil said he didn't want either but he would make a final offer of $12,000. John, tiring of these tactics, nudged the salesman to take the offer to his boss by saying, "Try it out and see what he says."
Be Ready for the Closer
In some dealerships, a closer is brought in when the salesperson can't make a deal. Usually, the closer tries for a few hundred dollars extra in the deal. Or, he tries to get the customer to agree to the last offer by the dealership.
While the name "closer" sounds frightening, closers are often personable, skilled sales people. While some may apply pressure, most will attempt to make a deal by reasoning with a customer or cajoling them. In this case, the closer brought in a Kelley Blue Book print out showing how much the car was worth. He also explained that they wouldn't make much money if they sold the car for $12,000.
Phil was ready to come up another $200 but, unexpectedly, the closer agreed to the offer. Using a blue marker, he wrote on the four square, "My children will go shoeless and hungry, but you can have the car for $12,000." He added, "Sometimes I even draw in little tear drops."
Closing the Deal
At this point the salesperson will probably extend his or her hand and say, "Congratulations! We have a deal!" Shake hands and agree to the deal. But keep in mind that nothing is binding until you sign the contract.
Several things need to happen before the deal is finished. First, depending on your state laws, you may need to show proof of insurance. This can often be arranged in advance or on the spot, by calling your insurance agent (bring the number with you to the dealership). Then, you need to review and sign the contract and several related documents. Finally, you may have to deal with last-minute attempts to sell you extra services.
Some people like the peace of mind that an extended warranty provides. However, many used cars still have the factory warranty in effect. In the case of Phil's Mitsubishi, there was still a year and a half on the bumper-to-bumper warranty. Furthermore, a drivetrain warranty is in effect for an additional period. He felt there was no reason to buy an expensive extended warranty.
While Phil and John were waiting for the contracts to be prepared, the general manager of the dealership appeared. "So this is the John and Phil team," she said, laughing. "I just wanted to thank you for helping me lose money on this deal." This comment, and others, showed that the sales staff had negotiated in good humor and with a sense of fair play.
Finally, the paperwork was ready. Phil signed an agreement to furnish an insurance policy and a "Due Bill." The Due Bill would state what repairs, if any, the dealership had agreed to perform to the car during the negotiation process. In Phil's cases, no promises for further repairs were made.
Then Phil signed the actual sales contract. Here is a breakdown of the fees:
Sale price of the car $12,000.00
Documentation Fee $ 45.00
Smog Fee Paid to Seller $ 41.75
Smog Fee
Sales Tax $ 966.94
License Fees $ 216.00
Total $13,277.94
Comparing the Real Market to Edmunds and Kelley Blue Book
How does the purchase price of $12,000 compare to the Edmunds.com TMV price? Edmunds' says the car could be sold by a dealer for a TMV price of $13,100 (clean condition) to $13,706 (outstanding condition). Why the disparity? First, we shopped around for two weeks and jumped on this car as soon as the ad ran. Second, the dealership was located near an affluent area -- not the kind of place a Mitsubishi Galant would be in high demand. And finally, it was late in January when many consumers are dealing with the aftershock of Christmas buying.
However, the Edmunds TMV was much closer to the mark than the Kelley Blue Book. The Blue Book dealer price was listed on their Web site as $16,005. If they tried to sell cars at those prices, Phil felt the salesman's children really would starve.
Use TMV to Avoid Negotiating
Many car buyers might not want to negotiate as actively as the Edmunds editors. In those cases, the process could be simplified by offering a dealer several hundred dollars below Edmunds TMV price. If the dealer refuses the offer, raise your price to the TMV and show the salesperson a printout of the TMV figure. Dealers have indicated that TMV is a fair price for both parties.
Truthfully, Phil would have paid the dealer's starting price of $12,500 for the Mitsubishi Galant, knowing that Edmunds' TMV price was $13,100. But with two hours' worth of negotiating, he saved $500 -- well worth the time invested.
Reviewing the Process
In retrospect, John and Phil were helped by several factors. In addition to the advice already offered, they felt it is important to give car shoppers the following tips:
Take a friend when you go car shopping. This not only gives you moral support in negotiating, but your friend might stop you from doing something stupid -- like paying too much or getting switched to a vehicle that isn't right for you.
Choose a good dealership. John and Phil wound up at the Acura dealership because when they called ahead and chatted with the sales manager, they felt comfortable with him. When it came time to negotiate, they felt they would be treated fairly, with no high-pressure tactics.
Have a back-up vehicle. Phil knew he could walk away from the Mitsubishi at any time and still have a good deal with the Mazda. Referring to this other car, at another dealership, helped him take a strong stance in negotiating. It also kept him from becoming emotionally dependent on making a deal on the Mitsubishi.
Buying Used Saves Money -- Big Time
Phil's Mitsubishi Galant was originally purchased in early 2000 for over $17,000. About 14 months later, Phil bought the car for $12,000 with 19,983 miles on it. The wear and tear to the car was almost imperceptible. True, there was no new car smell, but it looked and drove like a new car. And Phil was able to save roughly $5,000 -- that's nearly a 30 percent savings off the new car price.
For a small sacrifice in terms of "new car magic," a smart used car purchase will save you a lot of money. And, possibly, it will let you step up to a higher class of car than you could buy new. The next time you get the urge for a new car, consider buying used instead
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