How to Get an Awesome Deal on a New Car

For starters, probably don’t buy this one… – Image courtesy of Jean-Marc Buytaert

If you had asked me to write this post ten years ago, I would have refused to do it since advising anyone to buy a new car would have been a huge disservice. Why buy new when that same car will cost a quarter less in a year and about half in four or five? However, since then, prices have skyrocketed (but so have incentives), people have largely caught on to both that trend and how generally undervalued used cars had been, and depreciation has slowed considerably as a result to the point that today, buying a new car makes sense in some, but still not all cases. But under no circumstances does it make sense to go in uninformed and let some car salesman hit a home run off of you. So let’s see what we can do about that. This is only one of many perspectives on the matter but it should at least give you a good start. The dealership model, much like that of credit cards, is set up to screw customers en masse. However, just as with credit cards, the rules of that exact same game can be turned around and exploited by a savvy customer as well. Let’s get you on your way to being one!

Much like in any sport, preparation is a huge part of winning. Don’t ever go to a dealership without having done your homework. How do you know if you’re ready? Before you ever step foot in a dealership, you should know all of the following things: which make and model you want, the differences between different model years if there are multiple new model years available (for example, today you could buy a 2020, a 2019, or a 2018 in certain cases) which options you want and don’t want, which packages you need to buy or avoid in order to accomplish that, what those packages cost, the average pricing (what people are actually paying) of any car you want, what your current car is worth, and what the terms of your financing approval are. Yes, that is a lot. It usually takes me a month or so, chipping away an hour or two at a time.

There are tons of research sites available now. Edmunds.com and KBB.com are two of the best and most venerable but countless competitors have popped up in recent years. Most of the information you need is widely available so the important thing isn’t so much where you choose to get yours as that you get it somewhere and verify it somewhere else. I recommend working through the process on multiple sites until you basically have everything memorized. But don’t be afraid to make yourself a cheat sheet of key figures to take with you. Your mind can do funny things in the heat of the moment. Whatever you do, do not rely on a salesman to educate you about cars, pricing, or especially finance. Why not? First, there is a very low barrier to entry in the job and many of them are awful at it and incapable of doing so. By educating yourself, you will ensure that weakness on the part of a salesman can only get you a better deal and will cost you nothing. Second, information is power, plain and simple. If the salesman knows more than you do about any of the items I listed above, he has an advantage that he can capitalize on from the word go all the way through the signing of a deal – and that’s going to cost you thousands of dollars.

You also need to know about your end of the transaction going in. KBB.com will give you a pretty good idea what your current car is worth, especially if you cross reference craigslist, autotrader, etc to see what cars like yours are actually being listed for. Pay attention to the type of valuation you’re getting. Private party (if you sell the car yourself) is almost certainly going to be higher than trade in. But know the difference between these numbers because it will be important. Keep in mind that in most states, you’re not going to pay sales tax on the trade in portion of the deal. So weigh things out. For example, if your state charges 5% sales tax and your car is worth $5k private party and $3800 as a trade, you would be better off by $1010 if you sold it yourself ($3800 + 190 less tax liability = 3990, 5000 – 3990 = 1010). However, if the dealer ultimately ups his offer to $4800, and you are confident in the $5000 figure, you are now better off trading ($4800 + 240 = 5040, 5000 – 5040 = -40). However, watch out for over allowance here. This is when a dealer offers more than your trade is worth but then juices the hell out of the sale price of the new car to more than make up for it. Remember, “there is no free lunch.” And also keep in mind that selling a car usually involves investing your time into dealing with at least some “interesting” people so you have to decide what that is worth to you as well and factor it in.

Finally, there’s financing. Some hardliners will say you should never finance a vehicle because it’s a depreciating asset. I would say that technically they’re right in most cases, but that the declining pace of depreciation and still nearly historically low interest rates have made things a lot less definitive than they used to be. For example, I took a car loan in 2014 at a rate of 2.9%. Cash wasn’t worth that much at the time but investments were worth a hell of a lot more. So since I was confident I would be able to cashflow the loan for the life of the term, I feel I was making a pretty good choice. I still recommend sticking to a 36 month term or shorter, just like I would never advise anyone to take out a mortgage with a term over 15 years. Why? The term becomes a limiting mechanism against both paying excessive interest and buying more than you can afford. As long as you can cashflow the payments at 36 months or less, you are pretty unlikely to get hurt. Are you dooming yourself with a 60 month term on a car loan? No, but you are stretching yourself thinner than I would prefer if you genuinely need a term that long to afford the payments.

Whatever you do with the financing, do not make it into yet another profit item for the dealership. Get your best approval option directly from a lender prior to ever looking at any cars. Credit unions usually offer the best rates. This part will involve a little more legwork but there are two big payoffs. One, the dealership finance manager isn’t going to mark your quoted rate up by a point (or three). And yes, if you don’t find the financing for yourself, that is exactly what will happen. The exception would be when the dealer or manufacturer gives you a subsidized rate. However, keep in mind that in those cases, you can usually have either the subsidized rate or the incentives on the car but not both and you are usually much better off taking the incentives, which have ballooned more and more along with the pricing in general. So you are always better off knowing what the best available non-subsidized deal is at a minimum. Two, you will spend a lot less time in a room with that same finance manager – and make no mistake, he is the smartest and most ruthless guy on the payroll or they wouldn’t force almost every customer to go through him before leaving with a new car. He is probably going to try to push extended warranties and other bullshit whether you finance through him or not, but if you take the financing out of his hands, you’ve taken away his best weapon. He loves to say things like “we can give you all this additional coverage and it will only cost you x per month” because it puts thousands of dollars in his pocket without some people even realizing what he’s doing. Before you walk into that office, remind yourself that the only way to walk out without losing money is to say no repeatedly until the finance manager accepts that you’re not a rube and gives up.

That brings me to another key point. Any time anyone tries to talk about monthly payments, stop them in their tracks by telling them you’ll be basing any and all decisions on the total sale price only. As a finance guy, I can tell you that from your perspective as a customer, nothing good can come from conversing in the language of monthly payments. If you are a lion in an epic struggle for survival with a crocodile, this would be the part of the program where the crocodile tries to pull you off of the river bank and into the water, where you go from having a fighting chance to virtually none. Don’t let it happen. Fight the enemy on your terms only. Negotiate on total sale price only!

Now let’s get to that most fun part! What? Negotiating isn’t fun for you? I get it. You’re a normal person and you don’t like awkward, high pressure situations. But unless you want to donate at least a few thousand dollars to some “no haggle” (in other words, “take the easy road and just pay us a lot more”) dealership, this is a necessary evil. First off, shop at the right time. There is no one best part of the year although there are several good ones. Late summer is good because business tends to be slow and dealerships are hungry. Different parts of fall and winter are good for a variety of reasons. But by far the most important timing related factor is to shop when it’s good for you. This means you have a functioning vehicle and are under zero pressure to buy anything now. This is crucial because indifference is your best weapon.

Only visit a dealership if you are 100% ready and willing to drive away in the same vehicle that got you there. I can’t stress this point enough. The heart of the negotiation process is the power struggle. If a salesman (and by extension, the finance manager, who you are actually negotiating with through the conduit of the salesman) has any reason to believe you are not going to leave without buying something, you are going to get soaked. This is not to say you can’t let him think you’re serious about buying a car. But make sure he has no illusions about you being unable or unwilling to walk away. Bottom line, if he gets you to the point where you have to have his car, he wins. If you get him to the point where he is ready to let you walk away, you win. And that is exactly the metric I use to determine if I’ve pushed the deal to the limit.

The battle is usually going to rage for hours. Go in mentally prepared. Like it or not, you’re in the game and if you want to win, you have to want it more than your opponent. The salesman will use whatever his favorite tactics are, often just lowbrow emotional manipulation, but the structure is usually about the same; he first tries to build up the value of the car and your desire for it. Ideally, he will succeed in making you feel that this is not a negotiable situation and he’ll have you paying premium prices for both the car and every bullshit add on that has ever been dreamed up. But of course you don’t let that happen and say you want a lower price so it goes into the negotiation phase. He goes to visit his manager, who coaches him on his performance, talks to him about a sports team they both like, ogles that hot new receptionist, whatever. This is a game, after all. But you can play too. If the salesman is gone too long, you can smile as say something to the effect of “if you’re gone that long again, I think I’ll go see what kind of deal the guys across the street are offering while I’m waiting.” Bonus points for a sarcastic wink at the end of it. The manager visits will usually yield a few hundred dollars or so each on the total sale price – assuming you’ve been smart enough to force the conversation to stay focused on it. Keep in mind that they want to toss in other things – undercoating, extended warranties at reduced prices, various subscription packages to all the tech bullshit the cars are loaded with now, and anything else that costs them a fraction of what yet another of those expensive price reductions will. Think of it like you’re trying to dig a hole and every manager visit is another time pulling the shovel up and dumping it. You want that shovel to be full of dirt every time or it’s going to take you forever to get the job done.

The forever part is the dealership’s goal. The longer it takes you to get them down on the total price, the more likely you are to just give up and settle. Have fun with the process. Engage in whatever mental warfare amuses you. The key is to send the message that you’re here for the long haul and that doesn’t bother you in the slightest. If you do it right, they may just give up and make a big cut in the hopes of convincing you it’s their bottom line. But remember, my metric is whether the salesman will allow me to leave. If he says something is the best he can do, thank him for the information, tell him you will compare his numbers to some other dealerships you’re going to be visiting (it helps if you know which competitors are nearby so you can mention a name and make the threat more real), and act as though you’re preparing to leave. Gauge the reaction. He may say “this offer is only good if you sign now.” That’s bullshit. You can easily come back and renegotiate it anytime you want – maybe even a better deal. Keep moving. He may say “let me go talk to my manager and see if there is anything else I can do.” You’ve just caught him lying since he already said it was the best he could do. The negotiation phase isn’t over and you would have left money on the table if you had believed what he said just moments ago. Or maybe, just maybe, he’ll have nothing to say for the first time all day. If that’s the case, it means he actually has done all he can do.

Now this doesn’t mean you immediately change your mind and take the deal. Remember all that research you did? As part of that, you will undoubtedly know what the average person is paying for this particular car. Some sites even give you a range from low to high. So all this time, you will have that in your back pocket and be well aware of whether or not what’s in front of you is actually a good deal. So when the salesman bows his head in apparent defeat, it’s time for you to make a decision. Are you at or near the bottom of the range? Or below it? You should probably have a change of heart about leaving and sign the deal. If you aren’t where you want to be, it’s possible that this dealership is just particularly greedy and you’d get a better deal elsewhere. You’d certainly be more effective at the negotiation process with this one just recently under your belt.

One other fairly new phenomenon is the internet price. There are sites where you can choose exactly the car you want down to the particular trim, options, and even color. Use an email address you’re ok with getting spammed at, of course, because the next step is that area dealers will spam you with quotes. It will keep coming, and coming, and coming. But last time I tried this, I noticed something interesting. Some of the dealers’ offers improved over time. When I got one that looked almost too good to pass up, I went in. Of course, I’m a crazy person, so I worked the whole negotiation process without telling anyone I had the internet offer in my back pocket. When I got pretty close to it and the salesman seemed unwilling to move any further, I pulled the offer up on my phone and told him it had made me think it might be worth coming in since it was “in the ballpark.” The salesman was pissed. But after one last conference with his manager, he came back with a slightly better offer than the internet one and an assurance that he would go no further. My leaving ploy confirmed it and so did various websites.

So the internet price was pretty dynamite in that case as I was only able to get a little bit lower through negotiating. And my final price was almost off the chart in terms of the range of prices being paid on the websites. But I never would have known that if I hadn’t verified it by working to arrive at it another way. And just because that one internet price was good, it’s no guarantee that any others are. Dealerships aren’t suddenly going to stop wanting to make as much money as possible because the internet is here. I’m sure they will continue to innovate.

I see by the word count that this has been a longer journey than I had planned on. But I believe everything I’ve said has been necessary and probably still didn’t cover absolutely everything. A successful car negotiation often takes several hours (although I did have a very quick one once) and although it may seem very straightforward at times, there is actually a lot going on. I will leave you with two more general tips to keep in mind. One, the salesman is only going to present options that benefit him. Don’t assume they are the only ones that exist. Two, you are not in this to make friends. The salesman and finance manager will most likely get very frustrated if you are well prepared to get an extremely good deal and it may very well come out in some sort of emotional response. In this narrow context, being their friends means paying them thousands of dollars more than you have to. I don’t know about you, but those are the kind of friends I can do without.

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