Knowing how dealerships work — and what the dealers cannot do — is key to getting the best price.
When my husband and I sat in a dealer showroom, I had no doubt we would drive away in a brand new Nissan Xterra with all the extras — after paying a ridiculously low price.
“You’re killing me on this,” the sales manager told us as we negotiated to bring the price lower and lower. “I’m not making any money on this deal.”
That was a fib.
I knew from my years as a journalist covering the auto industry that this dealer was banking on a huge bonus from Nissan for selling me this car. See, some automakers offer dealers “stair step” incentives. Basically that’s a payment for each car — might be $500 a car, might be $800 a car, might be a different figure — paid when a dealer sells a specific number of designated models during a definitive time period, often a month.
As we drove off the lot in our tricked out, low-cost SUV, I was certain our purchase pushed the dealer into the magic zone. I knew we had found a bargain.
Many — though not all — automakers have discontinued stair-step incentives at the insistence of dealers. But there are plenty of other ways to make sure you snare the best possible deal on a car…
1. Shop at large dealerships
Forget the adage that small dealerships will give you better deals. Large dealers move hundreds of cars every month so they can afford to sell at least a few cars for less than invoice (called “Back of Book”). Remember, some automakers still offer “stair-step” awards to dealers. And even if they don’t, they often offer other incentives to those who meet sales targets or move specific models.
2. Allow dealers to compete for your sale
There’s no need to drive all over town and haggle. Once you narrow down the models you most want, simply go to the automakers’ websites. Most of us shy away from that button marked “shopping tools” on those sites. Don’t. Use the “Find a Dealer” tool and allow dealers to contact you. I did that in December when we bought a Mini and had dealers vying for my business. Don’t shy away from letting dealers know you are talking to others. That puts you in a position of power. One tip: Make sure you get an “Out the Door” price that includes all taxes, fees and extras. You don’t want to bank on an ultra-low price only to discover you also have to pay for multiple extras.
If you need a car loan, don’t forget to shop for the best deal on that as well. You can start by comparing car loans in our Solutions Center.
3. Be pleasant
Do you want to work with someone who is unpleasant or hostile? Neither do car salespeople. Yes, they want to sell cars for as much as possible. They know you want to pay as little as possible. But if your salesperson likes you, they may well point you to models that better suit your needs and save you money. They may also sway their sales managers to give you some extras or even a price break.
4. Remember, loyalty pays off
If you or a friend has worked with a specific salesperson in the past, email him or her directly when you are in the market to buy a new car. Salespeople who have established client bases are valuable to their dealerships. They will work hard to win you a good deal because that increases their professional value.
5. Don’t talk about your trade-in
When dealers know you want to trade in your car, they have more leverage in the negotiation. Dealers know you want top value for your trade in and will often give it, but then not budge on the sales price of the new car,CNN reminds us. If a salesperson asks about a trade-in, tell them you have yet to decide if you’ll trade your old vehicle in.
6. Consider a soon-to-be-discontinued model
I wanted a two-seater sports car, but I didn’t want to pay a premium price. So when I went shopping in December, I considered models that I knew dealers were anxious to move. I ended up with a Mini Cooper Roadster. I knew the model would be discontinued in 2015, so I focused in on that when I was shopping. The one I chose was a dealer test car, so it had about 1,000 miles on it — since it was “used” that yielded another major price cut for me.
7. Don’t negotiate on ‘dealer holdbacks’
Car pricing is more complicated than most buyers realize. Auto manufacturers build in “dealer holdbacks” that give the dealer somewhere around what Edmunds reports is about $500 leeway per car (again, this varies depending on many factors). That means there is generally about a $500 difference between what the dealer pays for a car and the invoice price. Those “holdbacks” are something akin to sacred ground for car dealers. It gives dealers the option to price “below invoice” on some cars and know they will make a certain minimum profit on each car. Don’t even try to negotiate into the “holdback.”