What NOT to do when negotiating for a new car

There are customers who are very savvy at buying new vehicles, then there are those who think they are savvy… but are not. DO NOT be the latter.  It’s frustrating for all parties involved.  I would compare it to trying to speak another language in a foreign country knowing full well the only thing you have done to learn the language is buy a pocket dictionary.  You’re not prepared and if you dont know the basics, your attempt at communication is counter productive….

The same goes for buying a car!

OK, so here’s what I’m referring to-
Customer e-mails or calls to inquire about a car by rattling off a stock number and asking whether or not it’s available?  (OK so far)  The Internet Director/Sales person/Manager looks up the new vehicle and confirms it’s availability.  The customer then asks what the lowest price the dealership would sell it for.  What happens next typically- the dealer employee gets some information and then asks if he or she may contact the customer back in just a few minutes.  The customer agrees 95% of the time and it the process continues…

The dealership employee spends about 10 minutes locating the invoice of the vehicle and pulling the applicable rebates (assuming there are rebates), gathering all of the facts to be prepared for the next conversation with the customer.   More likely than not, knowing the customer will be shopping at other dealerships, the employee will quote invoice price (see later post) or maybe $100 to $300 under invoice (see post “what a car dealer makes when selling a car”).  This IS aggressive pricing and more often than not managers fringe on this type of selling.  However, if the employee is good, he knows that another dealer down the road WILL offer that pricing so he may as well and try and get the deal.

The dealership employee now has everything ready.  He calls the customer and as the customer is just as anxious as the salesperson, he answers on the first ring.  Chatter goes on for about 30 seconds or so, then the salesman starts explaining the pricing and how aggressive the dealership is being in an effort to earn his business.

When hearing the numbers the customer sounds less than thrilled and truly just doesn’t understand how the salesperson can claim they are being aggressive when only taking $1100 off the MSRP, not including any rebates.  Assuming for easy math the invoice was $20,300 and the salesperson stated the customer could buy the vehicle for $20,000, then the dealership, assuming it was their vehicle to begin with and it’s a fairly fresh unit (see how do dealers trade for the car you want and can they make money that way) would truly make about $300 front end profit.

The customer then ponders for a few minutes stating he’s just begun shopping and then states he can get the “same exact” model for $17,000 not including any rebates and that’s now his offer to your dealership.  In fact he was so sure of it, he stated before he hung up, “listen I don’t want to play games, just call me back with your best price but for $20,000 we are thousands away from where I want to be.”

Before the salesman can explain that is the best price the customer emphatically repeats “just call me back with your best price, I have to run now.”

This scenario is all too typical in the car business today and it leaves the dealership bewildered and the customer on a search for the impossible, thus wasting time of all parties involved.  What could have been done differently?

While the customer did the research on the vehicle he liked, it’s obvious he didn’t look at many third party sites that offer “real transaction pricing” like Edmunds.com to get a feel for what the vehicle is truly going for and what Edmunds states the invoice is (read post  “is Edmunds correct?”) before you rely to heavily on their data.  Nonetheless, just a few minutes of research will save hours of time and frustration.   I cant speak for how big the margins were 20 or 30 years ago but largely that’s irrelevant today.  Today the margins seem to get slimmer every year.  With increase production costs and OEM’s (manufacturers) attempt to reduce factory rebates the “sticker price” of vehicles actually went down a year or two ago, BUT the invoice did not.  Let me clarify:

2006 Ford Focus
MSRP– $21,000
Invoice– $19,000
2011 Ford Focus
MSRP– $20,700
Invoice– $19,000

Profit on the Focus in 2011 is $300 less compared to 2006.  In order to stabilize residual or “trade-in” values the manufacturer was almost forced to reduce dependence on rebates.  The dealer was ultimately the one to pay in this scenario.

Anyway, back to the point, DO YOUR RESEARCH.  Picking a pie in the sky number is simply a waste of time.  Remember, that every dealer of every brand in the automotive space pays the same amount to buy their respective manufacturer’s product.  So…unless someone is completely lying it’s near impossible to be $1000’s of dollars away.  Word of caution though- ask to see the invoice and trust it’s real.  I have not yet to see a dealer “Photoshop” replica’s of invoices playing with pricing just to fool customers. It doesn’t happen.  Dealers dont have the time…

Also, you can follow my tips in “best way to buy a new car”… 🙂

December 23, 2010 by Jamie Rettig