The most uncomfortable, daunting and scary part of the new car buying puzzle can be talking to automobile salespeople and haggling with them over the price of your new car. No one likes to do this, regardless of their gender. We are a fixed price culture, unfamiliar with the process of negotiating for price. But, unless you are dealing with a no-hassle dealership, it has to be done at one level or another, by someone, and the biggest ball-and-chain can be assumptions about salespeople, dealerships and the selling process.
The assumptions that buyers make about purchasing a car include thoughts like: salespeople and dealerships are dishonest, I can’t get the best price, I’ll be here for hours, I’m going to be abused. Because we have these beliefs, we act defensively from the moment we enter the dealership and that defensive behavior distracts us from our ultimate goal — buying a new car at a good price. So often, buyers treat sellers with unfounded distrust, contempt and disrespect, even lying to them about everything from their financial ability to prices they have already been quoted. We advocate a whole new model for car buying that places the responsibility for getting a good deal on the buyer, you, rather than trying to get the dealer to behave differently.
This new car buying model involves: doing your own research so that you know about the features of the cars you are considering and don’t have to rely on the dealer for that information, test drive cars to see if you really like them and then utilize a simple “10 Minute Negotiation” technique that is designed to eliminate confrontation by keeping the focus on getting a new car at the lowest possible price. It involves doing what we call a “Pavlov’s Purchase.” This technique makes the seller excited about working with you because they know you are negotiating with honesty and that a sale is likely. “Pavlov’s Purchase” is about asking for discounts off of the sticker price — ask and often you will receive one. This encourages both you and the seller to continue working together and reaps immediate results. What you are doing is asking to save money. Dealing with sellers in this manner makes it a fun and rewarding experience.
There are two important elements to understand when preparing to negotiate with a dealer. The first is about you — what you know, how you act and what you say. Second is about the salesperson — what they know, what they say, how they act or how they run their shop. We’ll talk about both. But first let’s look at what selling and negotiation are all about.
Selling and negotiating are two different things. Selling is about convincing someone that they need and want a specific product and that it is worth paying for. Negotiation is the process that establishes the specific dollar amount and sets the terms for the exchange of cash for goods. Negotiation also involves the time-consuming process of seeking out those individuals that can give you a better deal, because there is always someone willing to do the same deal or better, for less money. Then, you must judge whether it is a good value.
Capitalism is predatory by its nature. A seller does everything legally possible (and sometimes illegally) to maximize profits. Just as a lioness seeks the weakest Impala in the herd, so does the salesperson, during the selling process, look for the easiest sale that will deliver the highest profit possible from a given deal. This is true of all commission salespeople, not just auto sales. They are just doing their job.
Negotiation is a natural and normal part of being human and getting along. We learn to negotiate at a very early age. We negotiated to play games as children. As adults we negotiate at work and with our family and friends. All of us negotiate all the time — selecting a restaurant for dinner, getting through traffic, getting a date and even having sex! Life is a series of negotiations.
The difference here is that negotiating with acquaintances is something we grew up doing because we WANTED to get along and be together. This is not unlike negotiations between buyer and seller. Both want to get along because they have the same goal, making a sale. And they need each other. One without the other means there’s no deal. A seller wants a buyer and a buyer wants a seller. Each fulfills a need for the other. They are simpatico. They want to complete a transaction.
Reality is, you probably have a lot more experience with negotiation than you give yourself credit for. Trust your instinct to save money to help you negotiate successfully.
Car Buying Options
There are basically three ways to buy a new car with a myriad of variations that are the result of your personality and those of the people you are dealing with. They are: do it yourself by visiting dealerships and gathering most of your information there; have someone else do everything for you; or gather your information first, with help from the Internet, books and magazines, including getting price quotes, and then use the “10-Minute Negotiation ©“ techniques we’ll demonstrate later in this article.
The first option, do it yourself by visiting dealerships and gathering most of your information there, is the old-fashioned means of buying a car. Here the buyer accepts what the salesperson tells them, buys the car that is available on the lot and pays the price that is asked. This option is simple, quick and generally the most expensive.
Second, you can hire someone else to do the work for you. You can find these full service businesses that take you from the beginning through to the end of your purchase on- and off-line. These professional services are called “Buyer’s Agents” and work exclusively for their clients, never taking one penny or any other compensation from auto dealers. 100% of their money is earned directly from the buyer who pays for their services. These “Buyer’s Agents” do not sell financing, extended warranties or cars. What they do is assemble the pieces of the puzzle for you, to the point that it is ready for your inspection and signature. An example of such a service is Auto Advisor.
The third option is the one we will talk most about in this article. It utilizes the Internet as the means of obtaining most of the information to make an informed car buying decision while handling the negotiations yourself using the “10-Minute Negotiation” techniques. This is in fact the “new wave” in new car buying and most of the information you need to make an informed decision can be had free of charge from the Web. After you have done your surfing, information retrieval, and narrowed it down to a few autos, then use the dealership as your showroom to get product demonstrations and try out the cars. Once you know exactly what you want to buy, then you begin negotiations.
Read the chapter “10-Minute Negotiations” and use the article “New Car Buying Help From the Internet” to obtain nearly all the information necessary to get the best car for the price, giving you the best value. This route will enable you to walk into, or call, any dealership knowing the price you should pay and having all your negotiation points at hand.
The most fulfilling and rewarding means of buying a new car is to take the hands-on approach — do your own research, negotiate on your own and strike your own deal. The key to dealing with the dealers is to have mutual respect, be polite, know your facts, negotiate with honesty when the time comes, and know when to walk away if you need to. In the back of your mind remember this: “There is another good car deal around the corner. I’m in control. I just need to create the deal.”
You: What You Know, How You Act And What You Say
Knowledge is the key puzzle piece in the car buying arena. Educating yourself about the cars you are interested in encourages confidence, helps you determine the right model, the available incentives, a price range that is best for you and develops the ability to navigate the car-buying process. Read on for more information about establishing the price.
Dealerships are usually more easy going on Tuesdays, Wednesdays and Thursdays. If you talk with them by phone or in person, a few hours before or after lunch you’ll find a full staff with nowhere to go and very few customers to deal with. Carry only a pen and a couple of “test drive forms.” Leave your research materials at home because you are only there to test drive and consider the product.
You always have a choice of which salesperson you will work with at a dealership whether you walk in or call on the phone. If you call, ask the receptionist who is the most polite or nicest salesperson and which one gives the best deals. The receptionist is not supposed to “play favorites” but the they still have them and you are likely to get steered in the right direction. By talking to a salesperson before you go into the showroom, you have the opportunity to pre-screen them. When walking in cold, normally you will receive the salesperson who is next up in the rotation. If you want a different person than you receive, tell them, “I want to work with that person please” and point to him or her. You can also head straight for the receptionist and ask the same questions you would if you were calling. Since you probably drove some distance to get to the dealership, make the most of your time. Tell them what you need and always remember you’re buying the car, not the salesperson.
No matter how you feel or how you are being addressed by a salesperson, you’re responsible for being pleasant and businesslike. If you don’t like what is happening, you can walk out — the only person you have an obligation to is yourself. There is no need to feel any obligation to the salesperson, even if they have spent a lot of time working with you. Their job is to show you a car. If, after a period of patient perseverance, you are not getting your questions answered satisfactorily, or you are experiencing “irreconcilable differences,” ask that salesperson to introduce you to another salesperson to help you. The original one will share in the commission. But don’t ask for the manager or sales manager, because those people are the most experienced at applying pressure. Do stick with a salesperson.
Incidentally, it may surprise you to know that a J.D. Power and Associates study found that the most uncomfortable part of an automotive salesperson’s job is negotiating a new vehicle sales price with a customer.
Whatever you do, don’t lie to the salesperson. For some strange reason, many buyers lie to salespeople. They tell stories about their financial situation, past experience or current price quotes. If you feel yourself heading down that road, it is better to keep mum. Always engage in honest communication. You’ll be respected for it by your adversary, much more than you think.
You’ll be asked a lot of questions by the salespeople during your dealership visits. This is the salesperson’s attempt to “qualify” you to determine if you can and will buy now. If there is something you don’t want to answer or sign (like a premature request to check your credit), turn down the request for information by playing the first card. You can redirect the question with a little humor or an up-tempo, straight answer like, “As you can imagine, I don’t want to tell you too much about myself. I just want to get to know your great car and make it my great car.” A little sugar will go a long way in a world typically full of vinegar buyers.
It is also a good idea to tell the salesperson up-front that you are anxious to buy a new car and that you are there to test drive cars so you can make a decision about what to buy. Don’t tell them you are just there to shop or look around. The more interest you show, the more helpful and courteous the salesperson will be.
The best way to negotiate on the price of the new car you want is to do it over the phone. This reduces the time spent negotiating and often delivers the best prices. Read the section called “The 10-Minute Negotiation ©” for the ins and outs of this form of bargaining.
Salespeople: What They Know, What They Say, How They Act And How Their Shops Work
Many salespeople actually enjoy serving the public. However hard that is to imagine, most of them really are personable folks who like to work with people. That’s why it is so important to remain calm and polite with them. It brings out the best in them. Selling automobiles is an extremely high pressure service industry — one fraught with unseen pressures. They are caught between liking to work with people while being pressured to get top dollar for the products they sell. This is worth understanding, but not sympathizing with, because they have chosen their profession.
No two dealerships will treat you in the same manner, as each is run differently even though they represent the same automakers. This is because they are independently owned and operated. The selling style of each dealership is completely dependent upon the “selling theory” that the owner has adopted. If the owner is a greedy, high-pressure sales type, you can be guaranteed a high-pressure sales experience. Conversely, many are gentle people and expect the same behavior from their salespeople. If you feel a “pushy pressure” it indicates that a higher up is putting the screws to the salespeople. Bad behavior comes from the top down. If this is uncomfortable, move on to the next dealership.
Sexism is common everywhere, so it stands to say that you may encounter it on the showroom floor despite many automakers’ attempts to eliminate it. If you are faced with “just wait a minute honey” and “don’t you have a boyfriend or a husband” just let it roll off your back. Tell the salesperson (or remind them if they start talking to your companion) that you are the one buying the car. You are experiencing an old habit that should have gone away long ago. Don’t take it personally.
By the same token, sex can be an advantage. It will be assumed at some level that a woman has not done her homework and may not know much about cars. So you have the ability to ride on that assumption as long as it suits your purposes. But, remember it works both ways. Handsome salesmen and women will use their physical attractiveness to distract customers and lure them into irrelevant conversations. The attractiveness of the salesperson has nothing to do with how good a price you will receive.
Salespeople are trained to determine which prospect will be the easiest to close quickly and will earn them the highest profit. Sometimes it even appears that they have ESP — knowing that you won’t be buying today and that you really want to just test drive a car and shop around. Regardless, it is their job to make a sale. So don’t fault them for it.
We’ve seen how different the selling technique from one dealership to another can be. This is based in part on the owner’s “selling theory” and how strong the product image is that they sell. Automakers invest tens of millions of dollars every year to create a strong image that “pre-sells” you on their cars. This makes the dealers job very easy. All research points to the fact that the longer you stay in a dealership and consider a car because you already think you want it, the more likely you are to buy their car. Additionally, automakers have invested millions of dollars to evolve the nature of car dealing to make it a more pleasant experience. The result is that, overall, you are less likely to be accosted in a negative way during a new automotive transaction.
One of the realities of selling is that commission sales encourage discrimination. A salesperson has to quickly discriminate which potential buyer will provide the fastest, most efficient and profitable sale. This is a function of capitalism, but manifests itself in a bit of racism, sexism and ageism (just to mention a few.) Salespeople are taught to “qualify” a prospect within the time it takes to have a brief conversation. They make this as transparent as possible so as not to alienate the “prospect.” “Qualifying” is the process of determining who is ready to buy today. By its nature, commission sales are somewhat racist, sexist and ageist. Knowing this fact can work to your advantage.
Sales and Discrimination
One of the best studies done on the subject of selling and discrimination was published by Mr. Ian Ayers, an economist and member of the bar, from the Northwestern University School or Law. His article entitled, “Fair Driving…Gender and Race Discrimination in Retail Car Negotiations,” was published in 1991 in the Harvard Law Review.
Mr. Ayers sent men and women of different races into dealerships to negotiate the purchase of new cars. The results of his research challenged auto industry assumptions that the forces of a competitive marketplace eliminate race and gender discrimination in sales transactions. The reality of his research was that white males received substantially better prices than African-American males, white females and African-American females for identical cars. The most surprising fact was that all the testers did not receive the best deal from salespeople of the same gender and race.
There are no Federal Laws that bar intentional discrimination on the basis of gender for the sale of most goods. So you are likely to pay more for a vehicle just because you are a woman. (Conversely, you can prepare better and negotiate harder and not pay more.) But there are other valuable lessons to learn from Mr. Ayer’s research as well. He found that the male and female “testers” experienced lots of other differences in the way they were treated.
White-female testers were asked more often whether they had been to other dealerships and were less often questioned about what price they would be willing to pay. Salespeople tried to sell them on gas mileage, the color of the car and dependability. They received the best deals from African-American male salespeople.
African-American-female testers were asked more often about their occupation, financing, whether they were married and less often about whether they had been to other dealerships and had offers from them. Salespeople tried more often to sell them on gas mileage, the color of the car, dependability, and comfort, and asked them more often to sign purchase orders. They received the best deals from white-male salespeople.
White-male testers were given the lowest prices and received the best deals from white-female salespeople.
African-American-male testers were asked less often if they would like to test drive the car, whether they had been to other dealerships and whether they had offers from other dealers. They were forced to ask for an initial price from the salesperson (because the salespeople didn’t offer any) and were offered the sticker price as the initial offer. Conversely they were asked less often to sign a purchase order. They received the best deals from white-female salespeople.
In general, salespeople were more likely to disclose cost (dealer invoice) figures to white testers of both genders.
Who gives whom the best deal?
- African-American-male salespeople –> White females
- White-male salespeople –> African-American females
- White-female salespeople –> White males
- White-female salespeople –> African-American males
There are great lessons to be learned from these results and they can be used to enhance your car buying experience and put you at an advantage when negotiating. It seems like a common practice nowadays for retailers to steer buyers to salespeople of their own race and gender. Many radio ads from dealerships are performed by a woman (who we may assume is white) with an inviting voice. It’s very vogue to use this tactic. Yet buying from someone most like you may well bring the worst deal. So if it is not to your advantage to work with the salesperson given to you, get another.
How To Negotiate
According to the Webster’s Dictionary, negotiation is “the act or process of conferring with another so as to arrive at the settlement of some matter.”
There is specific strategy involved in buying a new car and there is some difference in opinion in the marketplace about how it should be done. But the components of the system we advocate are: (1) feign self-confidence, (2) take all the time you need, (3) be prepared with information, (4) separate test driving and negotiations, (5) negotiate deliberately with the intent to buy, (6) remember there is another good deal around the corner and (7) be polite and deliberate.
1. Feign self-confidence, as good negotiation takes a mind set, an attitude and a bit of acting. Many people find this uncomfortable and awkward even though they’ve been negotiating all their lives. That’s okay, because it is normal and it can work to your advantage if you keep it in perspective. Negotiation is something we learn to do, although there are some people who are seemingly born to it. A good negotiator will deliberately make a novice uncomfortable, hoping they’ll capitulate before reaching their goal. Interpret your queasy or insecure feelings as a constant reminder of your goal in the negotiations — to pay the lowest price for your new car.
Self-confidence has a great deal to do with the willingness to engage in a negotiation. Stretch yourself. Yes, feign self-confidence and it will become more natural. Even after decades of confident negotiation most people still feel somewhat insecure — after all, we are a one-price culture. Continue to channel discomfort into positive energy.
2. Take all the time you need, as skillful negotiation on a new vehicle takes time and plenty of research. After you’ve test driven and decided on your model, colors and options, expect to invest a minimum of sixteen hours in negotiation and acquisition. A thorough negotiator can take over forty hours of time to strike an excellent bargain. The forty hours includes planning, strategy, researching, web time, phoning ahead, traveling to at least four or more dealerships etc. The time you spend will probably not be contiguous. You may find yourself starting and pausing as you learn new information and adjust to the process.
Additionally, time is your friend during negotiations. If you feel pressured, walk out of the dealership. Make sure not to create time constraints, like needing to have a new car by a specific date. It is common for example for a family to want a new van to take a vacation in. If a dealer knows the vacation is in a week, they’ll be less likely to negotiate, because they know you’re in a pinch. If you feel frantic or anxious, take a break for a few days or even a week.
3. Be prepared with all the information about the new car you want, as planning is critical. It is important to have a precise idea of the car model you want, the features you need and those you can live without, the MSRP, Dealer Invoice price, dealer incentives and available rebates or special offers, if any. Visit “New Car Buying Help From The Internet” for links that will provide you with car information, safety tests. You can gather nearly everything you need to make your decisions from the Internet.
This research needs to be done in advance so that when you start to call to negotiate a price or walk in to tell them what you are willing to pay, you have already picked your starting offer and target price. The easiest way to determine target and starting offer prices is to click on the car pricing box in the top righthand corner of every page of the site. There you will find a dealer invoice price and an MSRP (manufacturer’s suggested retail price) for each vehicle. First, determine the high-end price of the car, starting with the MSRP and adding in all the optional features you need.
High-end = MSRP + Options
Next, determine the low-end price by taking the dealer invoice prices, adding the optional features you need and subtracting the dealer incentives and customer rebates.
Low-end = Dealer Invoice + Options – incentives – rebates
Theories on starting prices for negotiation vary from one negotiator to another. Because the automobile market is a commodities market, with price and values changing all the time, the low-end price can change daily. For example, bad weather in one region of the country can force cars to be delivered to other regions causing a glut and a drop in prices. A strike can cause a slowing of production thus a sharp price rise. Politicians can jump into the mix by passing a bill that increases or decreases a tax that effects car prices. And an oil shortage can change car values too. When gas prices rise, cars with low miles-per-gallon become unpopular and the prices drop. Conversely, high mileage cars become more attractive and their prices will rise. If a car is popular for any reason, a dealer may feel that they don’t need to go as low as your target price, and in fact, they may be correct. You’ll have to see what the market will bear. Fortunately, there are lots of dealerships to experiment on.
Next, go to several of the Web Sites that will get you a quote directly from a dealership. The quotes can come from dealers close to you or far away. It doesn’t matter. Get at least 4 of them. These bid can come via the E-Mail or fax. These bids give you something in print to reference during your negotiations. Most will be higher than you plan on spending. But if you find one that is fairly close, working on that dealer may be particularly useful. If you end up talking to someone at a dealership in the process, remember that there is no obligation to go further with them.
Most of the books about car buying have you offering something over the dealer’s invoice price. Some recommend 2 or 5 percent or $100 to $500. But because dealer invoice pricing strategies are so prevalent, the automakers and dealers have become much more sophisticated. Automakers know that savvy buyers have the invoice prices. So to help dealers maintain a healthy profit, the automakers have created new incentives hidden to the consumer. This is a practice common to all industries, not just the auto industry.
Our belief about target price is to calculate low-end, so you know what you are aiming for because the best way to negotiate is to the ask the salesperson to get you a price that is as close to the low-end figure as possible. Alternatively, you can tell the salesperson you are willing to purchase the car for $100 over factory invoice. This is called negotiating relative to Dealer invoice. It is a particularly useful technique because Factory invoice is something you can get your hands on. You can actually ask to see and receive a copy of it. Factory invoice is different than the dealer invoice price that you find on the Web Sites in that dealer invoice is a generalization based on the car and options used in the Web Site. Factory invoice is the actual invoice the dealer pays with a few small discounts they receive from contests.
The dealer invoice prices quoted in Edmunds and elsewhere are actually lower than what the dealer actually paid for the car by $300 to $500, in most cases. This difference is due to what are called “hidden money” charges comprised of advertising, port, make-ready and gasoline charges. None of which are reflected in Dealer Invoice or on the window sticker for that matter, but are reflected in the Factory Invoice.
As you can see, true cost is elusive.
The last bit of research is to collect the phone numbers and addresses of dealerships in the area. You’ll find ways to collect those from dealer locators in our article “New Car Buying Help From The Internet.”
4. Separate test driving and negotiations. When test driving, leave your signature, wallet and checkbook at home. Make the test drives separate events from negotiations. Tell the salesperson that you are test driving the car because you are seriously considering a purchase. If the salesperson says, “what will it take to make a deal today?” Respond with, “I’m seriously considering buying this car (or one of these cars if you’re test driving more than one.) And, if I do, I’ll call YOU immediately.” It is important to express interest repeatedly in order to get good service from the salesperson. Just make sure you don’t let yourself get roped into negotiating to buy when your mission is research.
5. Negotiate deliberately with the intent to buy, as half-hearted negotiation encourages more aggression from salespeople. Be sincere in your efforts. Go at the negotiation with a determination to follow through. In capitalism, the target of negotiation is simple: spend as little money as possible!
6. Remember there is another good deal around the corner. Take all the time you need. If you get frantic, anxious, or confused, step back, take a break and get reoriented. You can always go back to the dealership in a day, a week or longer.
7. Be polite and deliberate. No matter how the salesperson behaves, what they ask you or what they say, there is no need to get upset. And don’t let them pull you off track. The goal is to purchase a new car, not to talk about a salesperson’s personal problems or anything unrelated to buying the specific vehicle you want.
The Best Alternative – The Ten Minute Negotiation and Using the Phone
Read our comprehensive article on how how to negotiate and using the phone by clicking here.