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Along with a house and a college education, a car is often one of the most expensive things you\u2019ll ever purchase. Unlike with college tuition (which you can\u2019t negotiate at all), or a house (which you typically negotiate through a real estate agent), haggling over the price of a car requires in-the-moment, face-to-face interaction. <\/span><\/p>\n The experience can certainly be a stress- and anxiety-ridden one; most of us don\u2019t practice our negotiating skills<\/a> on a regular basis, and certainly not with car salesmen, who are often really good at their job. Adding to the anxiety begotten by a lack of experience, is the fact that customers typically only possess the haziest idea of how car dealerships actually make money. This puts them at a true strategic disadvantage.<\/span><\/p>\n Knowledge is power, so today we\u2019ll walk you through how car dealerships turn a profit, how this understanding can help empower you in the transaction, and the key strategies for negotiating the best deal on a new or used vehicle. <\/span><\/p>\n A customer wants to pay as little money as possible for their new ride; a car salesman wants to make as much money as possible on the customer\u2019s purchase. To ensure you\u2019re engaging on an even playing field with the dealership, you need to know exactly how they make a profit. Armed with this knowledge, you\u2019ll know where there\u2019s more wiggle room in the negotiation and where there\u2019s not; where there\u2019s flexibility in the deal and where the salesman is going to put more pressure. <\/span>So let\u2019s break it down. <\/span><\/p>\n A car dealership makes most of its money from 4 things:<\/span><\/p>\n In other words, car dealerships, on average, make less than 20% of their money on the actual sale of cars.<\/span><\/p>\n Now that you know the breakdown, let\u2019s put this knowledge to use when negotiating a deal on a new or used vehicle. <\/span><\/p>\n Car salesmen will often try to put the price of the car itself together with the cost of financing\/warranties\/add-ons\/trade-in\/ect., so that the bundle deal obscures the price you\u2019re paying for each \u201cproduct.\u201d But you want to not only break out each cost, but intentionally negotiate all of them.<\/span><\/p>\n Obviously this is the biggest nut; by successfully negotiating down the purchase price of your vehicle, you can potentially save yourself <\/span>thousands<\/span><\/i> of dollars. <\/span><\/p>\n Do your homework, and lots of it. <\/b>Since it\u2019s such a large purchase that will impact your daily life for so many years, you owe it to yourself to do a lot of research. This article isn\u2019t about which car to buy \u2014 you need to figure that out yourself, and you should do that first. Using Consumer Reports<\/a> (along with your budget) can help you determine which makes and models to go with, and which cars tend to be good value buys.<\/span><\/p>\n Once you\u2019ve figured out what you want to buy, use Edmunds<\/a> and Kelley Blue Book<\/a> for pricing information. They\u2019ll give you detailed info based not only on year, make, and model, but also condition, mileage, etc. Also keep in mind your location; just like everything else, cost of living impacts car prices. Vehicles are cheaper in the Midwest than on the coasts, especially when it comes to used cars. <\/span><\/p>\n Walk into the dealer knowing what other people have paid for the car you want, its invoice price, its MSRP, and your \u201cwalk away price\u201d: the most you\u2019re willing to spend.<\/span><\/p>\n Play it cool.<\/b> Even if you\u2019re taking your dream car out for a test drive, don\u2019t act all moony over it. The salesman will know he\u2019s got leverage in the deal and fan the flame of your emotions, so that you stop thinking so rationally about the purchase. Act nonchalant; point out things you don\u2019t like about the car — \u201cIt\u2019s nice, but this isn\u2019t the color or trim package I was looking for.\u201d<\/span><\/p>\n Let the salesman make the first move.<\/b> Even with online searches and sticker prices listed on cars, those numbers are rarely ever final. They\u2019re basically a starting point, and everyone involved knows that. So a salesman will probably ask something like \u201cWhat kind of budget do you have?\u201d or \u201cWhat were you looking to spend on this vehicle?\u201d Once you throw out a number, though, you can\u2019t go any lower than that, even if a lower price may have been on the table. <\/span><\/p>\nHow Car Dealerships Make Money<\/h3>\n
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How to Get the Best Deal on a New or Used Car<\/span><\/h3>\n
How to Get the Best Deal on the Price of the Car Itself<\/h3>\n