Now that we know the five sources of Dealership profit, let’s look at a strategy for negotiating a better

A car purchase is an important financial decision.  “Impulse buys” should be avoided.

Negotiating a better deal requires homework, patience, and some basic negotiating skills.  If you don’t
feel you are getting a better deal, then don’t buy and continue shopping.  (You can always come back
and try again.  You are the Customer!)

Homework, Shop, Homework, Buy is a sequence that if followed, may result in saving you several
hundred dollars (and often substantially more).  Patience will be rewarded!

Homework                                              Shop

Research Fair Purchase Price           Negotiate Deal
Research Fair Trade-In Value
Research Fair Warranty Terms
HOMEWORK (Initial)

Before visiting a dealer, check websites like Edmunds.com to determine how much you should pay for
any new or used vehicle.  You should also read the “reviews” and other information about the
vehicles you are considering.

For a new car, have an idea how much over dealer invoice (or in some cases under invoice) is
typically paid on your selected new car.  If you consider more expensive trim levels and more options,
the amount you pay over (or under) invoice should be about the same.  For example, your “target”
may be to pay no more than $500 over invoice for a Toyota Camry.

For a used car, price out your ideal vehicle using different levels of options, mileage, and condition
in order to get a “ball park” amount that you will verify after you have selected a specific vehicle (see
“follow-up” homework).  Consider setting a "target" such as  “I expect to pay between $8,000 and
$9,000 for a 2002 Camry or Accord with 60,000 miles in good condition”

Determine what your trade-in is worth.  The trade-in value is probably one of the easiest amounts
to obtain, but is often overlooked.  Know what you expect for your trade-in before you visit the

Again, websites like Edmunds.com will give you a pretty good idea as to what to expect.  Be honest
about your trade-in’s condition, but don’t let the dealership subtract for items already factored into
your evaluation of condition.  Minor scratches and dents are ordinarily considered normal wear and
tear and thus there should be no additional deductions.  Your “target” trade-in allowance, for
example, may be $4,000.

If you feel the need for an extended warranty, search the internet for price and terms of
coverage prior to evaluating the dealership’s warranties.

Time to visit the dealerships, test drive vehicles in which you have an interest, and get pricing on the
vehicle you have selected.  If the initial pricing isn’t right, let the dealership know that you expected a
lower amount.  You may wish to tell them that you are shopping multiple vehicle makes and models
and that before you leave the showroom, you would like to get their “best price” in order to “think it
over”.  At this point you are only in the early stages of negotiation.  Also, there is no need to discuss
trade-in, add-ons, warranties, and certainly not financing, until you have a purchase price that’s

Once you get a purchase price you find attractive, ask for a trade-in quote for your current car.  If the
trade-in quote is lower than your “target”, let the dealership know you expected more.  Ask the
dealership to explain how they arrived at their amount and
listen very carefully.  There may be clues
as to how flexible they will be.  (You may wish to remind them that for what they are offering you could
very easily sell it yourself and return later to purchase their vehicle, but of course that might take a
few weeks.  Don’t Blink!  It is likely that they would prefer to get a sale today and don’t want to run the
risk of you getting a better deal elsewhere.  This could be enough to bring them to a better trade-in

If you have reached “general agreement” on the purchase price and trade-in allowance, then it is time
to negotiate the add-ons and warranties.  This is a little easier because you can generally purchase
the add-ons and warranties elsewhere.  Use your judgment and what you learned about warranties in
your “initial” homework in order to evaluate the Dealership’s offerings.

Now if you have covered the Purchase price, Trade-in, Add-ons, and Warranties, it’s now time to get
a quote on financing if you plan to have the dealership arrange your financing.  Know Your Credit
Score, Know Your APR, get a copy of the loan agreement, and ask for some time to think it over.
HOMEWORK (Follow-up)

Assuming you have a “deal” that is attractive and you are ready to buy, it’s time for the follow-up
homework.  Check the final purchase price against your sources and, if it is a new vehicle, consider
calling competing dealerships for a price quote.  The price quote should be on a “no trade-in” basis.  
Don’t allow the other dealership to give you a lower purchase price on the new car, have you come
into the dealership, only to give you less of a trade-in credit.

Complete your evaluation of any extended warranty.

Complete your review of the loan terms, check the math for the "amount financed".

1)  Check the “amount financed”, understanding completely how this amount was determined.
2)  Confirm that there are no additional amounts in the monthly payment (such as credit life insurance, etc.).  
3)  Check the monthly payment against the amount financed, APR, and number of months using a payment calculator.
4)  Confirm that the loan agreement is simple interest and has no prepayment penalties.
5)  Read the loan agreement.  Ask for assistance, if necessary.

Now it is time to return to the Dealership.

If you feel you need a few more dollars to make the deal work, ask!  But be prepared to show the
dealership why the purchase price should be lower, the trade-in should be higher, etc.  Be specific
and show them copies of what you are basing your decision on.  Bring Printouts from Edmunds.com,
printouts of competing extended warranties (pricing, terms), etc. with you.  If you feel the APR is too
high, let them know that too (my credit score is only slightly below 680, shouldn’t my APR be no more
than “X” %?).

Once you have completed negotiations to your satisfaction, it’s time to take the final steps:

1)  Complete the paperwork, and
2)  Schedule delivery!

Very important:

                        Have you received approval on your loan?

Under no circumstances should you commit to a purchase and take delivery of the vehicle unless you
have received unconditional loan approval.  To avoid any misunderstandings, you should get the loan
approval in writing.  Final loan approval may take 24 hours, be patient.  If you commit to purchasing
the vehicle and your financing falls through, you place yourself in a poor negotiating position.  You
may not like your financing alternatives, especially if you have less than perfect credit.

                                                   Next:  The Lemonade Stand

Homework                                        Buy

Verify Fair Purchase Price            Schedule Delivery
Check Out Warranty Company
Check Out Loan Terms
Confirm Loan Approval

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