If you're in the market for a new car, you should be aware of exactly how much bargaining power you have. Car dealers want to get the sale done, and often will make concessions beyond what you would expect to make that happen. Preparation and successful negotiation could save you hundreds or thousands of dollars.
Before you venture out into the car sales world, have a read of Infochoice's tips on how to ensure you are getting the best deal you can on your new ride.
Tips for before you walk into a car dealership
Get pre-approved for finance first
A substantial chunk of the cost of buying a car is the interest on your car loan. The rate you'll be able to secure on that loan can play a big part in figuring out whether you can afford the vehicle you want in the first place. If you go shopping for a car loan before you ever set foot in a dealership, you'll have a good idea of your price range, and can narrow down the cars you are after.
Having a pre-approved loan offer when you walk into a dealer also lets them know that you've done your homework, and gives them dealer a hard price limit as a cap on price negotiations. It also lets the dealer know you've secured funding from somewhere other than the in-house car loans, which often have a much higher interest rate.
Research the vehicle you want
There are many things you'll want to consider when you're buying a new car. Foremost in your decision making should be working out exactly what you will be using the car for, and choosing accordingly. If you are going to be predominantly driving around city centres and inner suburbs, it doesn't make sense to splash out on a Hilux when you can get a smaller car that will be more suitable for far cheaper.
Once you have an idea of the type of car you want, the importance of meticulous research can't be overestimated. Look into things like safety features, fuel efficiency, interior comfort as well as price to find the car that best suits you.
The general conservative rule of thumb is to 'Buy the safest car you can afford'.
Get an insurance quote
After you figure out your financing options for a new vehicle, you'll then want to get an idea of what it might cost to insure it in your area. The loan you've researched will have come along with specific vehicle insurance requirements that you'll have to satisfy as a condition of the finance agreement.
You should get a quote for the required insurance on the specific car you're interested in to make sure that the payments don't push your monthly cost of ownership outside of your budget. If you're a young driver, consider if putting an older driver on your insurance policy will lower the premium.
Be sure to shop around to find the lowest rate available to give you maximum financial flexibility as you approach negotiating a purchase price.
How to negotiate at a car dealership
Once you're confident you have all the information you need, it's time for the negotiating table. The first thing to remember is that car dealers don't have the reputation they do for nothing. They negotiate for a living, so have honed their skills across many different buyers.
Common tricks dealers use
Although dealers may seem friendly and forthcoming, the truth is they want to make money and know the tricks of the trade. There are many ways that dealers can be deceptive when they deal with you, all designed to extract as much money as possible.
- Unnecessary add ons. Your dealer might spend a long time telling you about how brilliant the extra features that are available. This includes common dealership services that are heavily marked-up, such as tint, ceramic coating, extended warranty and more. You'll want to bear in mind that the main reason they are making these recommendations is probably to increase profit margin, so take any discussion about the optional extras with a generous sprinkling of skepticism.
- Time pressure. There's few things more detrimental to your decision making then a ticking clock. Your dealer will be fully aware of this, so might imply that the deal they are offering won't be on the table in a week's time, or that the car you are considering is highly sought after and may be sold out before long. This sort of thing will often be untrue, so try to take the time to consider your decision despite the dealer trying to rush you.
- Talking in monthly payments rather than overall cost. Beware the dealer who, when you are discussing finances, keeps referring to the monthly repayments rather than the sale price. With car loan terms frequently running to five, six, seven years, low monthly repayments does not necessarily mean you are spending less. Try to always keep the total amount you will spend on the car in mind, and have minimizing this number as your end goal.
- Low balling on trade-in. Dealers often don't make make much money on the new car sale. Where they can win is offering a low price on your old car if you're trading in. You likely won't get private sale prices, but do the maths and take the time to consider what you're actually getting for your trade-in, rather than just focusing on the lower sale price of the new car.
- Upselling. As we've mentioned, the fundamental principle to remember is that the dealer is trying to extract money from you just as you are trying to give them as little as possible. It follows then that a common strategy will be for dealers to try and upsell more impressive (and expensive) vehicles than the one you are looking at. Some dealers even advertise lower end models for a reasonable price, then when the customer comes in looking for the cheap car they saw advertised, the dealer instead explains where that car falls short and why they should instead buy a more costly version. Manufacturer options can easily add up to thousands or tens of thousands on new vehicles.
Negotiating tips
- Understand car pricing. Before you head to the dealership, it's helpful to understand the different ways cars are priced. When the manufacturer releases a new car, it will set a retail price. However, this is normally far above the price that the dealership pays the manufacturer, and the car will inevitably usually be sold for less than the advertised price. The aim of the negotiating game is to try to get your sale price as close to the invoice price and as far from the retail price as you can.
- Set a realistic goal. While negotiating should leave you with a significantly better deal, you aren't going to walk out of the dealership with a 2 for 1 deal on Range Rovers. You should be aiming for the lower end of the spectrum of prices that others have paid for the car you are buying (research is again paramount).
- Be personable. Believe it or not, car salespeople will often go out of their way to help buyers that have a friendly, personable demeanour. They'll also reward buyers who don't waste their time with needless posturing.
- Don't close the door on an eventual deal. Make sure to provide the dealer with your contact information if you can't reach an agreement right away. They'll often contact you with a better offer if they feel you may go elsewhere to make a purchase.
- Shop around. It's common knowledge that car dealers try to sell their inventory at the highest margin possible. Still, they are in competition with each other, and buyers can use that to their advantage. To do that, make sure to get as many price quotes from different dealers as you can. You can then exploit even the smallest differences in price to get a better deal from another dealership. In many cases, if you ask a dealer to beat your lowest quoted price, they'll do it just to secure your business. While there's a limit as to how many rounds of price-cutting they'll engage, you might be surprised how much you can save by letting dealers know you found a better price elsewhere.
How to get a good deal at a car dealership
Once you're satisfied that you've gotten the lowest market price for the vehicle you want, there's only one thing left to do: wait. There are several points in a year where dealers are much more likely to come to an agreement to sell.
End of the month
You should try not sign off on a purchase until at least the end of whatever month you're shopping within. Many dealers will lower prices even further at the end of the month to guarantee a sale because they have quotas they need to meet.
End of the calendar or financial year
Most dealerships will have sales quotas that they are trying to reach, typically the end of the financial or calendar year. In the run up to these deadlines, you may find dealers far more willing to compromise in order to get the deal across the line.
Model run-out
If a new model of the car you're after is coming soon, dealers often have run-out specials on the outgoing models. This can be your chance to nab a good deal on a car at the end of its model-year, which are usually the best and most reliable versions of the vehicle with all the manufacturer's bugs ironed out.
If it all seems too hard, consider a car buying service
If you're buying a new or demo vehicle, a car buying service can take a lot of hassle out of the process. A car buying service will have special arrangements with dealerships and can give you fleet pricing, which saves you going back and forth. They can also organise test drives and even deliver the car straight to your door. This makes it possible to purchase a vehicle without ever setting foot in a showroom.
All you need to know is the model of car you're after, and away you go. There are usually no upfront fees however the baked-in fee will usually be reflected in the final receipt. Car buying services can also arrange finance, car insurance and more.
Hit the Road
If all has gone well, you should have reached the end of the process with the vehicle you wanted at a price you're comfortable paying. At that point, the hard work is done, and you'll be ready to hit the road and get started on enjoying your new car for years to come. Enjoy the ride!
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This article is not financial advice.
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