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Negotiating the Price of a New Car

Negotiating the Price of a New Car

I hate negotiating. I also hate paying more for something than I should. Recently my wife and I were in the market for a new car. For the past five years she’s been fortunate to have a company car, but when we moved to St. Louis she made a career change and now needed her own vehicle. After looking at Consumer Reports and test driving a few models she knew exactly what she wanted, including the color combination and features.

The nearest dealership, where we originally test drove the car, did not have the exact configuration we were looking for on their lot, but promised they could get it for us in a matter of days. Their initial price quote for the vehicle was pretty close to MSRP (sticker price) and they promised it was their best deal. When I pressed them, they said they could only go lower if we were willing to take something directly off their lot, but we had already made up our mind on color and features and didn't want to change it for a seemingly nominal price adjustment.

Prior to going to the dealer I had spent a few minutes on the internet researching pricing on this particular vehicle. I knew the MSRP, the invoice price (estimate of the dealer’s cost), and the TRUECar estimate. TRUECar is a service that allows you to see what others have recently paid for the same make/model and provides a price estimate for what you should expect to pay. It even has “no-hassle” pricing arrangements with many dealers so that you can simply print a certificate to take to certain dealers and avoid the negotiation games. In our case the car we were looking to buy had a TRUECar estimate that was $1,500 lower than MSRP. When I brought this up to the salesman at the dealership he said he would speak with the manager and see if there was any more wiggle room. He came back with a price that was still a few hundred higher than the TRUECar estimate, but substantially lower than their initial quote so we shook hands. I felt like I had potentially left few hundred dollars on the table, but pleased we didn’t have to go somewhere else and could instead spend the rest of our weekend doing something more enjoyable than haggling with dealers.

Over the next couple days the dealer attempted to secure us the exact car we wanted through a dealer swap but was unsuccessful. It was the end of the quarter and every dealership was going full steam trying to sell their own cars. Dealer-swaps were on hold for a few days until things calmed down as no one wanted to promise a car to another dealer if they might be able to sell it themselves. This waiting game made me anxious and was frustrating, but also made me realize there might be a better opportunity for us.

If other dealers were focusing all their energy on getting sales before the end of the quarter, perhaps we could just go to a dealer that actually had the exact car we wanted in stock and negotiate a better deal directly with them before the end of the sales quarter. I searched around and found several dealers that actually had the car we wanted. In the process I also noticed a peculiar thing about the TRUECar price estimate—it changed when I typed in different zip codes. Apparently, the TRUECar estimate is really just the lowest price offered by the nearest three dealers that participate in their program. Learning this I began typing in zip codes for any area that I would be willing to drive to, even if they didn’t have the car we wanted in stock (I'll explain why in a moment). Prices varied widely, but in general I found that more suburban and rural dealers had better pricing (presumably due to lower overhead). I even found one dealer that was offering the car at barely over invoice price, which was $3,000 less than MSRP and double the savings I had previously negotiated! The only problem was they also did not have the particular configuration we wanted on their lot, so I wasn’t sure this ultra-low price was even relevant to us.

What I really wanted was the lowest price and the desired configuration (why settle for or when you can have and). The best strategy I could come up with was to go to a dealer with the car in stock and ask them to match the TRUECar price of the dealer with the lowest price. I called ahead, told them I was interested in a car on their lot and asked if they would match another dealer’s price. They said they would so I headed over, but when I arrived and showed them the price I wanted them to match they retracted and said they couldn’t possibly sell it for that low. They then proceeded to give me a several minute defense about how they were very proud of their “competitive" pricing and that the pricing I brought in couldn’t possibly be correct as it was lower than what they bought the car for (not true as it was still a slightly over invoice). They claimed that at the other dealer I would be forced to pay additional charges and that by the time I got out the door it would actually cost more. I shook my head and said the only reason I came down here was they agreed to match the price and that if they weren’t willing to honor it I had no interest.

They tried again to convince me that the price I was looking at wasn’t real. Sensing he was full of it, I pulled out my phone and called the dealer that was offering the lowest price. I confirmed their pricing and asked about any “additional charges," listing off the crazy examples the salesman in front of me had claimed (e.g. scratching off the VIN number). The nice woman at the other dealer laughed and said, “No we don’t add any of those charges and would never scratch the VIN off. This is the real price. We’re trying to move cars before the end of the quarter.” After hanging up, I looked back at the salesman in front of me and said, "Did you hear all that?”

After an uncomforatble silence he said, “Congratulations!” I was’t sure whether he meant “Congratulations, you’re a jerk, now get out of my office” or “Congratulations, I’ll give you the price you want.” I had interpreted it as the former and stood up to leave, but thankfully my wife clarified and it was in fact the latter. We ended up getting the lowest price I could have imagined, the exact car we wanted, and got to drive it off the lot an hour later.

Although much of it was coincidental and flying by the seat of my pants, I learned a lot from this process and the lessons I learned can be applied by anyone. First, you’ll have the most leverage when the dealer has the specific car in stock and when it’s the end of a sales quarter. Second, researching TRUECar pricing offers from all around your area and asking another dealer to simply match the offer of their competitor is far easier and arguably more effective than old-fashioned haggling. Rather than trying to “win” with a silver tongue you simply add transparency to the situation and let them decide how to respond.

Good luck with your next car purchase and let me know if you have the same success we did!

Posted: Decemeber 2014