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Buying a New Car: Tips for Negotiating a Good Price

Buying a car can be intimidating. Just the thought of walking into a dealership and haggling with a salesperson can fill almost anyone with dread. But negotiating a new car’s price doesn’t need to be difficult when armed with some basic knowledge and a few tactics for negotiating the price.

Check out these tips to help you get the best deal on your new car.

Run the Numbers 

Before you go to the dealer, get to know about and research these items.

  • Manufacturer’s suggested retail price. Known as the sticker price, the MSRP is the price you see on the car window sticker at the dealership. It’s what the manufacturer recommends the dealer ask for the vehicle. It’s also called the “Monroney” label.
  • Fair market range. The “going rate” for a specific make and model at dealerships in your area. It’s what you might expect to pay. Use this tool from Kelley Blue Book, our sister site, to determine the fair market range of any selected car.
  • Dealer invoice price. The amount the dealer pays the manufacturer.

Typically the MSRP is the highest number, the dealer invoice price is the lowest, and the fair market range is in the middle.

The difference between the MSRP and the dealer invoice price will give you an idea of what you can negotiate. You may have more negotiating room than you think. That’s because when a dealer sells a car, the manufacturer pays them a percentage of the invoice price or MSRP.

Your goal should be to pay as little over the invoice price as possible, so start your negotiations there or a little lower.

Another set of numbers you need to research before setting foot in any dealership include any manufacturer incentives and financing offers.

But be prepared to potentially pay more than MSRP on select vehicles affected by inventory and chip shortages due to the pandemic.

According to Cox Automotive Senior Economist Charlie Chesbrough, the average transaction price stood at $40,472 in March (the latest data available), while the average MSRP for those vehicles was $41,973. That means car buyers now tend to pay slightly less than manufacturers ask. (Cox Automotive is the parent company to Autotrader.)

RELATED STORIES: Car Invoice Price and Dealer Markup: Tips for Buying a Car

Be Careful What You Share

What seems like idle chit-chat between you and the salesperson isn’t actually that. Salespeople use any information you give them to their advantage during the negotiation process. So, share as little as possible.

They don’t need to know why you need a new car, your maximum budget, if you plan to finance the purchase, or whether you have a trade-in.

They need to know that you want to buy a car.

Keep Negotiations Separate

When you buy a new car, there’s often more to negotiate than the vehicle’s sale price. You will need to arrange financing terms if you plan to get a loan. If you trade in an existing car, you will need to negotiate its value. Another possible negotiation would be for add-ons like an extended warranty or audio system upgrade.

It’s in the dealer’s best interest to roll these transactions into one because they can give you a good deal on one part while making a profit on another. But it makes negotiating more complicated for you because it’s tough to tell what you’re paying for each item.

You might end up with a great deal on the car but terrible financing terms. Or you could get shortchanged on your current vehicle’s trade-in value. But if you’re negotiating everything together, you might never know it.

Talk Price, Not Payment

Make sure you negotiate the price of the car — not the monthly payment. It’s easy for dealers to lower the monthly payment by extending the loan term instead of reducing the car’s price.

If negotiations center on the monthly payment, it can be hard to figure out the car’s purchase price. You could end up overspending on the vehicle. But you won’t know if you focus on the monthly payment alone.

Here’s what we mean: Say you’re looking at a $30,000 car, and you hope to get your payments under $300 per month. If you tell that to the dealership, they may need to stretch your loan term out to 72 months or more — but they can probably get your payment under $300 per month.

In doing so, however, they may have charged you $31,000 or $32,000 for the car. You’ll never know because you were focused on the payment rather than the purchase price.

Don’t Throw Out the First Number

While you want to start your side of the negotiations close to the dealer invoice price, you don’t want to be the first person to suggest a price. That tips your hand and lets the dealer know what you’re willing to pay.

Instead, ask for the dealer’s best price and make sure it’s the price it will cost you to drive the car off the lot, including taxes, fees, and whatever options and dealer add-ons you want. There shouldn’t be any surprises when it’s time to sign the sales contract.

Chances are, they won’t make you their best offer upfront. But it gives you a place to start. Whatever price they present, you know they can probably go lower.

Now you can use the invoice price you researched to start your side of the negotiation. They may come back with a counteroffer. That’s okay — it’s part of the process. It might take a little bit of back and forth until you agree on a price.

Get Prices From Multiple Dealers

Unless you live in a small town, there are probably multiple dealers selling the same cars within a short drive of where you live. Suppose you’re willing to visit more dealerships. You can try using the price you negotiate with one of them to get a lower price with another.

Here’s what we mean: Let’s say you go to dealership Y a few minutes down the road and negotiate a price of $25,000 for a 2021 Honda Accord LX. You can go to dealership Z across town and try to get them to beat it. They may be willing to offer you a lower price to get the sale.

Be Prepared to Walk Away

Once you start negotiating, it’s easy to feel like you must leave the dealership with a new car. We get it. The last thing you want to do is start over. But be prepared to walk away. If not, you’re giving the salesperson the upper hand.

Stand your ground. If the salesperson insists on negotiating the entire transaction together, don’t be afraid to leave. For example, the salesperson may try to discuss monthly payments instead of the car’s price. Or, you’re maybe you’re not comfortable with the deal they’re offering. You can always return another time or buy a car from a different dealer.

No matter how much you love a particular car or how much time you’ve spent negotiating, don’t let those reasons sway you into taking a deal that’s not optimal. It’s not worth it.

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Editor’s note: This article has been updated for accuracy since it was originally published. Jennifer Brozic contributed to this report.

 

Doug Demuro
Doug DeMuro writes articles and makes videos, mainly about cars. Doug was born in Denver, Colorado, and received an economics degree from Emory University in Atlanta. After graduation, Doug spent three years working for Porsche Cars North America. Eventually, he quit his job to become a writer, largely because it meant that he no longer had to wear pants. Doug’s work has been featured in a... Read More

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