Car Negotiation Coach

Car dealers will always run a vehicle history report on your trade-in before they buy it from you, so why wouldn’t you do the same when buying used from them or a private party?

Before you purchase a used car, it’s essential that you get both a vehicle history report and a car inspection, even if the car is certified.   With a vehicle history report (also known as a used car history report), you’ll be able to tell if the car has been in a major accident, recalled, storm or flood damaged, in a fire, or stolen.   

Finding out if the car has been misrepresented before you buy will save you major headaches and is well worth the small price of the report.  If you do find something wrong with the car but still want to buy it, you can use the vehicle history report to your advantage in negotiations.  Simply point out the flaws and demand the price be lowered.  Demand is a strong word, but warranted in this case because you’ve likely found a major defect that was covered up or overlooked and should be reflected in the price. 

How does a Vehicle History Report Work?

Just enter a VIN number (the 17 digit number that’s unique for every car, like a fingerprint) and you’ll get immediate access to a printable report that contains:

• Whether an accident has ever been reported on the vehicle
• Total number of previous owners
• Any police reports available
• Any major accidents
• Recorded mileage when the vehicle has changed hands (to help detect odometer fraud)
• If the car was ever reported as a lemon
• Any manufacturer recalls
• If the car was ever used as a fleet or rental car

Where do I get a Vehicle History Report and what’s the cost?

You can quickly get one online. There are two main providers, CARFAX and Autocheck.  I suggest using Autocheck because they’re cheaper, have access to more car data than CARFAX, and give you an “Autocheck Score” which tells you how a particular car measures up to others of the same make and model. 

For a single report on one car, it’s:

• $29.99 at Autocheck
• $34.99 at CARFAX

For reports on multiple cars, it’s:

• $44.99 at Autocheck (for unlimited reports)
• $44.99 at CARFAX (for 5 reports)

For a more detailed comparison between CARFAX and Autocheck read this. 

In addition to a used car history report, it’s also important to get a car inspected by a certified mechanic.  This will cost a little more, but will help you catch any other issues that were not reported. 

Remember this used car buying advice:  Both a vehicle history report and inspection by a certified mechanic will significantly reduce your risk when buying a new car.

Don’t take offense to the title, your father’s car buying advice was great until the past few years.  He probably taught you how to handle yourself at the dealership…act disinterested, throw out a low-ball offer, and never take the first counter-offer.  But with the tools available on the Internet, those old negotiating tips are no longer appropriate.

There are two popular schools of thought on how to negotiate car price.  Each strategy is based around making an offer and negotiating until you get close to your target car price.  But these approaches are based on the idea of negotiating with a single salesman and have become outdated.  Let’s take a look and see why these negotiating tactics will cost you money.

The 1st strategy:  Negotiate down from MSRP.

This is probably the most common tactic used to negotiate at a car dealership.  MSRP or Manufacturer’s Suggested Retail Price is the “sticker” price required by law to be shown in the window of a new car.   Most people know not to pay full price for a car and will try to work the price down from the sticker.

It’s common to start by throwing out a low-ball offer and attempting to haggle until a salseman comes down in price.  But this approach is flawed because the second you make an offer, you’ve set a price floor for yourself.  Now the salesman has a negotiating range to work with.   He’ll never counter-offer below your first bid, so the only place you’ve got to go is up.  And if you happen to make a mistake and set your initial offer too high, you’ve compounded the problem even more.

The 2nd strategy: Negotiate up from dealer Invoice.

Dealer invoice is the wholesale price paid by a car dealer to the manufacturer.  The theory here is that you find out what the car dealer paid and make an offer with a small margin of 2-5% to give them a fair profit and still get a good deal for yourself.  This approach is slightly better than the first, but still has inherent problems.  Again, as soon as you make an offer, you’ve set a floor and established a negotiating range for the dealer. 

On top of that, dealer invoice is not the lowest possible car price.  Both dealerships and car salesman have bonuses tied to sales quotas.  When either gets close to hitting their numbers, they become very interested in selling the last few cars.  These bonuses for selling multiple cars may greatly exceed any discounts they offer to you for an individual car. As a result, it’s occasionally possible to buy a car below dealer invoice.

So what’s the most effective car negotiation strategy?

The answer is to never make an offer to a dealer at all.  Instead, email multiple car dealers and ask them to make YOU an offer.   You will share the best price you have been quoted so far and ask them to beat it.

Do this by getting car quotes from several dealers and ordering them from the most expensive to least expensive.  Starting with the most expensive, ask if they can beat your best offer.  Work your way down through your offers updating your best offer as you go.

By negotiating this way, you’ll systematically reduce the price of the car.  Read the full Car Negotiation Crash Course and take advantage of the sample emails you can send to car dealers.

When you get a lower than expected trade-in appraisal at the dealership, it can be tempting to stop negotiations.  You may believe you could get a better offer somewhere else.  While this may be true, you must remember to factor in tax savings to perform a true comparison. 

Most states will credit the value of your trade-in when determining the purchase price for sales tax calculations.  This can result in a nice discount off the total amount you’ll pay.  If you were to sell your car independently, you would not be able to take advantage of this savings.

Remember this trade-in formula:

      trade in value times 6%* = tax savings

 *Sales tax varies from state to state, so use your own state’s tax %, but 6% is the norm.

For Example

If you were to buy a $25,000 car and had a trade-in worth $15,000, your sales tax would be on $10,000 instead of the full $25,000.  If your tax rate is 6%, that would result in a savings of $900. If your appraisal is up to $900 less than what you could get independently, you’re still better off selling to the dealer. And of course it’s less of a hassle as well.

      $15,000 X .06 = $900

You may not be familiar with CSI, but believe me car dealerships are intimately aware of this term.  CSI (Customer Satisfaction Index) is a rating system for car dealerships.   

You know that survey your receive in the mail after buying a car?  It’s collected by the manufacturer and converted into a score to rate both your salesman and the dealership.  Manufacturers ask new car buyers about every aspect of the car buying process from the professionalism of the salesman, cleanliness of the dealership, to the selection of vehicles in stock.   

So why do you care about CSI?

Because it’s important to car dealers and therefore it should be a tool in your negotiating tool kit. 

This score can affect bonuses earned by both the dealership and individual salesmen.  It can also affect how many cars are released to a dealership by the manufacturer.  Salesman are so anxious for a positive score, you’ll often be coached before you leave the dealership to answer the survey with the highest possible ratings.  But take notice that it will not be brought up until after negotiations are over.  This is because it can become a negotiating chip in your favor.

How can you use CSI to your advantage?

As a smart buyer, CSI won’t come up in conversation while you are negotiating car price.  That’s because you won’t be talking with a salesman, but instead negotiating with multiple car dealers over email.  However, after you’ve settled on price, you’ll still need to negotiate your trade-in and financing at the dealership.  This is a great time to mention the survey. 

You want to be subtle, but point out you are aware of the importance of the CSI score.   Before you hand over your keys, state that if you get a good value for trade-in, you’ll be happy to complete any customer satisfaction surveys you receive with the highest possible marks.  Simply by acknowledging the CSI score, your salesman may be more flexible negotiating trade-in and financing.  What have you got to lose?

What do you need to bring to the car dealership when closing the deal? Here’s a checklist:

1. Valid driver’s license
2. Proof of insurance
3. Checkbook (and a credit card for part of the down payment if they’ll let you—get the points!)
4. Pre-approved check or letter with interest rate
5. Vehicle Registration for your trade-in
6. Title or loan documentation
7. Your trade-in, including all spare keys and manuals. Optional: any regular maintenance documentation that may help establish a higher value.
8. Trade-in appraisal (so you can use it to negotiate and get more for your trade-in)
9. The salesman’s email with the specification of the car and agreed upon price (assuming you followed the steps to find the best car price BEFORE heading to the dealership).

And #10, a full stomach.  The negotiations are not quite over.  Even though you’ve settled on the price of a car, it’s not time to relax just yet.  Be prepared for a few hours at the dealership to negotiate your trade-in and financing and sign paperwork.  Handling the Finance Office correctly can save you almost as much money as negotiating a good car price.

Now on to some great posts from friends of the Coach:

• Studenomics answers: Can you build credit with a car purchase?
• Women-Drivers.com breaks down how to avoid a lemon when buying used.
• Money Help for Christians explains how to buy cars with cash by making payments to yourself.
• Free From Broke reminds us about the costs to consider when buying a car.
• Lease a car cheaply by the Wealth Pilgrim.
• And finally, I’ve been mentioned on (and you should check out) these great Yakezie sites: BucksomeBoomer, OutofDebtAgain, FinanciallyPoor, PF-Firewall, NotMadeofMoney, and InvestItWisely.