How to Negotiate for a Used Car

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A couple of
months ago, I wrote about how
to buy a used car
. I went through all the steps except for negotiating
because it’s a topic deserving of its very own post. A post
which I’ll tackle today.

Now to begin,
here’s my honest confession: I suck at negotiating.

And it becomes
really apparent whenever I negotiate for big purchase items like
cars. When Kate and I had to buy a “new” car last year,
I stunk it up. It wasn’t for a lack of trying. I was actually
excited about the chance to improve my negotiating chops. I felt
ready to walk into the dealership and make a deal.

But I punted.
When the dealer started putting out numbers, I hemmed and hawed.

Thankfully,
Kate is a kickass negotiator. I think it’s her Italian heritage
that makes her so good. Maybe the Polish. I don’t know. She’s
just good at it. She saw that I was flubbing it up and took over
the reins and got us a good deal.

As we drove
away in our new car, I’ll admit that my manly ego was bruised.
And I could tell Kate was disappointed that I hadn’t been able
to take the lead.

I thought,
“I’m the man damnit! I should know how to negotiate and
not have to let my wife do it.”

Perhaps that’s
not too mature. I’m definitely lucky to have a wife who knows
how to haggle like an Arabian bazaar merchant. But I’d like
to be able to hold my own in this arena as well.

So I used the
experience to double down on my efforts to improve my bargaining
skills. In an effort to prepare myself for the next time we have
to buy a car, I did some research, asked guys I know for their negotiating
tips, and went along with a friend who was buying a car. Here’s
what I learned along the way.

Knowledge
Is Power

In the negotiation
game, knowledge is truly power. And in the car buying business,
the car salesman usually has the most information. Think about it.
When the average buyer walks into the dealer, he’ll immediately
divulge to the salesman which car he wants, how much he can pay
per month, and which vehicle he’s trading in.

Meanwhile,
the salesman gives away no information that would help the buyer.
Information like how much the car really cost the dealership, how
low they’ll really sell it for, or what’s the real value
on the buyer’s trade-in.

Who do you
think’s going to get the better deal in this scenario? The
dealer, of course. He’s the one with all the information!

Thus, to minimize
the amount you pay for a car, you need to do two things: 1) hold
your cards close by not telling the dealer exactly what you’re
looking for or how much you’re willing to pay and 2) find out
as much information about the car you want to buy before you walk
into the dealership.

Know How
Dealers Make Their Money

When you’re
talking with a dealer, it’s important to know that dealers
make money three different ways with each customer.

  1. They can
    make money on the front end of the purchase by selling the car
    for more than what they paid to buy it.
  2. They can
    make money on the back end, selling you things like financing,
    extended warranties, and dealer add-ons like rustproofing.
  3. If the dealer
    includes trade-in value, they can make money on the difference
    between what they pay for your car and what they get when they
    sell it.

Most buyers
just focus on #1. However, car dealers might actually make more
money on numbers #2 and #3. Thus, when you start negotiating for
a used car, take into account things like financing and the trade-in
value of your current car when calculating the final price.

How to Negotiate
for a Used Car

Buy cars that
are at least two years old. Why two years old? Well, they’re
new enough that they still look nice and probably don’t have
a lot of problems. But more importantly, a new car’s wholesale
value drops between 45 and 55 percent of its original sticker price
after two years. What a bargain!

Read Consumer
Reports annual auto issue.
Consumer Reports annual
auto issue comes out every April and has a used car section that
gives you info like lists of most reliable and least reliable used
cars and frequency-of-repair records for recent model years. This
information can help you create a list of used cars you want to
check out.

Get the
big picture value.
Once you have a list of possible used cars,
get an idea of how much they generally go for by checking the Kelley
Blue Book’s Guide to Used Cars
and the National
Automobile Dealer’s Official Used Car Guide
. Don’t
just rely on the website versions of these value guides. The websites
won’t give you a car’s wholesale price, just the retail
value. The wholesale price is what dealers use to determine how
much they should pay for a car. After paying the wholesale price,
dealers jack the price up for retail. You want to buy the used car
for as close to the wholesale price as possible.

However, don’t
take these values too literally. The values in the Blue Book
or Official Used Car Guide don’t reflect the specific
situation in your specific market. For example, your town might
have a glut of Astro Minivans (Why are you buying an Astro Minivan?),
so the price on those will be less than the blue book value. So
you’ll need to…

Fine tune
your estimate.
Find out what the going price is for the cars
you want in your area. Check out autotrader.com
for prices in your area.

Check the
dealerships to see if they have the car.
Look on autotrader.com,
call around to the dealerships or check their websites to see if
they have the used car you want and what they’re asking for
it. If they have the car you’re looking for, swing by the car
lot and write down the car’s Vehicle Identification Number.
You’ll need it later.

Read
the rest of the article

June
25, 2010

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