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.

Fearless Negotiating: ... Michael Donaldson Best Price: $2.95 Buy New $7.20 (as of 09:10 UTC - Details)

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.

The Art of Manliness: ... Brett McKay, Kate McKay Best Price: $1.99 Buy New $7.70 (as of 12:35 UTC - Details)

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.

Teach Yourself Car Buy... John Henderson Best Price: $3.78 Buy New $13.58 (as of 09:20 UTC - Details)

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

Consumer Reports: Used... Best Price: $19.39 Buy New $160.55 (as of 10:10 UTC - Details)

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!

Kelley Blue Book Used ... Kelley Blue Book Best Price: $2.13 Buy New $9.95 (as of 10:40 UTC - Details)

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.

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June 25, 2010

The Best of Brett McKay

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