Archive for category negotiation

Inverting the Screwer vs. Screwee Relationship when Buying a New Car

I’ve never enjoyed the car buying process, which for most people goes something like this*:

  1. The car is a emotional purchase, whether it be a brand loyalty thing, self image thing, they feel they need “this” car to feel whole.

  2. Do 10 minutes to an hour worth of research on the car (mostly on sticker price and number of cup holders)

  3. Decide to go buy the car on a Saturday.

  4. Go to the nearest dealership that sells that car and be forced to work with the one salesperson that saw your first and wasn’t already helping someone else.

  5. Take the car for a superficial test-drive to make sure the car stars, goes forward, and has the required number of cup holders.

  6. At this point (an probably earlier), you decide that you absolutely love this car and must have it now.

  7. After listening to the salesperson tell you all the various ways the car will make you smarter, and more attractive to the opposite sex ( with you nodding in agreement); they say something like “What can I do to get you in this car today?”

  8. You then spend the next 2-3 hours playing the numbers game ( a game you are not even remotely qualified to play at this time ).

  9. The salesperson finally convinces you that you are “getting a great deal” and “taking food from their child’s mouth”.

  10. They send you off to the “finance person” ( for fun ask where they got there business degree ), where they tap into your “love of the car” and guilt trip you into buying crappy extended warranties, paint sealant, and underbody rust protection, to protect your new baby. You then find out that your credit score doesn’t qualify you for the…fill in what ever financial incentive got you in the door.

  11. At this point your probably exhausted; you have so much of your day invested into this process, and you love the car so very much, that the thought of waking away and doing this all over makes you die a little bit on the inside.

  12. So you blindly sign everything they put in front of you, just so you can get out the door and get you “sweet baby” on the road.

*This is reflective of my experiences buying cars in the past. I consider myself slightly above average, so I extrapolate this out to mean “most people”.

Here are the steps I took to not only avoid repeating this mistake, but to tilt the balance of power into my favor.

Step 1: Remove emotion from the equation

You want to be able to walk away from this deal at any point. For me, this was an easy one. My wife and I have been a single car family for almost 9 years. We then got our wonderful son; and the logistics of one kid, one car, and two working professionals became a drag. This coupled with the lackluster and grossly underfunded public transportation in our state, and the societal norm of having one car per driver, made me a little bit angry that I was being “forced” to get a second car. (So technically I wasn’t devoid of all emotion, just the “object-lust” kind).

Step 2: Research

Here is where you want to devote 95 percent of you energy. First you should do your basic “Product” research, this should take about 25% of your research time. You want to do enough “product” research to narrow down you car to a single make, model, and trim package (you only one to focus on one car at a time). Also pick out the options that you really need, ones you like but don’t need, then scratch off the rest. Manufacturer sites are good for this. They provide all the info your looking for as well as the Manufacturer Suggested Retail Price (MSRP) or sticker price. I also found Cars Direct, Edmunds to be helpful for narrowing down the car.

The Test Drive

Once you have the make, model, and trim nailed down to one, find a dealer in the area that has a car in inventory that is close to what you are looking for and go test drive it. When you go for test drive, leave you checkbook and credit card at home and hit your head just hard enough so you forget you Social Security Number. You are still in the research stage and have no intention of buying this car today, no matter what. Make sure to tell the salesperson that you are “looking to test drive but not buy today”. They will still try all their moves on you to try and make the sale, but you have to be insistent. Nothing they can offer you will beat the price you will probably end up getting in the end. Check hear to read more about test driving.

If the test drive passes and you still want the car, you then move into the “Purchasing” research stage. This stage will take up the remaining 75% of your research time. The first thing I highly recommend is to got to Fighting Chance and buy the information packet on the make and model car you want to buy. For the record I am in no way affiliated with James Bragg or fightingchance.com . The packet cost about $40 US for one make and model and each additional make and model is $15 US. The packet consists of 4 main items (the site has sample of each of these):

  1. Current market analysis (sales history and trends) of the state of the US auto industry, state of the manufacturer, and state of model you are looking at.
  2. Current dealer incentives on your selected make and model, and an must read article on how dealer “really” make there money.
  3. Actual dealer invoice numbers for each make and model, broken down by trim package and options. You can also find this info at truecar.com, but the numbers were off a little for me.
  4. A detailed plan to initiate and execute the price negotiation with the dealer to maximize your success. The next site that must read and then re-read is CarBuyingTips.com. What this site lacks in it’s design, more than makes up for it in its content. It cost nothing but, coupled with Fighting Chance will give you everything to level the playing field when it comes negotiating the price.

The Actual Steps I Took After The Research Phase

1. Secure Financing

Securing financing before you even set foot inside the dealership give you 2 thing. * You know what your credit score is and how much you qualify for before you invest any time negotiating. * Removes a huge amount of power, and high profit margin, from the dealer. They’ll have no control of what you payments will be and it make it almost impossible for them you up-sell you on the worthless crap that you don’t need (e.g. diamond windshild sealant, underbody rust inhibitor, crappy extended warranties). TIP: Do not ever disclose how you plan to pay for the car until you have a number locked in and are actually ready to pay for the car.

2. Calculating the Cars Actual Total Cost to the Dealer

CarBuyingTips has a great spreadsheet that lets you plug in all the numbers to get to the dealers total cost. I used ththis to set my target end prices. This spreadsheet factors in a 5% profit margin for the dealer. Use this spreadsheet with the data you get from Fighting Chance and you can take in to consideration all the back end deals the dealer gets from the factory to come to the 5% profit margin. Selling cars is still a for-profit enterprise, we are not trying to rip them off. What you want to strive for is getting to a point where you can tell the dealer exactly how much they are going to make on the sale.

3. Initiating the Non-Negotiation

Fighting Chance goes into great detail on how to do this step. I honestly feel that the service they profide is well worth the price (that $40 saved me about $5000 off the price of my car), so I’m not going to give away the secrets. However the key here is to never negoiate with one dealership. I picked 6 dealerships that had a car that I would have diven off the lot thatday if the price was right, and had them bid against each other for my business via email.

Once I found the winning dealership, I took my number from the calculated totol-cost-to-the-dealer and used pretty standard negotiation stratiges (low-ball, counter, compromise) to get to a price where all parties are happy. This is really what you want anyway in the end.

4. Finalizing the Deal and Side Steeping Landmines

Once you come to a number that everyone agrees on, get a written confirmation. Doing all the negotionan via email gives you a nice paper trail that you can come back to. Only when I went in to sign the purchaes agreement, did I then tell them that I already had financing. It was at this stage where things really started to get interesting. If you are ready for it, this stage can be the most entertaining. Once the dealership realized they I wasn’t going through there fincancing arm. They keep asking me what my rate was and they where pretty sure they could beat it. They told me crazy things like they could get me 1% for 72 months (who wants to finnace a car for 6 years!). They told me that my insurance could would not insure the car unless it was through their credit arm (WTF!). Just remember: that they if you do not fincace through them they cannot easily upsell you and add hundred or thousands to your purchase price, and there commission. After finally getting through that I was not going to go through their finacing arm, we got the PA signed.

However the shenanigans were not over. When I went to take delivery of the car they told me that they needed me and my wifes social security number. Remember we already had are financing lined up so at this point it is a cash transacting to them. When I asked them why they needed our SSN - here is what they said: Patriot Act! I asked them politly to show me the statute in the Patriot Act (or any other Act) that states that the purchace of an automobile requires the dealership to collect the SSN’s of the buyer. In the end they couldn’t (although they did try pretty hard), and I didn’t give them my SSN. Don’t fall for this!

This is now the only way I would ever buy a new car. It was the first time where I felt I was in complete control of the process, and I actually had fun going through it. Hope you do too.

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