Ok, so you have read this thread http://www.bkforum.com/showthread.php?t=22326 done your homework and are ready to buy a car.
For those of you lucky enough to pay cash for a car or who are using "blank check" programs, here are some tips and background information to help you.
First, laws and practices vary from state to state, so some of this may or may not apply. This post is more about negotiating a cash price with a dealership. I am not going to get into the debate about buying private party vs dealership. You can save some money buying private party, but there are risks too. I have bought cars from both, I am not against buying from private party but generally, I have had more problems with the cars I buy from private party than from dealerships. But for me, it is all about the quality of the car and the deal I can make. If I see a good car at a decent price at a dealership, I will go and see what kind of deal I can make, and same goes with private party.
1. If you are going to purchase a car with cash, you really need to do your homework about figuring out how much a car is worth. You need to go to all the sites, NADA, Edmunds, etc etc and get a good sense of what a car is worth. Also, get the specific estimates that take into account features and mileage. Look in your paper and various used car website to see what people are asking for your car of interest.
2. You need to set a cap, be realistic. Once I land on an approximate value for the car I am interested in, I give myself about 10-15% leeway in what I am willing to pay.
3. Know the sales tax percentage for car purchases in your state. And do some calculations so that you can have a rough estimate of how much sales will be at given price points for the car.
The Dealership:
Believe it or not, dealerships HATE cash deals. There are several reasons (1) a cash deal makes it very unlikely they will make any back-end profit on things like service packages, extended warranties, etc. Selling someone on $10 more per month on an extended warranty is much easier than selling a $1000 package. (2) they know that to close the deal, you are looking for somewhat of discount, so they have to cut into front end profit to close the deal, (3) there are other aspects too, but you simply need to realize that cash deals cut into or eliminate potential profit for the dealership.
Dealerships do have costs associated with selling a used car, so some things (depending on your state) you simply can't negotiate directly. And in many states, the dealership DOES pay the taxes, so they have to collect that amount. Also, dealership have some hard costs in getting a used car ready for sale, but much of it is "internal accounting", i.e. the Service dept, will charge the sales dept. $1200 to get a used car ready for sale, but that is internal accounting.
Dealerships make most of their profit on the "back-end" (warranties, service packages, financing, etc), and with incentives. But for used cars, the front end (difference between intake+costs and sale price) can be significant.
If you go to a mainline franchise dealership...you may run into sales associates, floor managers, and Sales Managers. The Sales Managers, no matter what the sales rep or floor manager tells you, is the one putting the numbers on the paper, and this is the person your sales rep is getting up to go see. If a person walks up to on the lot and says they are manager, they are lying (or telling a half truth). It's a technique to try to put you at ease (and in my book a bad technique because you are starting a business transaction based on a lie). They may be floor managers, these guys are basically the closers. If after 2 or 3 go arounds with the sales rep, the next guy you will see is a floor manager...but basically floor managers are sales reps that are good at what they do.
What to Negotiate?
Since you are working on a cash deal, do not negotiate the price of the car directly...unless you are an MIT grad and can do the math in your head regarding taxes, fees, etc that get added on.
Instead, you want to negotiate an "out the door" price. After all, you do not care how the dealership allocates the various fees, profit, taxes, etc. Negotiating "out the door" (OTD) requires that you really did your homework. To figure out a fair OTD, you can anticipate that it will be sale price of car + 10-20% depending on your state. The OTD is the amount you will actually write on your check.
The Negotiation.
Do the normal stuff...identify the car, chat up the sales rep, go on a test drive. He/She will likely try to prequalify you early on, try avoid talking specifics about how you intend to pay until you are either on, or after the test drive.
The first go-around. You want them to make the first hard-offer. So if the salesmen asks you how much are you willing to pay, just say, go get me your best out the door price.
-And so it begins. At this point, depending on the type of car you are looking at, if you have done your homework, you will realistically have about 10% (maybe 15%) leeway with that first number to get a deal. Your counter offer should be a serious (not a ridiculous low ball), but low offer. Depending on what there first number is, I will offer 20% less, assuming 20% would be a realistic selling price for the car, sometimes I will go as low as 25%, but again, my first offers are based on my research.
-The sales rep will go back, the manager will laugh, probably give the sales rep a print-out of an "elevated" KBB or Black book retail value of the car to show you. etc etc.
-BUT If they don't come back with a lower number, you don't offer a higher one.
-Depending on how the conversation goes, I ask at this point to see their intake sheet for the car (i.e. what they actually paid for the car to take it in inventory). You may or may not get this info, and if they give you something, take with a grain of salt. But at this point, you are probably talking with the floor manager. (although there are still a lot of questionable practices in car sales, mainline franchise dealerships are risk averse)
-But again, until they come back with a lower number, you don't offer a higher number.
At some point they will move the number lower, it will be a small move, but nonetheless, it is movement. Now it is your turn. At this point, I will bump up 5%. I'd say something like, alright alright, to close the deal right now, I will pay cash, OTD $xx,xxx.
At this point, they will probably come back and tell you that the number they offered is final...at which point you get up to leave. Then, the floor manager or sales rep will say "if I can get "xx,xxx" would you sign." If your lucky, that number will be your 10% discount mark from their original offer. If not, split the difference: if they are at 8% discount, and you are at 15%, do a quick counter offer at 12% discount. So you say, no, but if you could do $xx,xxx, I will sign. I may even actually take out my check book to drive the point home.
Whatever they come back with, that is probably the best deal you can make that day. Remember, they are NOT going to say yes to your offer, they are going to make you say yes to THEIR offer. So, at this point, you need to make the decision to either close or walk. You may want to bump up your offer a token amount if you think their number is too high, and see what happens.
Keep in mind what they are doing, they are using repetition...the more and different sources telling you the price, you will, subconsciously accept that number...so far you have had the sales rep, print-out, floor manager, tell you multiple times how much they are willing to sell the car for. Again, rely on your research.
Also, stick to your guns, at some point, you will probably be negotiating over a couple hundred bucks, don't give in. Remember, you are negotiating a cash OTD, put the burden on the dealer to find a spot to absorb that two hundred dollars.
Finally, if you just don't think the price is fair, or the final price is above your cap, despite the fact that you have been their for 2-3 hours, walk away. But the flip side is, you need to be fair and realistic about how much the car is worth by doing your homework.
If you close, you are off to the finance manager, where you are basically going to say, no no no, to everything he has to offer, and then sign the paperwork.
Feel free to reply or add your insight.
A side note for blank check buyers (i.e. Like Cap One)...please heed the advice in my other thread about putting some of your own money down toward the purchase, no need to pay interest on money that is not actually part of the value of the car (taxes, fees etc).
For those of you lucky enough to pay cash for a car or who are using "blank check" programs, here are some tips and background information to help you.
First, laws and practices vary from state to state, so some of this may or may not apply. This post is more about negotiating a cash price with a dealership. I am not going to get into the debate about buying private party vs dealership. You can save some money buying private party, but there are risks too. I have bought cars from both, I am not against buying from private party but generally, I have had more problems with the cars I buy from private party than from dealerships. But for me, it is all about the quality of the car and the deal I can make. If I see a good car at a decent price at a dealership, I will go and see what kind of deal I can make, and same goes with private party.
1. If you are going to purchase a car with cash, you really need to do your homework about figuring out how much a car is worth. You need to go to all the sites, NADA, Edmunds, etc etc and get a good sense of what a car is worth. Also, get the specific estimates that take into account features and mileage. Look in your paper and various used car website to see what people are asking for your car of interest.
2. You need to set a cap, be realistic. Once I land on an approximate value for the car I am interested in, I give myself about 10-15% leeway in what I am willing to pay.
3. Know the sales tax percentage for car purchases in your state. And do some calculations so that you can have a rough estimate of how much sales will be at given price points for the car.
The Dealership:
Believe it or not, dealerships HATE cash deals. There are several reasons (1) a cash deal makes it very unlikely they will make any back-end profit on things like service packages, extended warranties, etc. Selling someone on $10 more per month on an extended warranty is much easier than selling a $1000 package. (2) they know that to close the deal, you are looking for somewhat of discount, so they have to cut into front end profit to close the deal, (3) there are other aspects too, but you simply need to realize that cash deals cut into or eliminate potential profit for the dealership.
Dealerships do have costs associated with selling a used car, so some things (depending on your state) you simply can't negotiate directly. And in many states, the dealership DOES pay the taxes, so they have to collect that amount. Also, dealership have some hard costs in getting a used car ready for sale, but much of it is "internal accounting", i.e. the Service dept, will charge the sales dept. $1200 to get a used car ready for sale, but that is internal accounting.
Dealerships make most of their profit on the "back-end" (warranties, service packages, financing, etc), and with incentives. But for used cars, the front end (difference between intake+costs and sale price) can be significant.
If you go to a mainline franchise dealership...you may run into sales associates, floor managers, and Sales Managers. The Sales Managers, no matter what the sales rep or floor manager tells you, is the one putting the numbers on the paper, and this is the person your sales rep is getting up to go see. If a person walks up to on the lot and says they are manager, they are lying (or telling a half truth). It's a technique to try to put you at ease (and in my book a bad technique because you are starting a business transaction based on a lie). They may be floor managers, these guys are basically the closers. If after 2 or 3 go arounds with the sales rep, the next guy you will see is a floor manager...but basically floor managers are sales reps that are good at what they do.
What to Negotiate?
Since you are working on a cash deal, do not negotiate the price of the car directly...unless you are an MIT grad and can do the math in your head regarding taxes, fees, etc that get added on.
Instead, you want to negotiate an "out the door" price. After all, you do not care how the dealership allocates the various fees, profit, taxes, etc. Negotiating "out the door" (OTD) requires that you really did your homework. To figure out a fair OTD, you can anticipate that it will be sale price of car + 10-20% depending on your state. The OTD is the amount you will actually write on your check.
The Negotiation.
Do the normal stuff...identify the car, chat up the sales rep, go on a test drive. He/She will likely try to prequalify you early on, try avoid talking specifics about how you intend to pay until you are either on, or after the test drive.
The first go-around. You want them to make the first hard-offer. So if the salesmen asks you how much are you willing to pay, just say, go get me your best out the door price.
-And so it begins. At this point, depending on the type of car you are looking at, if you have done your homework, you will realistically have about 10% (maybe 15%) leeway with that first number to get a deal. Your counter offer should be a serious (not a ridiculous low ball), but low offer. Depending on what there first number is, I will offer 20% less, assuming 20% would be a realistic selling price for the car, sometimes I will go as low as 25%, but again, my first offers are based on my research.
-The sales rep will go back, the manager will laugh, probably give the sales rep a print-out of an "elevated" KBB or Black book retail value of the car to show you. etc etc.
-BUT If they don't come back with a lower number, you don't offer a higher one.
-Depending on how the conversation goes, I ask at this point to see their intake sheet for the car (i.e. what they actually paid for the car to take it in inventory). You may or may not get this info, and if they give you something, take with a grain of salt. But at this point, you are probably talking with the floor manager. (although there are still a lot of questionable practices in car sales, mainline franchise dealerships are risk averse)
-But again, until they come back with a lower number, you don't offer a higher number.
At some point they will move the number lower, it will be a small move, but nonetheless, it is movement. Now it is your turn. At this point, I will bump up 5%. I'd say something like, alright alright, to close the deal right now, I will pay cash, OTD $xx,xxx.
At this point, they will probably come back and tell you that the number they offered is final...at which point you get up to leave. Then, the floor manager or sales rep will say "if I can get "xx,xxx" would you sign." If your lucky, that number will be your 10% discount mark from their original offer. If not, split the difference: if they are at 8% discount, and you are at 15%, do a quick counter offer at 12% discount. So you say, no, but if you could do $xx,xxx, I will sign. I may even actually take out my check book to drive the point home.
Whatever they come back with, that is probably the best deal you can make that day. Remember, they are NOT going to say yes to your offer, they are going to make you say yes to THEIR offer. So, at this point, you need to make the decision to either close or walk. You may want to bump up your offer a token amount if you think their number is too high, and see what happens.
Keep in mind what they are doing, they are using repetition...the more and different sources telling you the price, you will, subconsciously accept that number...so far you have had the sales rep, print-out, floor manager, tell you multiple times how much they are willing to sell the car for. Again, rely on your research.
Also, stick to your guns, at some point, you will probably be negotiating over a couple hundred bucks, don't give in. Remember, you are negotiating a cash OTD, put the burden on the dealer to find a spot to absorb that two hundred dollars.
Finally, if you just don't think the price is fair, or the final price is above your cap, despite the fact that you have been their for 2-3 hours, walk away. But the flip side is, you need to be fair and realistic about how much the car is worth by doing your homework.
If you close, you are off to the finance manager, where you are basically going to say, no no no, to everything he has to offer, and then sign the paperwork.
Feel free to reply or add your insight.
A side note for blank check buyers (i.e. Like Cap One)...please heed the advice in my other thread about putting some of your own money down toward the purchase, no need to pay interest on money that is not actually part of the value of the car (taxes, fees etc).
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