First, we will discuss several factors that should be given consideration when you are attempting to negotiate a price that is favorable for you when you buy or sell a car.
1. Use the Internet to get as much pricing information as you can about the car you want to buy and/or the car you want to sell. An article in The Wall Street Journal (10-22-06) stated in this regard that consumers who used the Web to obtain price related information paid an average of several hundred dollars less than the average buyers of the same vehicles.
The article also mentioned that there are a number of online services that will assist people in purchasing a car, but surprisingly stated that although these services make the car buying process easier, a person is likely to pay more for the car than they would if they did their own negotiating.
2. If you intend to purchase a new car and have a choice between purchasing the newest model or the prior year’s model, keep in mind that you may pay a lower price on the prior year’s model, but that car’s resale value will reflect an extra year of depreciation that could be costly if you decide to sell that car within the following few years. However, the longer you plan to own a car, the less significant the depreciation factor will be.
Furthermore, a Wall Street Journal article (10-12-03) stated that during some periods when buying incentives are given by car makers on new cars, the depreciation rates increase on most domestic cars. The reason, according to the article, is that the attractive deals on the new cars cause a glut of used vehicles on the market, thereby pushing down the values of used cars. As a result, the values of some domestic used cars plummet as much as 45% in just the first year. However, several brands of used foreign cars generally hold their value much better than most domestic cars.
3. When you want a dealer to provide you with an offer on a brand new car, request the salesman to quote a specific dollar amount above or below the factory invoice price for the model in which you are interested.
- Before you visit any auto dealers, go to a web site to get a free report as to the amount dealers receive for holdbacks and incentives, an estimate of the actual dealer cost, and the average price that buyers are paying
- Examine the factory invoice to make certain that the total price you have been quoted by the dealer is correct.
- The amount above the factory invoice price should be without regard to special features, so you will not need to negotiate separately for each car of the same model that you are considering, and you will know the cost of the special features.
- Be sure to ask the salesman if there will be additional fees. Some fees (e.g., preparing documents) are negotiable, while others are part of the dealer’s cost of doing business (e.g., floor planning) and, therefore, you should not be required to pay them. As a general rule, fees that are not included on the factory invoice do not need to be paid.
4. Carefully evaluate any incentive offers to purchase a car. Sometimes car buyers are given an option to choose between a low — or even zero — interest rate to purchase the car and a cash rebate. Most buyers apparently choose the low interest rate loan. However, an article in The Wall Street Journal (10-1-86) stated that, “Calculations by finance experts show that the cash rebates being offered as alternatives on most models can be the more economical way to go – sometimes by a substantial margin.”