When buying a car, everyone knows you don’t pay the asking price or sticker price. Right?
The process of buying a car in the United States is unusual in that it’s one of the very few times when we actually negotiate or “haggle” over prices. We don’t do it when buying a refrigerator at Sears, or a TV at BestBuy, or a watermelon at the supermarket. With cars, it’s more like haggling over an old lamp at a garage sale or, if we lived in the Middle East, getting a price on a donkey.
Although buyer-seller negotiating is common in many other countries, most people in the U.S. find it uncomfortable and awkward. Since we don’t do it very often, we’re not very skilled at it. Many people hate it.
Negotiating New-Car Prices
All new cars have standard manufacturer-suggested-retail-prices (MSRP) — retail prices — “sticker” prices that are exactly the same for the same car, same model, same equipment everywhere in the U.S.. Including the word “suggested” suggests that the prices are not necessarily the prices we have to pay. And dealers encourage us to expect less-than-sticker prices by their ads and TV commercials — “We beat anyone’s prices,” or “Less than invoice prices,” or “Lowest prices in town.”
New-car dealers pay their manufacturer (Ford, Honda, Mazda, etc.) a wholesale price for their cars. It’s called invoice price. Simply stated, the difference between invoice price and sticker price is a dealer’s potential profit margin. The nearer he sells to sticker price, the more profit he makes. He can’t sell at or below invoice price because he won’t make any profit, which he needs to stay in business and pay his bills. We’ll discuss an exception to this statement in a moment.
To negotiate prices with a new-car dealer therefore requires that you know your numbers — the MSRP sticker price and the invoice price. Your buying price will be somewhere in between, depending on your negotiating skills. One of the best ways to know what to pay for a new car is to find out what other people are paying for the same car you want. TrueCar is a web site that allows you to do exactly that. They also show you local dealers who are willing to sell at that price or below. Also visit Edmunds.com and look at their True Market Value (TMV) price for your car, which tells you the price your car is actually selling for around the country. Compare TrueCar and Edmunds prices to get a good idea of the price you should have to pay.
Some dealers advertise that they sell cars at less than invoice (wholesale) price. Can this be true?
Car manufacturers frequently offer customer rebates and “hidden” factory-to-dealer cash (“incentives”) that allows dealers to sell cars at prices that are below invoice prices. Since all the money doesn’t come out their own pockets, dealers can still make a profit and stay in business. These deals are usually limited to a short timeframe, typically only a month, and may be restricted to only certain models and styles. But, if you like the vehicle being promoted and can act within the required timeframe, you may get yourself a fine deal.
Taking advantage of car company incentives is absolutely the best way to get a great car deal — and without negotiation or haggling. See Best Car Deals for details on current car manufacturer incentives.
Negotiating Used-Car Prices
Used car prices are a bit tricky due to the fact that there are no standard “MSRP” prices. Anyone selling a used car, dealer or individual, can ask any price he chooses. Unlike brand new cars in perfect new condtion, used cars can be in any condition from like-new to junk. Used cars all have a “history” — single owner or multiple owners, driven only on weekends or driven hard and abused, well maintained by caring owners or ignored, never damaged or totalled in an accident and “restored,” low mileage or high mileage, problems or no problems.
Therefore, determining the fair price for a used car is not very straightforward as it is for a new car. If you are a potential buyer of a used car, you should know that the seller or dealer has almost certainly set the asking price higher than the actual value of the car, anticipating that buyers will want to negotiate a lower price.
What you pay for a used car is determined by its fair market price, its condition, and its mileage. For details about how to determine what to pay for your used car, based on all these factors, see our article, Negotiating Used Car Prices.