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Buying Tips
How to Get a Used Car Bargain
Part Three: Negotiating and Closing the Deal
By Philip Reed, Senior Consumer Advice Editor and John DiPietro
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Edmunds.com editors Philip Reed and John DiPietro recently shopped for the
best used family sedan they could buy in the $11,000 to $13,000 range. Their findings
were the basis for this three-part series.
In the first
article, we told you how to identify good used cars that could be bought at
bargain prices. We also stressed the importance of arranging financing before
going to the dealership or buying from a private party.
In the second article,
we showed how to shop for used cars by locating several likely candidates you
might want to buy. Then we learned how to test-drive and evaluate the overall
condition of these so-called "target cars."
In this final installment, we'll look at how to negotiate for a used car (you'll
get to see how John and Phil handled this phase). Then, when a deal is reached,
you'll need to make sure you cover all your bases before you sign on the dotted
line.
Negotiating for a Used Car
Negotiating.
The very word makes most people cringe. Add the words used cars, and some
people run in terror. But negotiating doesn't have to be a grueling experience.
With the right preparation and a few simple rules, negotiating can be fun and
exciting. And if you make a good deal, it gives you a great sense of satisfaction.
There are different negotiating styles for different personalities. And if you
use Edmunds.com True Market Value® pricing, you can avoid much
of the haggling. We'll address this point in more detail later.
Here are three simple rules that should carry you safely through the negotiating
process:
- Know the numbers before you begin negotiating
- Always be ready to walk away from a deal you don't like
- Make a low offer and sweeten the deal by small increments
Let's look at each step in more detail.
Rule 1: Know the Numbers
By now, you should know the approximate value of the used car you're considering.
Just knowing this value will make you a better negotiator. After all,
if you know the car is worth only $12,000 and the dealer is insisting it's worth
$14,000, it will be difficult for him to convince you to buy it.
Rest assured that the dealer will give you all kinds of reasons to justify his
price. The dealership's overhead is expensive, they had to clean or repair the
car, your Internet figures are "way off," and the like. But if you have looked
up the TMV® of the car on Edmunds.com (and included all options
and allowed for the mileage) you should be very close to the right price.
Before you leave for the car lot, you should print out Edmunds.com True Market
Value page for the used car you want to buy. If you have been shopping for some
time, you will have also gained first-hand knowledge of car prices in your area.
Then when you spot the right car, at a good price, you can make a competitive
offer.
Rule 2: Always Be Ready to Walk
If a dealer knows you are in love with the car you just test-drove, you will
be in a weak position to negotiate. But if he thinks you might walk away without
buying, he will treat you carefully. Open negotiations by saying, "I'm ready
to buy today if we can reach an agreement on the price." With this phrase, you
are striking just the right balance. Why? You are letting the dealer know that
you're serious about buying a car, not just "kicking tires." A dealer is more
apt to give you his best price if he feels he might have a solid sale right
then and there, as opposed to throwing a higher price out to someone whom he
feels is just wasting the dealership's time.
There are people who say that the best way to get a good deal on a used car
is to walk out three times. We don't believe the process has to be that drawn
out. And it doesn't have to be confrontational either. But you do need to let
the dealer know that you will walk out if you don't get the price you want.
Jumping ahead a little, here's a simple tip. After you've made your offer to
the salesperson, and he's taking your offer to his manager, get up and leave
the sales room. It shows that you don't feel under obligation to remain under
their control. Go look at the cars in the show room. Or go to the restroom.
Or tell them you need to get something out of your car. It's a little show of
force that will help you make a good deal.
Rule 3: Make a Low Offer and Sweeten the Deal Slowly
The best way to explain this rule is to use some real numbers. Let's return
to the car-buying exploits of Edmunds.com editors John DiPietro and Phil Reed.
John and Phil had located a 2000 Mazda 626 LX for $12,595. When Phil's financing
was delayed, they continued shopping and spotted a newspaper ad for a 2000 Mitsubishi
Galant ES, with 19,000 miles for $12,500. They were curious to see if they could
get the Mitsubishi for a substantially lower price than the Mazda.
Phil called the number listed in the ad and learned the Mitsubishi was at an
Acura dealership in Southern California. Although the price was listed as $12,500
he asked the dealer what it was selling for. "We have it listed for $12,995,"
the dealer said. When Phil said it was listed in the newspaper at $12,500, the
dealer corrected himself. "We haven't got the new listings yet," he explained.
"Anyway, it's the end of the month. And the car's been on the lot a long time.
So come on down and take advantage of me."
Using "CarFax"
A valuable resource when used car shopping is the service known as CarFax. If
you enter a car's Vehicle Identification Number (VIN number) you can obtain
a report of the car's history. Most significantly, you will find if it has a
"salvage title." This means an insurance company, probably because of an accident,
considered it a total loss. But you may also learn if there were any recalls
and how many owners the car has had.
The CarFax service costs $14.95 for a single car. But you can get an unlimited
number of reports during a two-month period for $19.95. Our recommendation is
that you initiate this service at the beginning of your car buying process and
check every car before you seriously consider buying it.
Phil and John drove to the Acura dealership and test-drove the Mitsubishi. Together,
they inspected the car as carefully as possible without taking it to a mechanic.
(In part two, we explained that if a car is still under factory warranty, has
been well-maintained and has a solid reliability record, it isn't essential
to take it to a mechanic before buying it. However, if you have doubts about
the car's mechanical condition or don't feel confident evaluating this yourself,
have it inspected by a mechanic.)
Making an Opening Offer
When the salesman was out of earshot, Phil and John decided they would try to
get the car for $11,800 and open by offering $11,500. When the salesman returned
Phil told him he was ready to make an offer on the car. He explained that they
had already made a deal on a Mazda 626 LX at another lot. The deal on the Mazda
was for $12,595, and he really liked that car. But he said he also liked the
Mitsubishi and would buy it if the price were an improvement over the Mazda.
Therefore, he said, he was willing to pay $11,500.
The salesman received the offer with a puzzled frown. He asked if the offer
was "out the door." Or was it before tax and license? "Before tax and license
fees," Phil said. The salesman invited them inside, and they went into a sales
room. The salesman pulled out a "four square" worksheet (used by car salesmen
to negotiate) and asked a series of questions. Phil had already stated that
he was a cash buyer, with no trade-in, so this step was simple.
The salesman began searching for a way to make the deal more attractive to the
sales manager. Did Phil want to buy Lo Jack or an extended service warranty?
He declined both of these offers.
Finally, John said, "We know this is below your asking price. But take it in
to your boss and see what happens."
The salesman left. While he was gone John, a rabid car enthusiast, busily inspected
the new models on the showroom floor. Phil went to his car to get his cellular
phone.
The salesman returned moments later with the four square worksheet. Phil's offer
of $11,500 was circled with a large question mark beside it. Apparently, this
was the manager's way of saying that it was just too low to consider. The salesman
once again began explaining that their initial asking price was $12,995. So
for them to consider such a low offer was out of the question.
Phil countered by reminding the salesman that they were there because of the
advertised price of $12,500. Furthermore, he said, the Mazda really was a great
car at $12,595 and he was tempted to return and buy it. However, Phil admitted
that the $11,500 offer on the Mitsubishi might have been low so he increased
his offer to $11,800. The salesman left to take this new offer to his sales
manager.
Don't Be Distracted When Negotiating
Moments later the salesman returned with the news that they would consider selling
the car for $12,295 if Phil bought a Lo Jack contract or an extended service
warranty. Phil said he wasn't interested in either of these extras and his offer
was still $11,800. The salesman said without the extras, they wouldn't be making
enough money on the deal to make it worthwhile to sell the Mitsubishi at that
price.
So far, Phil and John had been in the salesroom for about 45 minutes. Phil began
feeling that they weren't making enough progress on this deal. He said, "I think
$11,800 is a realistic price for this car, but apparently I'm wrong. I want
to apologize for wasting your time. I guess I'll have to go back and buy that
Mazda."
The salesman said he felt they were actually very close to making a deal. They
just needed to make the transaction more profitable for the dealership. He once
again talked about the service warranty and the Lo Jack. Again, Phil said he
didn't want either but he would make a final offer of $12,000. John, tiring
of these tactics, nudged the salesman to take the offer to his boss by saying,
"Try it out and see what he says."
Be Ready for the Closer
In some dealerships, a closer is brought in when the salesperson can't make
a deal. Usually, the closer tries for a few hundred dollars extra in the deal.
Or, he tries to get the customer to agree to the last offer by the dealership.
While the name "closer" sounds frightening, closers are often personable, skilled
sales people. While some may apply pressure, most will attempt to make a deal
by reasoning with a customer or cajoling them. In this case, the closer brought
in a Kelley Blue Book print out showing how much the car was worth. He also
explained that they wouldn't make much money if they sold the car for $12,000.
Phil was ready to come up another $200 but, unexpectedly, the closer agreed
to the offer. Using a blue marker, he wrote on the four square, "My children
will go shoeless and hungry, but you can have the car for $12,000." He added,
"Sometimes I even draw in little tear drops."
Closing the Deal
At this point the salesperson will probably extend his or her hand and say,
"Congratulations! We have a deal!" Shake hands and agree to the deal. But keep
in mind that nothing is binding until you sign the contract.
Several things need to happen before the deal is finished. First, depending
on your state laws, you may need to show proof of insurance. This can often
be arranged in advance or on the spot, by calling your insurance agent (bring
the number with you to the dealership). Then, you need to review and sign the
contract and several related documents. Finally, you may have to deal with last-minute
attempts to sell you extra services.
Some people like the peace of mind that an extended warranty provides. However,
many used cars still have the factory warranty in effect. In the case of Phil's
Mitsubishi, there was still a year and a half on the bumper-to-bumper warranty.
Furthermore, a drivetrain warranty is in effect for an additional period. He
felt there was no reason to buy an expensive extended warranty.
While Phil and John were waiting for the contracts to be prepared, the general
manager of the dealership appeared. "So this is the John and Phil team," she
said, laughing. "I just wanted to thank you for helping me lose money on this
deal." This comment, and others, showed that the sales staff had negotiated
in good humor and with a sense of fair play.
Finally, the paperwork was ready. Phil signed an agreement to furnish an insurance
policy and a "Due Bill." The Due Bill would state what repairs, if any, the
dealership had agreed to perform to the car during the negotiation process.
In Phil's cases, no promises for further repairs were made.
Then Phil signed the actual sales contract. Here is a breakdown of the fees:
| Sale price
of the car |
$12,000.00
|
| Documentation
Fee |
$
45.00
|
| Smog Fee
Paid to Seller |
$
41.75
|
| Smog Fee
Certification |
$
8.25
|
| Sales Tax |
$
966.94
|
| License
Fees |
$
216.00
|
|
|
| Total |
$13,277.94
|
Comparing the Real Market to Edmunds and Kelley Blue Book
How does the purchase price of $12,000 compare to the Edmunds.com TMV price? Edmunds'
says the car could be sold by a dealer for a TMV price of $13,100 (clean condition)
to $13,706 (outstanding condition). Why the disparity? First, we shopped around
for two weeks and jumped on this car as soon as the ad ran. Second, the dealership
was located near an affluent area -- not the kind of place a Mitsubishi Galant
would be in high demand. And finally, it was late in January when many consumers
are dealing with the aftershock of Christmas buying.
However, the Edmunds TMV was much closer to the mark than the Kelley Blue Book.
The Blue Book dealer price was listed on their Web site as $16,005. If they tried
to sell cars at those prices, Phil felt the salesman's children really would starve.
Use TMV® to Avoid Negotiating
Many car buyers might not want to negotiate as actively as the Edmunds editors.
In those cases, the process could be simplified by offering a dealer several hundred
dollars below Edmunds TMV price. If the dealer refuses the offer, raise your price
to the TMV and show the salesperson a printout of the TMV figure. Dealers have
indicated that TMV is a fair price for both parties.
Truthfully, Phil would have paid the dealer's starting price of $12,500 for the
Mitsubishi Galant, knowing that Edmunds' TMV price was $13,100. But with two hours'
worth of negotiating, he saved $500 -- well worth the time invested.
Reviewing the Process
In retrospect, John and Phil were helped by several factors. In addition to the
advice already offered, they felt it is important to give car shoppers the following
tips:
Take a friend when you go car shopping. This not only gives you moral support
in negotiating, but your friend might stop you from doing something stupid --
like paying too much or getting switched to a vehicle that isn't right for you.
Choose a good dealership. John and Phil wound up at the Acura dealership
because when they called ahead and chatted with the sales manager, they felt comfortable
with him. When it came time to negotiate, they felt they would be treated fairly,
with no high-pressure tactics.
Have a back-up vehicle. Phil knew he could walk away from the Mitsubishi
at any time and still have a good deal with the Mazda. Referring to this other
car, at another dealership, helped him take a strong stance in negotiating. It
also kept him from becoming emotionally dependant on making a deal on the Mitsubishi.
Buying Used Saves Money -- Big Time
Phil's Mitsubishi Galant was originally purchased in early 2000 for over $17,000.
About 14 months later, Phil bought the car for $12,000 with 19,983 miles on it.
The wear and tear to the car was almost imperceptible. True, there was no new
car smell, but it looked and drove like a new car. And Phil was able to save roughly
$5,000 -- that's nearly a 30 percent savings off the new car price.
For a small sacrifice in terms of "new car magic," a smart used car purchase will
save you a lot of money. And, possibly, it will let you step up to a higher class
of car than you could buy new. The next time you get the urge for a new car, consider
buying used instead.
Part One: Identifying
Your Target Cars & Arranging Financing
Part Two: Locating and
Test-Driving Your Target Cars
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