Continuing with our series on buying used cars, today let us discuss some basic tips on how to deal with car dealers. If you missed the earlier parts, here is what we have covered so far :
- Part 1: Classic Confusions
- Part 2: Understanding Vehicle History
- Part 3: How to Inspect a Used Car
Now, let us move on to the crucial phase in used car buying - how to deal with dealers. There is a lot to write, so I will present the information in the form of a list of tips, instead of a narrative. [In the following, I am using the terms 'salesman' and 'dealer' or 'dealership' in the same sense - they all desperately want to sell a car to you].
Tip 1 - Be very specific about your requirements: For the first few dealers we started our conversation with some lame statement like this: “We are looking for a used car - a Honda Civic or a Toyota Corolla within the price range of $9,000 to $12,000“. Although, some people might say that it’s pretty specific, it still has a lot of unproductive potential.
Here is why:
We were *prepared* with a few prices for specific cars. For example, we carried documents about the True Market Value (representing what others are paying for a similar vehicle around a given zip code), MSRP (usually the dealer sticker price), and invoice price (what the dealer pays for the car) as obtained from Edmunds.com. However, we carried these documents only for Honda Civic and Toyota Corolla models for the years 2003 and 2004 - which, by default, fell within our price range. However, when we mentioned the price range of $9,000 to $12,000, without being any more specific, the salesmen started throwing a lot of options (various model years and mileages) at us. That created a lot of confusion because we didn’t know how to evaluate the worth of each car based on it’s age and year on the spot. Basically, the generic *preparation* (deciding just the budget and the make/model) was pretty much useless and turned out to be a big waste of time.
That’s why you need to be very specific with your car requirements before you start talking to car salesmen. With “specific”, I mean specific to the exact car you want to see, not just the model, model year, and mileage. Find out what the dealer is offering through some online listings (Autotrader.com or the dealer’s own website), choose which of those vehicles fit your criteria. Then (after you verify a clean CARFAX history for those vehicles), call up the dealer and ask if those particular vehicles are still on the lot. At this point, don’t complicate matters by mentioning any price expectations. Just keep it simple, go to the dealer’s lot ONLY if the vehicles you want to check out are still available for sale. A few minutes on the internet and the phone will save you a lot of time and confusion when you physically visit the dealership.
Tip 2 - For each car you choose, decide your ideal price and margin before you head out: After you have confirmed that the car is still available for sale, go online and look up it’s True Market Value on Edmunds.com. Don’t just stop at the standard values ~ go ahead and appraise your car with respect to it’s with color, mileage, condition, etc.
Follow these steps to do it.
- Suppose this is the car you found through Autotrader.com:
- Next, go to Edmunds.com –> Click on “Used Cars” in the top menu –> Then click on “Research Prices and Specs” –> Then you will be asked to select the make/year/model - in that order. Once you do that, you will get a screen that will show these prices:
- Don’t stop here. The True Market Value (or TMV as Edmunds.com calls it) as seen in the above image is just the *typical* value based on normal-use assumptions. You need to click on the “Customized Appraisal” button to get the value for the specific vehicle that you are looking at. Once you click on the “Customized Appraisal” button, you will be asked to enter information like color, mileage, optional features (automatic transmission, power options, etc). After you do that, you will get a pricing report that looks like this:
- Now, check the dealer retail price in the above image and compare it with dealer’s listed price. In this particular case (surprisingly), the actual price offered by the dealer is slightly lower than what Edmunds.com predicts. However, you can see that the private party price is much lower than what the dealer’s list price. Your ideal price for any used vehicle should be near the private party value (may be even slightly lower). For this example, the ideal price is probably around $9,800. Keep a reasonable margin above this in such a way that it still makes this car worth it. In this case, say a margin of $500. So you should start your negotiation from $9800 onwards, and try to target about $10,000 as the final price. However, in the worst case, if the dealer doesn’t agree with your price, and gives you a final quote of $10,250 ~ that would still be in your margin and will turn out to be a good deal for you.
Walk out if the dealer is not ready to negotiate at all, you will find others who will gladly do it.
Tip 3 - Always wait for the salesman to make an offer first: Even if you are very confident about the prices, don’t blurt out your expectations before the salesman makes an offer. At times, you might lose a golden bargain by doing something like this. We, as consumers, do not know anything about the price wars between two salesmen in a given dealership or between two dealerships, etc. It is quite possible that the salesman who is attending you is trying to low-ball his competitor and hence may be ready to offer you an ultimate bargain ~ a chance you will blow away by opening your mouth first.
Again, consider the example in Tip #4; here don’t tell the salesman that you are ready to buy the car if he sells it for less than $10,300. Once you say that you are ready to pay $10,300 for that car, the salesman will start his pitch with something like $10,900. That puts him on top of the situation. Instead, you should force the salesman to offer his best quote first and then you should lead the negotiation by low-balling him quite a bit to start with. This will invariably end up in a better deal for you.
Tip 4 - Don’t even mention the words “monthly payments”: If you do that the salesman is going to catch you on this and raise the stakes by a few dollars every month. The pitch will be something like this: “Why are you buying this old Honda Civic when you can buy this new one for just $50 more per month .. in fact, if you put $50 more, you could upgrade you a bigger and safer Accord“. Believe me, they are really good at this game - so the best thing to do is avoid playing this game altogether. In fact your monthly payment should have been fixed in your mind when you chose your budget and type of car in the first step (see tip #1) and you should let anyone convince you otherwise.
Tip 5 - *Appear* knowledgeable and well-informed: This is a tricky one and I am going to have a hard time trying to explain this to you. If you show your ignorance, you WILL be taken for a ride ~ that’s guaranteed.
For example, we played this dirty trick on one of the dealers when we were tired (and angry) at how things were proceeding on our first day of used car hunting. The salesman was trying to sell us a 2003 Honda Civic (2 door) with 75K miles on it, but was reluctant to mention the price (even after we insisted a lot). Later, I casually lied to him that we test drove a 2002 model with 78K miles at a nearby dealership and it carried a price tag of $12,500. On hearing this, he excused himself for a moment and presently appeared with a $12,989 quote! (actual price should have been around $ 10,000). He was probably just waiting for judge our level of ignorance with the prices, and the moment he realized that someone else took us for a ride, he was ready rip us off.
Towards this tip, if you don’t know the prices well enough, it’s better to keep your mouth shut and let it be the salesman’s burden to judge your level of ignorance. Don’t make it easy for the salesman by saying something stupid.
Also, it helps to carry a file with some print-outs in it - something that shows that you are a *serious* customer and not some window-shopper who is just trying to entertain himself on a lazy day by wasting everybody’s time.
Tip 6 - Be skeptical, ask questions: Sometimes, it takes a few right questions to figure out if your salesman is hiding something from you. Here is an example.
This incident took place at a Honda dealership (our first stop - when we were still learning the tricks of the trade), where we went to test drive an Accord (2002, 69K miles). We drove the car and it felt nice (at first), and we had this feeling like the deal would work. However, things change after the following conversation, which happened right after the test drive:
Me: The car seems to work fine. I just have one more question - since you are a Honda dealership, why is this Honda Accord not being sold as *certified used*?
Salesman: Oh, it’s good enough to be certified, but Honda doesn’t allow certification of cars with more than 60K miles on them or more than 5 years old. Plus, you know this car is a 2002 model, so it was on the road in 2001 and that’s more than 5 years.
I later found out that Honda allows certification of cars with less than 80K miles which are less than 6 “model years” old. Apparently, that Accord was eligible for being sold as *certified* and yet it wasn’t. So this dude was lying to us.
When I brought this to the his notice, he gave me some crap about warranty transferability and such - all of which was invalid with respect to that particular car - and never really addressed the my question: “why is this car not being sold as a certified car“. Although, we never got an answer, the incident made us suspicious enough to drive us away from the deal.
The point in case, is that all salesmen are not epitomes of honesty. A car salesman’s job is to sell cars, and he will do all that is necessary to help his job. Sometimes, honesty doesn’t work in their best interest. Mostly, they may not lie blatantly to your face (although a few did that to us), but at times, they tend to withhold crucial information, which I consider to be dishonest. For example, if something is wrong with the car, they are not going to be open about it - unless you specifically ask them about that particular problem. So, be skeptical about the information (or the lack of it) that you get from a salesman.
Tip 7 - Be polite, but be firm: Dealers are people like you and me who are working hard to make a living. So, some politeness is in order. However, that does not mean you should be afraid of saying “NO” to nonsense. A friend of mine suggested that I practice the polite delivery of these statements before I speak to a salesman:
-”Please don’t waste our time by making multiple trips to your manager for negotiations. Let us settle it between ourselves first and then you can take the final number back to him“. [incredibly effective]
-”Please don’t waste our time by showing us cars that we didn’t ask for, we are not interested in looking for anything else than what is there in our list“.
-”I don’t think this is going to work for either of us. Thank you for your time, give us a call if you decide to offer us a better deal“. [use this when you get bored negotiating and just want to get out of that place]
These statements are mighty time savers for inexperienced used car shoppers.
Tip 8 - Do not hand over your driver’s license and phone number without any reason: At least 4 car salesmen, in different dealerships, asked for my driver’s license and phone number without even showing me a single car. If you face such a salesman, just ask him this: WHY? I bet he wouldn’t have a good answer. The only valid reason why they may need your driver’s license is if you asked for a test-drive. Other than that, they may want it to note down your address so that they can sell it to someone junk-mail sender for a fee. So it’s a good idea to keep your driver’s license to yourselves until you want to test drive a car. Same with the phone number; don’t give your phone number if you don’t want them to contact you later.
Tip 9 - Always ask for the “drive-out price”: This will make life much easier for you, because this is the exact amount (price after taxes, title, fees, etc.) that you will be writing the check for (or getting financed for).
At times, it’s better to negotiate with the drive-out price instead of the actual sale price. This is because people usually have a tendency to negotiate towards some lower *round* figure. For example, if the dealer list price is $11,785, it is very likely that it can be negotiated down to $11,500 (you will save $285). However, if the drive-out price in this case comes out to say $12,980, it is very likely that it can be negotiated down to $12,500 (you will save $480).
Tip 10 - Just say no to additional options: Honestly, with a used car, there is nothing that a dealer can offer that you cannot buy later. Extended warranties are generally offered by third-party warranty companies (and the dealer probably gets a commission by offering them to you), and different warranties have different coverages - just say no to them when they are offered by the dealer. Later do you own research to see if you really need such a warranty and if you do, take your own sweet time in getting something that suits your needs and wallet. If you follow the instructions in part #3 of this series (how to inspect a used car) properly, there won’t be any pressing need to buy an extended warranty coverage before you leave the dealer’s lot.
Tip 11 - Squeeze the most out of our salesman after you finalize the deal: If everything goes smoothly and you finalize your deal, the salesman will be as happy (to have sold a car) as you are (to have bought one). Strike when the iron is hot. Ask for free interior detailing, full tank of gas, free spare keys (for certain cars, this electronic transponder key stuff is really expensive), scratch and door-dings removal, new floor mats, etc. These are pretty minor things, but they can easily add up to more than a couple of hundred dollars or more. Your “happy” salesman will be more agreeable to these things immediately after you have finalized your deal.
Tip 12 - Delay mentioning your trade-in: I am picking this tip from an interesting article on the subject by my friend Jeremy @ Generation X Finance. Please take out some time to read his entire article.
If you are planning on trading in your old car to help with the purchase of this new vehicle make sure you donâ€™t let the cat out of the bag until the end. The salesperson will certainly ask if you will be trading in but you donâ€™t have to tell them yes or no, maybe you are considering it. Either way, if they know you will be trading in they will use this to their advantage in the negotiation which will undoubtedly become more confusing and potentially cost you some money in the process.
Also, according to the “Confessions of a Car Salesman“:
Buyers are so eager to get out of their old car and into a new one, they overlook the true value of the trade-in. The dealership is well aware of this weakness and exploits it.
So don’t be too eager to mention your trade early on or they will be on to you.
Tip 13 - Don’t be stupid: Ah ha … here comes the cliche. Know a scam when you see one. For example, many people must be knowing that specific dealerships sell only specific vehicles as “certified pre-owned” - Honda dealerships can sell Honda certified pre-owned vehicles, Toyota dealerships can sell Toyota certified vehicles, and so on. I haven’t heard (even if there are), of any dealerships that are not associated with a manufacturer, selling a certified pre-owned car from that manufacturer. For example, you will never find a Ford dealership selling a certified pre-owned Honda Civic. If someone is doing that, then something is obviously wrong with the deal (most likely the car won’t have Honda’s factory warranty on it). In the same breath, if a dealership is not associated with any manufacturer, then it cannot sell *certified* pre-owned vehicles. Stay away from such places.
Also, if cars from a dealership have been listed in your local classifieds and are being sold for a bargain as *private* party deals, then there is something wrong going on (the dealership probably doesn’t want to be associated with those cars). Again, stay away from such offers.
Tip 14 - If you want to avoid haggling, go visit CarMax: It is one self-declared, no-haggle, car *dealership*. Moreover, the salesmen are paid a flat commission per every car sold, so there is really no incentive for the sales staff to inflate prices (and hence the profits) on a given car. Just search for the car you want, and then drop by to their car lot to pick it up - it’s that simple. On the flip side, the prices are relatively high in spite of the flat commission. In some cases, the cars here are more expensive than the dealer list prices on certified pre-owned vehicles backed with manufacturer warranty. CarMax offers a warranty for every used car they sell, but it is a lame 30 day limited warranty [compare that to certified pre-owned cars that could be covered with up to a year of bumper-to-bumper; plus, a 100,000 mile powertrain warranty]
Bonus Tip 15 - For new cars, try the “Internet Sales” department first: Now-a-days this option is becoming really popular. It bypasses all the psychological pressure tactics that salesmen play when they physically meet you and it is definitely good for your wallet. Here is how you can make this more effective.
- First, choose the new car make/model/year you want to buy.
- Then go on Edmunds.com and check out the invoice price and the True Market Value of the car (usually, this will include any available incentives like cash back, etc). It’s always a good idea to check the manufacturer’s website to see if there are additional discounts.
- Apply for an auto loan through your credit union or a local bank (or wherever you are getting the best rates). For many new cars, there are financing options available through the dealer at ridiculously low rates (0%~2% APR), but they are usually available to people with FICO score around 750 (or above) and/or have a previous auto loan history.
- Once your loan is approved, send an email to the internet sales departments of all the relevant dealers near you (almost all dealerships have internet departments).
- In the first iteration, ask for their “best quotes” on the car you are looking for. Remember to also ask them to estimate the final “drive-out” price - this is important because dealers sometimes have some stupid documentation fees (or something similar) and you want to take that into account before comparing different quotes. Don’t give out your price yet.
- Once they come back with their quotes, compare it with Edmund’s True Market Value, start your negotiation from the invoice price (minus incentives), and aim towards a final price that falls between the invoice price and the True Market Value.
- The way I see it, True Market Value represents a “ripoff point“. Anything above that price is a ripoff. Anything below is reasonable. Basically, if you get your car within the price set by True Market Value, then it means that you paid less than what other people around you are paying on an average. Sometimes, if there are incentives available, it is quite possible that you can buy your car for less than the invoice price, so make sure you ask/know about all the incentives before you start negotiating.
- Once you are happy with the final drive-out price. Then send the dealer an email saying that you have an approved financing option at X.YY% APR (you don’t need to mention your real APR here - if you have been approved at 5.5%, feel free to tell the dealer that you got 5%). Ask what’s the best they can offer you. It is quite likely that the dealer may try to beat your bank’s offer. This is not guaranteed, but it’s worth a shot. By the way, it is better if you not mention financing anywhere before this final point in your negotiation.
- After this is done, all that remains is some final paperwork and picking up your car from the dealership.
This online-only method is fairly easy when you are looking for new cars. However, for used cars, it becomes a bit complicated -you cannot really negotiate a price through emails if you don’t know the condition of the car.
OK, so that’s all that comes to my mind for now. It was enough bashing for the salesmen in there. Although, some of them are pretty obnoxious at times, it looks like it’s not always their fault. Again, here is an excerpt from the “Confessions of a Car Salesman”
What the customer didn’t realize was that the poor car salesman or woman was not really the enemy. The real enemy was the manager sitting in the sales tower cracking the whip. Suppose for a moment a customer told us they were “only looking,” and we said, “fine, take your time,” and went back into the sales tower. Now we find ourselves looking up into the steely eyes of the sales manager.
“That’s your customer out there,” the manager would say.
“But they said they’re only looking,” I would answer.
“Only looking? You’re going to take that for an answer?” Foam was beginning to form at the corners of the sales manager’s mouth. “What the hell kind of salesman are you? Of course they’re looking! They’re all only looking until they buy. You want them to go across the street and buy a car over there? Because they have real salesmen over there. Now go back out there and sell those people a car. And don’t let them leave until they buy or until you turn them over to your closer.”
So that’s why the car salespeople stick like glue to customers. Their fear of their managers is greater than their fear of offending the customers.
So, finally, even with all their faults and undesirable characteristics, it is important to remember that car salesmen are just human beings like us - very much susceptible to the lure of extra money. Instead of snapping back at them in anger (for whatever reason), try to gracefully decline their offers (express your disappointments if you want) and walk away in hopes of finding a better salesman in the next dealership.
Feel free to share any other obvious or subtle tips that you think might help.