Buying a car is a huge purchase. It is a purchase that will affect any individual for the next four to five years. This makes proper negotiation skills a must when purchasing a vehicle. It is important to be well educated on the product before negotiating. This will make a person more educated when making an offer. When it comes to car negotiations, the goal is to come to an agreement that is beneficial for both parties involved (Gerstner 65). The consumer needs to know and understand this before going into a dealership and attempt a negotiation. The consumer needs to research and become knowledgeable on the product in order to properly negotiate.
The main objective was to walk of the dealership with my ideal vehicle and not spend any more than $25,000. The maximum amount that could be spent on the vehicle was $30,000. However, it was a personal goal to only spend $25,000 on the vehicle. If I spent $30,000 then I would have to pay five thousand out of pocket. I did not want to spend anything out of pocket on this purchase. I wanted to leave the car dealership with my vehicle and not spending any money out of pocket. After figuring out my budget, it was then time to conduct research.
According to Holmes (2011), there are three things that a person should know before entering a car dealership. First, it is important for a person to know their financial picture. Credit ratings are important when it comes to car negotiations. They tell a person just how much room they have for negotiation. Credit scores also tell the institution what a person can and cannot afford. If a person’s credit is not good, however, putting down a deposit on the car can increase a person’s leverage. Furthermore, it can be useful to get a pre-approval from a bank or a credit union prior to going into a dealership. Then a person can see whether or not the dealership can give a better rate (76). These days “you’ll find auto loans with rates of 2 percent to 3 percent at banks and credit unions for top=tier borrowers, and many manufacturers offer even lower rates” (67).
Second, it is important to know the car’s worth. This is for both the purchasing vehicle and the trade in vehicle. There are several websites that a person can utilize to determine what a good price is for the right car. Research is the most important step when going into a negotiation. The person initiating the negotiation must be knowledgeable about the product and how much money the other person put in to it. This process is relatively easy when it comes to buying a new car. First, it is important to know what kind of car is suitable then it is important to know all the aspects of the vehicle. When buying a used car, it is important to know what is considered stock and what is not. Also, if there are upgrades to the vehicle, it is important to know whether or not those upgrades increase or decrease the value of car. It is also important to know how much the dealer paid for the car before negotiating. This can help an individual to decide what a fair price is. According to Holmes (2011), “For most new cars, there’s a window of approximately $3,000 between what the dealers asks and what the dealer paid for the car. Anything within that difference is fair game for negotiation” (76).
Lastly, the value of any trade in is also important. Proper research needs to be done in order to know what the proper rate is for the trade in. There are websites available that individuals can utilize in order to find the current trade-in value of their car. “You’ll want to consider: age, mileage, the wear and tear both inside and out, how well it was cared for, any flaws or mechanical issues, the car’s accessories and added features, and any upgrades that have been made” (10).
Choosing a salesperson is also an important step in the negotiation process. It is important to choose a salesperson that makes the individual feel comfortable. When it comes to salespeople, the consumer is in the driver’s seat. The consumer can choose not to do business with any salesperson. This gives the consumer the upper hand in the automobile industry when it comes to negotiation (Henry 2009). A person should always feel comfortable with the car salesperson that they choose. They should never feel rushed or pressured into purchasing something they do not want to purchase.
Prior to the negotiation process
I went into the dealership with a $15,000 pre-approval as well as $10,000 of my own personal money. Thus, I had $25,000 to spend on the purchase of a vehicle. I knew what car I wanted. All the cars that were at the dealership were on their website. It was listed for a $26,900. My plan was to leave the dealership with the car and not having to pay any further out-of-pocket expenses.
I did some research and found the car that I wanted on the dealerships website. I looked around a fifty mile radius around my house. I knew what type of car I wanted and went to the dealerships website and found three different cars that I was interested in. However, only one of the cars was in the color I wanted. I compared each of the three cars with one another. I knew what each one of them had and which one of them had extras. I also took their mileage into consideration. Two of them were the same year, 2014, and one of them was a 2015. They were all around the same price range but the 2015 did not have as many extras as the 2014s. I also did external research and looked to see what other dealerships in different areas where selling the same or similar car for. The car dealership I was looking at actually had the lowest prices when it came to that particular car. I also did research on the car itself. I became knowledgeable on what the extras were and how much value they added on to the car price. I decided what extras I would like to have and which ones I would actually utilize. Then I weighed the pros against the price to figure out whether or the extra is worth the money. I also researched the performance aspect of the car. Gas was also something that was taken into consideration. I do not drive that much so gas really wasn’t a factor. However, it was brought to my attention that the car I wanted uses diesel. This I was not planning on. I obviously did not do enough research when it came to the gasoline aspect.
My trade in was not spectacular. It was ten years old and not in the best shape. The car was fine mechanically. It had approximately 160,000 miles on it which is relatively low for a car that is ten years old. However, the insider was not in the best shape. Anything that was an extra on the car when it was bought was no longer working. For example, the seat warmers stopped working approximately two years ago. The interior was destroyed. The paneling on the inside of the door was starting to fall off and the exterior paint was starting to chip. I wasn’t expecting a lot for it.
Once I got to the dealership, I looked around for a salesperson that I liked. He also was the first one to approach me. I told him what type of car I was looking for, however, I did not tell him the exact brand. I plainly told him I was looking for a white SUV and listed all of the features I want the car to have. I knew what they had, however, I was wanting to know whether or not he could sway me to another type of car. In my head I had already picked out the car I wanted but I still could have been persuaded.
After hearing what I was looking for, the salesperson took me straight to the car I picked out on their website. The car looked somewhat different than in the pictures on their website. The car did have two dents on the side. It also had a scratch on its back bumper. They were small but they were still noticeable. I was not planning on one of the cars having any dents or scratches on it. The other two cars where exactly what I was anticipating. They looked exactly like what was in their pictures. They also did not have any dents or scratches. However, they were not in the color I wanted. One was red and the other was blue. I wanted the white one.
The negotiation process
According to Alec Gutierrez, Kelley Blue Book’s senior analyst, there is a four part approach when it comes to a dealer selling a car. This approach consists of: 1) purchase price, 2) trade in, 3) financing and 4) down payment. For example, a dealer may be more willing to give a person a higher trade in value if they customer got the car for rock bottom price. It is important to acknowledge this during the negotiation process. I took this into consideration while coming up with an offer for the car.
I knew that I was going to have to use extra negotiation skills after I saw the dents and the scratch. The dents and scratch was not a big enough deal that would make me get a car in another color. The dealership ended up giving me one thousand dollars for my trade in. This was relatively low considering the Kelly Blue Book value. The blue book value for the same car as mine was two thousand dollars. I figured one thousand dollars was decent because I could probably talk him down on price. However, with the pre-approval, $10,000 down payment and trade in, I was still short $900.
I took into consideration the dents, the $3,000 window and my financial situation and offered $25,000. This was including the trade in. In other words, I only asked him to drop the price of the car by $900. The salesman went and asked his manager, he came back and the offer was accepted. I walked out of the dealership that day without spending any out of pocket expenses and with my car.
I believe both parties were happy with the outcome of the negotiation. I was happy. Even if I could have negotiated a lower price, I still got the car cheaper than anywhere else I could find it. I believe I still got a deal. I think the salesman and the dealership were happy with the negotiation. I am sure they figured that the car I bought was going to be a hassle to negotiate because of the dents and scratch. That is just the price the dealership has to pay when they choose not to fix their cars. However, I was not a hassle when it came to negotiating and had only had to put one offer in. I do believe the dealership was happy with the ending number. I think they got a lot more for the car than they had anticipated.
I learned several lessons while negotiating. First, I should have lowered my offer. I thought about this the whole time I was negotiating. If I could go back, I would probably offered $3,000 less than sticker price. I would have seen how much the dealership was willing to come up. This would have made the negotiation an actual negotiation. In my eyes, however, $1,500 less than sticker price was what I was willing to pay. I thought it was reasonable and beneficial to both parties. Thus, I chose to only go $900 less than sticker price. I probably could have gotten the car for less money if I tried. Especially considering the car had dents and a scratch. That was the main lesson I learned during the negotiation process.
Another lesson I learned during the negotiation process is to read body language. Nonverbal communication is just as important as verbal communication when it comes to negotiation. People are very easy to read by their facial expressions. People communicate what they are thinking by their facial expressions. I noticed this during the negotiation process. I will definitely do more research on facial expressions before my next big negotiation. I think knowing how to read someone’s nonverbal communication can be very helpful in the negotiation process. It helps when trying to read the other’s persons emotions or trying to figure out what they are thinking.
I do believe one of my strengths in negotiating is being prepared. In order to do this, one must do proper research. This is a very important step and I take it very seriously. I make sure I know the product inside and out before I go into a negotiation. I made sure I knew all models and types when it came to the type of car I wanted. I also did research on what types of extras there were and which ones I would utilize. I also became knowledgeable on the prices of those extras and how much value they add to the car. I also took into consideration how many years that extra will work.
I do have several weaknesses when it comes to negotiating. My main problem is negotiating itself. Some people are natural born negotiators and some people are not. I am one of those people who is not a natural born negotiator. I am the type of person where if I want something I do not care the price I have to pay for it. I am never looking for a “steal” or to get less than asking price. I am not good when it comes to other types of negotiations as well.
I do not think I did a good job negotiating price at the dealership. My offer came from a formula. I calculated how much the dealership needed to make on the sale and I added in the dents and scratch to the equation and that was the price I was willing to spend on the car. This is one way of purchasing something. However, I do not believe this is how people would generally define “negotiating”. Generally people want the cheapest price possible. I am sure there are people who would go into the dealership and offer $20,000 for the car. I, however, am not one of them. I always add in what the dealer or seller needs to make off of the product into the equation. Some people believe this is where counter offers come in to play. However, I don’t like counter offers. I believe they are a waste of time. I went into the dealership with the idea of spending a certain amount on the vehicle and if they don’t take it then I wasn’t going to buy the car. Luckily, I was reasonable enough with my equation that I picked a number that the dealership thought was reasonable as well.
Gerstner, Lisa. “How to Haggle for Practically Anything”. Kiplinger’s Personal Finance 64-68 (2014). Retrieved on January 22, 2015. Print.
Henry, Ed. “Don’t Buy a New Car- Lease It”. Kiplinger’s Personal Finance Magazine (2009). Retrieved on January 22, 2015. Print.
Holmes, Tamara. “How To Negotiate the Best Deal on a New Car”. Black Enterprise (2011). Retrieved on January 22, 2015. Print.