5 Tips for Outsmarting Car Salesmen
Car buying is one of the few transactions in America that works something like a Turkish bazaar. That sticker price isn’t set by the manufacturer; it’s the suggested price. So we haggle, and Americans aren’t used to haggling. And because most of us don’t do these transactions very often, we’re rusty (or rank novices) EVERY time.
Like the seller at the bazaar, car dealers oversee these sales all day, every day, which puts the buyer at a distinct disadvantage. Not that this must be an adversarial relationship: A good dealer isn’t trying to swindle customers. But it can feel that way.
To help you through it, we recruited Ken Engberg, an executive at Dealertrack.com, which helps dealers manage their finances and know what to charge for cars. If anyone would know about the ins and outs of buying a car, it’s someone who advises dealers on how they should run their businesses.
Here’s what Engberg shared with us:
1. Choose the right time to buy. From the fall through the end of the year is pretty much the best time to buy or lease a new car. The reason: The current-year inventory must get cleared out so dealers can make room for newest vehicles. If you’re buying/leasing new, you’ll get the best deals on last year’s models.
2. Do the math before deciding on used or new. Engberg wisely suggests figuring out the total cost of owning a new car versus a used car. “What’s truly going to cost you less?” he asks. “The common perception is that the used car has already depreciated, but not all used cars are the same. And a used car where the warranty might be up soon or is already up is going to incur higher maintenance costs.” Another caution: It’s nearly always easier to get a lower interest rate loan on a new car.
Still committed to buying used? Engberg advises you do the math:
- Get the manufacturer’s extended warranty. Add that to the sale price. Base the cost of the used car on a certified, pre-owned model, because these are cherry-picked to begin with. The car won’t be in a certified program if it has been worked over by the prior owner. So even though it’ll cost more initially, it’s a safer bet.
- Calculate your annual mileage based on recent driving habits. Figure out how many miles you’ll put on the car in the coming ownership period and that will let you...
- ...calculate scheduled maintenance and when it will be required. You can find most cars’ owner’s manuals through a quick Google search. See what maintenance may be expected for the car (such as a timing belt change), and ask a qualified mechanic or the dealership’s service department what that maintenance will cost. Now add that cost to the sticker price, and then pad that with $500 or more, depending on what other unforeseen repairs may come down the road.
- Now that you have this higher number, go shop for new cars and especially new-car lease deals, and calculate how much more they might be than used cars. If you’re even close between new and used, the new car probably is the smarter buy.
3. Understand the current new versus used market. The used-car market can get tight as people want to upgrade their wheels without forking over more money for a new car. This means that marginal product could be reselling for higher prices, so used cars may not be the best value.
4. Decipher the dealer invoice. The invoice is what the dealer paid for the car. The sticker price is the “suggested” retail price of the car. The dealer sets the latter, but he or she is stuck with the former by the manufacturer. That difference is the dealer’s potential profit.
5. Use the online tools available to you. Websites such as Edmunds.com all show the invoice (the MSRP listed there likely will vary from dealer to dealer; the invoice won’t). Engberg says that knowing the dealer invoice gives you some sense of what the transaction price should be based on that MSRP. That price might go somewhat higher if you’re shopping for a popular car. You also can look up transaction prices for new cars on a site like KBB.com, which gives you a “fair market price” based on actual sales of the make and model you’re shopping for in your area.
BONUS TIP: Take advantage of your NEA membership benefits. Through the NEA Auto Buying Program, you’ll find great, hassle-free deals on new and used cars from TrueCar-screened dealerships near you before you head to the car lot. NEA members have seen an average savings of $3,383 off MSRP on new cars. In addition, many of the dealers offer an extra member-only discount off the final negotiated price, and a free CARFAX report is available on some of the listed vehicles.
Learn more about purchasing a vehicle in our Auto Buying Research Center.
Sign up to receive tips about saving for retirement, travel, career and more.
Sign up to receive our monthly e-newsletter, NEAchieve!