osnap
04-19-2007, 03:27 PM
http://www.negotiationtraining.com.au/articles/negotiate-car-deal/
It's sad how most people think they've negotiated a good deal from used car dealers. The biting reality is that over 90% are ripped off. So don't walk into the car lot until you've read this guide, or your hard earned cash will turn you into yet another dealer victim.
http://www.negotiationtraining.com.au/images/resources/car-salesman.jpg You spend your days (and likely nights) studying or working, saving up enough cash to buy a car. The danger is that Used Car Dealers have stacked the cards in their favour. Your walking into the dealers showroom without preparing properly is like walking onto a tennis court to play against a pro like Roger Federer. We've made it our business to level the playing field.
This guide gives you the inside track and exposes the hidden tricks dealers use to line their pockets with your cash. Fortunately, unlike the tennis example (where you're going to get thumped), preparation can turn the tables and save you hundreds or thousands of dollars on your next car - not to mention earn you free extras.
Step 1: Choosing the Right Car
Before you go tearing out to the dealerships, put on the brakes, sit down and figure out what kind of vehicle (http://www.wisebuyers.co.uk/motoring/car-buying/1/) you need. Forget about what you want. Yes, we must admit, this doesn't come naturally to most of us. Bear with us; you'll be playing into the dealers hands if you don't do this first. Think about what is going to suit you best. There are 4 things you need to keep in mind when choosing the right vehicle:
Lifestyle: The car you're going to drive will need to suit your lifestyle. Your needs will be based on whether you are single, married, have children or are planning a family in the near future.
Location: Are you rooted close to the downtown, nestled in suburbia or tucked away in the rural wilds? You also need to think about what kind of commute you take to work and give some thought to weather and road conditions.
Hobbies: What do you do away from the job or college? Party a lot and need to play designated driver? Are you a hermit, seldom venturing away from the nest? Or do you like to race up muddy trails or slog your way up an icy mountain road to find that perfect virgin track of powder?
Income: Yes, there's no escaping the budget challenge. We will come through on our promise to save you money, which means you can afford more. Your might fantasise about owning that rugged Hummer, racy Jag, or classic muscle car. Stop for a moment and ask yourself: Is it really worth working for the car loan company to meet payments? What can you really afford to pay? Writing this figure down now, will go a long way to preventing the dealer from talking you into paying more.
Vehicle Choices http://www.negotiationtraining.com.au/images/resources/which-car.jpg
There are a dizzying variety of makes and models (http://www.safecarguide.com/gui/nee/cars.htm) to choose from. These include the coupe, sedan, hatchback, station wagon, SUV, truck, crossover vehicle or hybrid vehicle. The best advice is not to initially limit yourself to just one make or model. Your well intending friends or family may advise you otherwise - sdon't listen! Availability can restrict your ability to negotiate a better price with the dealership. If for some reason you can't negotiate a good deal on one vehicle, you can always negotiate your next best option. Keep your options open. Yes, this does mean that you need to do some research on your favourite types of vehicles.
Who do you Believe?
So who's reviews do you believe? Not the manufacturers. They have a vested interest to be overly favourable. Look for independent reviews. If you have a head for numbers, then start remembering the key specifications so that you can compare each choice more effectively.
Take a Test Drive
There's only one way to know for sure whether you've found your dream machine. Get behind the wheel and take the car for a spin. The Test Drive will give you the best feel for the vehicle's performance and whether it meets your expectations and needs. Beware dealers who won't let you drive because of "liability issues".
See how the vehicle rides on both city streets and if possible, on the highway. Equally important is to check through the vehicle. Test the seats, knobs, buttons, seating capacity and comfort, and trunk or boot space.
DO NOT buy after test driving. Go home and do more research first.
Step 2: Researching Priceshttp://www.negotiationtraining.com.au/images/resources/car-keys-money.jpg
Want to show the dealer that you understand his game? Some of these phrases are only relevant to new cars. Learn a few phrases and confidently drop them into the conversation:
Sticker Price
The sticker price (http://www.bankrate.com/brm/news/auto/car-guide-2004/MSRP-truth1.asp) is the price the manufacturer sets for the retail value of the vehicle. It's called the sticker price because it's traditionally been written on the piece of paper you see stuck to the car's window. The sticker price is attached to the vehicle when the car leaves the factory. Never pay the sticker price! Only fools pay the sticker price. Many dealer salesmen will point to the sticker price helplessly and claim it as their sale price. Don't walk away from salespeople who do this - run!.
Invoice Price
The invoice price is what the dealer pays the manufacturer. The invoice price is where you want to aim your sights.
The dealer is in business to make a profit. So the negotiated price you should pay will normally be somewhere between the invoice price and the sticker price. This is known in negotiation (http://www.negotiations.com/definition/negotiation/) as your zone of possible agreement (http://www.negotiations.com/articles/zopa/).
So whilst you're aiming for the dealers Invoice Price, he's gunning for the Sticker Price - this is normal and is known in negotiation as each side's Aspiration Bases (http://www.negotiationtraining.com.au/articles/new-agreement/).
How do you uncover the Invoice Price?
Your best source is through the internet. Most car buying sites list their invoice price (http://money.cnn.com/2003/11/24/pf/autos/invoice_price/index.htm). The better sites also offer several buying tools. These tools will automatically calculate option/packages and add them to the total cost of the invoice price.
Dealer Holdback Pricehttp://www.negotiationtraining.com.au/images/resources/used-cars-sign.jpg
The Dealer Holdback Price (http://www.acarbuyersguide.com/negotiating/dealer_holdback.htm) is the amount the dealer receives from the manufacturer on every vehicle they sell. The holdback price is usually in the neighbourhood of 3% of the Sticker Price.
This is important to remember because the dealer holdback price effectively lowers the dealer's cost below the Invoice Price. The holdback price adds to the dealership's profit. So if you were skillful enough to negotiate the dealer down to their Invoice Price, they would still be making a sliver of profit..
In reality, trying to negotiate below the invoice price, leaving the dealer with their holdback price is highly unlikely. Use the holdback price when negotiating. Ask the dealer what their holdback price or percentage is. This will prevent the dealer from claiming that selling near invoice price will prevent him from sending his kids to college.
Dealer Incentives
Also known as Dealer Cash (http://www.bankrate.com/brm/news/auto/20020115a.asp). Some car manufacturers will offer the dealership "hidden" cash rebate incentives on new vehicles. The purpose is to promote certain makes and models. How do you know whether your car carries some dealer cash? Some car web sites keep track (http://www.checkbook.org/auto/cardeal.cfm).
How do you find the car you want?
Once you've decided on the make and model, next you need to decide what else you want from the car. This includes the colour, packages, options, and offerings.
Some car manufacturer sites also alllow you to search the available inventories (http://www.edmunds.com/advice/buying/articles/78386/page004.html) on their dealer's lots from the comfort of your home.
A Friend in Need
http://www.negotiationtraining.com.au/images/resources/shopping-bag-car.jpgSince cars are not the cheapest investment, you want to make sure you're thinking with your head and not your heart when the moment of choice arrives. So if you are the type of person who has in the past been swayed by a salesman into buying something you didn't need, or paid over the odds, then we suggest you take along a friend who is cool headed. Best you talk with your friend before the final "yes" decision. If either you or your friend are not comfortable, walk out of the dealership and take your time to think through the reasons. Often we get a gut feel that is hard to explain, but proves its value only in hindsight.
Is Time on your side?
The availability of the ideal vehicle is not something we should assume to be automatic. Dealerships can only store so many variations of vehicles. Salespeople can search for your ideal car with other dealerships. Or they can make arrangements to get a special order direct from the manufacturer. This process will likely require some patience and time.
Negotiation Tip: Power
If you have the option of negotiating with several dealerships, do so. Call or visit each dealership and ask them if they have a certain make and model. Limit your preferences and only share your "must haves". Ask them to call you back about the availability of the vehicle. If you discover that several dealerships have your make and model in stock, you're in luck. You will now have the walk-away leverage (http://www.negotiationtraining.com.au/articles/next-best-option/) necessary to negotiate a better deal. Remember these dealerships are in competition. If one dealership is not prepared to make you a better offer, simply tell them you you can get a better deal elsewhere. There is no greater source of negotiation power (http://www.negotiationtraining.com.au/questions/effective-negotiation/) than having a strong fall back offer.
However, if you can't wait and must have that car, you can still get a good deal. Remember that for every day a vehicle sits on the dealers lot, costs the dealer money. The dealer is being charged interest on every vehicle sitting unsold on their lot.
Negotiation Tip: Flexibility
The more flexible you can be, the greater your options. The greater your options, the better a deal you'll strike. So consider several variations of the same make and model. As a buyer you will have less leverage negotiating the price if you are inflexible about the options and packages you want.
Final word on timing comes from the great suggestions coming through from diggers and other social media collaborators: Sales people are usually targetted on meeting monthly goals. These poor guys and gals earn or lose bonuses (often sizable bonuses) based on little more than the timing of that last car at the end of the month. You're out of luck if they've already made their quota. You're in luck if they are 1 car away. Bonus quotas are usually measured in terms of revenue, and not so much on profit. So provided they make the deal, it doesn't matter much to them whether they make a profit on your car. Your car will pay handsomely for profit from all the other cars they sold in the month. Yes, this is a gamble. Yes it's worth sniffing out the salesman to see if you can catch a whiff of desperation.
Play it Cool
On the other hand, if you know a particular dealership has the ideal car, play it cool. Don't show emotion to the salesperson. One strategy to consider is to begin by talking about a vehicle that has options and packages you know the dealer doesn't have in their inventory. Let them think you want the vehicle right now, and you can't wait for them to search and source it. Then reluctatntly give them an opportunity to present an alternative (which happens to be the car you really want). Of course if you're going to be making a compromise, then the salesman should meet you part way. How? By lowering their price or throwing in extras for free.
Loose Lips Lose Money
Veteran dealers are trained to size you up, ask you questions, and squeeze all the information they can in order to get you to say "Yes". So be careful. If you're the loose lipped type, then practice being the one to ask the questions. Just because they ask a question doesn't mean you are obligated to answer. Remember that no matter how charming and friendly the dealer may appear to be, it's more important to save money than make a friend of the dealer.
Steps to take before Negotiating Price
Luckily for you, there is a lot of fierce competition between car dealers. Not every dealer will ask for the same price.
The first step then is to either email or phone the dealerships and ask the salesmen to give a price for the type of vehicle you want to buy. This allows you to compare the price differences without the hovering presence and pressure of the salesperson.
Once you've found the best priced deal, make an appointment with the dealer. Salespeople are very familiar with the usual assortment of tyre kickers or just looking types, who breeze through their lots. An appointment tells the salesperson you are serious and in a deep buying cycle mode. When you meet with the salesperson, you can simply tell them what you are prepared to pay. Having done your homework, your market price knowledge puts you in the driver's seat.
Trading in a used vehicle: One of the first questions every salesperson will ask is whether you are planning to trade in your used vehicle (http://www.cars.com/go/advice/Story.jsp?section=sell&story=trdStory&subject=how_trade&referer=&aff=national).
One obvious advantages to you of trading in your used vehicle, is so you can unload it without the hassle of advertising and selling privately.
The disadvantage is you will almost always receive less money from the dealership. The reason? When a dealership is looking at your trade-in, they are calculating the value of the used vehicle based on the wholesale value of the used vehicle. The dealer's wholesale valuation of the vehicle is always less than what you might receive for the actual market value (the price you could get if you sold it privately). There can be a significant difference between the wholesale value and the actual market value of a used vehicle. If you think the dealer is giving you a good deal on your trade-in, beware! It's not unheard of for a dealer to inflate your trade-in value just to close the deal - IF you've not shaved their margins.
Trade-in sales gambit
One of the most common gambits that a salesperson will try is to slightly raise the wholesale value on your used vehicle (usually after talking to the manager "to see what they can do for you"). Look out. They will be making up the loss in another area. For example, by increasing the interest rate on the financing or by trying to flog extra options at a premium.
Negotiation Tip: Power of Options
If you've got the time to invest into getting the best deal on your trade-in vehicle, then go to a number of dealerships. Have each quote you on how much they are prepared to pay for your trade-in. Let each dealer know that the price of your trade-in will be a strong factor in your choosing a dealership. Ask the other dealerships if they would be prepared to match or beat your best price.
Don't let any salesperson change the price they originally quoted or claw back extras. Either leave the dealership, call their manager, or call them up on their tactic.
Negotiation Essentials Summary
Ignore the sticker price (the most the dealership expects). The negotiating zone is anything above the invoice price, but much less than the sticker price. You should also deduct the holdback price from the invoice price. This gives you the actual cost the dealer pays to the manufacturer. The bargaining zone is anything above this price. You can put pressure on the dealer by making an opening offer on or near this price.
Having done your homework and after receiving several quotes from the dealerships, take your lowest quote. Call the other dealerships. Simply explain that you are prepared to buy from them if they are prepared to better your lowest quote. When all dealers push back, you know you've found the best deal.
A hard hitting approach you may wish to consider is to come right out and tell the salesperson, you know what they are making on each vehicle (provided you've done your homework first). This puts them on the backfoot and tells them that you are to be taken seriously.
When you are ready to turn down a dealers offer, make them a final offer. Strengthen your position first by confidently stating that any other counter offer is unacceptable. Tell the salesperson that they should "Take it or leave it". Be careful to leave the door open for them to come back to you later. Tell them to call you if they can do a better deal. You may be pleasantly surprised.
Don't forget the Safety Options
Too many people lose their lives and loved ones every year on our roads. So please ask questions about the safety options. This can be yet another weapon in your armoury in levering the price downwards. Not every make and model has the same safety features (http://money.cnn.com/2005/10/07/Autos/tipsandadvice/safety_interest/index.htm?postversion=2005101010). These include:
Driver and passenger airbags
Traction control
Antilock brakes
SIPS (Side-Impact Protection System)
It's sad how most people think they've negotiated a good deal from used car dealers. The biting reality is that over 90% are ripped off. So don't walk into the car lot until you've read this guide, or your hard earned cash will turn you into yet another dealer victim.
http://www.negotiationtraining.com.au/images/resources/car-salesman.jpg You spend your days (and likely nights) studying or working, saving up enough cash to buy a car. The danger is that Used Car Dealers have stacked the cards in their favour. Your walking into the dealers showroom without preparing properly is like walking onto a tennis court to play against a pro like Roger Federer. We've made it our business to level the playing field.
This guide gives you the inside track and exposes the hidden tricks dealers use to line their pockets with your cash. Fortunately, unlike the tennis example (where you're going to get thumped), preparation can turn the tables and save you hundreds or thousands of dollars on your next car - not to mention earn you free extras.
Step 1: Choosing the Right Car
Before you go tearing out to the dealerships, put on the brakes, sit down and figure out what kind of vehicle (http://www.wisebuyers.co.uk/motoring/car-buying/1/) you need. Forget about what you want. Yes, we must admit, this doesn't come naturally to most of us. Bear with us; you'll be playing into the dealers hands if you don't do this first. Think about what is going to suit you best. There are 4 things you need to keep in mind when choosing the right vehicle:
Lifestyle: The car you're going to drive will need to suit your lifestyle. Your needs will be based on whether you are single, married, have children or are planning a family in the near future.
Location: Are you rooted close to the downtown, nestled in suburbia or tucked away in the rural wilds? You also need to think about what kind of commute you take to work and give some thought to weather and road conditions.
Hobbies: What do you do away from the job or college? Party a lot and need to play designated driver? Are you a hermit, seldom venturing away from the nest? Or do you like to race up muddy trails or slog your way up an icy mountain road to find that perfect virgin track of powder?
Income: Yes, there's no escaping the budget challenge. We will come through on our promise to save you money, which means you can afford more. Your might fantasise about owning that rugged Hummer, racy Jag, or classic muscle car. Stop for a moment and ask yourself: Is it really worth working for the car loan company to meet payments? What can you really afford to pay? Writing this figure down now, will go a long way to preventing the dealer from talking you into paying more.
Vehicle Choices http://www.negotiationtraining.com.au/images/resources/which-car.jpg
There are a dizzying variety of makes and models (http://www.safecarguide.com/gui/nee/cars.htm) to choose from. These include the coupe, sedan, hatchback, station wagon, SUV, truck, crossover vehicle or hybrid vehicle. The best advice is not to initially limit yourself to just one make or model. Your well intending friends or family may advise you otherwise - sdon't listen! Availability can restrict your ability to negotiate a better price with the dealership. If for some reason you can't negotiate a good deal on one vehicle, you can always negotiate your next best option. Keep your options open. Yes, this does mean that you need to do some research on your favourite types of vehicles.
Who do you Believe?
So who's reviews do you believe? Not the manufacturers. They have a vested interest to be overly favourable. Look for independent reviews. If you have a head for numbers, then start remembering the key specifications so that you can compare each choice more effectively.
Take a Test Drive
There's only one way to know for sure whether you've found your dream machine. Get behind the wheel and take the car for a spin. The Test Drive will give you the best feel for the vehicle's performance and whether it meets your expectations and needs. Beware dealers who won't let you drive because of "liability issues".
See how the vehicle rides on both city streets and if possible, on the highway. Equally important is to check through the vehicle. Test the seats, knobs, buttons, seating capacity and comfort, and trunk or boot space.
DO NOT buy after test driving. Go home and do more research first.
Step 2: Researching Priceshttp://www.negotiationtraining.com.au/images/resources/car-keys-money.jpg
Want to show the dealer that you understand his game? Some of these phrases are only relevant to new cars. Learn a few phrases and confidently drop them into the conversation:
Sticker Price
The sticker price (http://www.bankrate.com/brm/news/auto/car-guide-2004/MSRP-truth1.asp) is the price the manufacturer sets for the retail value of the vehicle. It's called the sticker price because it's traditionally been written on the piece of paper you see stuck to the car's window. The sticker price is attached to the vehicle when the car leaves the factory. Never pay the sticker price! Only fools pay the sticker price. Many dealer salesmen will point to the sticker price helplessly and claim it as their sale price. Don't walk away from salespeople who do this - run!.
Invoice Price
The invoice price is what the dealer pays the manufacturer. The invoice price is where you want to aim your sights.
The dealer is in business to make a profit. So the negotiated price you should pay will normally be somewhere between the invoice price and the sticker price. This is known in negotiation (http://www.negotiations.com/definition/negotiation/) as your zone of possible agreement (http://www.negotiations.com/articles/zopa/).
So whilst you're aiming for the dealers Invoice Price, he's gunning for the Sticker Price - this is normal and is known in negotiation as each side's Aspiration Bases (http://www.negotiationtraining.com.au/articles/new-agreement/).
How do you uncover the Invoice Price?
Your best source is through the internet. Most car buying sites list their invoice price (http://money.cnn.com/2003/11/24/pf/autos/invoice_price/index.htm). The better sites also offer several buying tools. These tools will automatically calculate option/packages and add them to the total cost of the invoice price.
Dealer Holdback Pricehttp://www.negotiationtraining.com.au/images/resources/used-cars-sign.jpg
The Dealer Holdback Price (http://www.acarbuyersguide.com/negotiating/dealer_holdback.htm) is the amount the dealer receives from the manufacturer on every vehicle they sell. The holdback price is usually in the neighbourhood of 3% of the Sticker Price.
This is important to remember because the dealer holdback price effectively lowers the dealer's cost below the Invoice Price. The holdback price adds to the dealership's profit. So if you were skillful enough to negotiate the dealer down to their Invoice Price, they would still be making a sliver of profit..
In reality, trying to negotiate below the invoice price, leaving the dealer with their holdback price is highly unlikely. Use the holdback price when negotiating. Ask the dealer what their holdback price or percentage is. This will prevent the dealer from claiming that selling near invoice price will prevent him from sending his kids to college.
Dealer Incentives
Also known as Dealer Cash (http://www.bankrate.com/brm/news/auto/20020115a.asp). Some car manufacturers will offer the dealership "hidden" cash rebate incentives on new vehicles. The purpose is to promote certain makes and models. How do you know whether your car carries some dealer cash? Some car web sites keep track (http://www.checkbook.org/auto/cardeal.cfm).
How do you find the car you want?
Once you've decided on the make and model, next you need to decide what else you want from the car. This includes the colour, packages, options, and offerings.
Some car manufacturer sites also alllow you to search the available inventories (http://www.edmunds.com/advice/buying/articles/78386/page004.html) on their dealer's lots from the comfort of your home.
A Friend in Need
http://www.negotiationtraining.com.au/images/resources/shopping-bag-car.jpgSince cars are not the cheapest investment, you want to make sure you're thinking with your head and not your heart when the moment of choice arrives. So if you are the type of person who has in the past been swayed by a salesman into buying something you didn't need, or paid over the odds, then we suggest you take along a friend who is cool headed. Best you talk with your friend before the final "yes" decision. If either you or your friend are not comfortable, walk out of the dealership and take your time to think through the reasons. Often we get a gut feel that is hard to explain, but proves its value only in hindsight.
Is Time on your side?
The availability of the ideal vehicle is not something we should assume to be automatic. Dealerships can only store so many variations of vehicles. Salespeople can search for your ideal car with other dealerships. Or they can make arrangements to get a special order direct from the manufacturer. This process will likely require some patience and time.
Negotiation Tip: Power
If you have the option of negotiating with several dealerships, do so. Call or visit each dealership and ask them if they have a certain make and model. Limit your preferences and only share your "must haves". Ask them to call you back about the availability of the vehicle. If you discover that several dealerships have your make and model in stock, you're in luck. You will now have the walk-away leverage (http://www.negotiationtraining.com.au/articles/next-best-option/) necessary to negotiate a better deal. Remember these dealerships are in competition. If one dealership is not prepared to make you a better offer, simply tell them you you can get a better deal elsewhere. There is no greater source of negotiation power (http://www.negotiationtraining.com.au/questions/effective-negotiation/) than having a strong fall back offer.
However, if you can't wait and must have that car, you can still get a good deal. Remember that for every day a vehicle sits on the dealers lot, costs the dealer money. The dealer is being charged interest on every vehicle sitting unsold on their lot.
Negotiation Tip: Flexibility
The more flexible you can be, the greater your options. The greater your options, the better a deal you'll strike. So consider several variations of the same make and model. As a buyer you will have less leverage negotiating the price if you are inflexible about the options and packages you want.
Final word on timing comes from the great suggestions coming through from diggers and other social media collaborators: Sales people are usually targetted on meeting monthly goals. These poor guys and gals earn or lose bonuses (often sizable bonuses) based on little more than the timing of that last car at the end of the month. You're out of luck if they've already made their quota. You're in luck if they are 1 car away. Bonus quotas are usually measured in terms of revenue, and not so much on profit. So provided they make the deal, it doesn't matter much to them whether they make a profit on your car. Your car will pay handsomely for profit from all the other cars they sold in the month. Yes, this is a gamble. Yes it's worth sniffing out the salesman to see if you can catch a whiff of desperation.
Play it Cool
On the other hand, if you know a particular dealership has the ideal car, play it cool. Don't show emotion to the salesperson. One strategy to consider is to begin by talking about a vehicle that has options and packages you know the dealer doesn't have in their inventory. Let them think you want the vehicle right now, and you can't wait for them to search and source it. Then reluctatntly give them an opportunity to present an alternative (which happens to be the car you really want). Of course if you're going to be making a compromise, then the salesman should meet you part way. How? By lowering their price or throwing in extras for free.
Loose Lips Lose Money
Veteran dealers are trained to size you up, ask you questions, and squeeze all the information they can in order to get you to say "Yes". So be careful. If you're the loose lipped type, then practice being the one to ask the questions. Just because they ask a question doesn't mean you are obligated to answer. Remember that no matter how charming and friendly the dealer may appear to be, it's more important to save money than make a friend of the dealer.
Steps to take before Negotiating Price
Luckily for you, there is a lot of fierce competition between car dealers. Not every dealer will ask for the same price.
The first step then is to either email or phone the dealerships and ask the salesmen to give a price for the type of vehicle you want to buy. This allows you to compare the price differences without the hovering presence and pressure of the salesperson.
Once you've found the best priced deal, make an appointment with the dealer. Salespeople are very familiar with the usual assortment of tyre kickers or just looking types, who breeze through their lots. An appointment tells the salesperson you are serious and in a deep buying cycle mode. When you meet with the salesperson, you can simply tell them what you are prepared to pay. Having done your homework, your market price knowledge puts you in the driver's seat.
Trading in a used vehicle: One of the first questions every salesperson will ask is whether you are planning to trade in your used vehicle (http://www.cars.com/go/advice/Story.jsp?section=sell&story=trdStory&subject=how_trade&referer=&aff=national).
One obvious advantages to you of trading in your used vehicle, is so you can unload it without the hassle of advertising and selling privately.
The disadvantage is you will almost always receive less money from the dealership. The reason? When a dealership is looking at your trade-in, they are calculating the value of the used vehicle based on the wholesale value of the used vehicle. The dealer's wholesale valuation of the vehicle is always less than what you might receive for the actual market value (the price you could get if you sold it privately). There can be a significant difference between the wholesale value and the actual market value of a used vehicle. If you think the dealer is giving you a good deal on your trade-in, beware! It's not unheard of for a dealer to inflate your trade-in value just to close the deal - IF you've not shaved their margins.
Trade-in sales gambit
One of the most common gambits that a salesperson will try is to slightly raise the wholesale value on your used vehicle (usually after talking to the manager "to see what they can do for you"). Look out. They will be making up the loss in another area. For example, by increasing the interest rate on the financing or by trying to flog extra options at a premium.
Negotiation Tip: Power of Options
If you've got the time to invest into getting the best deal on your trade-in vehicle, then go to a number of dealerships. Have each quote you on how much they are prepared to pay for your trade-in. Let each dealer know that the price of your trade-in will be a strong factor in your choosing a dealership. Ask the other dealerships if they would be prepared to match or beat your best price.
Don't let any salesperson change the price they originally quoted or claw back extras. Either leave the dealership, call their manager, or call them up on their tactic.
Negotiation Essentials Summary
Ignore the sticker price (the most the dealership expects). The negotiating zone is anything above the invoice price, but much less than the sticker price. You should also deduct the holdback price from the invoice price. This gives you the actual cost the dealer pays to the manufacturer. The bargaining zone is anything above this price. You can put pressure on the dealer by making an opening offer on or near this price.
Having done your homework and after receiving several quotes from the dealerships, take your lowest quote. Call the other dealerships. Simply explain that you are prepared to buy from them if they are prepared to better your lowest quote. When all dealers push back, you know you've found the best deal.
A hard hitting approach you may wish to consider is to come right out and tell the salesperson, you know what they are making on each vehicle (provided you've done your homework first). This puts them on the backfoot and tells them that you are to be taken seriously.
When you are ready to turn down a dealers offer, make them a final offer. Strengthen your position first by confidently stating that any other counter offer is unacceptable. Tell the salesperson that they should "Take it or leave it". Be careful to leave the door open for them to come back to you later. Tell them to call you if they can do a better deal. You may be pleasantly surprised.
Don't forget the Safety Options
Too many people lose their lives and loved ones every year on our roads. So please ask questions about the safety options. This can be yet another weapon in your armoury in levering the price downwards. Not every make and model has the same safety features (http://money.cnn.com/2005/10/07/Autos/tipsandadvice/safety_interest/index.htm?postversion=2005101010). These include:
Driver and passenger airbags
Traction control
Antilock brakes
SIPS (Side-Impact Protection System)