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SO YOU WANT TO BUY A CAR?

Posted By Julia On April 27, 2010 @ 8:22 am In Daily, Personal Negotiations | Adapted from

“Wheeling and Dealing,” by Guhan Subramanian How can you negotiate the best possible price

for a new car? This is a common negotiation question, and naturally so. A car is one of the most

significant purchases you’ll ever make—and the price is almost always negotiable. Here are a

few tips to improve your performance:

1. Prepare, prepare, prepare. Due to the vast amount of information available on the Internet,

walking into a car dealership without having done some online research would be a big mistake.

Online, you typically can find out the actual dealer cost, or invoice price, of a car—the dealer’s

walk-away point in his negotiation with you. Some Web sites also allow you to pick the precise

options you want and even tell you what other buyers in your region are paying for the same car.

(Note that details such as dealer “holdbacks,” or money paid back to a dealer by the

manufacturer, could prevent you from pinning down the dealer’s reservation price definitively.)

2. Choose the right process. In the car-buying context, you can enter a dealership and negotiate

with a salesperson, or you can put out a request for bids on the Web. One key factor in this

decision is how well you know what you want. If you’ve picked out a car down to the very last

option, then by all means let the Internet do the haggling for you. (But beware: some dealers may

tempt you with a lowball price and then try to renegotiate in person.) If your final decision will

depend on cost, then negotiating face-to-face at a dealership is probably the better choice.

3. Use the threat of walking away. One middle-ground option that Richard Zeckhauser and

Guhan Subramanian have identified is a negotiation-auction hybrid, or negotiauction. Merge the

strategies described above by visiting dealerships to determine what you want and then hold an

online auction to determine who will give you the best price. Eventually, of course, you’ll have

to close the deal in person, but this will be a straightforward encounter if you’ve worked out the

price in advance.

It’s a different matter if issues remain on the table. In private-equity deals, experienced

negotiators use exclusivity as a bargaining chip, a tactic you can use when buying a car. Consider

the salesperson’s situation: if you walk out the door without signing on the dotted line, the deal is

probably dead. Therefore, you can exercise your option to walk away to extract further

concessions. One buyer recently shopped for a car alone and, after negotiating a deal, told the

salesperson that he wanted go home and discuss it with his wife. The salesperson asked what

kind of price reduction the buyer needed to sign the deal right away. The answer: a $900 price

cut, which the salesperson agreed to after the inevitable consultation with his manager. Back at

home, the buyer’s wife was thrilled to hear about the final price.

If you still feel stressed about car buying, consider the big picture: you have lots of alternatives,

but the salesperson’s alternative to a deal with you is forgone profit. And while you have access

to substantial information about his position, he can estimate only how much you are willing to

pay.