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Buy Low/Sell High - The Negotiation Process

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For most people, the negotiation process is the least favorite part of getting a new car. No surprise there. To walk into this process unprepared is to set yourself up to possibly lose hundreds, even thousands of dollars on the deal. That's the bad news. Now the good news - armed with some basic information about your present car, the new car, and dealer costs - you can pocket that extra cash and drive away a truly good deal.

The New Car

Do you know what that new car is really worth (the dealer's cost)? Here's a hint - probably a lot less than the MSRP printed on the window sticker. On a typical car, the dealer markup could be anywhere from 10% on a low-end car to 25% or more on a luxury model. Those percentages are your bargaining chip. Before you can bargain, however, you'll need a resource for tracking down dealer cost information. Fortunately, there are a number of resources at your disposal. Unfortunately, not all of these tools are alike. Odds are, your credit union has or can recommend their preferred resource, whether it is on the web, in book or magazine form, or even as software in use at the credit union itself. These resources usually carry dealer costs, and may even offer information about manufacturer incentives and bonuses.

Don't be shy about letting the dealer know you know this information. It lets them know you're an educated buyer, and have already been shopping around.

When beginning the negotiation, don't worry about starting too low. Around 2% over invoice is a reasonable first offer. Then it's the dealer's turn to make a counteroffer. So long as they continue to negotiate, they're still making a profit. With each offer and counteroffer made, you're coming closer to the target price of the vehicle. It's possible you could reach a stalemate, where neither you or the dealer will budge from an offer. At that point, your search may need to continue at another dealer. Don't hesitate to walk away if the deal doesn't seem reasonable. After all, you're the one with the most power during the negotiation process.

Once you reach a deal on the new car, you can now begin discussing your trade.

Your Trade

If you trade your car in for a new one, you're actually going through two negotiations. And like the new car, you'll want to do some research on your trade. What's the fair market value and trade-in value of your car? What are cars like yours going for in the local market? Are there any mechanical problems or cosmetic defects that will lessen the value of your car? Gather this information, and share it (including repairs needed) with the dealer. This will give both parties a better idea of an ultimate target price for your trade. Keep in mind though, you'll usually get more for your vehicle if you sell it outright rather than trading it in. That only makes sense - After all, the dealer is taking your trade-in assuming he or she will be able to sell it to someone else at a profit.

Dealer Costs

The hardest part of the negotiation may be over, but you're not quite done yet! Dealers can (and most likely, will) try to tack on a few extra charges before you drive that new beauty off the lot. Keep your eyes out for...

  • The Extended Warranty - Be clear on exactly what this covers, and feel free to shop around for a better price elsewhere - you don't need to buy one from your dealer, or at all if you don't want to.
  • Sealants/Rustproofing - Proceed with caution. These are often high-profit dealer frills of dubious value that can do more harm than good if installed improperly.
  • Special Order - Only under the most unusual circumstances should you ever consider paying extra simply to order a car. Manufacturers impose no such charges.
  • Dealer Preparation and Handling - Virtually all manufacturers pay an allowance to dealers to clean a new car and prepare it for sale to you. To pay these charges is like paying the dealer twice for the preparation.

...And just what is "handling" anyway?

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