You walk into the dealership with your car price research in hand. You know how much the car you want to buy is worth, and you’re going to negotiate until you walk away with a price you’re happy with. During the price negotiations, you haggle back and forth with the dealer and walk away with $2,000 off the original price. You made out pretty well, right? Perhaps. It all depends on the dealership’s approach to negotiations.
How Car Dealerships Approach Negotiation
Car dealerships know that people want to get a good deal. They may raise the sticker price of the vehicle by a few thousand dollars. When customers negotiate with the dealership, the dealership could be ready to lower the price up to three times and still make a profit. The customer walks away thinking that they have made a great deal, and the dealership walks away making money. With most car dealerships, there is always a little bit of room for negotiation.
Determining How Much You Can Negotiate on a Car
Three factors can help you determine how much you can negotiate on a car. The first is the window sticker. The second is the incentives placed for the dealer. The third is the length of time a car has been on the lot.
The Manufacturer’s Suggested Retail Price (MSRP) is what you see on the sticker in the window. It would help if you found out the percentage of margin that has been built into the MSRP. For less expensive cars, the percentage of markup may only be two or three percent. A vehicle that has an MSRP of $18,000 may only have $360 of profit built-in. There is not a ton of wiggle room to start with.
Customer incentives could include special interest rates, rebates, or special programs for military, first responders, and college graduates. During the negotiation process, talk to dealers about these incentives because they do not cost the dealer anything.
Dealer incentives are a little bit more difficult to learn about. Remember, a car manufacturer has one goal, and that is to sell cars. They may put dealer incentives in place, which are quite significant. These dealer incentives are kickbacks that the dealer gets from the manufacturer. They can be quite significant.
Dealers are happy to lower the price of a car if they know they will get a kickback from the manufacturer. Ask a dealer how close they are to hitting their goal. If they need a couple of sales to get a rebate from the manufacturer, you have just picked up some leverage that can help you lower the price of your vehicle.
There are a lot of angles you can negotiate from. The longer a car sits on a dealer’s lot, the more money it costs them. Ask them about the oldest car on their lot. They may be willing to give you a deal on it. By doing some research in advance and understanding how dealerships work, you will feel more comfortable negotiating your next car deal.