How to negotiate a good deal on a new car

Getting Started

Your Money

October 03, 2004|By CAROLYN BIGDA

NEGOTIATING a car's price with a smooth-talking salesman can unnerve even the most seasoned car shopper. However, a little preparation and strategy will help level the bargaining field.

"If you're armed with really good facts, then the negotiation takes care of itself," says Philip Reed, senior editor for Edmunds.com, an online resource for car data. Every hour you spend researching translates into time saved at the dealership and during the negotiation process.

Then, too, you can control the flow of the sale, isolating each component such as pricing, loans and incentives so "you know what you got at the end of the day," said Rob Gentile, director of auto price services for Consumer Reports.

Your first step is to calculate how much you can afford to spend.

Consider how much you can pay in monthly payments (no more than 20 percent of take-home pay), insurance and gas. Don't forget that when you close the deal you'll need to pay title and license fees, plus your state and local sales tax.

For the best interest rate on financing, you'll also need to pony up a 20 percent down payment. Then find a car with the right price.

Most dealers will quote the manufacturer's suggested retail price (MSRP), which is a significant markup from the invoice price (largely what the dealer paid for the car). There are several calculators on the Web to help you figure the invoice price, including options. Add a small percentage to that figure and you have your opening offer.

Print out the data and bring it with you to the dealership to fortify your offer. Or ask local dealerships for a price quote via e-mail. They may return with the MSRP or a lower figure, all of which helps narrow your search.

Most manufacturers give recent graduates "preferred pricing" or additional rebates - a good deal if it applies to a model you are interested in buying. Look for a list of current offers on Cars.com, which is affiliated with the Chicago Tribune and several other newspapers.

Tread with caution, however, when you begin considering incentives. Insist on settling the price first before discussing rebates, financing or trade-in values.

And don't let the dealer determine the price according to what you want to pay. Dealers can stretch a loan to fit your monthly budget, but you'll likely wind up with a higher total cost. Unfortunately, cars in high demand will command sticker price - no matter how smart a negotiator you are.

To take advantage of low-rate financing deals, you'll need a solid credit score. Order a copy of your credit report before going to the dealership.

Also, the best incentives are generally limited to a three-year term or have other restrictions. Research interest rates with other lenders from whom you might obtain a pre-approved loan. Not only will having that loan alleviate pressure to sign up for high-rate financing at the dealership, but it also simplifies your negotiation with the salesman.

Before handing over the check make sure you review each line item on the final bill to make sure nothing has been added that you didn't discuss.

Finally, you may be offered an extended warranty, rustproofing and other back-end services. But first consider how long you plan to keep the car and whether you'll need these options - or if you can get them cheaper elsewhere.

For instance, having the dealer etch the vehicle identification number (VIN) in the windshield can cost an average of $200 to $400. But you can do it with a kit for as little as $20.

When buying his first car, my friend Richard walked out of two Volkswagen dealerships that just couldn't match his parameters - even after undergoing credit checks. That decision, however, saved him $1,000.

E-mail Carolyn Bigda at yourmoney@tribune.com.

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