Gather Little by Little

In part one of this series I focused on research and model selection a key step in the process of getting a great deal on a new car. Research involved selecting the appropriate make and models, researching those using services like Edmunds.com, and getting your financing taken care of in advance and independent of the dealership.

This article, the second part of the series, will outline the next steps including: deciding how much you can afford, setting a cap on how much you will pay, and obtaining competitor price information.

In part III will wrap up the series buy taking you through the negotiation process and helping you to avoid any unnecessary fees or dealer add-ons.

Set a price limit

There are two limits you need set before you head out to the dealership. The first is the maximum price you will pay for the vehicle you want. The second is the maximum monthly payment you are willing and can pay. The maximum price is driven by two key factors: 1) How much profit you’re willing to allow the dealership to make and 2) How much you can afford. The second is easy, as it’s just a calculation based on the maximum price you are willing to pay.

Dealer profit you allow

I personally only let the dealership make a few hundred dollars, $500.00 at the most. Don’t feel bad about this, because for every person like me, there are 10 others they make far more on. $500 is also a reasonable profit for them. They make money longer term through service and potentially financing.

Note: When calculating dealer profit, you must factor in dealer hold back as this is money in their pocket. Part one of this series discusses dealer hold back.

Determining how much you can afford

As for how much you can afford, Larry Burkett’s guideline budget recommends that your total auto expenses should be 12-15% of our overall expenses. I personally prefer to be at 12 or below, but if you’re within this range and not in credit card debt, this is a reasonable guideline. If you are in credit card, I would suggest you stop reading right now, as you don’t need a new car. Instead bookmark this article, and come back later once that credit card debt is paid off.

One quick tip and I’ll hit on this again in part III: Knowing the monthly payment is for your information only. The dealerships love it when you negotiate on payment and not on price. They can manipulate the numbers far more this way and keep you real confused on how much you are truly paying.

Do not disclose the monthly payment you are willing to pay. Focus on the price of the vehicle. You’ll use the payment information later when working with the finance guys. Negotiating on payments will do nothing but make you pay more for the vehicle and will also lead you right down the path to signing up for a lease…a very bad idea.

I would also suggest doing one of two things to make negotiating a little easier:

• Prepare a simple spreadsheet that allows you to quickly recalculate numbers
• Print out a sheet that contains payments for different dollar amounts and interest rates below the finance deal you’ve already received. So, say you have a finance deal for 7%, bring different dollar amounts for rates from 5% – 7%. Basically a cheat sheet for you to use to validate their numbers.

Personally, I’ve brought my laptop in the past with a spreadsheet so I could run and validate their numbers. It looks geeky, but I don’t care. I don’t trust them, and having a spreadsheet with me gives me the ability to double check and understand their numbers better and quickly.

Make a few phone calls

Before you head over to the dealership to strike the deal, call various competitor dealerships in your area. Tell them you are ready to purchase a car, have your financing secured, and that you would like to know their bottom line price for the vehicle you are interested in. Tell them you will use this information to decide on what dealership you will visit first.

Let me warn you, dealerships don’t like doing this. Some will tell you they don’t quote over the phone, others will hem and haw and do everything they can to get you to come over in person, and others will give you a quote right off the bat. Be persistent. If they won’t quote you over the phone, just move on.

The purpose of making these calls isn’t to strike a final deal, but to have information you can use for your negotiations. Make sure you write down the name of the dealership, the date and time of when you received the quote and the sales person’s name that provided it to you. Without this information the dealership you are negotiating with may not believe you.

Providing you a quote may take the dealership a few hours to get back to you. They are busy dealing with customers at the dealerships, and they will get priority. The sales person you are talking too will more than likely have to get the quote from the sales manager, which will take time. Expect this who process to take a day or two.

Another popular alternative is to email the dealerships for a price quote. Most modern dealerships these days have an internet sales person that will handle this for you. Only contact the internet sales person though if you haven’t already spoken to a sales person. Contacting two sales people is really considered “bad form” and will cause the sales people to have to split the commission. Be respectful of that and remember that sales people have to put food on the table too.

Prepared with our price limit, target monthly payment, financial cheat sheets, and competitive quotes you’re now fully prepared to head to the dealership to start your the negotiating game which we’ll dive into in part III of this series.