Going into any negotiation, you should always know the value of what you are buying. It’s critical to establish a target purchase price and know what you should pay for a new car so you know when to pull the trigger on a deal. However, this should strictly be a point of reference for you. There is no reason to share this with a car salesman. I’ll explain why leaking information like this can be a very expensive negotiating mistake.
How do you determine a target car price?
There are a few schools of thought on what to consider a “good deal”. Some will tell you to spend hours researching rebates and incentives and try to understand the car manufacturers’ tricky shell games. Others will tell you to take the cost of the car to the dealer (dealer invoice price) and add a small margin between 2-4%. While that’s a reasonable starting point, it’s not specific enough because some makes and models can be discounted more than others. And some salesmen may be inflexible on price, while others may be willing to sell a car below invoice.
My suggestion is to spend 10 minutes and check the following three sources to determine a good target car price:
- Edmunds True Market Value (TMV®) Pricing Report: Enter a make and model and then click on the Pricing tab to find out what people are typically paying. You’ll get a breakdown by average base price plus the average price for each option.
- Truecar Price Report: Enter a make and model to get a price report that shows a clever graph of prices and ranges of “over priced”, “good price”, and “great price”.
- CarsDirect instant quote: This site is not like the two above that provide trends based on historical data. However, their low, instant “CarsDirect Price” can be used as another point of comparison and comes with a guarantee. Also, if you end up not being able to find a better price elsewhere, you can always come back and buy here.
So why keep your target car price a secret?
Because as soon as you throw out a number to a salesman, you’ve set a price floor for yourself and they will not negotiate below that number. This can end up costing you hundreds of dollars. Instead, follow my car buying tips and make car dealers compete with each other instead of competing with you. They will keep lowering their prices to beat their competitors and could very well drop below your target price. So don’t prevent yourself from getting the best possible car price and keep this number to yourself!
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- How to buy a car at the best possible price (by making dealers compete)
- When is the best time to buy a car?
- How to find the best financing available (by making lenders compete)
- How to sell or trade-in your car for maximum value