Your father was wrong: How NOT to negotiate car price

Don’t take offense to the title, your father’s car buying advice was great until the past few years.  He probably taught you how to handle yourself at the dealership…act disinterested, throw out a low-ball offer, and never take the first counter-offer.  But with the tools available on the Internet, those old negotiating tips are no longer appropriate.

There are two popular schools of thought on how to negotiate car price.  Each strategy is based around making an offer and negotiating until you get close to your target car price.  But these approaches are based on the idea of negotiating with a single salesman and have become outdated.  Let’s take a look and see why these negotiating tactics will cost you money.

The 1st strategy:  Negotiate down from MSRP.

This is probably the most common tactic used to negotiate at a car dealership.  MSRP or Manufacturer’s Suggested Retail Price is the “sticker” price required by law to be shown in the window of a new car (see our car terms glossary).   Most people know not to pay full price for a car and will try to work the price down from the sticker.

It’s common to start by throwing out a low-ball offer and attempting to haggle until a salseman comes down in price.  But this approach is flawed because the second you make an offer, you’ve set a price floor for yourself.  Now the salesman has a negotiating range to work with.   He’ll never counter-offer below your first bid, so the only place you’ve got to go is up.  And if you happen to make a mistake and set your initial offer too high, you’ve compounded the problem even more.

The 2nd strategy: Negotiate up from dealer Invoice.

Dealer invoice is the wholesale price paid by a car dealer to the manufacturer.  The theory here is that you find out what the car dealer paid and make an offer with a small margin of 2-5% to give them a fair profit and still get a good deal for yourself.  This approach is slightly better than the first, but still has inherent problems.  Again, as soon as you make an offer, you’ve set a floor and established a negotiating range for the dealer.

On top of that, dealer invoice is not the lowest possible car price.  Both dealerships and car salesman have bonuses tied to sales quotas.  When either gets close to hitting their numbers, they become very interested in selling the last few cars.  These bonuses for selling multiple cars may greatly exceed any discounts they offer to you for an individual car. As a result, it’s occasionally possible to buy a car below dealer invoice.

So what’s the most effective car negotiation strategy?

The answer is to never make an offer to a dealer at all.  Instead, email multiple car dealers and ask them to make YOU an offer.   You will share the best price you have been quoted so far and ask them to beat it.

Do this by getting car quotes from several dealers and ordering them from the most expensive to least expensive.  Starting with the most expensive, ask if they can beat your best offer.  Work your way down through your offers updating your best offer as you go.

By negotiating this way, you’ll systematically reduce the price of the car.