Negotiating to buy a car can be a bit discombobulating when it comes to navigating all the different price points.
Your salesman is likely to be throwing around a lot of pricing terminology, not all of which you necessarily understand. And many people are uncomfortable with the negotiations process in general. In fact, 53 percent of respondents in a recent U.S. survey said they’d consider buying a vehicle online rather than having to haggle with a salesman in person, while 16 percent had already taken that step.
“For many, buying a car at a dealership is too much of a confusing, high-pressure, unreasonably long process,” observes Brad Tuttle on Time.com. “It's easy to see how it's preferable to haggle over prices and options and review the fine print at one's leisure in front of a screen rather than surrounded by salespeople and their ‘Let me talk to the manager’ games.”
“It’s hard to believe seven years ago automotive retailing was in the depths of the recession — suffering record losses, franchise terminations and bankruptcies,” the study authors note. “When labor market and credit conditions are favorable, it is inevitable dealers will tap into America’s love affair with automobiles and mobility to create new growth opportunities.”
Nevertheless, buying in person remains the traditional way to buy a car. And many Americans are simply not comfortable with making such expensive purchases online. If you’re one of them, it’s important for you to grasp what your car salesman is talking about during the negotiations process so you can get the best possible deal.
As such, here’s a brief primer on some common pricing terms tossed around car lots:
- MSRP: This abbreviation for manufacturer's suggested retail price is merely the suggested amount the manufacturer advises dealers to charge; it’s the same as “sticker price.” While usually listed on a new car’s spec sheet, it’s often ignored by both dealers and customers. An MSRP does not include registration, taxes, destination charges or other fees.
- Dealer Invoice Price: Ostensibly this price, which is listed on the dealer's invoice from the manufacturer, is what the dealer paid for the vehicle. But the figure listed may not give you the big picture, since invoice prices often incorporate hidden profit margins and are different from true dealer costs. That means an invoice price is not necessarily a meaningful point from which to start negotiations.
- Market Price: You’ve heard the expression that an item is only worth what someone is willing to pay? That’s the premise of market value, which is defined as the going rate of a car based on its specific attributes (mileage, condition, service history, accident reports, etc.) and the market in your area. The price represents what a given vehicle would likely go for if an individual was selling it himself, which is almost always a lesser amount than the average retail value a dealer could get. On popular models, the market price is sometimes higher than the MSRP. When you’re shopping for specific car models, Kelley Blue Book or a slew of other research-based online tools can help you determine reasonable prices in your geographic area. You can also search online ads to note prices being asked, though of course they won’t reveal final negotiated prices.
A little homework should inform you on price points to understand before you get serious about negotiating for a new car. Enter the arena armed with facts, and you’re bound to come out ahead. Then talk to Amplify Credit Union for help in financing your vehicle of choice.