If you are thinking of buying a car—forking over thousands of dollars on a single purchase—and do not happen to carry a black American Express card in your wallet, then you’re going to want to talk price. In automobile transactions price is, after all, its own language, and dealers are its high poets.
So, how much is that Audi in the window? Car prices are ultimately determined by dealers— otherwise decent people who are trying to make as much money as possible on a sale, but are not deaf to a reasonable offer, assuming you know how to make it. Here we decipher some common terms that will no doubt influence your choices and help build a solid case for a lower price.
Glossary of Dealer Terms
* '''MSRP''' (Manufacturer's Suggested Retail Price): The first number you’ll see attached to a new car, whether posted online or on the window of a showroom car. Also known as the '''Monroney sticker price''', named after Oklahoma Senator Almer Stillwell Monroney, who mercifully went by “Mike.”
* '''Window sticker''': Lists the lowest price the dealer would like you to pay for the vehicle itself (base MSRP), plus the transportation charge and the suggested price of optional equipment, and offers a total suggested retail price (total MSRP).
* '''Transportation or destination charge''': The dealer’s cost for shipping a car from the manufacturer. Non-negotiable and unavoidable. Sorry! The destination charge is not proportional to the make, model or origin of an automobile; meaning, don’t rule out a Japanese SUV because you imagine the shipping cost might be greater. The destination fee may turn out the same as that of a small, local model.
* '''Optional equipment''': Changes in interior, transmission, paint color, and other standard features depending on model, each at an extra cost. You will rarely find a no-frills automobile on a dealer’s lot. Dealers tend to carry cars with more pre-loaded features. If you would like to save money on options and don’t mind the wait, consider special ordering your vehicle.
** To find out more about features on new cars, see the Features Buying Guide.
Calculating the Lowest Price
Manufacturers like to keep dealers happy by granting them loads of free money in different guises. You can share in the bounty and still guarantee a decent profit for the dealer by negotiating a price based on the sum the dealer actually pays for a vehicle; the actual cost.
* '''Factory invoice price''': The amount a dealer was billed for the car you are looking to buy.
* '''MSRP''': The invoice price adjusted to an amount the dealer believes the car may sell for, based on demand.
* '''Actual cost''': The lowest price a dealer can offer and break even; accounts for rebates and other incentives.
** You can calculate the actual cost by subtracting rebates, holdbacks and incentives from the invoice price.
Rebates, Holdbacks, and Other Incentives
* '''Rebates''': Discounts given to dealers from the factory and passed on to you as incentives to buy.
** While rebates are usually advertised, not all are. Some salespeople will choose to withhold the possible rebate so as to tout a higher invoice price and charge you more.
** Do your research on rebates before heading to the dealership—they are not something you will want to ask the salesperson about, or rather, not something you will want to ask about until the car is down to a final price.
** Keep in mind that a rebate will remain the same no matter the price at which you buy the automobile. You do not need to spend more to save more.
* '''Dealer holdbacks''': Though kept secret from the consumer, holdbacks effectively reduce prices in much the same way as rebates and by as much as two to three percent.
** Holdbacks are based on financing deals between dealers and manufacturers; usually only apply for the first 90 days a car is in the lot.
** But holdbacks, like factory-to-dealer incentives and year-end allowances, can only save you money if you know about them. For more information, visit Safe Car Guide.
Making an Offer
* Start negotiations by offering four to eight percent above the actual cost.
* Expect dealers to settle on average for no less than a 10 to 20 percent profit.
* Do not mention incentives and rebates until you have set a final price. Otherwise, the discounts may be used against you unfairly.
* Check online for invoice prices and trade-in information by car make and model. There are many resources online.
Discussing Additional Options
The deal is not done once a price is set. A dealer will want to discuss these additional options.
* '''Special Financing''': Nothing down with 0% interest and no payments until 2008?! Wow! What a deal, right? Maybe, maybe not. Think it through, read the fine print, check your piggy bank. A great financing match produces great savings; a poor one ends up costing more than the car is worth. Ask yourself:
** Are you financially qualified for 0% interest rates?
** How much money can you afford to put down?
** How much will the interest rise after the initial term?
** How long do you plan to drive the car?
* '''Extras''': Dealer-installed extras include rust proofing, paint sealant, car alarm, fabric protector… Items with important-sounding names and unimpressive track records.
** Those extras that are significant—a non-standard alarm system, for example— are available elsewhere at affordable rates and better quality.
* '''Extended Warranties''': A factory warranty is included in the base MSRP price. You might want to extend the warranty, if a) you plan to drive the car for more than two or three years; b) the vehicle features luxury or otherwise expensive or complicated parts; and/or c) the model is known to experience costly problems. Be sure to check:
** What schedule of repair does the warranty require?
** What is covered and where can you have it fixed?
** Does the repair shop get paid directly, or are you reimbursed for your repair payments? (Better that the shop gets the money than risk a rejected claim leaving you in debt).
** Is the dealer offering the best available warranty or will a third party serve you better? (Dealer service contracts are generally more expensive).
* Remember: take your time. Don't worry if your negotiations take longer than expected.
** You may have to go to several dealerships to find the right price.
** Do your research. Use the resources at your disposable, and make use especially of innumerable car pricing websites offering many different quotes on the same make and model.