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Outsmarting the car dealer
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July 24, 1998: 5:43 p.m. ET
Turn the tables on your car dealer by knowing what they paid for their autos
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NEW YORK (CNNfn) - Buying a car may seem like a high-stakes poker game but you can take a peek at the dealer's hand using information available on the Web.
This inside information isn't perfect. It won't get you a fully-equipped BMW Z3 Roadster for $15,000, but it will give you an ace up your sleeve when you sit down at the table to talk price.
Automobile makers and dealers were quick to pick up on the Internet as another way to get their shiniest new models before a car-crazy United States.
Before long, sites like Auto-By-Tel popped up, promising to hook you up with the car of your dreams and even giving you the chance to pursue purchasing the car online.
Fortunately for the bedazzled car buyer, others decided the Web could also serve as a source for car price information which was previously unavailable or difficult to obtain.
Sticker price is only half the story
When you walk into a dealership and check around at their available selections, you'll come across the sticker prices, also known as the manufacturer's suggested retail price, with which most of us are familiar.
The sticker price is only half the story. Before you walk into the showroom you'll want to try to figure out what the dealer paid for the car and bargain from there.
The dealer's cost is comprised of two main factors. Obviously, the dealer must pay the manufacturer -- Toyota, for example -- if it wants a Land Cruiser to sell. This is known as the dealer invoice price.
Sites like Carprice.com can help you get an idea of this information, including the costs of other options which will drive the price higher for the dealer.
Additionally, the car dealer will often get money from the manufacturer if it sells one of its automobiles. This is known as a holdback.
Information on holdbacks is a little more closely guarded. However, the Edmund's website offers you an updating list of holdbacks.
Edmund's also lists some of the incentives and rebates for many new cars. Manufacturers use these as a carrot to entice dealers to move out cars which aren't selling as well.
As a buyer, you automatically get the rebate but dealer incentives can be hidden and you'll have to prod the dealer to get it.
"You need the factory invoice and no dealer in their right mind would give you that," said Linda Lee Goldberg, executive director of the National Association of Buyers' Agents.
You can now compute a base figure you can use as a guide in your negotiations. For example, let's say you want to buy a 1998 Jeep Grand Cherokee Laredo (4 Dr/4WD).
The dealer invoice is $25,275. Jeep issues a holdback of 3 percent of the MSRP ($27,915), which is $837. Subtract that from the invoice and you get $24,438. Jeep also offers an incentive of $1,650. Your final figure comes to $22,788.
Once you've got this magical figure you can just head to your nearest Jeep showroom, slap down your $22,788 and drive away in a new Grand Cherokee, right?
Wrong, said Jack Nerad, author of "The Complete Idiot's Guide to Buying or Leasing a Car."
"It would be easy to say you should aim for the invoice but that's not realistic if you're buying the average car," he said.
All auto dealers pay the same amount to the manufacturer for their cars. Unlike a merchant like Wal-Mart, which can use its immense buying power to demand lower prices, auto retailers large and small get charged equally.
However, this level playing field doesn't mean you can negotiate the same price for a Chevy Cavalier whether you're in Ohio or California.
This is because there are differences in regional tastes, said Nerad. Four-wheel drive vehicles are popular among Denver's often snowbound residents. In sunny Florida, they're less popular. Therefore, your bargaining power will be less in Colorado.
In addition, trendy cars will also leave you with less leverage. "During the past couple of years if you wanted a sport utility vehicle, you were paying list," said Steve Gross, vice president of marketing at Intellichoice, an auto information service.
"If you didn't want to pay list, the guy behind you would. It wasn't reasonable to expect to pay invoice."
Still, Gross said you're better off walking into the showroom with your initial invoice and incentive information.
Three steps to car happiness
Head off for the auto dealers at the end of the month. Many salespeople have monthly sales quotas they need to hit or have bonuses based on monthly sales. They may be more amenable to striking a better deal during this time.
Start negotiating from the invoice price, rather than trying to push the sticker price down.
If a dealer is eligible for an incentive (which you may know about) then they will make money even if they sell it at invoice, because of the additional money from the manufacturer. That doesn't mean they will want to settle for that amount, but it does put you in a better position.
Buying a car may seem like a single process but Gross said buyers are better off breaking it down into three steps.
- Getting financing
- Selling your current car
- Purchasing a new car
He advises this approach because car dealers often can gain advantages (and more of your money) by playing these various parts off of each other.
A salesperson may, for example, be giving you a wonderful deal on the purchase price of your new car and while you're congratulating yourself on your great negotiating, you may have missed that your trade-in deal was poor.
Financing also trips many buyers up because customers often focus too much on the monthly payment.
The monthly payment can be manipulated. Dealers can jigger the numbers to bring your payment down, while making the money up with a longer loan period.
"If the dealer doesn't get you on the sale of your car, they're going to get you in another area," said the NABA's Goldberg.
The battle is a lopsided one. Automobile salespeople are professionals who know the intricacies of their business very well, making deals day in and day out.
The consumer, on the other hand, only enters this realm every four or five years. However, Goldberg said buyers should use their smarts and intuition to protect themselves.
"People have to say 'I take responsibility. If I get ripped off, it's because I didn't do enough myself.'"
-- by staff writer Randall J. Schultz
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