So far in this 3-part series on car ownership we have gone over the cost of car ownership and a step by step guide on how to calculate the costs. If you haven’t read those articles you can find them here and here.
We will now turn our focus on getting the best price possible for our car purchases with some actionable tips.
Tip 1: Research
Knowledge is power. By doing research, you will be able to determine how much the car you want is worth. This means you will be very unlikely to over-pay for the car. This is very easily done by looking on websites, such as the manufacturers or Trade Me. You can also visit dealerships in person to browse sticker prices.
Don’t forget to calculate how much the car costs on an annual basis. Do not just consider the purchase price. As will follow, there are some good tips to reduce the purchase price, but a lower purchase price does not always mean a lower ongoing cost. Look at all ongoing costs such as insurance, petrol and maintenance, and weigh that up against the purchase cost. The TOTAL cost of ownership calculated in article 2 is your guiding light
Tip 2: Have a plan
You have done your research and know how much the car you want SHOULD cost. Now you should prepare a negotiation plan for how you can pay less. Think of questions you can ask the salesperson to understand their positions and interests. By asking the right questions, you may be able to find out that business has been slow. From that you are now in a powerful negotiating position, knowing that sales are more important to them in quiet times. By asking the right question you may also find out that there are a new batch of vehicles coming in soon. Now you know that they will be desperate to clear old stock, which could mean discounted prices. Plan how to get this information without being obvious.
Planning also involves deciding on your three prices before you enter negotiations. Determine the lowest price you think could be accepted at a push, your initial price offer, and the highest price you would accept a deal under. Your lowest price should be your best case (realistic) scenario based on your research. Your initial offer should not be so low that the salesperson is encouraged not to negotiate with you, but high enough to keep them at least slightly interested. Don’t be afraid to be a bit cheeky here. Often your initial offer will be less than your lowest price. Any price above your highest price is your walk away price.
Tip 3: Visit the car yard at the right time
Car salesman and woman are all paid on commission at some level. This means that they get a large portion of their income based on how many cars they sell and whether or not they are meeting sales targets set by their managers.
By understanding this, you will realise that there are times that they will be under pressure to sell. They often have end of month targets and end of year targets. End of month and end of year are great times to negotiate a lower price as the salesman will be keen on meeting/exceeding their targets.
Another great time to visit a car yard is when the yard is quiet. Weekdays is one example, as is rainy days. The yards tend to be less busy on weekdays which means they are getting less sales and you will also receive more personalised attention. If there have been a few rainy days in a row, the sales team may be under increasing pressure to make sales. Several days of rain often keeps shoppers away, and the ones that do brave the weather may reap the rewards of being in a powerful negotiating position.
Tip 4: Get to know your salesperson
This is about being friendly without being their friend. We often think about the impression that the salesperson gives us, but what may be more important is the impression we give the salesperson. The first few minutes of getting to know each other can really determine the flow of the deal, and get them on your side instead of seeing you as just a number figure to sell to. If you can spin some yarns to a salesperson to get some empathy or get them on your side with shared interests, they are more likely to work for you.
In our last car purchase we shared some common ground with the salesperson and bonded over the importance of family, of all things. I can’t recall how we ended up on that topic, but we found a shared love. This was built up from friendly conversation, and we now had the salesperson looking out for us. Just be weary that some salespeople may not be genuine with their interest and just using fake interest to lure you into a false sense of trust and security. Always keep your guard close by, whilst bearing in mind they are trying to earn a living too.
Tip 5: Don’t give them information about your financial situation
This is where I like to take advantage of people’s biases. We all make snap judgments on people before we know them by what type of car they are driving, what clothes they are wearing and where they work. For example, if I show up to a car yard in a suit and tie in a nice car and let the salesperson know that I am an accountant, then I have already given away too much information. The salesperson will naturally assume that I am rich and can pay more for a vehicle.
Knowing this, my wife and I show up to the car yard in a 2002 Mazda Familia.
Following my own advice, it was a weekday (tip 3). So instead of turning up to the car yard in my nice work clothes, I got changed into very old tracksuit pants and a ‘holey’ t-shirt. My wife was in her nurse’s uniform as she came straight from work. Right off the bat the salesperson probably thought “I won’t be able to squeeze too much out of this couple.” We deliberately told the salesman we lived in Wainuiomata, a relatively poor area of Wellington. This was all part of our plan (tip 2) to come across as poor. We actually love it in Wainuiomata, but we know that other people have less favourable opinions on this suburb so used that to our advantage. We didn’t tell him how much we earned or where we worked. He made a quick judgement that we were probably poor based on the cues we were giving him.
After some talking (tip 4), the price that the salesman offered was well below the sticker price and much better than anywhere else we could see from our research (tip 1), so we accepted. The salesman went inside to grab the paperwork for financing the vehicle. To his horror, we told him we were paying in cash. His face was priceless. I actually think his jaw dropped. His lower than market sales price would have been based on us signing up for finance. The car dealer gets an extra cut if they sell you their car finance package. Don’t tell them you are a cash buyer. That doesn’t work in your favour.
Tip 6: Don’t fall for sales tricks
Car salespersons will often try different tricks to get you to buy that vehicle at full price. They may try the hard sell technique where they don’t leave you alone for a moment to ‘think’. They know that the more you think the more likely you are to leave the deal. The salesman may also try to appeal to your emotions. A lot of people get emotionally tied to vehicles. They incorrectly see vehicles as a status symbol. A good salesman knows this and will say things such as “you look great in that car”, or “your friends will be so jealous.” Try to keep your emotions out of big financial decisions. Another trick they use is to give a monthly price for the car if you were to get a loan. This makes the car sound much more affordable and cheaper, but in reality it is no different.
Tip 7: Have options
Don’t be afraid to turn away and say no. It is a lot of money that you work very hard for. Don’t get too emotionally attached to any one vehicle or you may end up paying too much for it. Know that there are always options to buy from somewhere else or at a later time.
By being prepared to walk away you are letting the salesperson know that you are not to be messed around with and that you are the customer doing them a favour, not the other way around. There are a lot of different car dealerships that would love your money, so don’t be afraid to walk.
You can always leave them your email address or phone number to contact you if they change their mind about the price. When the car is still sitting there a few weeks later, you never know, you may end up getting the call that they have agreed to your terms.
Tip 8: Negotiate
By planning and researching (tips 1 and 2) you will be in a strong position to negotiate.
When you make your initial offer, it will most likely be lower than the salesperson wants. You should justify to the salesperson why you think the car is valued at this low offer. An offer without justification will not have much bearing and you are less likely to succeed in your negotiations. Maybe the colour of the vehicle is not what you wanted, or it is an automatic when you wanted a manual. Any reason that helps justify your lower offer will add to the credibility of your offer and how serious the salesperson takes it.
More than likely, the salesperson will come back with a counter-offer. You will know then whether their offer is below your highest price or not. In either case, you should act offended or shocked at their offer. Practice your acting skills in the mirror if need be. The purpose of this exercise is to lower the seller’s expectations and get them thinking that maybe they are being unreasonable or doubting the price that they can sell the car for. Remember, they don’t want to lose the sale and they may also be worried about you bailing out at this stage, even though you are secretly happy with the price.
If you don’t say anything at this stage, you may be able to get them to make another counter offer, that is lower than their first counter offer. This is ideal because they have made two counter offers or concessions to just your one offer.
Finally, you don’t have to match their concessions. For example, if there is a $2,000 difference between your offer and the sellers counter offer and the seller reduces their offer by $500, don’t feel like you then have to also make a concession of $500. This is a common mistake in negotiations. You could make a concession of just $200, in response to their $500 if you want. Or none at all if that way inclined. By making small concessions, in response to large ones from the seller, you may be surprised by how many large concessions the seller may make. By making smaller concessions, you are also leaving more room to negotiate later in the process if it seems like you are heading for a deadlock.
Don’t fall into the trap of negotiating against yourself. If the seller is not happy with the size of your concessions, let them mull it over instead of making another concession immediately afterwards.
Tip 9: Don’t purchase upgrades
When we purchase a vehicle, we are often tempted to upgrade stereos, heated or vinyl seating, and so on. All thanks to aggressive sales tactics. We will tell ourselves, what is another $1,000. We may already be spending $20,000. This is known in the world of psychology as framing. We are comparing $1,000 to $20,000 which is only 5% of the car price. When comparing a small number to a large number we think less of the small number. But what if we were to consider that $1,000 extra in terms of grocery shopping? For many people, that may be 4-8 weeks shopping. Or if considered in terms of petrol costs? $1,000 could be half a year of petrol. By turning the $1,000 into a larger number, instead of a smaller number, we are countering the effect of framing. Therefore, reducing our chances of purchasing the extras that we never wanted in the first place.
Tip 10: Know your finances
If you have no choice but to finance your vehicle, shop around before you visit the car yard. Know who is offering the best interest rates and loan conditions, and use that as a benchmark against the car dealerships offer. If they can’t match this offer of finance, then don’t feel compelled to use the car dealers finance company. If the seller can’t negotiate on the price of the vehicle, maybe they can negotiate on the loan interest rate. Know before you start shopping, how much finance you can afford at different rates. Bring your calculator with you to calculate the FULL purchase price.
Tip 11: Don’t get emotional
Cars are not something to get emotional about in my opinion. The moment we do, our emotional side takes over from our financial side and we pay too much to feed our emotional craving. In my opinion, a car is a mechanism to get me and my cargo from point A to point B and nothing more. Safety and fuel efficiency are also very important to me. The car is to serve a function only. Everything else is fluff, with no real value. Of course, your priorities may be different, but I would rather drive in moderate comfort at half the price, than extreme luxury at double the price. My money is better spent on appreciating assets that bring me value.
A car should not be purchased on the premise that it will bring you status among your friends and colleagues as a means to show off. They will be impressed for all of 5 minutes and then won’t care about your car. They are too busy with their own lives, so don’t go thinking a shiny car will win people over. Status symbols only result in a never-ending competition as to who has the best. You will quickly adapt to your new level of comfort and get bored of your current car. Now you are stuck with just the functional aspect of the vehicle, since your emotional attractiveness to the vehicle has worn off.
All these tips were written with purchasing a vehicle from a car dealership in mind. I realise that many vehicles are now bought online, in which case tips 3, 4 and 9 may not apply.
I hope that you have found this 3-part car ownership series helpful.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here
Are there any other car buying tips you have that have worked? What are your experiences of negotiating? Do you prefer to purchase vehicles from dealerships or online? Comment below