How can you negotiate the best possible price for a new car? This is a common negotiation question, and naturally so. A car is one of the most significant purchases you’ll ever make—and the price is almost always negotiable. Here’s some negotiation advice to improve your performance:
Negotiation Advice for Improving Your Performance When Buying a Car
Negotiation Advice Tip 1. Prepare, prepare, prepare.
Due to the vast amount of information available on the Internet, walking into a car dealership without having done some online research would be a big mistake. Online, you typically can find out the actual dealer cost, or invoice price, of a car—the dealer’s walk-away point in his negotiation with you. Some Web sites also allow you to pick the precise options you want and even tell you what other buyers in your region are paying for the same car. (Note that details such as dealer “holdbacks,” or money paid back to a dealer by the manufacturer, could prevent you from pinning down the dealer’s reservation price definitively.)
Negotiation Advice Tip 2. Choose the right negotiation process.
In the car-buying context, you can enter a dealership and negotiate with a salesperson, or you can put out a request for bids on the Web. One key factor in this decision is how well you know what you want. If you’ve picked out a car down to the very last option, then by all means let the Internet do the haggling for you. (But beware: some dealers may tempt you with a lowball price and then try to renegotiate in person.) If your final decision will depend on cost, then negotiating face-to-face at a dealership is probably the better choice.
Negotiation Advice Tip 3. Use the threat of walking away.
One middle-ground option that Richard Zeckhauser and Guhan Subramanian have identified is a negotiation-auction hybrid, or negoti-auction. Merge the strategies described above by visiting dealerships to determine what you want and then hold an online auction to determine who will give you the best price. Eventually, of course, you’ll have to close the deal in person, but this will be a straightforward encounter if you’ve worked out the price in advance.
It’s a different matter if issues remain on the table. In private-equity deals, experienced negotiators use exclusivity as a bargaining chip, a tactic you can use when buying a car. Consider the salesperson’s situation: if you walk out the door without signing on the dotted line, the deal is probably dead. Therefore, you can exercise your option to walk away to extract further concessions. One buyer recently shopped for a car alone and, after negotiating a deal, told the salesperson that he wanted go home and discuss it with his wife. The salesperson asked what kind of price reduction the buyer needed to sign the deal right away. The answer: a $900 price cut, which the salesperson agreed to after the inevitable consultation with his manager. Back at home, the buyer’s wife was thrilled to hear about the final price.
The Importance of Information in Negotiations: Remember Your BATNA
If you still feel stressed about car buying, consider the big picture: you have lots of best alternatives to a negotiated agreement (BATNA), but the salesperson’s alternative to a deal with you is forgone profit. And while you have access to substantial information about his position, he can estimate only how much you are willing to pay (reservation price).
What’s your favorite negotiation advice for anyone who’s never bought a new car before?
Originally published in 2010.