It’s time to shop for a new ride, and the local dealership has one you really like. Regardless of whether it’s used or new, to get a closer look, you’ll need to enter the lion’s den. If you’ve never darkened the door of a dealership (or even if you have), there are some things you should know up front about what’s going to happen. Although every car dealership is different, the sales process usually follows a predictable script.
If you called on the phone before your visit, the salesperson probably encouraged you to ask for them by name when you visit the dealership. That’s because car salespeople typically work on commission—meaning they get a percentage of the sales price. It could be a straight percentage, or it could be part of a bonus plan, but the point is, if they talked to you on the phone, you are “their customer.” Car sales are very competitive, and if a salesperson has invested time in someone, they want to protect their investment—in this case that means you.
Selling cars is a tough job stretched over long hours, steeped in pressure, and beset by high turnover. A study conducted by the National Auto Dealers Association (NADA) in 2015 showed a one-year turnover rate of 72% for sales staff. Ideally, you want to work with a salesperson who knows the product and provides a level of comfort. If you randomly call or walk in, you’re going to get whoever is answering the phone or is “up” on the sales floor. But there is a smarter way.
Start by checking out the Dealer Rating on any CarGurus listing that interests you. If you know somebody who has recently bought a car at an area dealership, ask for a referral. Check that dealer’s website for salesforce faces and titles that indicate longevity. If they’ve been there awhile, they are probably honest and knowledgeable.
Once you find a likely candidate, call the dealership and book an appointment. Pick your salesperson—don’t let them pick you. They’ll be flattered and may actually keep an eye out for you as you make one of the biggest purchases of your life.
Everything is negotiable… except when it’s not. Most dealers want to appear transparent and may base their entire business model on no-haggle sales: There’s the price, take it or leave it. If a dealer is selling a particularly hot model of car, there may be a shortage of them. Try to negotiate and the salesperson will let you walk, knowing people are standing in line to buy the same car.
Fifteen percent is the high end of the wiggle room that often exists on car sales. Keep in mind that dealers get kickbacks from car manufacturers on new car sales, known in the business as “holdback money.” So, even if the price they show you is “below sticker,” they have other numbers you’ll never see.
If you’re comfortable negotiating the price, try offering less than the asking price, but be prepared for a counteroffer. The salesperson may try to deflect the question by turning the question into, “How much do you want your monthly payments to be?”
Assuming you are getting a loan, this is a fair question, but it is also off-topic. Tell him or her you can talk about the financing later, but you’re wondering about price flexibility now. They will probably then say, “What’s your best offer?” followed by, “I need to talk to my manager.” They’ll disappear for a while before coming back, or the sales manager may enter the fray at this point.
The other diversionary tactic used in price negotiation is the question of a trade-in. If you want to trade in your old car to the dealer, it will need to be inspected and appraised to determine its value. Keep in mind that no matter what the value of your old car is, the salesperson cannot offer you that. They need to get your trade for less so they can fix whatever needs to be fixed and then re-sell it for what it’s actually worth. Therefore you are often better off selling your old car yourself and using the cash to help buy your new car. If the salesperson offers you “full retail” for the trade, they hope to make it up elsewhere.
Keep all this in mind, especially if you’re looking at a used car on the dealer’s lot. If the dealer acquired the car on a sweet trade—meaning a low “wholesale” price—the salesperson may be willing to negotiate a better sales price with you, because the business has less invested in it. Other factors that determine how flexible the negotiations are include how long the car has been on the lot and the overall desirability of the particular model.
The Sales Manager
Say hello to the closer. They may play the role of the good cop or the bad cop. They’ll ask you, “If we can come to an agreement, will you be buying the car today?” Say you’re “still looking,” and the serious negotiations will stop. They want a commitment. They will also ask again about financing, and here’s why.
According to NADA, new car sales account for about 2.6% of a dealership's before-tax profits as a percentage of sales. The finance and insurance operations (F&I) account for about the same number. If the sales manager agrees to a low-ball number for the sales price, they may be looking to make it up when you head to your next stop, which will be a visit with the F&I people. Assuming you come to an agreement on price, the sales manager will shake your hand, a sales contract will be signed, and off you will go.
Finance and Insurance
If you come into the dealership with enough dough to buy the car without financing, you are a “cash buyer.” If you are planning to get a loan through your bank or credit union, you will be said to “have your own money.” But either way, you have to talk to the F&I guy or gal. This is the banker and bean counter of the dealership. They’ll talk to you about down payments, interest rates, and terms of financing the car. F&I people are generally smarter than the average bear and good salespeople in their own right.
Keep your guard up and listen closely to what they say. Even if you have your own money, the dealership may be able to beat the interest rate—especially if you’re shopping for a new car. Rebates or cash back may be available, and if you’re buying an electric or hybrid vehicle, you should pursue any available tax credits. They will also stress the importance of an extended warranty and additional insurance. They are trying to reduce your risk and raise additional profits for the dealership by getting you to pay more money.
According to a report by Consumer Reports in 2013, 55% of the drivers who bought an extended warranty on a car never used it, and those who did actually spent more on the coverage than the repairs would have cost. Don’t be afraid to say “no” to extras, as the last thing the dealership wants to do is lose you when you are this far down the road.
Rust and Dust
As you approach the finish line, the F&I person may have a few more things to show you, or another member of the sales team may show up to talk to you about undercoating, fabric protection, paint protection, and car alarms. Sometimes referred to as “rust and dust,” these add-ons and extras deserve scrutiny with a skeptical eye. Once you have signed title forms, the registration, and any loan contracts, you are done. Find your salesperson, get your keys, and head out into your new automotive world.