How To Deal With A Car Dealer When Buying A Car

By Charles Hopkins Published 11/28/2007 | Auto and Trucks
When buying a new car from a dealer, there are two things you need to know about car dealers in general.

First, they are hard working people trying to make right by themselves. It's not their fault that their occupation comes with a bad rep. Sure, they may have tricks up their sleeves. Alright, a lot of tricks. But that's not saying they are going to use it all on you. Give them better credit than that. They won't use all, one trick will probably do it.

Second, they are not the enemy. Buying a new car is not a fight so don't start picking one with you dealer. They are there to help you make a good purchase, never mind if they make a whole lot of money while doing it. They get a commission for each deal they close so you're actually just helping them make money.

While it's true at some point, you have to remember that buying a car is an investment and an expensive investment at that. It's your money, it's your call and your car dealer has only got very little to say on that matter.

But there lays the difficult part because your dealer probably knows more about car buying than you do, he has an unspeakable advantage over you even before you step inside the car dealership.

So what do you have to consider when purchasing a new car and how do you deal with the dealer?

First things first, you need to have an offer. No buts. No exceptions. You have to have an offer or you're out. You can't get into a deal without an offer of your own because that would be like walking inside a store and handing the saleslady your wallet.

So now that we have that part settled, let's move on to the next obvious question. How do you calculate the offer to the dealer? What are the factors you need? Find out how much they paid for the car. That's the game plan.

Every buyer has one goal in mind when looking to purchase a car and that is to save money. The rest is secondary. Sure, you want one of them new models, good horsepower, nice interiors, good set of wheels, etc. But all that pales in comparison to how much cash you can save. You might even be willing to skip over that cool add-on if it means you can save some additional money.

But the road to saving cash in this kind of purchase in not paved in gold. Chiseling off MSRP. It helps, but there's a better way of doing it and doing it effectively. That's right and it all depends on making an informed offer.

When purchasing a new car and dealing with seasoned negotiators like car dealers, nothing compares to making an informed offer. An informed offer is nothing but an amount of money over dealer's cost based on the car's value. Of course, to do that properly, you have to have patience as your research the information first.

To find out how much the dealer paid for the car, simply ask to see the factory invoice for the car. The factory invoice in a bunch of documents that list the base model of the car, and all option packages, floor mats, body trims, and so on. Add to that the destination charge, holdback, and dealer flooring assistance plus additional information that you can dig through.

Since you now know what a factory invoice contains, the only thing left now is to learn what all those figures mean. How to read a factory invoice? Well, you have to know which figures your have to pay for and which ones you can dispense with.

Let's start with the holdback. Most car makers give back the holdback and floor plan to the dealer after they sell the car. So you can actually have the dealer remove that additional fee from your cost.

You cannot remove the destination charge. It's non-refundable. Basically, you pay the dealer, the dealer pay the factory, and everybody lives happily ever after.

Now, knowing how to read the invoice will give you some idea on how much the dealer paid for that car. But exactly how much is a well guarded secret. And they are not even required to show you the invoice. So any invoice research on your part you must do on your own. Don't expect help from the dealer.

However, some car dealers actually volunteer to show you the invoice. What's the deal? Chances are there are hidden factory incentives built into this "invoice price" that reduce their cost. The end result is the same, so watch out. Don't be fooled.

So what is the dealer's actual cost made of? The formula is simple: get the invoice price, minus that with factory dealer incentives and factory holdback and you have the amount you need. The dealer's actual cost in not the factory invoice. That's a common misconception and it could be fatal to unassuming car buyers out to make a good deal.

Don't forget about options! You can probably do without them but the dealers are a smart bunch. They know how to sweeten a deal and they know how to play with you.

Actually, the options are part of the reason why you should shop dealers first. This is to see what typical option configurations are out there and compare. That's the secret to making a good deal. A good tip is to bring a pricing info and check off all the options as you go from dealer to dealer. When you get home, you can study them and determine which options are good to have and which ones you can do without. Then you can plan your option package accordingly and make sure you don't go over budget.

Making the offer. All of steps above were designed to get you to this point. You have what you need: you know the invoice price, you have a basic idea of what the dealer's cost is, and you have made your decision on the option packages. Now to make the offer.

Your offer should be comprised of two parts. The dealer's actual cost and 5% fair dealers profit. After all, the dealer does need to make some money for all that sales talk he's doing. It's his job. The fair dealer profit is based on the assumption that the deal was made in all fairness.

However, there are instances in new car purchases that consumer rebates are offered. Take the amount for that and subtract it from the original offer. Hey, it's only fair that you don't pay for incentives that are very clearly offered for your benefit.