There are a few cardinal rules that apply to any negotiation. If you are the buyer, you will almost never get something for less than your initial offer. The first number you put on the table will become the baseline from which all subsequent offers will be judged and compared. If you set the bar too high, you leave yourself little wiggle room to cut a deal at a number you like. (For related reading, also check out Top Tips For Year-End Car Buying.)
TUTORIAL: Budgeting Basics
When it comes to cars, adopt the attitude that you can always walk away if you can't get what you want, and go to another dealer. That ability gives you the upper hand over all car salesmen, no matter how cunning and experienced they may be. Use that power to your advantage.
Here are a few more tips that might help.
1. Do Your Homework
Arm yourself with as much information as possible about the car you want to buy. Magazines and internet sites are a good source, as is the Kelley Blue book if you're in the market for a used car.
Find out if there are unadvertised dealer holdbacks and financial incentives that directly benefit the dealer. A holdback is a percentage of sales that is repaid to the dealer by the manufacturer. This artificially raises the dealer's vehicle cost on paper and makes the vehicle appear more expensive than it really is. Your goal is to take that money away from the dealer and put it in your own pocket.
Bring your research with you to the dealer including market values, current rebates, financing offers, and trade-in estimates. An important aspect of negotiating a good deal is to convince the salesman you know what you are talking about before the negotiation starts. If you establish your credibility right at the outset, this will put the salesman on notice that you are not a pushover. (For more information on how much it will actually cost to own a car, take a look at The True Cost Of Owning A Car.)
2. Have a Budget
Many dealers will ask if you have a budget in mind, or a maximum amount that you plan to spend. Great question, but don't answer it directly. You should have a budget, but keep it to yourself. Your leverage to negotiate lower than your budget disappears if you disclose that number because now the salesman knows what you're willing to spend.
You want to be able to get the best car you can while spending the least amount of money possible to buy it. If you are asked if you have a budget, reply that the amount you'll spend depends on the car and attractiveness of the overall deal. Be intentionally vague.
Review your financial situation and figure out how much car you can realistically afford. You want to be able to make offers and counteroffers without having to make that calculation on the spot.
3. Consider Your Timing
If you don't mind buying at the end of a model year, dealers have to clean out their existing inventory to make room for the new models. While you lose a year's depreciation, that's not a critical factor if you plan to keep the car for several years. Dealers also advertise special discounts at different times of the year and on some holidays. If you can't plan your purchase during one of these times, don't let that stop you. Many dealers will give you those same discounts all year if you are willing to bargain for them.
4. Bring a Friend
It's not unusual for a salesman to bring in reinforcements when you seem unwilling to budge. If you have someone with you, they can run interference and deflect some of the sales pitches. This can help if you find yourself up against multiple salesmen. You can also use your friend in a "good cop - bad cop" approach where your friend acts as the bad cop and makes you appear as the fair and reasonable buyer. Make sure your friend is fully briefed in advance on the role you want him to play.
This may work to your advantage if the sales manager is brought into the negotiation to break an impasse. He usually has more authority than the salesmen to cut prices.
5. Dress the Part
You don't want to look like you have money to burn. If you're trading in an old car, drive it to the dealership and leave the new Mercedes in the garage. Dress casually, but professionally. Sloppiness won't help because the salesmen may think he's wasting time with you. If you are lucky enough to be wearing a Zadora watch, leave that at home too.
At the Dealership
There are services offered by consumer organizations and insurance companies that can provide you with auto cost data, and some may charge you a fee. If you are spending several thousand dollars on a new car, it's well worth spending a few to obtain this information. It will pay off in the long run. (Learn the next steps to getting the best deal in 10 Steps To buying A Car)