Everything's Negotiable -- Buying a Car

May 9, 2006 — -- Between financing and haggling over price, buying a new car can be a complicated and daunting process, but it doesn't have to be.

As with most major purchases, the keys to being a successful car buyer are to remove the mystery and become a strong advocate for yourself. For female buyers, the latter is incredibly important. Approximately 80 percent of women feel pressure when browsing for cars in showrooms -- and yet women play a critical role in nearly 60 percent of new vehicle purchases, according to Edmunds. So, what can you do to be a successful negotiator and make car buying less painful?

Are male and female customers treated differently during negotiations at car dealerships?

Unfortunately, the answer is often yes. According to Road and Travel Magazine, women typically pay up to $500, or 2 percent, more than men for the same vehicle. Additionally, many women have found that they are not treated as serious customers and may get comments like "Do you need to check with your husband first?" Given this environment, it is not surprising that 76 percent of women brought a man with them to the dealership because they felt intimidated, according to a 2005 study by Toyota.

What are some negotiation tips for purchasing a new car from a dealership?

The best way to go into negotiations is to be well-informed, and the Internet is a great resource of information. Before heading to the dealership, check out sites such as edmunds.com and cars.com, which provide you with both the MSRP and the invoice price of almost every make of car, as well as information on incentives. The MSRP is the manufacturer's suggested retail price, while the invoice price is a general tally of what the dealer pays for the car, excluding incentives.

The invoice price will be lower than the MSRP, but by knowing these two prices you can get a general sense of your room for negotiation. Additionally, Edmunds also offers the true market value of a car, which shows you the average amount other people in your area have paid for the same vehicle.

Where should you start your offer? Use the invoice price as the starting point for negotiating, but you should start by offering $500 less. It is a good idea to offer a price first, before the salesman does, to avoid being anchored in a price established by the dealer. Be sure to stand firm on what you are willing to spend, but be realistic -- on average, you should expect to pay 4 percent to 8 percent more than invoice price.

Do you have more bargaining power at certain times of the day, week or year?

Generally speaking, weekends tend to be busier times at car dealerships causing sales personnel to be more stringent with how much they are willing to knock off of the MSRP. So, it is best to head to the dealership on a weekday or late in the evening.

Ideally, you want to be the last customer of the evening for the salesperson. You should arrive with time to negotiate, but with little excess time to spare. Because it is unlikely that a customer will return to the showroom a second time, it is in the salesperson's best interest to get the deal done that day, so use the "time is ticking" to your advantage.

Typically, a car dealer and salesperson are most eager to make a deal during the end of the month or the end of a quarter, as they want to meet their quotas. Additionally, look to buy a car during a period of dealer incentives or when it is raining -- fewer people on the lot means a better chance to deal.

If I do not have great credit, can I still negotiate?

Your negotiating power does not need to be tied to your credit score. Before getting into a discussion about financing, you should work with the salesperson to agree upon a purchase price. Going into your negotiations, you can tell the salesperson you are not sure whether you will finance or pay cash -- you want to determine the price first. Once you have agreed upon a price, you can then move to a discussion regarding financing.

If you have a low credit rating and are concerned that the dealer's financing will be too costly, secure financing with another financial institution before making a deal on a car. Keep in mind you do not have to get financing from a car dealer to purchase a car. Before purchasing your car, shop around for the best financing, which if your credit is low may be at your local bank where you already have an established relationship.

How does leasing versus buying come into play? The biggest differences between negotiating a lease on a car versus an outright purchase are the often complex jargon and intricate terms of the deal. It is essential that before you enter into negotiations over the car, you should insist on disclosure of the money factor and/or lease interest rate, residual value, fees, rebates and incentives. However, you should approach the negotiation of a purchased or leased vehicle the exact same way -- with the lowest price as the goal.

Mellody's Top Negotiating Hints:

In addition to the recommendations around timing, here are some other good hints to negotiate the best deal:

1. Remember you have choices.You can always take public transportation, keep an old car, buy a different one, etc … When a car dealer asks, "Are you here to buy a car today? The right answer is "If the terms are right."

2. Never negotiate in front of the car. The dealer wants to get you to love the car and to anchor your negotiation on the sticker price. Never look at the sticker in front of the dealer. Instead, talk price inside his or her office -- not on the showroom floor or near the automobile. You want to be "detached" from the car during the negotiation.

3. Avoid payment traps. Dealers will try to talk you into a price by asking how much you are willing to pay a month. Your decision should be rooted on price, not payment, so let him or her know that question is irrelevant.

4. Pretend the rebate is nonexistent. Keep in mind, a rebate comes straight from the manufacturer and has absolutely nothing to do with the individual dealership. Therefore, do not let the dealer try to sweeten the deal or suggest the price is already lower because of the rebate -- this simply is not true.

5. Negotiate the trade-in of your current automobile separately. Allowing the dealer to calculate the trade-in value of your car into the negotiation is an almost certain way to overpay. Wait until you have almost wrapped up the negotiation and then tell him or her that you have a car you would like to trade in as well. Keep in mind, these are two very separate negotiations -- trade-in value versus new car pricing -- so do not mingle them into a single purchase until the very end of the deal.

6. Leave the kids at home. Many people make the mistake of bringing the family to buy the family car. The likely distraction of your children as well as the varying opinions all work in favor of the dealer, so hire a baby sitter.

7. Insist on NOT paying for bogus add-ons. Dealers have an assortment of add-ons that you should avoid paying. For example, most charge a "dealer prep fee" between $100 to $250 to simply wash the car and take off the plastic wrapping. Tell the dealer -- for $250 -- that you would be willing to wash the car yourself.

Mellody Hobson, president of Ariel Capital Management in Chicago (www.arielmutualfunds.com) is "Good Morning America's" personal finance expert.