Oct. 11, 2010 — -- Americans buy more used cars than they do new ones and that number has only gone up during this tricky economy as people try to save money. But could you still be paying too much? That's the nagging doubt in every car buyer's mind.
Cars are the second biggest thing we buy after homes, and the process can be so intimidating. After all, unlike in other countries, we don't negotiate for most of our purchases and most of us only buy a car once every few years. But good hagglers save themselves an average of 10 percent to 15 percent on this big purchase, so it's worth it to learn.
Our expert was Philip Reed, senior consumer advice editor for Edmunds. Edmunds buys lots of cars for test driving purposes and Reed is the one who shops for them. He always does so on a "mystery shopper" basis, only revealing who he works for at the end.
The idea is to get a feel for the process that consumers are experiencing out in the marketplace, so that he can then give solid, relevant advice.
We were also excited to work with Reed because he has previous undercover experience. He once got a job as a car salesman and did the job for several months in order to get the inside story and share it with consumers.
On this shopping trip, our mission was to buy a certified 2007 Honda Odyssey EXL that Edmunds needed for its photography department. When Edmunds test drives new cars for its articles, staff photographers shoot pictures of them, and they wanted a minivan with a sunroof they could shoot out of.
"There was a certain amount of pressure," Reed said. "We weren't just going in and playing games with people and wasting their time. This was a car that I needed to get for my company."
To add to the tension, Reed had a budget. He was allowed to spend no more than $25,000 and he had to get a vehicle in excellent condition with low miles. All this while wearing multiple hidden cameras to capture the transaction.
CLICK HERE to read what Phil Reed was thinking during the entire negotiating process.
Before visiting dealerships we settled on 10 negotiating strategies we would employ during the process. Here they are and here's how we did.
Obviously you don't want to pay the sticker price, but where, then, to begin? There's an old negotiating adage that goes like this: "Whoever speaks first, loses." Why? Because the opening number defines the entire negotiation.
Once you throw out a dollar figure, you can't go any lower than that. That's why you want to try to get the salesman to name the first price. That way you will know you are not starting too high.
At our first dealership, I asked the question straight out: "What I was really wondering is what are you selling it for?" And the salesman obliged with an answer: "Here's our fleet price: $23,475."
That was significantly lower than the sticker price of $26,998, so it was helpful information. We would now make our opening offer even lower than that.
Next: drop the name of a reputable pricing guide like Edmunds.com. Dealerships are used to this. The old timers who've been around since before the Internet may miss the times when customers were clueless. But some customers still are clueless, so put them on notice that you are one of the ones who has done your homework. It will speed up the process.
We did this and had some fun with it, because most of the sales staff would then poo-poo the accuracy of the Edmunds pricing guide right to Reed's face, and he works there. Here was one exchange:
Salesman: "Oh, you're going from Edmunds? Oh, I see."
Reed: "Is that a problem?"
Salesman: "It's not a problem. It's just that it doesn't reflect really what the market is."
There's real value in bringing a wingman along. Ideally this person will be the "bad cop," the naysayer who questions the car -- and the price -- so the dealership doesn't get cocky. That was my job during our undercover experiment.
I said things I hoped would sow doubt in the sales staff's minds so they'd be unsure we were really going to buy the vehicle and work harder to get our business. Some samples:
"I don't know, Phil, because you were hoping to get a car with less miles than that, right?"
"I liked the other make and model better."
"I don't want to see you bust your budget for this car, Phil. I think this price is too high."
As you know, a staple of the in-person car buying experience is the shuttling back and forth, where the salesman leaves to go "talk to his manager," the person with the authority to accept or reject offers. Phil says when that happens, you should leave, too.
"They leave because they want to show that they're in control," Phil said. "They make you sit there. You're investing your time. The more time that you invest, the more likely you are to buy a car -- they think."
So each time the salesman left the cubicle we would too, wandering off to the restrooms or even to our rental car.
"We were sending them a signal that we were not going to be controlled," Reed explained. "And also we might just completely disappear."
Never finalize a car deal without leaving the lot. You don't have to turn on your heel and leave in a huff. Just tell the salesperson the price is not where you need it to be and that you are going to go see if you can do better elsewhere.
But make sure they have your cell phone number so they can reach you. The whole idea is that you want them to call you up and make you a better offer because they are afraid they are going to lose your business altogether.
Sure enough, dealership number 1 called Reed three times while we were on the way to dealership number 2. The folks there wanted our business.
Which bring us to a closely correlating strategy: Always shop more than one dealership. And while you're at it make sure they know about each other.
Going to at least two dealers will start to give you a feel for real prices in the marketplace. It also helps keep you from swooning over a particular car and paying too much for it. You don't want to fall in love. You want to "two-time" your used vehicle. If the price at one dealership isn't good enough, have another waiting elsewhere.
At our second dealership, we found another certified 2007 Honda Odyssey EXL with almost identical mileage. Sticker price, $24,988. Internet price: $23,988. Now we needed to make an offer well below those figures.
When you're ready to make the all-important opening offer, give good reasons for the figure you are about to throw out.
For more information on how to choose your opening price, click here for our Web Extra.
Next give that figure, a firm number. And then shut up. You want that pregnant pause, that uncomfortable quiet. Do not fill it. Your goal is for the seller to be the one to squirm and shatter the silence by accepting your offer or making an attractive counter offer.
Too many customers make their offer and then -- worried they are being impolite -- sort of dribble on and weaken their own words.
Here's how Reed worded his offer at the second dealership: "Based on what we've seen on other car lots and our budget, and the fact that it's a little higher miles than we had hoped, we'd be prepared to offer you $20,500."
Thoughtful reasons for why the offer isn't higher, the offer itself and then silence.
"If you say it and then you're absolutely still after that, it really puts a certain amount of pressure on them to respond," Reed explained.
In our case, a manager came out a couple minutes later and made a counter offer of $22,865.
"Which is really close to wholesale book," he said. He, too, was giving reasons for the figure he named.
Never accept the dealership's first counter offer, much as you might like to end the negotiation because you are outside your comfort zone. Instead, show you're tough by making your counter offer a smaller increment than theirs.
The idea is to demonstrate that your resolve is firmer than theirs and you are sticking to your guns. In our case, the dealership came down more than a thousand dollars. So Reed went up by just $500, putting the price on the table at $21,000.
Once again, reasons -- and some encouragement: "We're just trying to work within a budget. So we'd be happy to come up to $21,000," Reed told the manager. "If you can do that, we can do it right away."
Very often dealerships claim that they will lose money on a vehicle at the price you are offering. Both dealerships we visited said things to this effect and sometimes it is true. Other times it's more of a negotiating line.
Keep in mind, when dealers talk about what they paid for a vehicle, they may be including other factors besides what they purchased the vehicle for.
For example, the van we were buying was used but certified. That means the dealership spent some money sprucing it up to meet Honda's certified vehicle requirements. Dealerships often assign a dollar value to those repairs, but they are performed by in-house mechanics who are on the clock anyway.
I'm not saying the repairs don't have value, just that there is probably some wiggle room in the accounting that you may be able to turn to your benefit.
That's why it's important for you to go into the dealership with a maximum price in mind that you can afford to pay for the vehicle in question. If the dealership says it is losing money at the price you have offered, but offering more would bust your own budget, then walk away.
Our undercover adventure took place on Sept. 28, just two days before the end of the month. Honestly, that is just when it worked out for us to go, but we were reminded that it can be a good strategy when the used car director at the second dealership said the following: "That's a unit for us right here at the end of the month."
It's also helpful to look for stale cars that have been sitting on the lot for a long time. The dealership likely views them as semi-failures and wants them out the door.
Many dealerships now provide a free Carfax vehicle history report for any used car you look at. Both dealerships we visited did, and I noticed that the Carfax report had a handy line showing when the vehicle had come into that dealership. At the second dealership, the Odyssey we wanted had been there 42 days.
So, hoping this gave us some leverage, I said to Reed and the manager: "Hey Phil, I notice here that they've had it for more than a month. More than a month. So I'm wondering, do you want to sell this vehicle and get it out of here?"
After some more back and forth, the offer on the table was now $21,500. This time, the manager's manager came over and we were sure he was going to haggle with us some more.
But then, to our surprise and delight, he said: "I think that's a fair deal for you and so with that said, could we make a deal right here?"
Reed smiled and replied, "Absolutely," and that was that. We were thrilled with the price, impressed with the vehicle and pleased with our negotiating experience.
"People feel incredibly empowered when they negotiate on their own behalf," Reed said. "And they're always amazed and blown away with how much they can accomplish with a few simple things."
The Odyssey's sticker price was $24,988. We got it for $21,500 -- a savings of $3,500. And even when taxes and fees were added, the total "out the door" price was $23,924, well below the $25,000 limit Edmunds had given Phil.
Phil came in more than $1,000 under budget for his company, but was our purchase a good deal in general?
Edmunds offers a unique tool called "True Market Value" or "TMV" that gave us some perspective. Edmunds' TMV is the average price that consumers are currently paying for a certain type of vehicle.
Sample car dealerships around the country report their selling prices to Edmunds, which then runs a formula that averages the raw data. That means TMV averages include people who paid too much and those who did very well in their negotiations, plus those in the middle.
Reed's goal was to beat the TMV number and be "better than average."
The TMV for a Certified 2007 Honda EXL with 40,000 miles on it was $22,515. The price Phil had had in mind to pay was $21,500 and that is exactly what came to pass. He was better than average by $1,015.
"We got a very good deal on this car," he said. "I wouldn't call it a screaming deal, but it's a very good deal."
If you are close to a price you think is fair, but just can't get the dealership to come down any more, here's another strategy: Instead of trying to get the car for less money, you can try to get the money to buy more car -- by asking for extras like new floor mats or tires, a souped up stereo or an upgraded warranty. Make sure the extras are things you truly want and need.
If, after reading all of this advice, you still can't picture yourself marching into a car dealership and doing a bit of acting in order to pare down the price of a used car, then Internet buying may be for you.
You can still get the benefit of negotiating the price, but you will be doing so online or by phone, a less in-your-face approach that some people prefer. Here is an excellent Edmunds article on how to go about it.
Need advice on how to buy a new car? Click here.