Oct. 11, 2010 -- In our story, "The Art of the Deal: How to Haggle For a Used Car," we gave you 10 strategies for suavely, serenely negotiating a good price on a used vehicle, but we didn't explain how to set your opening figure. We left it out on purpose. It's such a critical step that it deserves its own article.
We partnered with Senior Consumer Advice Editor Philip Reed of auto website Edmunds.com for our undercover experiment. Edmunds has a pricing tool that provides the framework of a smart opening offer.
CLICK HERE to see our undercover experiment.
Edmunds offers what it calls "True Market Value" or "TMV" pricing. Edmunds' TMV is the average price that consumers are currently paying for a certain type of vehicle. Car dealerships around the country report their actual selling prices to Edmunds, which then averages that raw data.
Below is the actual TMV Pricing Report for the type of Certified used Honda EXL we were looking for when we went shopping. Note that you have to enter certain factors for an accurate report. For example, 2007 is the year we were looking at. The two vehicles we made offers on each had about 40,000 miles on them. And we were shopping in the Phoenix area (prices vary regionally.)
Here's a simple way to use a TMV Pricing Report like this to decide the amount of your opening offer. Notice that there are four different pricing categories on the page.
Trade-In: The average amount dealers are offering consumers for their vehicles when they trade them in.
Private Party: The amount you can expect to get for your car if you sell it to another individual.
Dealer Retail: The average amount this type of used vehicle is selling for at dealerships.
Certified Used Vehicle: The average price for this used vehicle with the special guarantees and warranties that certification provides. (This category appears below the others on the page rather than beside them.)
First find the price level that describes your circumstances. Are you buying the vehicle from a private party, at dealer retail or certified? Once you know that price, then offer the price that is one or two steps below your situation.
For very popular makes and models (such as Honda, Toyota, BMW, Mercedes and Audi) offer the price one step below your level. For vehicles that are in less demand, offer a price two steps below your level.
As an example, using the TMV Pricing Report shown here, if you were buying a Certified 2007 Honda EXL, you would know that you are likely to pay about $22,515 for it, but you would offer the Dealer Retail price of $21,173 as your starting point.
Why not offer $18,112, the lowest Trade-In value, just to see what happens? You risk not being taken seriously. It is certainly an option, but it could prolong the process.
In our own negotiations for a Certified 2007 Honda Odyssey EXL we tried offering $18,500 at the first dealership, which is close to the Trade-In price. We got nowhere.
On the other hand, if we had been negotiating for a less in-demand vehicle, we might have seen success by being that aggressive.
To figure out if a vehicle is in high or low demand, you can look up the same type of vehicle for sale new and see how the price compares to the used version you are buying. Vehicles that hold their value well are in demand. Those that depreciate faster are in less demand.
Another factor when you set your opening offer is where you are going to go from there. It's best to have a plan in advance.
At the second dealership we visited, our opening offer for the Honda Odyssey was $20,500. Phil Reed of Edmunds planned to go up in $500 increments, and was allowing himself just two counteroffers.
In other words, the top price he was willing to pay was $21,500. And that is key: once you have set your bottom offer, you will want to set your top one as well.
You can double-check this top price by once again going back to the appropriate Edmunds TMV price for your level.
Reed knew that the average price consumers in Phoenix were paying for similar cars was $22,515. He wanted to be better than average because the average TMV price includes people who paid too much.
He figured $21,500 was significantly below the average, but a bit more than the dealer retail for a non-certified used Odyssey.
And once all the negotiating was done, $21,500 is exactly what he paid! Click here to read what Phil was thinking during the entire negotiating process.