I’m the first to admit that there’s a lot you need to think about and consider when shopping for a car––this includes a ton of research and figuring out what you’re even looking for. After many hours of looking at specs and comparing different models, you (hopefully) reach the point where you have one or two that you’re really interested in. Assuming it all goes well, you’ve done most of the work when it comes to finding the right vehicle, but you’re just getting started when it comes to actually buying the thing.
Anyone who tells you that shopping for a car is just like shopping for anything else is lying to you or trying to sell you something (probably a car). In particular, understanding pricing when looking at something advertised at a dealership is far more complex than it really should be. This is where a lot of people get tripped up and end up with some sticker shock as they’re given final paperwork to sign with a number much larger than what they thought they were walking into. Worst of all, there were some good strategies you used to be able to use regarding pricing and negotiating that are simply no longer feasible.
Car Pricing 101
Before we start talking about negotiation strategies involving pricing, most of which honestly don’t work anymore, we need to go over some of the basics of car pricing. In particular, I want to clear up the different types of prices you’ll see listed or have relayed to you by a dealership and what, exactly, they actually mean. Unfortunately, cars aren’t like a loaf of bread or even a fancy laptop where you see a price and that’s what you’re going to pay––plus sales tax, of course. There are many different prices that can be listed by a dealership, and they’re far from all being the same.
- Invoice Price – This is what the dealership pays the manufacturer for the car that you’re buying. It’s the profit the manufacturer makes on the car; in the past, this could be useful for you, but not so much anymore (we’ll get to that below).
- Base Price – This is the lowest possible price you’ll see a car listed for (though you really won’t ever find it) that represents the starting cost of the car with standard equipment and features straight from the factory.
- Monroney Sticker Price – Also called the Manufacturer’s Suggested Retail Price (MSRP), this is required by federal law and gives you the base price, the MSRP, lists any manufacturer-installed options and equipment, along with transportation charges and fuel economy. You’ll find it on the window of any vehicle you’re looking at.
- Dealer Sticker Price – This is the Monroney sticker price plus additional dealer-installed accessories and any other dealer markup and options like undercoating or other add-ons. You’ll also find this sticker on the window.
- Out-the-Door Price – This is the total price, including any options, taxes, state motor vehicle fees, documentation fees, etc. It includes everything other than financing––if you’re paying cash, this is the price you should be focused on.
- Total Sale Price – Finally, the total sale price is essentially the out-the-door price with financing included. It includes factors such as any down payment and trade-in you might have, plus financing fees, etc. You’ll find it on the Truth-in-Lending form that will be provided to you when you’re ready to sign the final paperwork.
That’s a lot, right? Most people have at least heard of some of those different types of car prices, but even a common phrase like “sticker price” can refer to two different things, depending on what a person is specifically referring to. It’s easy to see why so many car shoppers get confused by pricing and how convenient this is for dealerships that are trying to find ways to manipulate the situation and present different prices for their customers. You can have a dealership quote you a price without realizing they’re relaying the base price, but once you figure out the exact trim and features you want, you end up with a much higher total sales price.
Even worse, a lot of dealerships will try to focus your attention on the monthly car payment since that’s what you’ll need to worry about when looking at your budget and what you can afford. This is pretty disconnected from the out-the-door price or total price since it also reflects financing terms and interest. You should always look at both the total sale price and your monthly payment to see exactly what you’re paying and to make sure it fits your budget.
Old Strategies That No Longer Work
You’ll find no shortage of suggestions on how to approach shopping for a car, and while some of it is still good, like carefully inspecting any used model you’re interested in and taking any car on an extensive test drive before buying it, some of it is woefully outdated. Even suggestions and information from just two years ago are outdated right now because the auto industry has experienced insane changes since then. The impact of the pandemic and chip shortage on supply and demand has been wild, and, sadly, you’ve lost a lot of power. It’s a seller’s market.
For example, in the past, you’d have people tell you to find out the invoice price on a car and focus on that to negotiate down as close to it as possible. That’s not going to work for you because the dealership will likely have someone come in willing to pay what they want tomorrow (or even in 10 minutes). Similarly, in the past, you’d be told to determine an out-the-door price you’re willing to pay and stick to it no matter what. You can still do that, and you should absolutely know a maximum that you can afford, but being unwilling to budge on price isn’t very helpful when there’s so much demand, and someone else will pay more.
What Negotiating Strategies Still Work?
So what can you still do when shopping for a car? First of all, you should be as informed as possible, which means understanding different types of pricing and knowing them for any vehicle you’re interested in. If you’re emailing dealerships and talking about prices, ask for their dealer sticker price and out-the-door price on any specific model you’re interested in. Be absolutely sure that’s what they’re quoting you, not the MSRP or the base price because those numbers misrepresent what you’ll pay.
Second, you can still very much stick to your guns on a price and not budge if you’re not willing to pay more––just know that this might mean losing a vehicle you like. You should also be willing to say no to any add-ons and extra fees they try to slap onto the deal, but again this could mean missing out on a car, so be prepared for that. If you have a trade-in, then you should mention this right away when negotiating with a dealership. The used-car market is crazy, and most dealers are thirsty for cars they can resell, so your trade-in is a massive advantage. You can even get a bid on your vehicle from an online car buyer like Carmax and use that to strengthen your position, so the dealer doesn’t try to lowball you.
Finally, get out-the-door pricing in writing from a dealership––email is great for this––and bring that with you when you go to close the deal on it. They might still try to pull something, but you’re in a decent position at that point to mention things like filing a fraud report with the Federal Trade Commission (FTC) based on what they quoted you. Again, this is why you want to ensure it’s an out-the-door price and have it in writing. If they think they can call your bluff, then you’ll probably lose out on the car, but you should report them to the FTC; it’s easy and you can do it online.
Remember Your Greatest Strength
At the end of the day, remember that in most situations, your greatest strength while negotiating is that you can simply walk away. Yeah, you’ll miss out on that car, and if you’re desperate for a vehicle, then that’s a bad situation. But otherwise, as long as you have time, you’ll find something else. Also, remember that you should handle as much negotiating as possible before you ever set foot on the dealer’s lot. Once you’re there, it becomes much harder to simply walk away, and they know that. Be patient, but also be ready to jump on a good deal when you find it.