Driving a bargain: Today's car buyers have negotiating power


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Posted Online: May 03, 2008, 10:36 pm
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By Amy Hoak, MarketWatch

CHICAGO (MCT) -- Consumers in the market for a new car this year may be able to drive some hard bargains with auto dealers.

With car sales expected to be down this year, many dealerships will be desperate for any sale they can get, said Danny Chan, CEO of AutoBrag.com, a car-shopping comparison Web site that compiles price data from no-haggle dealerships.

"Dealerships are hungry," Chan said. Slow conditions could prompt many of them to accept better deals as they struggle to keep their doors open, he added.

J.D. Power and Associates is predicting that fewer than 15 million new cars will be sold this year, said Bob Schnorbus, the firm's chief economist. More than 16 million were sold in 2007, according to the firm's data. For many, economic conditions and low consumer confidence have largely put car purchases on hold.

"Everyone is kind of in a holding pattern," said Philip Reed, Edmunds.com consumer advice editor. "Consumers, when they don't know what to do, tend to do nothing."

Even though dealers might be hungry to make a deal, don't expect that they'll give in to your offers without a fight, Schnorbus said.

In response to the cutback in demand, manufacturers have curtailed production to reduce supply -- a factor working against the consumer in search of a bargain, Schnorbus said. Dealers also are cutting their orders to manufacturers, reducing the amount of inventory they have on the floor, he said.

Meanwhile, underwriting standards for car loans have gotten stricter, he said. And, he added, don't count on huge incentives to ease the sticker shock.

"I don't think that the auto companies are mentally or financially able to go back to wild incentive days," he said.

That said, they may be willing to accept better deals and lower margins on car sales, while heavily promoting their service departments. But consumers better do their homework before entering the showroom and be prepared to shop around.

"Buyers are in a reasonably good position to negotiate," Schnorbus said. "Competitive pressures over the last five years have made vehicles more affordable than they have been in decades."

If it's time to retire the old clunker in the garage and you're considering the purchase of a new car, you'll need to prepare before browsing the show floor. Here are five tips on how to get a good deal on your new set of wheels:

1. Hit the internet

The Web has a wealth of automobile information that can help consumers know how much they should be paying for a car and what deals they can get.

AutoBrag.com tells consumers how much cars are selling for at actual no-haggle dealerships, and shoppers can use those quotes during negotiation. At Edmunds.com, shoppers have access to information, including the automobile's invoice price and the latest incentive offers.

In fact, if you know what you want, you may want to pick up the phone, ask for a manager and make a deal, said Jim Camp, a negotiation expert and author of the book "Start with No." Going straight to the manager cuts down on negotiation time and the number of people you have to talk with, and the quickest way to get to him or her may be on the phone.

Deals also can be found by expanding your online search to dealers beyond your immediate area, Camp said. Even if the best deal is states away and the automobile needs to be transported to you, it may be worth the hassle, he added.

2. Know what you can afford and your loan options

Before negotiating, it's important to know exactly how much you can afford. But don't max out your budget, said Michael Royce, a former car salesman turned consumer advocate and owner of the site BeatTheCarSalesman.com. Sometimes people forget about other expenses that come with a car, including insurance, and it helps to have a cushion.

Experts advise not extending the term beyond the standard five years to bring monthly payments down. More manufacturers and dealers are now offering 7-year car loans. For a $20,000 car, the loan would rack up an additional $5,335 in interest, according to a calculation from LeaseTrader.com.

And investigate loan options before hitting the showroom. Often, credit unions offer favorable automobile financing. If opting for dealer financing, make sure you know what interest rate you should be paying before signing.

3. Consider older model cars

When the 2009 models come out and 2008 cars are still on the lot, the older new cars can be bought at a decent discount for good reason -- their age will cause them to depreciate faster.

Two months before the release of the 2009 Toyota Camry, the 2008 model was being sold to consumers for an average 5.32 percent below manufacturer's suggested retail price, Chan said. During February 2008, when the new model was released, the 2008 model was being sold for an average 10.39 percent below MSRP, he said.

Yet for many people, it's even a better idea to buy a newer used car, Royce said. Given the shakiness of the economy, there could be more 1- or 2-year-old cars on the market because their owners have found they can't afford them, he said. Research used-car prices online, too, at sites including Kelley Blue Book.

4. Negotiate before incentives

Get down to a good price before adding an incentive, even if adding a manufacturer's rebate pushes the price below invoice, Reed said.

In fact, keep all the transactions separate -- negotiating the price before the financing and the trade-in value, for example, Royce said. You'll often get the most for your vehicle if you sell it yourself, he said. But if you decide to trade in your old vehicle, use the internet to learn what it's worth.

5. Don't cave to pressure

It's a buyer's market, so don't be intimidated; be aggressive in your negotiating, experts said. With fewer shoppers, remember that each customer coming in is more important to a dealer, Royce said.

If the salesmen won't budge and you can't get the price you want, be prepared to walk away and try another dealership, Chan said. He recommends not paying for extras such as paint protection; dealers often put a huge mark-up on this extra, and you may be better off having it done somewhere else.

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