I’ve worked many jobs in my 25-year career, but few were as eye-opening as being a sales rep at a Honda dealership. Approachable and easy-going, I wasn’t bad at selling Civics and Pilots. But I didn’t last long in the business because, frankly, I’m too honest.
I can’t think of many professions that have a worse reputation than automotive sales. There are, of course, good people selling cars; I’ve known a few. But even they are beholden to the industry’s opaque pricing and high-pressure tactics. Fortunately, I learned a thing or two on the job about how car dealerships work. And because I’m now in the business of helping people save money, I’m happy to pass them on. Here are my tips:
- Do your homework!
- Always focus on price, not monthly payment
- Use reverse psychology
- If you have a trade-in, negotiate the value separately
- Use dealer competition to your advantage
- Just say “no” to extras
- Pay attention to financing
Do your homework
Nothing makes a car sales rep happier than someone who stumbles onto the lot with a good credit score and zero knowledge about cars. That’s because everything about the specific car you want to buy — the mileage, condition, trim level, even the color — is going to influence its fair price. If a car is unpopular for whatever reason, the dealer will usually have to offer heavy discounts to sell it. If they can sell it to an unwitting customer at full price, though, they’re sure going to try.
Ideally, you should know more about the car you want to buy than the sales rep does.
Don’t step into a showroom without knowing your preferred car’s reliability, safety, and pricing information. Determine exactly which makes, models, years, and trims you want to buy in advance.
If you need to test drive different models before deciding which one you want to buy, do this first. Make it clear to the dealer that you’re comparison shopping and will need a few weeks to decide on a car. If the dealership is busy, this might result in less attentive service. And you will get plenty of annoying follow-up calls. Never mind. Putting in the time and dealing with the hassles are worth it when you’re making such a significant financial decision.
When you get to the dealership, keep in mind that your priorities and the dealer’s priorities are completely different.
- You want a great deal on a car that fits your budget and your lifestyle.
- They want to make you overpay for a car you don’t need so they can get it off the lot.
Car dealers want to make the process of buying a car emotional. They want you to take in that new car smell and for you to imagine how much cooler you’ll look in a new car. They want you to contrast their shiny, clean, new cars with your own car and the moldy french fry you could never reach under the seat.
Where to research cars
Here are some of my favorite resources for researching cars:
Consumer Reports releases extensive satisfaction and reliability ratings on virtually every model car sold in the United States. An annual subscription will run you $39 per year, but could be well worth it when choosing a new car).
Car and Driver is my go-to source for reviews written by people who are into cars. These reviews go beyond reliability and fuel economy and get into the experience of driving. How does it handle? Is it fun to drive? How does the technology and styling compare to competing models? If you just want the safest, most economical transportation from A to B, Consumer Reports is your best bet. If you want a car that you feel excited to own, check out Car and Driver, too.
CarGurus.com is a used car marketplace site with an interesting feature: It uses recent market data to show you if a used car’s list price is too high, average, or a good deal. Even if you intend to buy a new car, looking at the used market for the car you want to buy is informative because it gives you a sense for market demand. The better a car retains value (Toyota Tacomas, for example, depreciate much more slowly than BMW sedans), the less wiggle room you may have on the price of a new one.
Kelley Blue Book features car reviews too, but this is my go-to site for looking up the potential value of a car I want to trade in or sell. Type in a vehicle’s license plate or VIN and KBB will return a range of values if you were to trade in the car or sell it privately. You can also use it for a used car you might want to buy to see if the dealer’s asking price falls within a reasonable range.
Talk price, not payment
Whether to pay cash or take out a loan to buy a car is not always an obvious choice, but dealerships always hope you’ll get financing.
Yes, they hope that they can make a few extra bucks if you get financing through them. But they also hope they can obscure how much you’re paying by negotiating on the monthly loan payment, not the actual selling price. This allows them to make it look like they’re giving you price concessions when, actually, they are simply lowering your monthly payment by extending the loan term or reducing an already-inflated interest rate.
If a salesperson tries to show you only monthly payments, politely ask to see the purchase price and discuss adjustments to that figure. If the salesperson balks or outright refuses, it’s probably a sign to take your business somewhere else.
Finally, pay attention to the out-the-door “OTD” price. In addition to taxes and state fees, dealers tack on lots of bogus fees (“documentation fees”, they’re usually called). They may include overpriced and dubiously valuable extras like window etching or protective coatings for hundreds of extra dollars. All of this adds to the bottom-line cost of the car and ALL of it is negotiable. They may take you they absolutely cannot remove a documentation fee, but if they want to sell you the car and you hold firm, they will find a way to discount the price further.
MSRP, sticker, invoice and market prices
When negotiating the price of a car, be familiar with the following terms:
MSRP. The MSRP, or manufacturer’s suggested retail price, is what the automaker thinks the dealership should sell a new car for. Keep in mind, however, that the dealerships and carmakers are totally separate entities — Mazda salespeople are not Mazda employees — so they’re not required by Mazda to sell at the MSRP. (See “Sticker price”.)
Sticker price. This is the bottom line price listed on a new car’s window sticker. In theory, this should be the same as the MSRP. But some dealers will add what they call a “market adjustment” to the MSRP and list a higher-than-MSRP sticker price. This usually happens with rare, in-demand vehicles, but not always. In 2020 and 2021 when the COVID pandemic dramatically impacted supply chains and new car production, there were dealers putting market adjustments on Toyota Corollas.
Invoice price. The invoice is, theoretically, what the dealer pays the manufacturer for the car. If Mazda sets the invoice price of a car at $30,000 and the MSRP at $33,000, their intent is for the dealer to make roughly $3,000 profit on every sale, not accounting for upkeep costs, marketing, etc. In reality, there are many ways manufacturers and dealers obscure the dealers true price of each vehicle. Dealers receive additional discounts and rebates depending on how many cars they sell. In some cases, you will hear of cars selling “below invoice”. This may be because a dealer needed to get a car off its lot and sold the car at a loss. Often, however, it’s because the dealer owned the car for less-than-invoice and could still make a profit on the sale.
Market price. The market price is what consumers are paying, on average, for the car. Most of the time, car buyers are paying somewhere between the invoice price and the MSRP.
Of all of these prices, the market price is the most important. Dealers pay good money for databases that tell them — down to the day — how quickly each model of car is selling in your region and across the country. When sales are brisk, the dealer will hold the line on pricing. When sales are slow, you have more opportunity to win concessions. It all comes back to point #1: Do your homework.
Use reverse psychology
Car salespeople have more than a few Jedi mind tricks they try to play on nearly every customer. You should be aware of these tricks so you can resist them. But in some cases, you can actually use them yourself.
In-person pressure
Dealers want to sell you a car today. They will say anything to make it seem like the car you want might not be on the lot tomorrow or that another customer is willing to pay more. Dealers hate negotiating by phone or email because they can’t apply as much pressure and because it’s easier for you to hang up or ghost them over email. They often refuse to talk pricing until you come into the dealership.
That’s because negotiating remotely robs dealers of one of the most powerful tools: The emotions stirred up by sitting near the car you want to buy.
If you ask for the dealer’s best price over the phone, you axe their edge. But be warned: Good dealers will smooth-talk you into making an “appointment” at the dealership without giving a price. Just tell them politely, but firmly, that if they can’t provide an out-the-door price over the phone, you’ll be taking your business elsewhere.
You can use coming to the dealership as leverage, too. Only agree to come to the dealership once you’ve agreed upon a price. There’s no reason this can’t be done. I even bought a car from a dealership two states away and did 100% of the transaction from home. The first day I went to the dealership was when I picked up my car and drove it home.
You can, and should, also use competitive pressure to your advantage by getting quotes from multiple dealerships. More on that in a minute.
I have to ask my manager
The oldest — and more tiresome — car sales trick. Dealerships are designed so that only managers — not the sales reps themselves — have the authority to negotiate price. Therefore, every time you ask for a better price, the sales rep has to go “ask his manager” and will leave you twiddling your thumbs at a desk. Sometimes, they’ll disappear for 15 minutes leaving you wondering if they’re actually tracking their manager down or just taking a smoke break. Probably both.
They’re counting on your impatience. After a few rounds of “let me ask my manager”, you will get impatient! You can do the same thing, however, if you have a spouse or a parent that you have to ask, too. You can use this to relieve pressure and take time to cool down (even if there isn’t someone else on the other end of the phone). You can even make them the “tough one”. It sounds silly, but it works.
Negotiate your trade-in separately
Although you will always fetch the most money for you used car by selling it privately, the convenience of trading it into the dealer can be attractive. Obviously, you always want to have a sense of what your car is worth as a trade-in, which is where Kelley Blue Book and NADA values are invaluable. I’ve had different dealers offer me thousands of dollars more or less for a trade-in, so this is a critical part of your negotiation process.
It’s critical, however, to get a quote from the dealer to buy your trade-in that’s separate from the price of the car you want to buy. Just as dealers like to only show you a monthly loan payment to obscure the true price of the car, dealers will often bake in the value of your trade into the purchase price of your car. They can then undervalue your trade-in and then make it seem as if they’re giving you a couple thousand dollars in discounts on the new car. Or vice versa — they can seem like they’re giving you a great price on your trade while overpricing the new car. (They’ll read you to see which you value more, and then deliver that.)
In reality, you might be able to score both a fair price on your trade-in and discounts on the new car price. This is what you want, and you can only get it by making sure you’re looking at both numbers separately.
When to bring up your trade-in
Car salespeople want to know if you’re trading in a car — in fact, it may be one of the first questions they ask. One trick you might choose to play is to demur when they ask if you’re trading in a car. “I haven’t decided yet. I think I’m going to keep my old car as a beater.” Whatever you want to say. Then, after you’ve negotiated the price of the new car, you can suddenly decide you do want to trade in your car, after all.
This is the car-buying equivalent of requesting double chicken at Chipotle only after you’ve gotten your first scoop. This prevents the knowledge of a second scoop from influencing the size of the first scoop.
The effectiveness of this strategy is debatable. As long as you follow my first suggestion — to ensure distinct negotiations for new car price and trade-in value — your outcome should be the same. Withholding a trade-in usually will piss off your salesperson. You very well may not care; it’s the best deal you’re after, not a friend, after all
Create a bidding war between dealers
Once you’ve researched and determined exactly which make/model/year/trim you want, head to sites like Cars.com, CarGurus, and AutoTrader to find nearby dealers that have them in stock. Make note of each car’s stock number at the dealer, too. This will not only save time but will let them know you’re smart and not a sucker.
Then, follow these steps:
- Ask dealer 1 what their OTD price is for their car.
- Tell dealer 2 what dealer 1 offered, and ask if they can beat it.
- Tell dealer 3 what your best offer is, and ask if they can beat it.
And so on, and so forth.
This method works so well because it:
- Allows you to pre-negotiate the best possible price over the phone, so all you have to do is walk in and pay
- Strips dealers of their manipulation tactics
- Saves you thousands of dollars
If you don’t care about getting a very specific color or option, you can use the “one-email trick” to get the very best deal on your new car.
Just say ‘no’ to extras
Consumer Reports found that the majority of buyers never use their extended warranties. And those who do still end up losing money, since the average price of the warranty ($1,214) exceeded the average cost of the repairs they covered ($837).
Instead of buying an extended warranty, just buy a reliable car with a good factory warranty and take care of it. The exception might be is if you’re buying a European car that’s expensive to repair and you plan to keep it for many, many years. In that case you can weigh the pros and cons of buying an extended warranty. Like everything, the price of a warranty is negotiable and, importantly, you do not have to buy the warranty at the point of purchase. You can often buy a warranty within a year of buying the new car, and some dealerships around the country will sell these warranties at great prices.
Another way dealers scam the unsuspecting is through “recommended extras,” like paint protection, wheel insurance, etc. But like jewelry on a cruise ship, dealership extras are hilariously overpriced.
To illustrate, here are approximate prices of the most common dealer-installed extras, and what you’d pay for the exact same service down the street:
| Extra | Dealer charge | The other guys |
|---|---|---|
| Window tinting | $495 | $150 at a tinting shop |
| Ceramic coating | $2,000+ | $500 at a detail shop |
| Nitrogen-filled tires | $100 | Free at Costco |
| Tow hitch install | $695 | $147 on eBay (same hitch) |
Another add-on dealers try to sell customers who finance their cars is gap insurance. If you wreck your new car and the insurance company declares it a total loss, the check they give you may not cover everything you still owe on your auto loan due to depreciation, interest, and whether you financed extras like sales tax or a warranty. Gap insurance will cover the difference so you’re not stuck without a car and owing money out-of-pocket. But gap insurance from a dealership is grossly overpriced. Instead, ask your auto insurer for their equivalent, sometimes called “new car replacement”.
Pay attention to financing
The interest on an auto loan can add thousands to the total cost of a car.
For a $30,000 5-year loan at a 7% interest rate (unfortunately a common rate in 2024 for auto loans), you’ll end up paying $5,642 in interest over the life of the loan. That adds almost 20% to the cost of the car!
To keep the cost of financing a car down, follow these guidelines:
- Accept a higher monthly payment to reduce the length of the loan (5 years is better than 6; 3 or 4 years is better than 5!)
- Get a financing quote from a credit union before going to the dealer; it may be a lot lower.
- Put money down, and do not finance sales tax or extras.
Use our auto loan calculator to see how different interest rates and terms affect how much interest you’ll pay.
Resources and references
More advice from Money Under 30
- How much should you spend on a new car?
- Car affordability calculator
- How to finance a car the smart way
External links
- Kelly Blue Book (trade-in values)
- CarGurus (used car values)
- Car and Driver (enthusiast reviews)
- Consumer Reports (reliability and satisfaction ratings)
- IIHS Safety Ratings (crash tests)