Timing is Everything
You'll get a better deal when you shop at a time when dealers have extra incentive to make a sale. The end of the model year pushes dealerships to clear the lot to make space for the newer models, which often leads to increased factory-to-dealer incentives. Also, shopping near the end of the month can lead to salesmen desperate to meet their sales targets, and going on a weekday instead of a weekend means there are fewer customers around and you'll have your salesman's undivided attention. If your sale means the sales rep will hit her monthly quota, and there's nobody else walking around the showroom for her to turn to, she might think knocking off a few hundred dollars from the price of your car is a small price to pay.
Know the Numbers
Salesmen enter negotiations trying to figure out what your bottom line is -- the most you'll pay before deciding to walk away. You'll need the same information from the dealer's perspective -- the rock bottom price he's willing to sell the car for. The good news is, a lot of what you need is easy to find. Start from the dealer invoice price, available at numerous car-buying websites and often from the dealer itself. Subtract factory-to-dealer incentives and dealer holdback, which lower the true cost of the vehicle for the dealer. The former information is tracked by sites like Edmunds.com. While the latter is harder to determine, a holdback typically ranges from 2 to 4 percent of the purchase price. That money doesn't return to the dealer's pocket right away, and negotiating based on it can be tricky. Still, it provides a more accurate measure of how low the dealer may be prepared to go.
Check the Competition
Even if your heart's set on a particular model of car, it shouldn't be set on a particular dealership. For new cars, solicit every local dealer with the specific model and options you want, and get dealers bidding against each other. When buying a used car, use sites such as AutoTrader.com or Cars.com to research similar vehicles being sold within a two- to three-hour driving radius, print the numbers out and bring them with you to the dealership. This information will let you know if the dealer's price is too high, and help you negotiate a better price.
Customers sometimes drop their guard once the price of the car has been agreed upon, which can give a salesman the opening he needs to increase his profits. For example, Consumer Reports notes that extended warranties provide a large profit margin to the dealership and usually aren't needed on late model vehicles. Extras like paint protection and fabric protection aren't usually needed and are overpriced when offered at the dealership.
Negotiate Beyond Price
Getting the best price on a car may only be the beginning of your tasks at the dealership. Have your financing in place beforehand so you're not at the mercy of the dealer. Auto dealers know that the more you pay in interest, the more goes into their pockets, so coming in with a pre-approval already in place keeps them honest. If you have a trade-in, negotiate that value separately. Don't bring up a trade-in until you've already agreed on a price for the car you're going to buy. Come armed with your trade-in's value from sources like the Kelley Blue Book, and get an appraisal from CarMax or another used car dealer that can serve as a floor for your talks with the dealer. Take your car elsewhere if the dealer won't match that appraisal.