The more accurate your assessment of the dealer cost, the better prepared you'll be to start negotiating. Start with the dealer invoice, which is the official price the dealership paid for the car. Check websites like Edmunds, KBB and AutoTrader, which track the invoice price and any dealer incentives offered by the manufacturer. These incentives lower the effective cost to the dealer. Another factor that lowers the dealer's real cost is the holdback -- a refund the manufacturer gives the dealership once the car is sold, often provided by the factory on a quarterly basis. Holdbacks are harder to determine, but they typically represent 2 to 3 percent of the purchase price. This means that the dealer invoice is 2 to 3 percent higher than what the dealer will ultimately pay.
Negotiate by the Numbers
Once you have a sense of what the vehicle cost the dealer, you can come up with a price that meets your needs and gives the dealership enough profit to accept it. While you'll be able to use dealer incentives as a tool to lower the sale price, most dealers won't negotiate based on the holdback. But knowing about the holdback gives you ammo when the salesman claims he's not making any profit on the sale at your proposed price. In addition, check auto buying websites to see what buyers are paying in your area. This gives you a price range that dealers have accepted.
Time It Right
Dealers sometimes have extra incentive to sell certain types of vehicles at specific times of year. One example that's easy to predict is the end of the model year. Salesmen need to move cars off the lot at the end of the year to make room for next year's models, particularly if that model is undergoing a redesign or if new features will be added in the coming year. The manufacturer in those cases may offer extra dealer incentives that can help salesmen give you the best possible price. If you're flexible in your timing, buying a new car under these circumstances can save you a lot of cash.
Get the Best Rates
A great price on the vehicle doesn't mean much if you're paying more than you should in financing charges. Don't rely on the dealer for your financing. Check rates with your bank or credit union, and obtain preapproval before shopping. Many lenders even give you a check for your preapproved amount that you can use to buy the car. That way you won't be pressured into taking a comparatively poor financing offer from the dealership to drive away with the car.
Even if you've fallen in love with a particular model, there are identical cars at each dealership in your area and across the country if you're willing to look farther away and have the car shipped. Play one dealership off against another, so they're bidding to win your business. Get online price quotes from every dealer within a few hours' driving distance. You may not be eager to drive across state lines for a better deal, but the salesman at the local dealership won't know that.
No Unnecessary Add-ons
You'll spend a lot of time preparing to buy a car, and the negotiating process can be draining. Don't give up your hard-won results at the finish by agreeing to purchase extras like rustproofing, undercoating or sealant. These overpriced perks represent extra profit for the dealer, as do flashy features that are cheaper if purchased and installed after you've bought the car.