Step 5: Know When the Price is Right
Once you know the car you want and select the model, options and color, it's time to get serious about price. One key to success in negotiating for a new vehicle is in collecting as much information as possible before making the deal.
Today's savvy car buyer has the internet to thank for helping to take some of the mystery out of vehicle pricing. The online community has provided plenty of fast, free and factual information. These values are provided in new car pricing, and include invoice, MSRP and Fair Purchase Price.
Probably the most helpful thing about obtaining the dealer's invoice price is to help determine the lowest level a dealer can go and still make a gross profit on the sale. Dealer invoice is the dealer's cost for the vehicle only and doesn't include any of the dealer's costs for advertising, selling, preparing, displaying or financing the vehicle.
When all is said and done, knowing the dealer invoice price can be an extremely helpful bargaining tool. However, it does not always tell the entire story. Incentives and manufacturer-to-dealer cash could actually reduce the price below invoice in some cases. On the other hand, the average dealer mark-up over invoice cost on most high-volume vehicles is less than 10 percent. Compare this to any other industry and you'll find it to be quite low. The truth is, contrary to popular mythology, dealers actually don't make a lot of money on new cars, which is why they have less room to negotiate on prices of new cars than those of used cars. Dealers make most of their money on used cars and parts and service.
The MSRP (Manufacturer's Suggested Retail Price) is actually set by the manufacturer and means just what it implies -- a "suggested" price. By law, this price is displayed on every vehicle sold in America.
So who pays the MSRP? In some instances where demand is higher than supply, customers actually have been known to pay above the MRSP. For instance, during their respective launches, the Mazda Miata, Volkswagen Beetle, Chrysler PT Cruiser and Honda Odyssey demanded prices well above MSRP.
Unlike most other business categories, the automotive industry gives the retailers the ability to offer the customer a discount while still making a profit.
Fair Purchase Price
Updated weekly, the Fair Purchase Price is the industry's most reliable new vehicle pricing tool. The price you receive online specifically reflects the price consumers are paying for new vehicles on a current market basis. Down to the specific make and model, Fair Purchase Price pricing reports offer a new car's typical selling price, its typical range of selling prices and the market conditions affecting those sales.
Sample Market Condition: Mazda RX8 -- This vehicle is popular and dealers do not have a sufficient supply. It is currently selling at MSRP or above.
The Fair Purchase Price is not a number influenced by dealers or manufacturers -- it is actual transaction data representing a range of what people actually paid for specific vehicles. This pricing knowledge will benefit you greatly as you decide what you are comfortable paying for your next car.
The price of your next car will depend greatly upon the options you desire. Trends in the industry have moved toward car manufacturers putting packages together rather than simply including options as separate add-ons. This makes pricing those vehicles much easier. For example, the popular Honda Civic Sedan comes in three separate versions, the DX, LX and EX. A quick check on the new car pricing report for the Honda Civic demonstrates that the standard options simply increase with each model -- as does the price -- and the company offers very few non-standard options as a result.
To remain competitive with the high-volume best sellers, many manufacturers offer packages with groups of options, such as power windows, alloy wheels and CD players, while keeping the total price lower than it might be otherwise. This can be a pleasant surprise when you're comparing similar vehicles from different manufacturers side-by-side. The most efficient way to discover how optional equipment will affect the bottom line is to build a car online. This handy tool will automatically add the cost of each option available on your vehicle and give you a new total reflecting the additional cost factors.
The Market Drives the Deal
One thing you can count on is that car prices change as popularity, supply and other factors change. In other words, if you are buying a popular car in short supply, when it first comes to market, you can expect to pay more.
Other people would never dream of paying a premium for anything. For the true bargain-hunter, here are some helpful car-buying tips that might position you to get the deal you want:
- Buy out-of-season vehicles -- like a convertible in cold weather or the winter season
- Buy a model late in the year before the body-style change
- Buy an overstocked or mass-market vehicle with a customer cash incentive -- incentives are typically higher in the summer and winter months
- Buy around the last day of the month -- dealers have monthly sales quotas
- Buy at the end of the year -- some dealers will clear out inventory for tax reasons
The research you've done so far will give you a comfort level on what the right price of your next vehicle should be. A knowledgeable and reputable dealer will be able to negotiate a fair deal with you and try its best to convert you into a loyal return customer. Today, you don't have to arrive at the dealership with both barrels loaded; all you need is some very basic information to confidently transact your new car purchase. Read more on finding a dealer in Step 9.