How can you negotiate the best possible price for a new car? This is a common negotiation question, and naturally so. A car is one of the most significant purchases you’ll ever make—and the price is almost always negotiable. Here’s some negotiation advice to improve your performance:
Negotiation Advice for Improving Your Performance When Buying a Car
Negotiation Advice Tip 1. Prepare, prepare, prepare.
Due to the vast amount of information available on the Internet, walking into a car dealership without having done some online research would be a big mistake. Online, you typically can find out the actual dealer cost, or invoice price, of a car—the dealer’s walk-away point in his negotiation with you. Some Web sites also allow you to pick the precise options you want and even tell you what other buyers in your region are paying for the same car. (Note that details such as dealer “holdbacks,” or money paid back to a dealer by the manufacturer, could prevent you from pinning down the dealer’s reservation price definitively.)
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Negotiation Advice Tip 2. Choose the right negotiation process.
In the car-buying context, you can enter a dealership and negotiate with a salesperson, or you can put out a request for bids on the Web. One key factor in this decision is how well you know what you want. If you’ve picked out a car down to the very last option, then by all means let the Internet do the haggling for you. (But beware: some dealers may tempt you with a lowball price and then try to renegotiate in person.) If your final decision will depend on cost, then negotiating face-to-face at a dealership is probably the better choice.
Negotiation Advice Tip 3. Use the threat of walking away.
One middle-ground option that Richard Zeckhauser and Guhan Subramanian have identified is a negotiation-auction hybrid, or negoti-auction. Merge the strategies described above by visiting dealerships to determine what you want and then hold an online auction to determine who will give you the best price. Eventually, of course, you’ll have to close the deal in person, but this will be a straightforward encounter if you’ve worked out the price in advance.
It’s a different matter if issues remain on the table. In private-equity deals, experienced negotiators use exclusivity as a bargaining chip, a tactic you can use when buying a car. Consider the salesperson’s situation: if you walk out the door without signing on the dotted line, the deal is probably dead. Therefore, you can exercise your option to walk away to extract further concessions. One buyer recently shopped for a car alone and, after negotiating a deal, told the salesperson that he wanted go home and discuss it with his wife. The salesperson asked what kind of price reduction the buyer needed to sign the deal right away. The answer: a $900 price cut, which the salesperson agreed to after the inevitable consultation with his manager. Back at home, the buyer’s wife was thrilled to hear about the final price.
The Importance of Information in Negotiations: Remember Your BATNA
If you still feel stressed about car buying, consider the big picture: you have lots of best alternatives to a negotiated agreement (BATNA), but the salesperson’s alternative to a deal with you is forgone profit. And while you have access to substantial information about his position, he can estimate only how much you are willing to pay (reservation price).
What’s your favorite negotiation advice for anyone who’s never bought a new car before?
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Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.
Adapted from “Wheeling and Dealing,” by Guhan Subramanian (professor, Harvard Business School and Harvard Law School), first published in the Negotiation newsletter.
Originally published in 2010.
We were about $500 apart. The salesman said, “you know that’s only $14/month”. I responded, “really only $14/month?. Then I guess Acura won’t miss $14/month”
I really liked your tip to walk away if you don’t feel you’re being offered a good price. My friend needs a new car, so these tips will definitely help him negotiate. I’ll share them with him today at lunch!
http://www.youngsubaru.com/new-inventory/index.htm
Thank you for sharing
Some of the comments above express concern for the salesman and the ‘relationship’. While in some negotiations where there is an ongoing personal or business relationship that may well be a valid concern but I would wager that firstly, the salesman was not let go based on only one transaction and secondly, there is little, if any, value to the purchaser of maintaining a ‘relationship’ with the sales department of an auto dealer. The plain and simple fact is some negotiations are only about money. The smart and principled negotiator recognizes that fact and bargains accordingly. Win Win does not mean you deliberately leave money on the table. Congratulations to the purchaser. She should feel no guilt. If the salesman has been mistreated by his employer one hopes he can negotiate a wrongful dismissal settlement. If the dismissal was warranted we all know where he can go to get some negotiation training.
THANKS. RELIEVED TO SEE YOU FINALLY POSTED MY COMMENT. MUCH OBLIGED. 🙂
Further to the comment (below the article) by Alan, I thought Roger Fisher’s courses promoted win-win. I do hope Dr Howell went back to the dealer and used her skills in an ethical and fair manner to negotiate the reinstatement of the sacked salesman
Negotiation is not all about saving money – its about the relationship you forge with the people you are negotiating with and the way you are in the world.
I am not sure, Alan L, if it is something to be proud of having a person lose their job so someone in your family could save money on a purchase? Let’s hope the salesperson went on to have a happy and fulfilling work life in a different role. Negotiations aren’t only about money, they are about relationships and the legacy you leave behind each time you negotiate with someone.
It is not uncommom to sell a car for more than what it costs to put it in the show room. Dealers make most of their profit on financing and extended warranties. Never walk into a show room without bank financing and an extended warranty ready from your insurance company.
When my wife, Dr. Rosemary Howell, having attended the Harvard Negotiation Course and having assisted Roger Fisher teach it, went to buy a new car, the salesman was sacked next day for having sold it to her for less than it cost the dealer to put it on the showroom floor! She knew her BATNA better than the Salesman knew his!