Strategies for Smart Car Buyers^SM

Pearl traders in Asia negotiate by sitting face to face, staring into each other's eyes. The buyer is trying to determine when he has reached the price at which the seller will part with his goods. The buyer names lower and lower prices until, when he reaches the right price, he sees the seller's pupils dilate.

That's one style of negotiating. Another style is practiced by my 10-year-old son, Tony, who is a born negotiator. A typical exchange with him goes something like this:

Me: I want you in bed at nine o'clock.

Him: Ten.

Me: No way. We'd need dynamite to get you out of the bed in the morning. Nine o'clock.

Him: Ten.

Me: Look, Tony. I make the rules around here. When I say nine, I mean nine.

Him: Nine-thirty.

Me: OK. Nine-thirty -- sharp.

Who won this negotiation? He got an extra half hour. All I got was that his bedtime was redefined as sharp -- whatever that means.

Tony, like most children, negotiates continually. At school, a child's day is filled with petty squabbles: I was in line first! No you weren't! Yes I was! See? I put my backpack there to hold my place!

Somewhere between the haggling of school and the structure of adult life, we lose our appetite for negotiating. So, when the time comes to venture into the unfamiliar territory of car-buying, we find ourselves saying, "I'm no good at negotiating."

Most people I know say they aren't good at negotiating. In fact, I'm one of those people. But I do it anyway and when things work out in my favor, I'm as happy as Tony is when he gets to stay up an extra half hour.

If you want to get motivated about negotiating, think of the money you can save. In a $20,000 car, the difference between the sticker and the invoice (dealer cost) is between $1,500 and $3,000. This is the negotiating territory. If you negotiate even a little, you can probably save $1,500 on most cars. If you negotiate actively you might save $3,000 (dealer holdbacks and rebates mean that you can sometimes buy a car for invoice or below). Think about $3,000 for a minute. Think of a thick stack of $100 bills. Or a much thicker stack of $20 bills. This savings can be yours for an hour's worth of negotiating at a dealership.

OK. You're convinced that negotiating is the way to go. How do you do it?

Step one is to know as much as possible about the dealer's cost and tailor your opening offer accordingly. Why is this important? Let me digress for a moment.

Another Edmunds.com editor, Scott Memmer, has a rule he calls "Memmer's Principle" which is based on his experience in sales. Memmer's Principle states that "the person who mentions price first, loses."

This valuable rule was dramatically proven last weekend when I went to a yard sale and spotted a table saw I wanted to buy. How much did he want for the saw? The owner looked at me and said, "Make me an offer."

Brand new, the saw was probably worth $400. But I had no idea what it was worth now. To cover my indecision, I began "inspecting" the saw. I found that a bolt holding it onto the stand was missing. I didn't say anything, but I wiggled it and looked disapproving. The figure of $50 began to form in my mind. But before I opened my mouth, my neighbor said, "How about $25?" By keeping my mouth shut, I saved $25.

Unfortunately, when you buy a car, someone has to mention price first. And you better be prepared with an offer that is as low as possible -- but still in the ballpark. That was the strategy of the pearl traders I mentioned earlier.

Edmunds.com has made this process much easier by introducing Edmunds.com True Market Value^® pricing, also called TMV^®. This figure, found on our new and used car pages and based on car deals across the country, is the price at which a dealer will likely sell you the car. It represents a fair deal for you and a fair profit for the dealer.

Can you do better than TMV? Possibly. Should you try? It depends on you and your desire to negotiate.

Recently, I bought a Hyundai Elantra for the Edmunds long-term test fleet. I worked with another Edmunds editor, Carmen Tellez. She told me that she had never negotiated for a car. And yet, when the time came to make the deal, she did a great job getting a low price for our company. Here's how it happened.

We went to four dealerships and asked them all for their best price. Most of the salespeople were vague. They said things like: "Come back when you're ready to buy -- we'll work out the numbers then." But one salesman told Carmen: "Are you ready for this? Five hundred dollars below invoice."

This price sounded too good to be true. And we doubted the salesman would honor the price he quoted. So instead, we returned to the dealership we liked best and told them we were ready to buy. The salesman took us into his office, and we all sat down. We said we'd shopped around and had gotten competitive bids. The salesman knew where this was leading. He said, "What's your offer?" Carmen, who had never negotiated before, calmly said, "Five hundred below invoice." After about 45 minutes of dickering we got the car at invoice.

If we had started negotiating against sticker price, which is what the dealer wants, we would have wound up at a much higher closing price. But by starting very low, they negotiated in relation to our starting price.

But many people feel uncomfortable challenging the authority of the numbers written on the window sticker. This is exactly what the dealer wants. The sticker is supposed to look official. People tend to believe things that are written down. Allen Funt, in the TV show Candid Camera, proved this by closing the state of Delaware. He put up a sign at the state line that read, "Delaware closed." Motorists stopped and angrily asked, "How can Delaware be closed?" Funt just said, "Read the sign."

So the sticker price is really a tactic to build profit into the deal. The dealership and car salespeople use many such tactics to increase the profit when you go to buy a car. But, as Herb Cohen points out in his book You Can Negotiate Anything, "a tactic perceived is no tactic." In other words, if you realize what they are doing to you with various sales ploys, these tactics will no longer work on you.

Why do many car buyers seem reluctant to make a low offer? I often hear people say they are afraid the salesperson will laugh at them. Or become angry or insulted. And yet, if you think about it, they do the same thing to you -- but in reverse. Here's what I mean.

At Edmunds, we had a writer named Chandler Phillips go undercover as a car salesman last year. As part of the training process, he was repeatedly told to quote very high prices, then come down slowly. "Hit 'em high," he was told, "then scrape them off the ceiling and make a deal." In other words, if you start very high, there is a lot of room to drop the price and still make plenty of profit.

I recommend Cohen's book on negotiating. And I highly recommend using TMV pricing. But to get a good deal on your next car, you don't have to be an ace negotiator. You just have to follow a few simple rules.

• Don't buy a car in a hurry.
• Eat before you go to the dealership -- you might be there for four hours or more, and you want to be able to think clearly.
• Check all the numbers and get as much information as you can before you begin negotiating.
• Don't enter negotiations with someone who intimidates you. It should be a win-win proposition, not a matter of one person controlling another.
• Take risks. Treat negotiating as a game -- and know that the car salespeople are doing the same.
• Always, always remember to walk out if you don't reach a deal you like.