What Are the Elements of a Good New-Car Deal?

Car Buying Articles

What Are the Elements of a Good New-Car Deal?

Focus on the Big Picture, Not Just the Purchase Price


You stare at the price quote you just got from the dealer and ask yourself, is it really a good deal or not?

It's possible that the price of the car is a good one, but the deal (meaning all the related pieces of the transaction) is not. As a new-car buyer, it's all too easy to focus on the single number of the car's price or monthly payment and ignore the other essentials. As a result, the dealer can quote you a low price and then make up profit somewhere else.

Here's how to analyze your car deal and make sure all its parts are what they should be.

Purchase Price of the Vehicle
It's fairly easy to tell if the dealer's price for the new car is good. Check Edmunds' True Market Value® (TMV®) price, making sure you add all the options and mileage (for used cars) correctly. But remember, this is the average price that other people paid in your area. Some people paid more, while others paid less.

Many people are satisfied to pay the average price. Others want to haggle over the last penny. You won't know how low the dealer will go until you negotiate, or shop around for other dealer quotes. An alternate strategy is to use Edmunds Price Promise®. It gets you a fair, up-front price on selected inventory.

Be aware that if you push too hard on the price of the new car, some dealers may try to find profit elsewhere in the deal. For example, a dealer might set a lower trade-in price or include the sale of an extended warranty. So be wary of prices that are unrealistically low. If a dealership offers you a car below invoice price and there are no incentives to explain it, proceed with a little more caution.

Now that you know how good the price of the car is, let's look at the other pieces of the deal.

Incentives and Rebates
Incentives and rebates have become a big part of car buying in recent years that can save you thousands of dollars. This group of money savers includes customer cash rebates, low-interest financing and lease specials. It also includes "dealer cash," which is a hidden incentive described on Edmunds.com as a "manufacturer-to-dealer" incentive.

Check on the rebates and incentives that are available in your area and make sure that the dealer correctly applies any incentives for which you're eligible to the purchase price. When it comes to customer cash rebates, the rule of thumb is to negotiate your lowest price and then subtract them.

Trade-In Prices
It's true that it's very convenient to trade in your old car at a dealership. But many shoppers looking only at the purchase price of the new vehicle can throw away thousands of dollars by accepting too little for their trade-in. Determine the value of your old vehicle by looking up the TMV trade-in price. Remember to include all options on the car and its mileage when you calculate the TMV trade-in price. And be realistic about the condition level. Almost no used car is "outstanding."

Also remember that you don't have to trade in your car. You can sell it to a private party, and you'll usually get more money than the dealer would give you. You can even take it to CarMax, where the prices sometimes beat dealer trade-in offers.

Legitimate and Bogus Fees
In a good deal, the dealer only charges three fees: state and local sales tax, a reasonable documentation fee (also called "doc fees") and motor vehicle registration fees.

In some states, documentation fees are limited by state law. When these fees are not state controlled, there will be an average local documentation fee price. Call a few local dealers to see what the going rate is. In Arizona, for instance, the doc fee is a whopping $395. Florida is also known for having high doc fees.

Some dealers will invent their own fees, with official-sounding names, and add them to the contract. You need to find out about these fees as soon as possible, since these extra charges might be enough to convince you to shop elsewhere. Many such fees are in the range of $200-$400 and have names like "Dealer Prep." Sometimes it will just be an abbreviation, such as "D&H." With popular or recently introduced cars, a dealer might try to add a "market adjustment" fee that can be thousands of dollars. These additional charges are highly negotiable.

For more about extra charges, read "What Fees Should You Pay?"

Smart car buyers shop for a loan with the best possible interest rate long before going to the dealership. It's a good idea to get pre-approved financing from an independent lender, particularly if you're someone with imperfect credit. Then you can go to the car lot with a blank check (which has a credit limit set by the lender) and negotiate as a cash buyer. The dealer might still be able to beat your lender's pre-approved interest rate, but with that loan in hand, you have an excellent bargaining chip.

Overpriced Add-Ons
Now that you've secured a good price, you'll walk into the finance and insurance manager's office to close the deal. This person will likely offer you a number of additional products and services.

Examples include an additional alarm system, a $275 "paint protection package" or $100 to etch the vehicle identification number into the car's major parts. Extended warranties can be valuable, but dealers often mark up the price well over their wholesale cost.

Other Factors To Consider
Once you have all these pieces of the deal before you, we recommend giving consideration to a few intangibles. Customer service, for example, is very important. Do you find your salesperson responsive, knowledgeable and efficient? Do you have confidence that he or she will honor the deal and continue to be responsive to your needs even after the deal is closed?

And what about the dealership itself? Is it part of your community? Is it convenient for service visits? You may consider it worthwhile to pay a few hundred dollars more for your car once you consider the importance of these other issues.

Before you make another round of calls to troll for a deeper discount or play dealers off against each other, ask yourself what your time is worth. If you believe you can still save $1,000 or more, then go for it. But if you are negotiating in a narrow range where the most you can save is maybe another $200, ask yourself if it's really worth it. Saving that $200 might mean a longer drive to pick up the car or a prolonged negotiation with the sales team. Either one could turn your vehicle delivery into an ordeal.

The Whole Package
The purchase price is only one of a number of factors that can affect the actual amount of money you spend on a new car. If you know what to look for in every aspect of the deal, you can be like a chess player, who is always looking several moves ahead. You want to negotiate a deal that's good in all its aspects, not just price.

To find a dealership that knows how to treat shoppers right, please visit Edmunds.com's Dealer Ratings and Reviews.



  • jessamyn jessamyn Posts:

    Working for a dealer, I do the dance every day. What it comes down to is, we all pay the same for the cars when they come from the manufacturer. If a dealer is honest and worth your time and money, there is only a couple hundred dollars difference between their bottom lines. You need to find a sales person you like and a dealership you trust. A good deal is one where both sides of the table go home happy.

  • ze_kai ze_kai Posts:

    hi, 1. i want to purchase a new car and i currently do not have any car insurance as its my 1st car. Can i purchase this insurance (no fault rate) on my own or must the dealer purchase for me as part of the sales transaction. My state MI requires the dealer does the registration & title but u must have insurance before registering a car. How do i go about this to get a very good rate for my insurance. 2. The dealer quoted a price for "Plates" for > $100. Is this the same thing as registering the car? Thanks.

  • 3814815 3814815 Posts:

    As a other small tip make sure that you ask to see the invoice price of the car before beginning the negociation

  • knight1096 knight1096 Posts:

    ze_kai, I am a car saleswoman in WI and here is what we do here: It is required in Wisconsin to have insurance but you can wait up to 60 days to add it after completing your transaction. However, most dealerships will ask you if you have insurance and many loans require that as well. When I bought my Harley, my bank almost added insurance because my paperwork did not have them as a lien holder. Shop around for your insurance. You can even use an insurance agency to shop around for you. In Wisconsin we will register plates as well and that means that the DMV is getting the information to know that the car is yours. Here the titles are mailed out directly from the DMV to your house in a few weeks. Also, typically, invoice price is not something that consumers are allowed to see. As a salesperson, I am not even allowed to see invoice. So if dealerships don't allow you to see that information, don't feel that they are insulting you. That is typically confidential information (you would never go to Wal-Mart or Best Buy and ask to see their cost on an item). The reason for that is that some brands of cars typically do not have any markup that is behind the invoice of the car and are required to sell at a minimum of 3-6% above invoice. Remember, there are scummy salespeople out there but in reality, many of us are men and women trying our hardest to take care of our families. Find a salesperson that you like and you trust. I am personally committed to being honest to customers in every step of the process. Also a good tip, do not treat your sales person like garbage and you will get much better customer service and a better deal.

  • moemoe455 moemoe455 Posts:

    They do not have to show you an invoice!

  • moemoe455 moemoe455 Posts:

    Lowes, Home depot, Amazon, Wal Mart, Sears, and every other retail business will not so what makes you think that when you buy a car that you are entitled to see one?? Business is business, go to Car Max and try to buy a car and they will tell you to move on that the price is the price!

  • mah_nitin mah_nitin Posts:

    Great Article

  • mahikap mahikap Posts:

    I wish to buy base model of Camary 2012 brand new of a color of my choice in sub $20000 price . Are there any quotes.

  • sarrington sarrington Posts:

    I get it with the customer rebates, but what if you ask about them when given a price and the dealer says - "those are already included in the price, and that puts me below my invoice price. sorry, cannot go any lower"??

  • stever stever Posts:

    @sarrington, you say thanks, get up and leave. Send out for some more quotes from other dealers when you get home (assuming the salesperson doesn't chase you down in the parking lot with a better offer!).

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