Sometimes the purchasing advice we’ve always heard about turns out to be only partly right — or not right at all. Advice on negotiating the price of a new car falls into this category. Here are three “surprises” that might turn some of the things you’ve heard on their head:
Surprise #1: Offering to pay cash will not get you a better deal
Most of us are conditioned to believe that we can squeeze out a better deal if we offer to pay for something in full, immediately. That might be true for some things, but when it comes to buying a new car, it could be a big mistake.
The reason is that auto dealers (including salespeople) often receive bonuses for arranging financing, according to Jonathan Rivers of the consumer website BillShrink.
Thanks to those kinds of behind-the-scenes incentives, dealers no longer believe that “cash is king.” Says Rivers: “You are more likely to negotiate a lower selling price by financing (and enabling the dealer to collect the bonus) than by paying for the vehicle outright.”
Surprise #2: Dealer invoice price might not be dealer’s real cost
Common wisdom dictates that new car shoppers should check the “dealer invoice” price when they are considering buying (easily done online). The invoice price is what the dealer paid the car manufacturer for the vehicle (including all options). By contrast, the manufacturer’s suggest retail price (MSRP) is the “sticker” price that includes dealer markup.
But for most vehicle makes, the published invoice price is not the true dealer cost because of something called “dealer holdback.” Holdback is a portion of a car’s sale price, typically 2% to 3% of either the invoice price or MSRP, that an automaker returns to a dealer, usually on a quarterly basis, as a way to boost the dealer’s cash flow.
Surprise #3: You are not destined to pay all delivery charges
One of the not-insignificant other costs that goes with buying a new car is the so-called “destination charge.” This is a non-negotiable fee set by the manufacturer that covers the cost of shipping the vehicle to the dealership. It’s a fixed number, regardless of whether the dealer is 10 miles or 10,000 miles away from the factory. But here’s the surprise. While this may also be called a “delivery charge,” car buyers should not have to pay a destination charge AND a separate delivery charge. One charge is required; the other is not and may be something you can ask to be removed.