Car Buying: Negotiating and Committing
While at first, this may seem complicated, I will try to make this part of the process as easy as possible.
The next stage of the car buying experience is either the most or least fun depending on your frame of mind. Lots of people I speak with have a real fear of negotiating. If you are one of these fearful individuals keep this in mind: the worst response you could get to any proposal is “No”. No one can send you to bed without supper, call your parents or rip out your fingernails. “No” is OK and may give us something to work with.
As previously mentioned, come to the table prepared. Have all the information you need to bargain from a position of strength or, at least, a position equal to the seller. One very important thing to have tattooed on your brain is that there is no deal you MUST have. Be prepared to walk away if the transaction doesn’t work for you. Go in having the cost of the vehicle to the dealer, the approximate value of your trade, and finance interest rates available. Any number of websites can provide these pieces of information.
There are two stages to purchasing a car. The first stage is pricing – pricing for both your new car and your trade. As I mentioned before, I believe a dealer or seller is entitled to make a profit – probably between 2 and 3%. Take the cost, add the profit, deduct your assumed value of the trade and there we are.
Example:
New car cost: $20,000.00
3% factor for profit: $600.00
Deduct value of trade: $10,000.00
Net cost to you: $10,600.00
Simple, right?
We’re not done yet. First, you need to be aware that you will pay sales tax on the new car. Here is the good news. In most states (Rhode Island included) you do not have to pay sales tax on the value assigned to the trade value. So, in our example, you only pay sales tax on the $10,600.00. However, as we all know, inherent in any tax law are any number of exceptions. In the case of sales tax, credit for trades only applies if neither the trade nor the new vehicle is a commercial vehicle. So, if you are trading a commercially registered pickup truck for a car you will pay sales tax on the whole purchase price. SURPRISE!!! Be sure to include the sales tax into your calculations to assess affordability
The sales representative will try to sell you on payment. Don’t negotiate payments. Negotiate actual numbers. If you negotiate payment, the drop-in payments through the process will come from the discount you should negotiate out at the beginning by applying the cost-plus strategy.
The sales representative will undoubtedly turn you over to a sales manager or some equivalent second person to try to move you up in price. I would suggest you stick to your guns and believe the information you have on cost so long as it’s from a reliable source. Here is where the “No deal you must have” comes in to play. If you can’t get the deal that you want, be prepared to leave.
Let’s assume you agree on pricing for both the new car and the trade. Your next stop is the finance and insurance manager. Here, you will be asked to finance the car through the dealer. This is a profit center for the dealer and, also can be negotiated. I suggest you get interest rates and terms on the web before you go to the dealer. As a trade value and cost value, this is very important information to have during negotiations. You can use the prospect of financing through the dealer as leverage for your purchase price.
The Finance manager will attempt to sell you intangibles. Most of these intangibles such as extended warranties, tire and rim warranties, paint sealant, routine maintenance packages and other such items are big profit centers for the dealer. In most cases the profit on any one of these items can be more than the profit they make on the new car. I would suggest that if any of these items appeal to you, shop around after you take delivery. Once again, the web is a great place to shop.
Hopefully, you will have a good experience buying a car. It really can be fun. One very important thing to remember: If you get a good feeling from a dealer or a dealer’s representative that is a good sign that you made the right choice as to where to spend your money. Conversely, if you get a bad feeling or get a sense that the team is lying or trying to deceive you, then run! You can always find another dealer to spend your money.
Good luck and enjoy your new ride.
Next, we will talk about service and the information necessary to protect you and your car from bad service practices.
Important Disclosures: Innovative Planning Partners, LLC, Daniel Angelone, Christina Gatteri, and Sean Holly offer Investment advisory and financial planning services through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe), an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe Asset Management offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Belpointe Insurance, LLC and Belpointe Specialty Insurance, LLC. Additional information about Belpointe Asset Management is available on the SEC’s website at http://www.adviserinfo.sec.gov.
Neither Belpointe nor Innovative Planning, Daniel Angelone, Christina Gattieri or Sean Holly provide legal or tax advice. This information provided herein is educational in nature and not designed to be a recommendation for any specific investment product, strategy, or for any other purpose. The opinions expressed herein are personal. Communications such as this are provided in connection with advertising and marketing. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.
