For a lot of people, buying a car is a matter of scanning the ads or walking around on a car lot until you find the nicest looking car you can afford. Then maybe you try to talk the smiling salesman down on the price a bit, sign the papers, and drive home. There are several problems with this approach. First, you don't know that you are getting the best car available. Secondly, you are almost certain to pay too much. Maybe thousands too much.
I have gotten the car buying process down to a science, and I am going to share the secrets with you, free of charge.
The first step is research. Start by deciding what your requirements are for your vehicle. Are you looking for a little 2-door, a truck, or an SUV? What are the priorities: comfort, appearance, reliability, cost, fuel efficiency, safety, etc. Scour the Consumer Reports auto issue. I start with the ratings for the category I am interested in. Stay near the top of the ranking. Narrow your selection down to three or four vehicles which meet your needs and fit your budget. Look at what edmunds.com has to say about them, including the road test reviews and the total price to own analysis.
Now go to the dealer and test drive your top two or three vehicles. Tell the salesman up front that you are just looking today and plan to buy on a later day. Don't let the salesman pressure you to buy on the spot. If he does, walk away. Any legitimate deal he can offer today will still be available next week. When you look over the cars and drive them, look for differences which cause you to prefer one vehicle over the other. Take notes.
Based on all of this information, pick two vehicles which best fit your requirements. Decide on the trim level and options you want. Price it on Edmunds.com and write down the invoice price as well as the MSRP, and look for any dealer incentives going on. The invoice minus dealer incentives is the dealer's cost for the vehicle. Your goal is to get the car for as close to that price as possible.
The dealer likes to get you into their "closing room" where they can put the heat on you and strong-arm you into buying. In that room, they are in control and you have to meet their demands to reach a deal. They will play games like "If I could get you this car for sixteen thousand, would you buy today?" He knows that he won't sell it for that low of a price, but he wants to get you negotiating on his terms. We are going to turn the tables on them, using the power of the Internet.
First of all, sign up for a free email account with gmail or hotmail or something like that. I use this email address because I know that I will keep getting email from the dealers for years, and if it is not going to my real address I can just ignore it.
Go to the dealer's web site and look for the car you have decided on. Email the dealer and ask for their best price on that car. Give them the VIN so that they know exactly which car you are talking about. Do this with every dealer within a hundred miles of where you live. When I was buying my last car, I emailed 14 dealers. Take the lowest price and ask all of the others to beat it.
Now instead of playing by their rules, they have to meet your expectations to make a deal. In their closing room they will make you name the price, which turns it into a winning game for them, but now you force them to name a price. You can get all of the dealers in your area bidding against each other. In some cases I have been able to get within $200 of dealer cost with this method. In other cases I got lower than dealer cost.
I like to arrange my financing through my credit union, so I apply in advance.
If the best offer is at the dealer you want to buy from, just go there and buy the car. In my case, the best offer was from a dealer who required that I sign a binding mandatory arbitration agreement, an onerous arrangement in which the buyer agrees to settle any disputes by means of arbitration through a mediator chosen by the dealer. I decided to buy elsewhere. You should ask your local dealer if they require that you sign an arbitration agreement. If they do, ask them why you would do business with a company who requires that you sign away your right to legal recourse if the dealer commits fraud, negligence, or even breaks the law. There is no valid reason for a business to refuse their customers the protection provided by the legal system that we all pay for.
Before you go to the dealer, have your approach in mind. When I went to the Honda dealer to buy our Odyssey, I told the salesman, "I really liked the new Sienna better, but the Toyota dealer wouldn't work with me on the price." The message was clear: this car isn't my first choice, I'm not tied to it, and I'll walk away if you don't give me a good deal. He accepted my first offer without any argument.
Once you have picked the dealer you would like to do business with, take your best offer to them and ask them to match it. In my experience, they usually will match it. They might grumble a bit about selling a car at such a thin profit margin, but remember that the dealer will not sell a car if it is not in their interest to do so. If they won't match the price, go somewhere else. I walked out of a dealer when I was buying my last car, and an hour later the salesman called me back and accepted my offer.
Don't let them talk you into a lease. For almost everyone, a lease is the most expensive option in the long term. If the dealer pushes it, he is not looking out for your best interest -- they make more money on leases than they do on sales. Their cost comparison is misleading because it doesn't account for the time value of money. If you want to see the flaws in their math, ask me and I'll explain it.
Once you have agreed on a price, the dealer will try to pad their profit through financing and other worthless add-ons. You don't need their paint protection package, underbody protection, fabric protection, or VIN etching. Don't be fooled into paying for it. They'll want hundreds for those things, but a can of Scotch Guard costs about $4. Don't pay more than that for any of these rip-offs. Look at the bill of sale and make sure that you know what all they are charging you for, and double check their math. They are notoriously bad at addition, and mysteriously, the errors are always in their favor.
Then there is the extended warranty. The dealer would not push this so hard if it was not a major profit item for them. If the dealer is making a profit and the underwriter is making a profit, it can't be a good deal for you. They use scare tactics to get you to buy it: what if the transmission goes out, repairs are expensive these days. If you have done your homework and picked a vehicle with good reliability, this should not be a concern. Ask the salesman if his vehicle is really so unreliable that it requires an extended warranty.
Don't let them talk you into using their financing, unless it really will save you money. Most importantly, don't take delivery on the vehicle until the financing is approved. I've heard of cases where the dealer called the buyer back a week after they took delivery on their new car and told them that the financing was not approved, and they had to bump them up to a much higher interest rate. You can avoid that kind of problem and prevent the dealer from hiding extra dealer profit items in your loan by financing with a credit union rather than the dealer.
You may feel ruthless and stingy doing this. Never forget that the salesman is far more ruthless than you'll ever be. He will happily bilk you out of thousands of dollars, smiling and patting you on the back as he picks your pocket. The process is heavily rigged in his favor, and you can never win, but you can come out significantly better than you would if you walked in uninformed and bought the shiny car for MSRP.