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Car Buying Negotiation Strategy and Observation about Residual Value


BG2008
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I went into the same Acura dealership today where I've bought/lease cars from the last two times.  I spent 20 minutes looking at the model and features that I wanted (frankly wife wanted a specific model and this was really just a formality).  Then I went to a sales agent and told him that I've done all my work and I know exactly what I want.  Instead of haggling over different things, fees, add-ons, etc.  I basically told him that I'll be his easiest transaction.  I'm ready to buy.  So, let's cut the BS back and forth and just show me the numbers.  If the numbers make sense, I'll buy today.  I believe this approach cuts through a lot of the "emotional hooks" and haggling back and forth and it tells the sales person that this sale transaction is his "to lose."  Just don't F*** up.  I've found that the salesperson tends to only add the real fees and tend to give very competitive prices. 

 

We also bought in an existing car for an oil change.  It turns out that it needs almost $600 worth of services between oil change, new tire, tire rotation, directional fluids, etc.  Once the salesperson shows me the numbers.  I thought it was very fair and lower than what I had anticipated via research and about $93% of MSRP (may have to do with end of month and quarter as well).  Fees were $595 bank fee (apparently non-negotiable) plus $345 DMV (title, registration etc) and upfront taxes.  There weren't other destination, regional, advertising, documentation, prep, ADM, Admin, Fuel Charge, Floor Plan or other weird sounding fees. I told them to cover the $600 service charge and I'll sign all the document right then right there.  They agreed and I'm in and out of the dealership in about 2 hours with pick up scheduled tomorrow. 

 

I think my negotiation tactic is getting me a good price.  But I would love to hear how others negotiate.  I figure that doing your homework (took me 2 days of researching and build a spreadsheet) and negotiating the right way can literally save you $2-3,000 on a large ticket item purchase.  Would love to hear some feedback. 

 

Another things that I want to bring up is that it appears that the residual used in the lease calculation has dropped significantly in the last year.  I tracked an Edmund's website where a moderator provides people with 36 months residuals for 15, 12, and 10k miles.  I believe the moderator has access to the system and provides residual % on a monthly basis.  Within the last 12 months, it seems like the residual has gone from 62% to 57-58% for the same mileage.  I believe this is due to large volumes of car leases that result in large volumes of 3 year old cars available for purchase when they come off leases.  However, the APR has lowered from 4% to 1.9% during this same time frame.   

 

http://www.latimes.com/business/autos/la-fi-hy-used-cars-20170526-story.html

 

 

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Residual aggressiveness peaked Q3/q4.

 

I bought a car last October. Once I determined my model I went out to all of the dealers within about three hours of me and gave them the exact details.  Because residuals were so aggressive I wanted to lease with an intent of buying it at a renegotiated price at the end of the term. I basically view it as a free option on them getting to aggressive on residuals.

So I first had to figure out what the exact car they wanted to lease me was (my observation was that at a given trim line there was basically one set of options that all of the cars they wanted to lease you had, and trying to differentiate from that was suboptimal).

 

My initial email contact basically said " this is what I want, and I want your quote back in the form of car price + fees, not monthly payment" because some guys think you want to target a payment so they'll play with numbers on the front or back end to get there.  If I got an email back not on those terms I kicked them out. The reality is the residual value and money factor are fixed by the captive finance guys, so the only lever that matters is price+fees.  I went through four rounds of bids and ended up materially below invoice, for a car the dealers really really didn't know the bid for yet. Basically after each round I went back to everyone and said "here is the bid- do you want to work with this"  I could have gone lower ( I got an unsolicited counter where they didn't know where the market was) but the next step down was <2% of the value of the car and basically I chose a small family run dealership more conveniently located over a slight better deal from a larger corporate dealer.

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Residual aggressiveness peaked Q3/q4.

 

I bought a car last October. Once I determined my model I went out to all of the dealers within about three hours of me and gave them the exact details.  Because residuals were so aggressive I wanted to lease with an intent of buying it at a renegotiated price at the end of the term. I basically view it as a free option on them getting to aggressive on residuals.

So I first had to figure out what the exact car they wanted to lease me was (my observation was that at a given trim line there was basically one set of options that all of the cars they wanted to lease you had, and trying to differentiate from that was suboptimal).

 

My initial email contact basically said " this is what I want, and I want your quote back in the form of car price + fees, not monthly payment" because some guys think you want to target a payment so they'll play with numbers on the front or back end to get there.  If I got an email back not on those terms I kicked them out. The reality is the residual value and money factor are fixed by the captive finance guys, so the only lever that matters is price+fees.  I went through four rounds of bids and ended up materially below invoice, for a car the dealers really really didn't know the bid for yet. Basically after each round I went back to everyone and said "here is the bid- do you want to work with this"  I could have gone lower ( I got an unsolicited counter where they didn't know where the market was) but the next step down was <2% of the value of the car and basically I chose a small family run dealership more conveniently located over a slight better deal from a larger corporate dealer.

 

I've heard of people having a lot of success with this strategy for buying as well. Know what you want going in and solicit bids until you get a price you're happy with, since you have their price in writing if they want to play games you can easily walk away and go to the next most competitive dealership. Of course this is based on living in an area with lots of dealerships within a reasonable distance.

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Here is how I would do it if you know exactly what car you want:

 

Do not go to the dealer.  Email or call a bunch of them for the total out the door price (total price including all taxes and fees).  There can be hidden fees etc that you don't realize until later if you don't get this price (doc fees, etc.)  You will likely deal with the internet manager who can give you better prices.

 

Then you can try negotiating off the lowest of those prices.

 

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I've had pretty solid results with cars. Outside of my first one where I was 23 and wanted an Audi and just walked into the dealership and said if you can get this to my office by 4pm I'll take it. Stupidity. Since I've bought 3 cars. What I've found is that bringing a trade-in always helps. Adds another area where you can negotiate. Also typically from August thru EOY they get very promotional. I've seen some utterly ridiculous deals advertised, ie brand new Jeep Grand Cherokee lease for $175 a month. Of course its a bait and switch, but walking in there and pointing to a paper saying "this is what you advertised, and this is what I'll pay, not a penny more" gets things done, IF you make it clear to them you already have a car, do not need a new one, and are more than willing to walk out the door(and actually walk out the door).

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New cars:

 

Wait until next year and buy last years model. In january of this year, I bought a new 16' msrp 51000 for 36500, german not american fyi. This car was 600 miles away.

 

Dont look local, check uship.com, only once in the last 6 cars have I found the best price in my state even when adding on the cost of shipping the car from out of state. Many of my cars have come from 2000 miles away, there are some arbitrage opportunities. AWD sells for more in rocky's than florida for example. Buy in florida sell in rocky's. Conversely, rwd is a pain to sell in rocky's and in warm climates they don't care. Buy in rocky's sell in florida.  Estimate what you can sell your car for by looking at your local car prices for comparable models that are however many years old. If you want to sell in three years, look at the three year old models selling in your area with similar miles, to be conservative, use the lowest numbers.

 

Don't trade in, if using the strategies above while being patient for the right price you will almost never do better by trading in than you would selling privately, even considering the tax impact. As a rule of thumb, the trade in offers I get inclusive of tax savings are between 1-3k lower than I can sell in private market. When selling in private market plan on it taking 1-3 months. Out of 5 privately sold cars 100% sold when 3 or less people physically viewed the vehicle, two of them the first. Tip, it's easier to sell privately a car with remaining bumper to bumper, even if it's only months. They have nothing to fear. Tell them that/advertise it.

 

Used cars:

 

Buy 1 year old car with 4 year bumper to bumper and sell it with 6-12 months left on warranty. Look nationwide. Look at local prices to estimate cost of ownership. In the used market optioned out cars don't command the same price increases as they do new. Ig, 40k highly optioned sells used for 25k, same model lightly optioned that sold for 32k new sells for 24k used. Buy low optioned, low miles cars at the best nationwide price. Again estimate your sale price by looking at same model same mileage that's 2-3 years old locally being sold privately, again use the lower numbers, look to make sure they aren't salvage, obviously don't use those.

 

Using these strategies I've driven new or nearly new cars for the last decade priced at 30-40k at a total cost of ownership including taxes, everything but gas of 100-200/month.

 

For all cars, negotiating is playing their game, look nationwide for the lowest price, offer them less than asking say you'll make a deposit now, done.

 

When buying used cars that are around 1 year old get them with 10k or less miles.

 

Tip: On new or used, pick a category of car/options you want, don't pick a manufacturer, buy whichever is cheapest. Ig, want a sports coupe? Don't get the 335i look at Acura, bmw, audi, benz, lexus, etc, be dispassionate, it will save you a lot of money.

 

Once I bought a 6k mile/1 year old used benz suv (I wanted the bmw equivalent) drove it for 2.5 years and sold it for 500 less than I paid for it.

 

 

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New cars:

 

Wait until next year and buy last years model. In january of this year, I bought a new 16' msrp 51000 for 36500, german not american fyi. This car was 600 miles away.

 

Dont look local, check uship.com, only once in the last 6 cars have I found the best price in my state even when adding on the cost of shipping the car from out of state. Many of my cars have come from 2000 miles away, there are some arbitrage opportunities. AWD sells for more in rocky's than florida for example. Buy in florida sell in rocky's. Estimate what you can sell your car for by looking at your local car prices for comparable models that are however many years old. If you want to sell in three years, look at the three year old models selling in your area with similar miles, to be conservative, use the lowest numbers.

 

Don't trade in, if using the strategies above while being patient for the right price you will almost never do better by trading in than you would selling privately, even considering the tax impact. As a rule of thumb, the trade in offers I get inclusive of tax savings are between 1-3k lower than I can sell in private market. When selling in private market plan on it taking 1-3 months. Out of 5 privately sold cars 100% sold when 3 or less people physically viewed the vehicle, two of them the first. Tip, it's easier to sell privately a car with remaining bumper to bumper, even if it's only months. They have nothing to fear. Tell them that/advertise it.

 

Used cars:

 

Buy 1 year old car with 4 year bumper to bumper and sell it with 6-12 months left on warranty. Look nationwide. Look at local prices to estimate cost of ownership. In the used market optioned out cars don't command the same price increases as they do new. Ig, 40k highly optioned sells used for 25k, same model lightly optioned that sold for 32k new sells for 24k used. Buy low optioned, low miles cars at the best nationwide price. Again estimate your sale price by looking at same model same mileage that's 2-3 years old locally being sold privately, again use the lower numbers, look to make sure they aren't salvage, obviously don't use those.

 

Using these strategies I've driven new or nearly new cars for the last decade priced at 30-40k at a total cost of ownership including taxes, everything but gas of 100-200/month.

 

For all cars, negotiating is playing their game, look nationwide for the lowest price, offer them less than asking say you'll make a deposit now, done.

 

When buying used cars that are around 1 year old get them with 10k or less miles.

 

Tip: On new or used, pick a category of car/options you want, don't pick a manufacturer, buy whichever is cheapest. Ig, want a sports coupe? Don't get the 335i look at Acura, bmw, audi, benz, lexus, etc, be dispassionate, it will save you a lot of money.

 

Once I bought a 6k mile/1 year old used benz suv (I wanted the bmw equivalent) drove it for 2.5 years and sold it for 500 less than I paid for it.

 

This is awesome.  Do you have kids and wife?  I love the be dispassionate about the brand and make.  If I were a bachelor, I would totally utilize this strategy.  Frankly, I can give two sh*t about cars. It gets me from A to B and as long as it's got enough HP to make lane changes safely, steady enough on the highway, and same enough in an accident, I really can care less. 

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New cars:

 

Wait until next year and buy last years model. In january of this year, I bought a new 16' msrp 51000 for 36500, german not american fyi. This car was 600 miles away.

 

Dont look local, check uship.com, only once in the last 6 cars have I found the best price in my state even when adding on the cost of shipping the car from out of state. Many of my cars have come from 2000 miles away, there are some arbitrage opportunities. AWD sells for more in rocky's than florida for example. Buy in florida sell in rocky's. Estimate what you can sell your car for by looking at your local car prices for comparable models that are however many years old. If you want to sell in three years, look at the three year old models selling in your area with similar miles, to be conservative, use the lowest numbers.

 

Don't trade in, if using the strategies above while being patient for the right price you will almost never do better by trading in than you would selling privately, even considering the tax impact. As a rule of thumb, the trade in offers I get inclusive of tax savings are between 1-3k lower than I can sell in private market. When selling in private market plan on it taking 1-3 months. Out of 5 privately sold cars 100% sold when 3 or less people physically viewed the vehicle, two of them the first. Tip, it's easier to sell privately a car with remaining bumper to bumper, even if it's only months. They have nothing to fear. Tell them that/advertise it.

 

Used cars:

 

Buy 1 year old car with 4 year bumper to bumper and sell it with 6-12 months left on warranty. Look nationwide. Look at local prices to estimate cost of ownership. In the used market optioned out cars don't command the same price increases as they do new. Ig, 40k highly optioned sells used for 25k, same model lightly optioned that sold for 32k new sells for 24k used. Buy low optioned, low miles cars at the best nationwide price. Again estimate your sale price by looking at same model same mileage that's 2-3 years old locally being sold privately, again use the lower numbers, look to make sure they aren't salvage, obviously don't use those.

 

Using these strategies I've driven new or nearly new cars for the last decade priced at 30-40k at a total cost of ownership including taxes, everything but gas of 100-200/month.

 

For all cars, negotiating is playing their game, look nationwide for the lowest price, offer them less than asking say you'll make a deposit now, done.

 

When buying used cars that are around 1 year old get them with 10k or less miles.

 

Tip: On new or used, pick a category of car/options you want, don't pick a manufacturer, buy whichever is cheapest. Ig, want a sports coupe? Don't get the 335i look at Acura, bmw, audi, benz, lexus, etc, be dispassionate, it will save you a lot of money.

 

Once I bought a 6k mile/1 year old used benz suv (I wanted the bmw equivalent) drove it for 2.5 years and sold it for 500 less than I paid for it.

 

Interesting ideas.  What are the sales taxes where you live?  It would be very difficult to keep your cost of ownership (I assume you're excluding insurance from your $100-$200/month number) so low if you're turning over your car every two years in a state with high sales taxes.   

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Not including insurance, literally everything else but gas. They were all under bumper to bumpers throughout my ownership period.

 

Between 6-7% sales tax throughout period in question.

 

Married no kids. Personally, this wouldn't change anything for me. I have her do the same thing. Return on time is 100s/hour, why not do it unless you make 7 figures currrently.

 

Usually own 2.5 years. Usually 4 year bumper.

 

Doing same thing with dirt bike now, ROT is not as high  ;)

 

 

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Researched the make/model I wanted and made casual calls/emails to local dealers asking for "out the door price." Then I drive to the dealer who had the best offer, chit chat for 10mins, and called the opposing dealers while I sat in their office. It turned into mayhem and my phone was exploding with their sales managers calling and knocking their prices down. I wound up staying with the lowest price dealer because they threw in a 7yr bumper to bumper warranty and still knocked a few % off the price.

 

Here's an eye opening podcast that follows a dealership salesman for a month:

 

https://m.thisamericanlife.org/radio-archives/episode/513/129-cars

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Researched the make/model I wanted and made casual calls/emails to local dealers asking for "out the door price." Then I drive to the dealer who had the best offer, chit chat for 10mins, and called the opposing dealers while I sat in their office. It turned into mayhem and my phone was exploding with their sales managers calling and knocking their prices down. I wound up staying with the lowest price dealer because they threw in a 7yr bumper to bumper warranty and still knocked a few % off the price.

 

Here's an eye opening podcast that follows a dealership salesman for a month:

 

https://m.thisamericanlife.org/radio-archives/episode/513/129-cars

 

That is hilarious!  Nothing like an auction to drive a deal.

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New cars:

 

Wait until next year and buy last years model. In january of this year, I bought a new 16' msrp 51000 for 36500, german not american fyi. This car was 600 miles away.

 

Dont look local, check uship.com, only once in the last 6 cars have I found the best price in my state even when adding on the cost of shipping the car from out of state. Many of my cars have come from 2000 miles away, there are some arbitrage opportunities. AWD sells for more in rocky's than florida for example. Buy in florida sell in rocky's. Conversely, rwd is a pain to sell in rocky's and in warm climates they don't care. Buy in rocky's sell in florida.  Estimate what you can sell your car for by looking at your local car prices for comparable models that are however many years old. If you want to sell in three years, look at the three year old models selling in your area with similar miles, to be conservative, use the lowest numbers.

 

Don't trade in, if using the strategies above while being patient for the right price you will almost never do better by trading in than you would selling privately, even considering the tax impact. As a rule of thumb, the trade in offers I get inclusive of tax savings are between 1-3k lower than I can sell in private market. When selling in private market plan on it taking 1-3 months. Out of 5 privately sold cars 100% sold when 3 or less people physically viewed the vehicle, two of them the first. Tip, it's easier to sell privately a car with remaining bumper to bumper, even if it's only months. They have nothing to fear. Tell them that/advertise it.

 

Used cars:

 

Buy 1 year old car with 4 year bumper to bumper and sell it with 6-12 months left on warranty. Look nationwide. Look at local prices to estimate cost of ownership. In the used market optioned out cars don't command the same price increases as they do new. Ig, 40k highly optioned sells used for 25k, same model lightly optioned that sold for 32k new sells for 24k used. Buy low optioned, low miles cars at the best nationwide price. Again estimate your sale price by looking at same model same mileage that's 2-3 years old locally being sold privately, again use the lower numbers, look to make sure they aren't salvage, obviously don't use those.

 

Using these strategies I've driven new or nearly new cars for the last decade priced at 30-40k at a total cost of ownership including taxes, everything but gas of 100-200/month.

 

For all cars, negotiating is playing their game, look nationwide for the lowest price, offer them less than asking say you'll make a deposit now, done.

 

When buying used cars that are around 1 year old get them with 10k or less miles.

 

Tip: On new or used, pick a category of car/options you want, don't pick a manufacturer, buy whichever is cheapest. Ig, want a sports coupe? Don't get the 335i look at Acura, bmw, audi, benz, lexus, etc, be dispassionate, it will save you a lot of money.

 

Once I bought a 6k mile/1 year old used benz suv (I wanted the bmw equivalent) drove it for 2.5 years and sold it for 500 less than I paid for it.

 

Great post. What website or service that you use to search for used cars?

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Interesting discussion.  I've bought three vehicles in the last 12 months.  Never would I have imagined doing that but circumstances required it. 

 

All three vehicles were used.  Two were purchased from traditional dealers one from a used car lot.  Buying cars from dealers vs. private party is another thing I wouldn't have expected doing. 

 

Anyway, I feel like my wife and I did pretty good on the prices.  I attribute most of our success to spending the time doing some research to get a good sense of where prices were and being patient for a deal. 

 

My experience has been that the dealers are really reluctant to move much on price.  After we bought the last vehicle most recently I asked the sales guy about it.  This was at a Toyota dealership.  His view was that pricing is much more efficient today (he said he's been selling cars for 25+ years) because of the internet so dealers generally don't have much if any wiggle room.  He also said that the salespeople (at this dealership at least) no longer are paid a commission, they're salaried.  That was a surprising comment but I assume that it depends on the individual dealership and there are other bonuses for production, etc.

 

Based on some of the other experiences shared here, clearly there are times when the dealers are more willing to negotiate than others. 

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Interesting discussion.  I've bought three vehicles in the last 12 months.  Never would I have imagined doing that but circumstances required it. 

 

All three vehicles were used.  Two were purchased from traditional dealers one from a used car lot.  Buying cars from dealers vs. private party is another thing I wouldn't have expected doing. 

 

Anyway, I feel like my wife and I did pretty good on the prices.  I attribute most of our success to spending the time doing some research to get a good sense of where prices were and being patient for a deal. 

 

My experience has been that the dealers are really reluctant to move much on price.  After we bought the last vehicle most recently I asked the sales guy about it.  This was at a Toyota dealership.  His view was that pricing is much more efficient today (he said he's been selling cars for 25+ years) because of the internet so dealers generally don't have much if any wiggle room.  He also said that the salespeople (at this dealership at least) no longer are paid a commission, they're salaried.  That was a surprising comment but I assume that it depends on the individual dealership and there are other bonuses for production, etc.

 

Based on some of the other experiences shared here, clearly there are times when the dealers are more willing to negotiate than others.

 

I am really bad at this - especially after reading the stuff abovethread - so take it with a grain of salt.

 

I've only bought used cars. Last one I bought 2011 Camry in around 2014... got pretty much zero drop in price from dealer Internet ad. Part of the reason it was I believe the "draw" car - i.e. a car that dealers post on Internet to attract customers to their dealership and then sell them other crap when buyer can't drop the price on the "draw" car - V6/options/etc. Trouble was I wanted V6 and by the time Camry/Accord/Altima/Maxima (that's the only models that I wanted to look at) were 80-90% majority V4. So either you're really patient to try to find V6 that dealer wants to get rid of or you pay. I paid.

 

At least I avoided the super scummy dealers where the "draw" car does not exist at all. I.e. you find the ad, you call, you go there and it was suddenly "sold".

 

Anyway, people on this thread are pros. Tip of the hat. I'll never be able to do this crap. ;)

 

At least when I buy, I keep them forever. Still driving 2003 Accord with... 70K miles on it. Getting bald a bit though. :( Might get Model 3 - I'm in the queue, but not sure gonna take delivery - depends on how bad are options (Autopilot, Sunroof, etc.) priced.

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  • 2 weeks later...

Here is how I would do it if you know exactly what car you want:

 

Do not go to the dealer.  Email or call a bunch of them for the total out the door price (total price including all taxes and fees).  There can be hidden fees etc that you don't realize until later if you don't get this price (doc fees, etc.)  You will likely deal with the internet manager who can give you better prices.

 

Then you can try negotiating off the lowest of those prices.

 

 

I tend to keep my cars for a decade or more. My wife's car is 19. Mine just turned 10.

 

Ten years ago, the last time I bought a car, I went to KBB, found out a reasonable price. Contacted several nearby dealers via email and told each one what I wanted and what I was willing to pay. I told them all exactly what I was doing and indicated that the first one to match the price and provide me with a VIN would get my business. I walked in the next day and was out an hour later with my new car.

 

While this worked, I'm considering using Costco's auto buying service next time. They have arrangements with dealers for Certified Pre-Owned cars. I might look to buy a one or two year old car next time instead... provided that the price is reasonable.

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