How Much Should You Pay For That New Car?

Published in CarSmart Eletter, Written by Viraf Baliwalla, 2014-11-06

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Test driving different cars is fun. A new car is a source of great pride for most people.

"So then why is buying a new car one of the most dreaded experiences people have?" asks Viraf Baliwalla, President of Automall Network, a vehicle buying service for consumers and insurance companies when they write off a vehicle.

In this article, we examine the psychology of new car buyers and share with you the best way we have found of getting the best deal.

First, lets start with the buyer's mindset and buying process. We have all been conditioned to buy cars a certain way. This is the way our grandparents bought cars, and they taught our parents, both of which taught us. This is also the way we see it being done on TV. So it's no wonder that we have become conditioned to buy using the traditional approach of comparison shopping and negotiating. This conditioning has come from, and is reinforced by, the auto industry. It is in their best interests that we continue to use this approach.

Second, everyone wants to get a great deal, or at least think they're getting a great deal. The auto industry is one of the only retail industries where one can negotiate the price. You certainly cannot walk into a Walmart and try to negotiate. But because dealers want to make the deal before you leave the dealership, at which point they've potentially lost you, they will negotiate. Negotiated pricing will vary based on a variety of factors - how good a negotiator you are, how close the dealer is to meeting their quota, what kind of incentives are available by the manufacturer, what the availability looks like for that vehicle, etc. Because of this variability, especially in negotiation skill, it is quite possible that two neighbours can go into the same dealership at different times of the same day and deal with the same salesperson and drive away with two very different deals.

Third, the more time you spend comparison shopping and negotiating, the more worn down you become and the less energy you have to continue pushing. When you reach a certain point of stress and fatigue, a "good enough" price becomes satisfactory. Once you reach this point, you also become more vulnerable to buying extras that you don't really need.

Unless you are buying similar items on a consistent basis, you cannot get a good feel of whether pricing is competitive or not. Hence, comparison shopping is truly the only way to know whether you are paying the right price. However, if you know what the right price target amount is, then you should be able to avoid the need to comparison shop, and negotiate to that target price with the dealer of your choice, thus saving you a lot of time, energy and stress.

So how do you know what that target price should be? You can do your own homework, purchase the homework already done for you or hire someone to take care of the whole process. There are a number of services out there that provide data and/or services to make the process easier. However, be careful of which one you use. Most are lead generators and are paid by dealers, thus providing skewed data. Make sure any provider you use is truly independent and receives compensation only from you.

Everyone understands that a dealer is a business and needs to make a profit to survive. We just don't want the dealer's entire year's profit to be made on our deal. As part of the conditioning mentioned above, we have been taught to focus on how much the dealer will make and what their cost is. This information is irrelevant. Dealers will try to make whatever the market will bear, however depending on the vehicle, they will only go so low. The trick is to find out what that low point is. Hence you should focus on how big of a discount is possibly available in the market based on an all-in price to get that vehicle in your driveway. Too many people focus on the 'Dealer Invoice Price', which is not truly the dealer's cost, and spin their wheels with stressful negotiations resulting in overpayment. In some states, they have actually banned the terminology "Dealer Invoice Price".

"People just don't know what to look for" says Baliwalla who sees insurance claims every day where individuals have negotiated a bad deal. To help car buyers solve this problem, Automall Network provides 3 tiers of service:

Regardless of which option one chooses, doing your homework or getting some help can make that car buying experience a happy one.

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