Car negotiation
Car negotiation
This post courtesy of my friend and business partner Matt Smith:

I remember it like it was yesterday – my father standing toe to toe with the used car dealer on a hot summer afternoon in Fresno, California. With the sticky black asphalt melting beneath our feet, the numbers went flying back and forth for what seemed like hours. High, low, high, low – like a two children on a seesaw trying to knock each other off balance. And then when it seemed like no deal could be done – when the dealer had made it clear that the price on the table would put him out of business and cause his family to starve – hands were magically extended and a deal was struck. On that day we became the proud owners of a dingy blue Datsun pickup truck and my father earned bragging rights for having obtained what he proclaimed to be “the deal of the century.” And at the time I had no doubt in my mind that it was. Now, looking back, the only thing I wonder is why the car dealer didn’t win an Oscar for his performance.

Fortunately for all of us, the days of being forced to compete with the theatrics of car dealers (or any other salesmen, for that matter) are behind us. In the era of the internet the consumer has an advantage never before seen – the ability to locate sellers around the world and access pricing information – the power to call a bluff before egos and tempers are ignited. Yet with this powerful arsenal at hand, many of us still are not taking advantage of the deals that are out there. So here are three simple tips for the next time you go to buy a car or head out to make some other large purchase.

1. Be Prepared: Do Your Homework

The motto of a Boyscout is just as appropriate for a negotiator. Make sure to always do your homework and enter a negotiation prepared. There is no question about it, your greatest asset in a negotiation is objective information. I purposely use the word “objective” here because your goal in a negotiation is to persuade the dealer to agree with your position. Sharing your personal opinions about what a car should cost probably won’t get you very far. Put yourself in the shoes of the dealer – what information do you think would help them find your offer to be fair and reasonable?

When I bought my car a few years back, my research was extensive. In addition to looking Kelly’s Bluebook for pricing, I also scoured various consumer websites to see what kind of deals sellers were offering. I looked up what the invoice on the car was, and the general markup that was standard for the industry. I looked to find if the manufacturers were offering any rebates or incentives for dealers to quickly move cars. I looked to see when the next model was coming out. As I located important data, I organized it in a binder so that I would be able to reference, not just numbers, but the sources of my information. By time I finally started contacting dealers, I had a strong sense of what a good deal on the car really was and I was prepared to explain why that price was fair.

2. Be Selective: Create an Auction

It is rare that a company will distribute a product through a single dealer. And when there are multiple sellers, there is a beautiful thing that emerges called competition, with each player trying to maximize their share of the market. Take advantage of this and create an auction that invites multiple dealers to bid for your business.

When I bought my car I contacted every dealer in Southern California by email. I simply informed them that in two weeks I would be purchasing a brand new car and that I was considering their dealership. I then shared the basic pricing information that I had discovered while doing my homework, which included retail and invoice pricing, as well as rebates being offered by the manufacturer. I gave the specific model I would be buying, made it clear that this was the only car that I wanted, and invited each dealer to make an offer. I received responses from nearly of the dealers. I then took the lowest offer and sent out a second email giving all of the dealers an opportunity to beat this offer. This time only a handful of dealers responded, but with each offering even lower prices. From there I selected my top four dealers and started making phone calls. By time I made my first phone call, I already had the price of my car below invoice. Competition truly is a beautiful thing.

3. Be Creative: Make the Deal Even Sweeter

Once you have narrowed your selection to four or five dealers and you are ready to talk to dealers in person, start to think outside the box about ways to add value to the deal. There are countless options that are very low cost for the dealer that may have high value for you. For example, a dealer may be willing to provide free maintenance services for the first year or help you qualify for a better financing package. Or maybe the dealer is willing to deliver the new car to your doorstep. These creative options can often help you decide on the seller that is right for you and come up with a deal that will earn you more than just bragging rights.