3 Steps to Pricing a Car
Know How Much to Pay

Find out what the dealer actually paid for on a new car before walking into the car showroom. Just 10 years ago, it was much more difficult to find accurate dealer cost information. The internet has put the consumer more at equal leverage when negotiating with dealers. However, despite this added advantage, the majority of buyers still do not do their home work before one of life's most important purchases. Check pricing at Edmunds.com.

Step 1:
Get the invoice price on the cars you chose before shopping and add $200 to $300 dollars or 2% of sticker price (whichever is higher) to that invoice cost. That is the general position you want to arrive at for purchase price. Once you decide what cars you are interested in, call the dealerships you intend to visit and find out if the cars you have in mind have promotional rebates for the cars. Subtract the rebate or fraction of it from the cost of the car. This would be the new target price you are shooting for. You may not be able to subtract the rebate or a fraction of it if the rebate is not substantial. Rebates above $750 usually indicates that the dealer needs to sell the car.

Step 2:
Timing can also play a role in getting a better deal too. If the car is going through a major redesign, the dealer may very well have the existing year's models still in stock. Knowing about the redesign, you can take about 2-3% of the MSRP (retail price) and subtract that off the price too. The reason for that is that dealerships get what is referred to as the holdback. The holdback is an amount of money paid from the manufacturer to the dealership once the dealer sells the cars. Dealerships are more eager at times to sell off models that are changing designs. You won't always be able to use this plan of attack depending on the dealership and the car you want. Use your best judgement.

Step 3:
The dealer may simply have an overstock of the car you want and again you may be able to negotiate an even better deal in regards to the dealer holdback and in this circumstance you'll subtract the 2-3% from the cost in step 1 (or step 2 whichever is applicable) above. You probably won't know about overstocks until you go to the car lot unless the dealer discloses this during the phone call.

However, don't count on the dealer to sell below the invoice price unless there are significant rebates involved or if they have lots of overstock. The majority of the time, it's not possible to get the dealer to sell below invoice. Step 1 may be the lowest you can go depending on when you buy the car.

Sometimes there are dealer incentives that encourage dealers to sell slow moving cars. The dealer incentives are paid by the manufacturer to the dealer to help motivate dealers to sell the cars. It's harder to find out about such incentives. If you ask the dealer about these incentives and they exist for the car you want, that can be used to negotiate the price a little bit lower. Perhaps you can subtract half of the incentive from the resulting cost figured in earlier steps above.

Don't expect as much savings from hot selling cars, trucks, and SUVs. Dealers know people want them and you won't be able to get them to part with them as easily for the lower price. Some vehicles will sell at sticker price (or MSRP) and dealers will get that price. Again, use your best judgement.

Dealing with dealers is a dance of the tango of sorts. Put on your poker face and do your best to stick to your guns. Ensure that you get the car you want. Dealers may try to up-sell you to a higher priced model. This will throw your existing plan out the door if you accept their suggestion. If you decide to go for the up-sell, tell the dealer you need a day or 2 to think it through. After all, this is a major purchase and nobody should rush you through it. This will give you time to do more research on the pricier model and come back to negotiate. It also strengthens your position with the dealer a bit.