Guest Author - Robin Segal

Buying a car can be a fair commercial experience if you remember one thing: The dealership makes a profit on each part of the car you buy. So, try to think of your car purchase as one large, and then a series of small negotiations.

Customers normally have only one number in their heads: “dealer invoice.” That is the price the dealer paid for the car, without any of the “stuff” that gets added on. It is good to know that so that you can ask the salesman to sell you the car at dealer invoice. Taxes, license plates, and freight are non-negotiable items. Just about everything else is negotiable.

If you are buying floor mats, pin striping, mud guards, a CD player, extended warranty, and credit insurance, be aware that there are profits, sometimes staggering profits, built in to each component of the final car plus accessories that you take home.

All financing packages accrue huge profits to the dealership. So too with options and aftermarket. And why can’t service contracts and parts be negotiable? If you find out what “cost” is on each accessory, you can “anchor” the negotiation from there, (a good rule of thumb is that all add-ons are somewhere between 25% and 45% profit). Then the salesman has to pull the price up from cost, instead of you having to push the price down from retail. Try to be realistic and settle on a final price of cost plus a “fair” profit. Be careful though, because if you choose to buy and install a less expensive accessory from another supplier, you might void your service warranty.

To negotiate a fair deal on a car, you need to know the fixed cost to the dealership. Dealerships, like any businesses, cannot stay in business if they sell their merchandise below cost. Most car buying guides instruct you to focus on a figure called “dealer invoice,” which is slightly more than the dealership pays the manufacturer for the car.

There is another figure called “dealer holdback.” This is usually about two percent of dealer invoice, and it is the amount that manufacturers pay dealerships after the car is sold. Dealer holdback can range from zero to three or four percent, so do some research into this before you try to negotiate it off your deal.