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The secret to beating a car dealer

It can be tough, but knowing how the game is played means you're more likely to win.

By Aug 22, 2013 3:07PM

This post comes from Adam Levin at partner site

MSN Money partnerAs players get ready to snap the football in every college and NFL home town in America, baseball builds up to the crescendo of the World Series and duck hunting season is less than 30 days away in some parts of the country, another kind of contest begins in earnest. Wading their way through billions of dollars of ads and eagerly navigating through fields of auto-malls throughout America, consumers are on the hunt for the best deal on a 2013 model, oblivious to the fact that they, indeed, are the prey.

Image: Couple shopping for car © Medio Images, Getty ImagesYes friends, the end-of-summer auto clearances are beginning in earnest as dealerships across the nation fight to “move metal,” making way for the 2014 model year. Dealers are dropping prices and manufacturers are ramping up a new batch of 0% financing deals on many current models.

There’s a whole lot of money floating in that new car smell and tucked tidily in the seats. Never forget, in the world of automobiles, the dealer wins by netting as much of your money as possible. Every deal point needs to be carefully thought out and vigorously negotiated. You win by knowing the rules of the sport and making them fight for every dollar.

While it’s true that getting a good price is a big part of the hunt, the biggest, most important, super-secret strategy to turn the stealth hunter (them) into the prey: stand tough and fight to maximize your dollar throughout the process.

The loan

If you are borrowing the money, the biggest ticket item will be your car loan. An astounding 80% of car buyers finance their vehicle at the dealership. Every one of them is a sitting duck for an aggressive salesman. Dealers have relationships with several banks, including the financing arms of manufacturers, and they earn a fee for every borrower they refer to the bank. The more money you are willing to pay for access to the money, the more money they make.

Getting the best auto loan deal is a two-step process. First, you need to check your credit report and score. You can use’s free Credit Report Card to get your credit scores along with an overview of the information in your credit report. If you want to take a deeper dive, you can get a free copy of each of your credit reports, but that’s limited to once a year. If you want regular access to your credit reports, then you’ll likely have to subscribe to a credit monitoring service.

Once you have a solid handle on your credit history, the second step is to shop for a loan. Check with your credit union or bank, other lenders (both online and bricks and mortar) to find the loan with the lowest fees and interest rates. Cutting the dealer out of the process and being pre-approved for an auto loan could save you hundreds, possibly thousands, of dollars.

The invoice price

Once you have your finances ready to go, it’s time to negotiate the price of the car you want. Before you visit the dealership, do some research online to determine the invoice price -- i.e., what the dealership paid for the car of your dreams, wants or needs.

Secret: when the dealer buys a car from the manufacturer, there’s a “holdback” that usually equals 2%-4% of the total invoice price. Think of it as their vig. After the dealership sells the car, it receives that amount of money back from the manufacturer over the period of a year.

Offer less than the invoice price -- unless you’re buying a popular model, in which case the laws of supply and demand favor the dealership -- and then use the holdback to walk the price down to something you can live with.

If they give you a hard time about paying invoice, remember there is always another guy selling cars. Even if you drive off the lot without paying a single penny above the invoice price, the dealer has turned a profit. If the dealership won’t sell you a car for invoice, and it’s not a hot selling car, it’s their loss. You’ll find someone willing to do the deal with you. Keep shopping.

The warranty

New cars come with various warranties. The dealer may try to sell you an extended warranty, often with fine print that will prevent you from actually using it should anything go wrong, according to Consumer Reports, which suggests ignoring such offers entirely.

If you’re buying a late-model used car with low miles, the dealer will offer you a warranty to cover future repairs. Make sure the original warranty is used up first. If it is, bear in mind that warranties offered are usually not great deals, written to cover only things that rarely break, such as the power train.

If you decide you want a warranty, shop around. Before you walk onto the lot, get a quote for a third-party warranty that provides the best coverage for the least money. Compare this plan to the one offered by the car dealer, and be prepared to walk away from whatever they offer. The dealer’s warranty is likely limited and overpriced. Ask what the warranty costs them, and offer that amount.


As surely as the sun rises in the east and sets in the west, the dealer will offer less for your trade-in than it’s worth. Maybe they offer expensive add-ons such as tinted windows, a better stereo, heated seats, a sports package, or etching the vehicle ID number into the windshield. Whatever the case, do your research beforehand to find out what these goodies should cost. Let them know that you know, and insist on cost. Negotiate the price of each item separately.

Car dealers are in business to make money. That’s fair. You have the responsibility to assure they make as little of that money from you as possible. By getting your loan first and then negotiating everything else separately, you’ll have a much better chance of getting the best deal.

More from

Aug 22, 2013 5:16PM
Car dealers have earned their reputation, however, there are some of us out there that are trying in earnest to change public perception. HOW ABOUT AN ARTICLE ON THAT?????
Aug 22, 2013 4:59PM

Just do your research prior to purchasing. Always check online to find a reputable dealer. Then make sure you have a reasonable budget and an idea of a vehicle you can afford. Also, hopefully you've saved up a good amount for a down payment. Finally, don't fool yourself into thinking you can purchase a vehicle at a good price if you have horrendous credit or none at all. Do your 'homework' first so you're not sucked into a 'scam'.


I just purchased a new vehicle in March. I had plenty for down payment, have great credit, and went to a good dealer knowing what I wanted and what I was willing to pay. We worked out a reasonable deal we both agreed on. I left with exactly the car I wanted and the dealer made a fair sale.

Aug 22, 2013 5:29PM
I want to pay invoice for everything. Why is the auto dealer stuck bearing this load and not best buy, sears, costco. etc?

Why can't dealers make a little profit. It's not a bad word. 

Articles like this for auto dealers is like a prejudice. MSN only fuels the problem, by creating angst against businesses that serve the public, with an item most people cherish and show off.

Ok, so dealers make a profit....AND? they shouldn't? 

MSN, go expose your prejudice ways elsewhere. Hopefully your readers are smarter than your negative bias.
Aug 22, 2013 5:23PM

whoever wrote this knows not of what they speak

Aug 22, 2013 4:51PM

Car dealers are always the bad guys.  So what if a bank is going to pay the dealer for sending them a loan.  Indirect lending has better rates than direct.  The car dealership does more buisness with a bank than a normal consumer.  Car dealers have millions of dollars of loan with banks, do most consumers?  Repeat customers always want a better deal.  Well aren't the dealres repeat customers with the banks? yes they are.  Profit is not a bad word.  Everyone else gets paid to do there job, why should employees of a car dealership.  I agree that a customer shouldn't be taken advantage of, but isn't the customer the best one to decide if they got a fair deal.  If everyone wants the same deal then pay sticker.  I promise you you will spend less time haggling at the dealership and more time enjoying you car.   

Aug 22, 2013 5:21PM
I'm so sick of this hate the auto industry BS...if you look at any other retail...from medicine to furniture to clothes, you will find that we in the auto industry are the ONLY ones that will show you invoice pricing just to compete with the hundreds of other dealers in our areas. If the dealer didn't make any money how would we keep the lights on? Don't you think that a contractor makes money on you when he remodels something? of course he you may have gotten bids...which lets be honest are just papers with contractors willing to negotiate their profit. It is the same thing. It is all relevant to each other. Everyone makes a profit how else would they be able to keep employees. I've been in the car business 8 years and I'll tell you this its not the front that makes the money, its the service department. so for those of you who want to believe that purchasing a FACTORY service contract is a "bad" idea and just gamble. you'll be sorry that you did when your labor rates are 115$ph. Listen to real professionals not some AH who go ripped off by a bad dealer and now thinks he can save the world by bashing dealers. YOUR A JOKE DUDE!! and for the record I'd sell ya ;)
Aug 22, 2013 7:35PM
I AM A CAR DEALER and after ready yet another article that paints me as scum of the earth I'm very pleased with many of the comments below showing support. Yes we are here to make money but am I trying to deliberately screw my customers??? No; we could not survive without repeat business and we would have none if we took advantage of people. Most of us are more than willing to deal because we would rather make something than nothing. Most will try to up sell you on some products to gain a little more profit on the deal but that's mostly because it's becoming such a competitive business with the internet today that our margins get smaller every single year and overhead isn't getting cheaper. I have a $20,000 car in front of me that only makes about $500 profit if sold for sticker. Go spend 20 grand at a jewelry store or furniture store, or almost anywhere for that matter and think about how much of that is profit for them. Most dealers sell good warranties and products, just beware because yes there is of course some shady places out there. In the end just remember when that guy walks up to you on the lot and you immediately think he's just a snake in the grass car salesman; remember he's at work and trying to make a few bucks to pay his mortgage, feed his family, and send his kids to college. No different than you.....Sorry to run on, just needed to vent a little on the subject.
Aug 22, 2013 6:02PM
I work for Honda. I guess I am not allowed to earn a living so I can feed , cloth, house my family and try to save for a retirement.  I have never cheated anyone , anytime . You are an ****
Aug 22, 2013 6:10PM

Another expert!  I run an Automomotive Internet Sales Department that has sold over 30,000 vehicles in the last 17 years. I give my customers a good price and I do make a profit. When they start playing games, I can do that too....and I'm better at it. Wanna buy a car? Ask for the invoice and make an offer.(Don't bother with limited production vehicles). Buy extended warranties when you need them, not up front.

Find out from you bank or your credit union/insurance company what rates they offer on auto loans, and if the dealer beats it, close the deal.  You'll be in and out in less than an hour. 


There are no other "secrets"


If you hate dealers, buy your car on the street.  We can do without you.

Aug 22, 2013 6:17PM
Okay 1st point I would like to make. We can usually get a better rate then the local branch banks can. Depending on Credit History. 2nd of all it is cheaper to buy an extended warrenty before the factory warrenty runs out. 3rd there is not all that much mark up on New or Used cars anymore because of the internet you can see what other dealers have there vehicles listed for. 4th if the autodealers don't make a profit they cannot keep there doors open. If they don't keep there doors open to sell the product the manufactor suffer. The manufactor suffers they go out of business and thousands if not millions of people are out of work. Don't judge the industry until you have all the facts. Seriously MSN should do there research before they make such stupid claims. This is not the 1980's anymore. Time for MSN to progress with the times. Like the AutoDealers have too. The market is always changing and the successful dealer changes with the times.
Aug 22, 2013 4:36PM
Oh Joy another idiotic MSN auto article, yes by all means offer the dealer cost on the warranty, because they don't have a right to a profit.
Aug 22, 2013 5:23PM
Here's my car-buyer guide ..... Drive that old piece of crap until it won't drive no more. When you are forced to replace that old rust bucket, replace it with something that fits your needs, without killing you financially. Avoid the bells and whistles, as those are the things that will cost you a fortune to fix. Don't buy new unless you can afford it. If you have dealt satisfactorily with a dealer in the past, give him first chance. ALWAYS check to see what some of the regular maintenance costs are going to be, like tire replacement, as a set of tires for some of these newer rides can cost you well over a grand. My personal recommendations, from being in the car industry for years, would be used Hondas and Toyotas, as the resale value is outstanding, reflecting the long-lasting quality of the car, and you can always trade it in in a few years without loosing your shirt, if your needs change. The quality of American brands has come a long way, but it still hasn't been reflected in resale value.
Aug 22, 2013 5:43PM
These are always the same people who complain about hating the process.  The customers are the ones who make the process hard.  The prices are clearly marked.  But everyone hates the fact that a dealer makes a profit.  No one haggles at Best Buy, Kroger, McDondalds.  You get my example.  Typical MSN crap to make us all look evil.  Customers have never lied about coming back to buy oh no.  They have never lied about their credit.  Of course not.  They are have never done anything wrong and they are always the victim please.  Dealerships are some of the most highly regulated business.  People need to get over it.
Aug 22, 2013 4:41PM
Yes all delaerships have relationships with banks, typically our "buy rate is anywhere from a point to a point and a half less than what a bank offres if you just walkin. It also is a profit center so we can take those ridiculous offers that MSN tells you to make.
Aug 22, 2013 5:46PM
Here again, bashing the car guys.  How about an article on how to buy jewelry?  That's where the the real mark up is.  And heaven forbid a company makes money.  Sounds like the Obama way of thinking!!
Aug 22, 2013 6:17PM
Having been in the car business for over 17 years, I find it ironic that the "dealer" should not be entitled to a profit.  Mortgage payments on the building, lights on the lot that cost a fortune, paying the sales people the list goes on and on.  Most consumers think the dealership makes WAY more money than they actually do.  Yes educate yourself before you purchase a home, a vehicle or any other big ticket item.  The money at a dealership is made on the "buy" not the sell.
Aug 23, 2013 12:54PM

As an automotive finance manager I do the best I can to offer customers the most options.  The creation of some mythical demon, within dealerships, is ridiculous.  For example, unless a customer specifically asks me for less coverage, the extended service plans I offer customers cover the identical components as the factory 36 month/36,000 miles warranty that comes with the vehicle.  Basically this article is saying that anyone who buys an extended warranty is throwing away money.  So the article should also suggest never buying life insurance, unless you plan on dying, and never covering your vehicle for collision unless you plan on getting into a lot of accidents.


Insurance is simply that, insurance.  It is in case something happens.  As far as interest rates are concerned, I process roughly $30,000,000 in loans on an annual basis.  I can offer customers rates that are lower than any credit union.


As far as profitability, dealerships are a business.  When you buy your Ipad for $829 and it cost apple $300 to make it, no one complains, but if a car dealer sell a $50,000 vehicle and makes $1,000 including our hold back everyone is in arms.  The same vehicle that the manufacturer made $9,000 on selling it to the dealership.


The reality is, that everyone needs to make a living.  Are there dealerships that do not do things the right way?  Absolutely, but it is just bad journalism to make invalid points in a stereotypical manner.  After all, the only way you make money is by writing articles.   Who will read an article that suggests everyone pays the Manufacturers Suggested Retail Price?

Aug 22, 2013 5:59PM
Why doesn't Msn regurgitate these lame arcticles every couple of weeks about other industries?Yeah, great advice send them to the bank. Does Msn ever watch Msn?? Aren't stories eveyday about misdeeds, fraud, and crazy profits in the banking industry? Go to a dealer set on playing bs games with them is the surest way to a dissatisfied customer.
Aug 23, 2013 12:57AM

One more thing. Don't ever use to find your credit worthiness.  Try .  Know your true FICO score.

Aug 22, 2013 4:39PM
In NY State it is the law that a customer must be offered an extended service contract, if something goes wrong after the warranty that comes with the car has expired and we can't prove we offered the contract we can be sued for the's happened. But of course nothing ever goes wrong with a mechanical item so by all means listen to MSN and don't protect yourself.
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