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How to buy a car using ADR skills — and saving thousands

eleanor-chung-generation-jdGraduating from law school means that many of us are leaving Baltimore for jobs all across Maryland. This means that it is time to buy a car. It’s actually a good time to buy, because the summer marks the end of the 2018 model year and dealers need to make room for 2019 cars. You can get a brand-new car for cheaper.

Buying a car is stressful not only because it’s one of the more expensive purchases we make, but also because we do it so infrequently that it’s hard to practice the skill of car-buying. However, a little experience in Alternative Dispute Resolution goes a long way. I treated car buying as a week-long mediation and was able to save thousands through negotiation. Here’s how to maximize bargaining power:

1. Figure out what make and model you want through at-home research. No matter what, do not decide at a dealership.  Do your own research. I checked safety and repair ratings on ConsumerReports.org and decided from there. My family raised me with the tremendous gift of car-humiliation: our family car was a 1977 taupe-colored Toyota Tercel with rust holes in the floor where I could actually see road go by. If your childhood didn’t make you grateful for virtually any car, just remember that all modern cars are great. There’s no reason to go-for-broke right out of law school. (Or at any stage of life, for that matter.)

2. Get your own financing. Most dealerships make their money through financing arrangements. They also exploit the time you’re waiting for a financing offer to convince you to buy unnecessary warranty packages or other add-ons. Moreover, the financing packages can be awful. Even offers of 0 percent APR typically carry a hefty fee for each $1,000 you repay.

3. Call a dozen dealerships to find out what the car you want actually costs by asking for the out-the-door price, sans discounts. Dealerships list the lowest possible price online, which includes discounts for which virtually no one is eligible (military discounts, recent college grad discounts, etc.). Find the make and model you want, call the dealer, and give the VIN number you see online.  Stating the VIN number (instead of the make and model) eliminates an opportunity for the salesperson to pitch an “upgraded” version of the car you want.

Ask the salesperson what the out-the-door price is, tax and fees included. Fees are never included in the online price — the big ones are freight (about $900), dealership service fee (about $300), tag and title (about $300), and 6 percent sales tax. Many dealers will tell you that they’ll waive the freight fee or whatever, which doesn’t matter because they’ll add it back in another way. Instead, compare apples to apples by asking for the out-the-door price of the car, tax included.

4. Negotiating, Round 1: The paper offer represents entering the “zone of reality.” Once you find out what the car costs at a half-dozen dealers, it’s time to start negotiating. My professor described two mediating parties finally within a certain price range as within the “zone of reality.” For example, the plaintiff in an auto tort demands $1 million, and the defendant offers $1. After a couple of rounds back-and-forth, the plaintiff reduces her demand to $200,000, and the insurance company raises its offer to $100,000. We all know that the settlement will land right in the middle –at $150,000.

The same is true of car sales. Call all the dealers and negotiate down the price: “ABC Dealership is offering the car for $18,000. Can you beat that?” Once you shave off a thousand dollars or so, you need to get the offer in writing. The written offer represents the very top end of what you’d be willing to pay, from where you plan to negotiate down a couple thousand dollars.

Don’t be flummoxed by the fact that dealerships are reluctant to provide an offer in writing; they know you’re about to exploit a bidding war. You need a written offer because most dealers won’t negotiate if you don’t have one. In order to get the paper offer, I’d close a conversation with a benign “I need to discuss that with my spouse/parent/partner; would you mind emailing it?”

5. Negotiating, Round 2: “I have a paper offer for $17,000 and an oral offer for $16,000 out-the-door. Can you beat that?” Even though the salesperson will repeat that he or she can only beat a paper offer, you still have all the leverage. “OK, then I’ll be purchasing from XYZ, because their oral offer is $16,000.” Then the salesperson talks to the general manager and miraculously comes up with a few hundred more dollars. Use the lowest oral offer you get to further negotiate with other dealers: “I have a paper offer for $17,000 and an oral offer for $15,600 out-the-door. Can you beat that?”

6. Dealership tactics. While you are negotiating, the dealer is playing games to make you purchase immediately and for a higher price.  Tactics I heard included:

Exploding offers: “If you purchase tonight, I can give you the car for $15,600.”

False deadlines: “I’m leaving for a two-week vacation this Saturday, so to get this deal, you need to buy now.”

Insane lies: “It’s OK that you don’t have your financing, yet. Just come in, finance with us and sign a backup contract, and then you can come in later and replace it with your own financing.”  (Why didn’t law school cover non-binding “backup contracts”?)

Appealing to fairness: “We’ve reduced the price by $X. It’s only fair for you to reduce your demand.”  Read some car dealership Yelp reviews if this argument makes your heart bleed.

Obviously, try not to be moved by all this. I declined a couple exploding offers and was able to further negotiate.

7. Negotiating, Round 3: The zone of reality tightens and you know how much you’re going to pay. At a certain point, dealerships can’t beat the lowest oral offer you have on hand. It’s time to make an appointment to go to a dealer.

8. Negotiating, Round 4: The trip to the dealership with a blank credit union check is the peak of your bargaining power. Once you’ve been in contact with dealerships for a few days, they call you. Take their calls while you’re on your way to purchase the car and make a few yourself.  “I am on my way to XYZ Dealership to buy the car for $15,600. Can you beat that?”

A customer with a blank check driving to buy a car is like blood in the water for dealers. You can get a couple hundred dollars knocked off this way. When I got a lower offer, I indeed turned the car around. But I kept my appointment at ABC Dealership, just in case XYZ Dealership tried any funny business.

Spend no more than an hour at the dealership. The longer you’re there, the greater the chance is that you will lose money by getting talked into something. Be absolutely clear that you must leave by a certain time.  Also, be friendly but clear that if the bill of sale deviates from your phone discussion, you’re leaving.

And that, my friend, is a blog post worth at least $5,000. I hope you spend it enjoyably! Or, like me, use it to knock out student loans.

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