Money Rehab with Nicole Lapin - Say This When Negotiating with a Car Salesperson

Episode Date: April 29, 2022

Not sure what to say when you come face-to-face with the car salesperson? Fear not! Today, Nicole shares her foolproof negotiation script.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Yesterday, I promised you my tips around negotiating with a salesperson.

So let's get into it. And if you haven't listened to yesterday's episode, Insider Tips for Buying a Car in This Economy, you should. In the episode, I talk with auto broker Alec Johnston, and he gives some really great expert insight on how to buy a car in this economy, you should. In the episode, I talk with auto broker Alec Johnston, and he gives some really great expert insight on how to buy a car in what may be the worst time to buy a car in recent years. Plus, he also has some really good points about car leasing that rounds out my historically anti-car leasing stance. But today, it's all about negotiation. The first step of negotiating actually happens even before you meet with the car salesperson. Before you even get to the

dealership, you should decide on your price. But what should that be? The conventional rule of thumb has always been that you should limit your all-in car expenses, so payments, insurance, maintenance, gas, parking, to 20% of your monthly income. Sounds fine if you don't really think about it for yourself, right? Well, kind of. But again, this is why you need to think about it for yourself. I've also talked about the convention that you should limit your housing expenses to 30 or 35% of your monthly income. Now, let's do that math. If you spend 20% on a car, 30-ish percent on housing, that's more than half of your monthly income and you haven't even paid for groceries yet. So when it comes to cars, I say, take that traditional rule of thumb and put it at the high end of that range. You thought I'd say shove it?

Nope, just the high end. Keep transportation costs from 10 to no more than 20% of your income. And when I say no more, I'm not Josh in here. Next, do your research. Look up car values on CarMax and Kelley Blue Book. When you find a car you like, check out its history on CarFax.com, which will tell you if the car's been in a major accident. Be armed with this information and you will not be suckered. I'm totally serious here. I don't want you to walk into a dealership if you haven't done your homework yet. And I don't mean knowing which car is best looking and cutest and all of that, but knowing which one has the best features, gas mileage, dependability, price, all that good, sometimes boring stuff.

Then and only then are you ready to face, cue ominous music, a car salesperson. Here's Alex's advice on negotiating. Here's Alex's advice on negotiating. What are some tips, though, that you would have since go into the dealership and take on that task, first things first, make sure you're talking to the right person. Again, we talked about you walk into the dealership. There's a pool of salesmen, which we like to call the shark tank. All right. So you walk in, they're lined up. So as the customers walk in, they kind of take you one by one. If you've ever been in a dealership, sometimes you sit down and you're negotiating price and the guy goes, you know what? I need to go get permission from my manager. If that happens, you're talking to

the wrong guy, right? You don't want someone to have to ask permission to do a deal. So, I mean, if you want to go in and test drive cars, you can waste their time all day. That's fine. But if you're going in with the attempt to actually make a deal and drive off in a car, I would recommend calling ahead, making an appointment with a sales manager, someone who can actually negotiate you face to face for the price you want. So that's tip one. So like when they say, I have to go talk to the boss, essentially you want to talk to the boss. You want to be talking to the boss. You want to call ahead and make an appointment with the boss. And you can do that. So really what they're doing when they're going up and talking to the boss, they're taking a bathroom break, a smoke break. They're not talking to anyone.

They're just coming back and maybe knocking $10 off the price. That's it. So again, call ahead, make an appointment with a sales manager. Another tip, never let the dealership set the price, right? So if you go in there and they give you the price, guess what? That's a bad deal. So you want to tell them what you want to pay for a certain car within reason, obviously, and let them work towards that price.

And another good thing that you have to do, and it's a must, is to walk away. Always walk away. Go into the dealership, set the price. They say, no, okay, walk away. I mean, these are tactics that have worked since the very first car was off a line, since the very first car salesman. These tactics don't go away. You'll walk away. I do it too. I say, hey, you know what? We're good. You'd be surprised how fast that dealership calls you with a much better price. Yeah.

No, there's not a lot of innovation in the negotiating with car folks, I suppose. I mean, the internet has brought a lot of tools, a lot of resources, a lot of competitive pricing where you can see what other dealers are paying. But when it comes down to it, these old school car salesman tactics, they're the same and they haven't changed. So going in and setting your price, you give a budget upfront generally, or you say, hey, I want this particular model and I want to spend 50 grand. Well, it's either or. If you have a budget and that's what, you know, we come in to say, hey, I don't want to spend this much.

We can provide options within that range. You know, obviously a dealership is going to try to maximize their profit based on your budget. Or there's a specific car you want. You let them give you a price and then you say, no, I want to pay this. Now, again, like I said, you have to be within reason. If a car costs $1,000 a month, right? And you say, hey, no, I only want to pay 700. Well, doing quick math on a 36-month lease, you just ask for a $10,000 discount. That's not happening, right? So you don't want to shut down the process

by not doing your homework and the quick math. It has to be within reason. But so a reasonable offer, let them come back to you. Makes sense, right? Here's how your conversation should go down. We'll reenact it here on Money Rehab Theater. Salesperson walking quickly over to you the minute you step over the threshold at the dealership. How can I help you today?

I'm interested in buying a 2018 blah, blah, blah, blah, blah. We have several models that might appeal to you. Thanks, but having done all my research and knowing full well the models you're suggesting are more expensive, that's not really what I was looking for. This is the model I've chosen beforehand. Okay, then let's get you behind the wheel for a test drive. Bring the blue 2018 blah, blah, blah around for the customer, shall we? Great. Let's take it for a spin.

So this is the car I want. I've done my research and I've seen that $17,500 is a fair price for this model. Okay. What color would you like? I like blue. This model has Bluetooth and GPS and a bunch of other features you didn't ask for. It's $24,500. Nope. I don't need all that. I want the $17,500 model. Oh, this is the only one that we have in blue. Silver is fine. Okay. Have a seat. Let me talk to my manager.

Manager comes over. Hi, it's so nice to meet you. I hear you're looking at this silver car. I can definitely let you have this car for $19,500. This car is $17,500 and that's what I'm going to pay. I'm losing money if I sell it for less than $18,500. The sticker price is $17,500. Tell you what, I'll throw in the 10-year warranty, $22,500. $17,500. Okay, okay, you get the idea. This can go on this way for a while.

It's just a thing car sales folks do. They work on commission, so the more car they sell you, the better they do for themselves. There's almost always a manager called in. Expect to haggle back and forth, but really stick to your guns. They'd like nothing more than to sell you a car that's more expensive than the one you had in mind. But don't get angry either. Stay chill. Repeat yourself as often as you have to, even if you sound like a broken record, and remind yourself that they'd rather sell you a car than sell you no car at all. For today's tip, you can take straight to the bank. If you're really getting nowhere, walk away. There are plenty more cars out there, even with this supply chain nonsense going on. And hey, chances are they're going to try and stop you and give you the price you asked for.

Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.