How Much Should I Pay for a New Car?
How much should you pay for a new car? What is a fair profit new car price to offer for a new vehicle at a car dealership?
New car buying tips in this section:
- Why do some car buyers pay too much for a new car at a dealership and some don't?
- What is a fair price to pay for a new car at a car dealership?
- What is Per Vehicle Retailed (PVR) and how does it work in a car dealership?
- How to use your fair price offer to your advantage while negotiating with a car dealer.
Why do some car buyer's pay too much for a new car at a dealership and some don't?
There are still millions of car buyers out there that believe they know how to get the best deal when buying a car from a car dealer. Without any research, these uneducated car buyers believe they can buy the car at whatever price they pull out of the air. If the dealer won't sell it to them, "they're walking!" What if the price they want to pay still makes the car dealer an excessive profit? I guess they'll never know.
Another good one is, walking into a car dealership and offering to pay $100.00 over invoice on a new car. That's a good way to overpay when buying your next new vehicle. Paying $100.00 over invoice may get you a pretty good deal, but you may be leaving hundreds, if not thousands of dollars on the table.
My goal is to teach you how to buy a car at the lowest possible price and not get ripped-off.
Please don't laugh at the car buyer's that pay too much for their new cars, it's because they did not take time to do any research to prevent over paying. The uneducated buyers are what make it possible for you to be able to get a bigger discount when you buy your vehicle.
Car dealer's, including myself, love to see people walk in and negotiate using this technique. I'm here to tell you the game is rigged. Dealer's and their salesman have several sales processes and techniques in place to handle these types of car buyers.
Car dealer's love playing hardball with uneducated car buyers. Believe me, if you walk into a car dealership and try to buy a car like your dad's dad did, you're going to stick out like a sore thumb. Car salesmen are going to be killing each other to get to you. The uneducated buyer ends up paying a lot more than an educated one.
I know, I know, when you want to buy something, especially a car, you want it NOW! However, a little discipline and taking the time up front before ever stepping foot into a car dealership is 95% of the battle when it comes to getting the biggest discounts when buying a new car. One of the things dealer's count on is for you to "impulse buy". That's why dealer's always have some kind of SALE going on.
Read more on how to figure a dealer's true net new car cost in my section How to get the Lowest Price on Any New Car.
What is Per Vehicle Retailed (PVR) and how does it work in a car dealership?
Car dealerships are "for profit" businesses. Knowing how a car dealer uses a "PVR model" will help you understand why some educated car buyers can get huge discounts on new cars and uneducated car buyers do not. The PVR model is what allows a car dealer to sell a car below their cost at their discretion.
Example: A dealer will not hesitate to sell the exact same car to 3 different people for 3 different prices all on the same day.
On the above 3 cars, the dealer hits a home run on the first customer and makes $8,000.00 total profit from the car sale. The second car the dealer sells, the buyer only wanted to pay a $100.00 over invoice, and it only makes a $1,000.00 profit. The dealer takes a true loss of <$500.00> on the third sale. Why take a loss? The customer had done their research and was very well prepared when it came to negotiating the price. The dealer had a goal to hit for the day and also knows he made good money on the earlier cars sold. The last car sold just happen to be sitting on the lot for a very long time.
If you add the profit made from all three cars above, it totals $8,500.00. Divide it by the three cars sold, it equals $2,833.33. This number is the Per Vehicle Retailed (PVR).
Car dealerships use the PVR number to average out the amount of profit they make over the total of cars they sell in a month. This allows a car dealer to negotiate on a case-by-case basis, taking a loss on some new cars and making huge profits on others.
As a car dealer, I look at the big picture not each individual car sale. If my PVR is $2,833.33 on the 3 cars I sold today. I'm well above my dealership's minimum profit per vehicle retailed (PVR) guidelines of $2,500.00 a copy.
My question to you is, out of the three customers above, "which customer do you want to be?" If you walk into a dealership and are unrealistic with your offer, be prepared to get taken advantage of, or laughed out of the dealership. You want to be the third customer and know what you're doing so your careful that you don't end up paying too much for your new car.
What is a fair price to pay for a new car at a car dealership?
There are several factors to take in account when determining the overall amount of money you will offer a car dealer for a new car. You first have to determine the dealer's true new car net cost the dealer paid for the car. After you've determined this figure. Your fair profit offer should be in this range:
3-5% Over a Car Dealer's True Net Cost is a Fair Profit Offer for a New Car.
NEVER calculate or figure your fair profit offer from a new car's invoice price. Car dealer's want you to believe invoice is their cost, this is false. The invoice price of a new car is not the actual dealer's true cost.
Check out How to Calculate a Fair Profit New Car Offer to learn how to figure a car dealer's true new car cost and how to find the information you need to figure an educated fair profit offer on any new car, truck, minivan, or SUV.
3-5% over a dealer's true new car cost is a very acceptable offer on a new car. Myself and other car dealers will sell a car at 3-5% margins any day of the week. Although 3-5% is not a huge profit deal. It's a car sale and we'll make the money up on the next uneducated customer that walks through the door.
At the time of writing this, car dealerships across the Nation, including my own, live on about a 3% profit margin. Depending on the economy this margin will fluctuate minimally, but 3% is the overall average.
How to use your fair profit new car offer to guarantee you pay the lowest new car price.
Remember you're not trying to steal a new car, you're trying to buy the car at a fair profit for the dealer. Your goal is to pay as close to your calculated fair profit new car offer as possible. It's your choice how flexible you will be when negotiating the price you want to pay for your next vehicle. It really comes down to how bad you really want the car. If you like the car and want to drive it, BUY IT!
Your next step is finding a car dealer flexible in their new car pricing. There are several factors that affect how much a dealer will discount a new car. Popularity, supply and demand, the dealer's business model, new model year, and specialty vehicles are just some of the reasons a dealer may not be quick to discount a vehicle. Some car dealers may not discount a car you want to buy all the way down to your fair profit offer. Don't give in too easily. Stand your ground or move on to the next dealer.
Use free online resources such as TrueCar, Yahoo Autos, Edmunds.com, CarsDirect, and Automotive.com to determine which car dealerships in your local area will be the most aggressive with discounting the vehicle you're wanting to buy.
You can use your new car fair profit offer to compare with the quotes you receive from local dealerships. Once you receive your quotes, you can determine which car dealers offer up the largest discounts and how much a car dealer is trying to initially make off you. You can learn how to get car dealerships to compete online for your business by reading our section on how to get car dealers to compete in a new car price online bidding war.
Car Buying Tip: Keep in mind, not all car dealerships may accept your offer or be willing to negotiate off the MSRP of the car you want to buy. If a car dealer will not accept your offer, move on until you find one that will. That's the great thing about having multiple dealerships around you. You only have to buy from the dealership you feel comfortable with.
If a dealer will not provide you Internet discount pricing through one of these services, knowing they are competing with other dealerships in their area. Chances are you're not going to get very far with them in person.
As I stated before, you may or may not get a discount on current high demand cars like, new model year vehicles that just came out, or special order cars. You can always try a different dealer, wait a few months for the popularity to fade, or wait until the turn of the model year.
Get the Lowest Price on Any New Car | Car Buyer's Cost Sheet Index
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