This article is reprinted by permission from NerdWallet.
Buying a vehicle is more difficult than ever.
Shoppers have long been accustomed to negotiating discounts from the figure on the window sticker. In today’s shortage-driven market, though, many dealers say there is no room for negotiating the cost of a new or used car. In fact, buyers typically arrive on the dealer lot to find a broad assortment of add-ons and fees attached to that asking price, inflating the final tally by thousands of dollars.
Some could be extras such as window tint or floor mats or protective film. Some could be fees to cover the cost of advertising or preparing a car for sale. Some may be boldly labeled “Added Dealer Markup.”
What will the dealer negotiate on? Which fees are mandated by law? How do you find the best deal?
Your most powerful bargaining strategy is to not negotiate those individual extras at all.
Instead, ask the question that reduces the number of moving parts to one: “What’s my out-the-door price?”
Negotiating the out-the-door price:
- Reduces confusion by allowing you to focus on a single number.
- Reveals all costs, hidden fees and add-ons.
- Allows you to make apples-to-apples comparisons of offers from different dealers.
- Protects you from negotiating on the monthly payment, a favorite tactic at dealerships.
- Avoids last-minute surprises when you review the sales contract.
- Helps you set a budgeted price and adhere to it.
What is the out-the-door price?
Simply put, the out-the-door price totals all the pieces of a car purchase and gives you one clear price. It represents the number on the check you’d have to write to take the car home.
If you don’t know the out-the-door price and negotiate instead on the purchase price of the car itself, or — worse yet — the monthly payment, you may be shocked when you see the total amount you have to pay. That price might have been pumped up by a number of late additions to the contract.
Here’s a review of the costs included in a typical car deal:
- The negotiated price of the car.
- Destination charge, if the vehicle is new.
- Sales and local taxes.
- Documentation fee (the dealer’s charge for making up the sales contracts; in many states it is capped by law).
- Registration costs.
Any equity you have in your trade-in would reduce the out-the-door cost.
Pretty simple, right?
But here’s the thing. Sometimes a dealer includes additional items in a sales contract, such as an extended warranty, antitheft devices, dealer add-ons (such as mud guards) or hidden fees that they consider part of the deal, but you might not. The dealer may be quite upfront and list “market adjustment” or similar language right on the sticker as well.
Related: Here’s a buying opportunity for smart used-car shoppers
It’s hard to keep track of all those items and to know what is negotiable. But, by asking for the out-the-door price, you are getting all those moving parts wrapped up in one neat figure.
How to use the out-the-door price
First of all, you need to estimate what you can afford to spend even before you hit the dealerships.
Add the sales price, any destination charge, sales taxes, title and registration fees and document fee. If you have equity in your trade-in, deduct it from this amount. If you owe more than your trade is worth — you’re upside-down on the loan — add that to this amount.
Also see: More car shoppers are thinking about EVs, but still holding back
That total represents your minimum out-the-door cost. In today’s market, you may have to decide how much more than that you’re willing to pay. Whatever that amount is, use it to:
- Calculate car payments. While you don’t want to negotiate monthly payments at the dealership, you do want to have an idea of what that final number might be.
- Shop for a car loan ahead of time, using the total minus any down payment you have. Ideally, try for a down payment of 20% and a loan no longer than 60 months. A preapproved loan in your pocket gives the dealer something to beat and removes any worry that you won’t qualify.
- Compare dealer quotes, with your total as a benchmark.
Using the out-the-door price online
There are many tools that allow you to locate and negotiate for a car without going to the dealership. In fact, the only real reason to go in person is to test drive the car.
- Search the online inventory of dealerships in your area to find the car you want with the right options package and in the color you like. If you don’t find what you want, ask what vehicles are inbound from the factory.
- Contact the dealership’s internet manager by email. Verify that the car is still on the lot or inbound and request a price quote.
- If the dealer’s price is close to MSRP, request an out-the-door price with a breakdown of fees.
- Continue gathering quotes from competing dealerships.
- Compare the out-the-door price from different dealerships to find your best deal.
- Your final sales contract will enumerate each of the fees and extras, but the total should reflect your agreed-upon out-the-door price.
Any dealer’s out-the-door price is negotiable. They may stand firm because they know the vehicle can be sold at that price, or they may reduce the out-the-door price by eliminating some of the extras or shaving their price.
You might like: Thinking of a Tesla? Here are answers to some questions about the popular Model 3
Once you know what the out-the-door price is, you can ask the dealer to give you a monthly payment based on that amount. You will need to fill out a credit application and tell the dealer how much of a down payment you want and how long you want to finance the loan.
Use the dealer’s financing if it can beat the rate you brought to the table.
More From NerdWallet
Philip Reed writes for NerdWallet. Email: [email protected] Twitter: @AutoReed.