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Why haggling is a mistake (and what to do instead)

Why haggling is a mistake (and what to do instead)

29 October 2020 Concept Car

Have you resigned yourself to the fact that buying a car involves haggling? Are you going through the motions with gritted teeth? Do you wish for a way to get a great price for your car without fighting the dealer to get a fair price?

If so, then there is good news:

Haggling isn’t just time-consuming, unappealing and stressful.

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Haggling may actually cost you money!

Buying your car online these days is more agreeable, a lot faster and tends to yield better prices on average.

The traditional showroom is on its way out, slowly but surely.

Allow us to show you why haggling is on its way out – and how you can benefit from this knowledge.

Haggling will no longer lead to better prices

One of the main reasons people will haggle when buying a car is to get the price down. In fact, so ingrained is haggling into car culture that we no longer take the MSRP (Manufacturer’s Suggested Retail Price) seriously anymore.

To our minds, unless you haggle, you’re selling yourself short.

It is true that, compared to simply accepting the price tag on the windscreen, haggling will lead to better deals. Just asking for a discount – without any big negotiations or dramatic walkouts – can bring the costs down by quite a bit. And we keep hearing stories about adept hagglers slashing prices and getting a few extras thrown in for good measure.

But, of course, you don’t have to decide between haggling and non-haggling.

Today, there are other ways of buying a car than stepping into a dealership and talking to the salesperson.

As many studies have found, these new sales methods will frequently outperform even experienced hagglers. Best of all, they offer quite a few additional benefits.

Which won’t stop many from continuing to bargain as if their life depended on it. But is that a wise move?

Sometimes, you’ll need to haggle.

It’s easy to criticise haggling for its supposed downsides. But there’s a reason why we regard it as a natural part of the buying process.

Bargaining is not as common here as it is in, say, Asia or the Middle East. But it is still the norm when it comes to very expensive purchases:

  • Houses or apartments
  • Cars and, occasionally, motorcycles
  • Complete kitchens and certain furniture items

It is generally expected of you to haggle in these areas. Failing to do so can result in serious disadvantages. Most notably so for kitchens, where absurd rebates are quite usual.

If you are hell-bent on buying your car at the dealership, then haggling should be part of your buying process. There’s no way around it – pricing reflects this expectation.

Which is just another way of saying: You’ll need to get as much out of it as you possibly can.

So, how much can you get out of it?

So, how much can you get out of it? - Concept Car Credit
This is an important question which we’ll get back to at a later stage of this article.

For now, let’s stick to the numbers.

There’s no such thing as an average discount for haggling. Or at least, no one seems to have gone through the trouble of calculating it.

But what we can do is take a look at the recommendations provided by experts online:

  • CNN advises to look for a price 2% above invoice price. The invoice price is the price the dealership bought the car for. So this makes for an absolute minimum, as the dealer would incur a loss if she went below it.
  • Others suggest aiming at a concrete amount above invoice price. One suggestion is to aim at 100 Pound over invoice price.
  • Another approach is to try and get a certain percentage off the sticker price. This is a more practical approach, as the dealer doesn’t actually have to show you the invoice price. The sticker price, on the other hand, is freely available. Something like 10% below the sticker price is a reasonable goal.

Let’s take the last of these approaches as an example.

Let’s say you would like to buy a used Dacia Duster. Its retail price is £11,245. if you manage to get the dealer to give you a 10% discount, you’d drive away having spent less than £9,000.

Not bad!

You can get incredible deals with bargaining.

That’s an amazing deal and it drives home our point about you needing to haggle at the dealership. Just imagine how you’d feel if you’d paid the full MSRP and later heard a friend of yours spent over £1,000 less!

That said, there are far better deals to be had still.

As reported on Quora by a former dealership employee, a customer entered the dealership demanding a 30% discount off a brand new car.

Some might find this rude or ridiculous. The first reaction of the salesperson, too, was to turn him down and send him away.

Coincidentally, however, the manager of the dealership had given an order that very same day. No customers was to leave the premises without a deal. And so, the salesperson called the customer back and told him he could have the car at the absurdly low price after all.

This way, the customer saved $6,000 on his car. And, from what we can gather from around the web, these stories are not entirely crazy. They do happen regularly.

So, now we’ve told you so many amazing stories about haggling – why do we claim that it’s a mistake?

Haggling requires a lot of knowledge and patience.

Haggling requires a lot of knowledge and patience. - Concept Car Credit
The answer to that question is simple: Because haggling clearly rewards some people more than others. In fact, it rewards a tiny minority very heavily – and will mostly leave the large majority disappointed.

This is not so much a question of haggling skills and our culture. Pretty much the same applies to countries where bargaining is far more wide-spread.

Here are two simple and plain truths about negotiating with salespersons:

  • You need to have a very deep knowledge about the product in question.
  • You will need to be patient and wait for the best moment to strike the deal.

To be able to get as much out of a deal as possible, you need to know what the car is actually worth.

Or, to put it in other words, you need to know how much profit the dealer makes off it.

On some cars, dealers will make a lot of profit. Take the example of the 30% discount we mentioned above. That transaction, as insane as it may sound, can potentially still be a pretty good one for the dealer. They did lose money on the invoice price. But you can expect them to get quite a lot of commission for the sale. Under ideal circumstances, that should yield a healthy profit in the end.

With other models, however, that cut may be slimmer. If the dealer margin is smaller, then your chances of a good deal are a lot smaller as well.

That’s where the recommendations for taking the invoice price as a basis of your negotiations come from:

As long as you keep your bids above the invoice price, the dealer will definitely still make money.

At the same time, the closer you get to the invoice price, the more you’ll save on the sticker price.

Here’s the rub, though: You’ll need to know your numbers – and they’re not usually easy to come by.

The same goes for spotting a super deal in disguise.

What are we talking about here? You know, one of those ugly ducks that the dealer parked in the most far out corner of the lot, which she may not even have properly cleaned and repaired. You can get incredible deals here – but you need to know how to differentiate a lemon from such an opportunity.

Some days are better for haggling than others.

To add to this, you may be surprised to hear that the potential for a discount can vary drastically from day to day. Imagine our aforementioned customer had come to the dealership a day before the order went out and requested a 30% cut.

He would probably have got laughed at.

As it was, he was the hero of the day and saved a whopping $6,000.

What’s more, there are seasonal fluctuations in price. Cars are cheaper in the Wintertime than the Summertime. What’s more, the last days of each quarter usually offer excellent opportunities for bringing the price down. The reason being that salespersons are eager to rack their sales up to boost their commission.

Knowing about these things will help. Knowing how much you can concretely save by making use of that knowledge will, too.

Most of all, however, you will need to have the patience to wait for the right moment to buy just the car you want.

Haggling creates inequality.

If you have knowledge and patience, haggling becomes a lot easier. You won’t have to pretend or resort to tricks. You simply state what you want and walk away if you can’t get it.

Being self-assured about a purchase in this way is a clear signal to the dealer that they can either give you what you’re looking for or forget about selling you the car.

It goes without saying that most buyers are not like that. Perhaps you’re not either. You may feel bad for trying to bring the price down at all. If the dealer refuses to haggle, you may still accept it. If you get offered a bad price, you’ll take it.

To people like this, haggling is a form of torture that they have to go through each and every time they buy a car. Little wonder that people are prepared to pay a little more instead of having to submit to this ordeal.

The dealers responded: By introducing no haggle policies, they thought they’d hit the jackpot. These prices were somewhat in between the extremes and, as such, probably better for most people.

Unfortunately, old habits die hard. To notorious bargainers, the no haggle policy was unacceptable. And so, dealers offering it lost traffic and sales to more traditional car showrooms.

Suddenly, haggling seemed unavoidable again.

Haggling leads to exactly the kind of car dealer we all despise.

Haggling leads to exactly the kind of car dealer we all despise. - Concept Car Credit
The problem with haggling is that it creates exactly the kind of car dealer none of us wants to do business with.

If a dealership relies on bargaining, their financial model is built on extracting the biggest possible profit from every single sale. Either you walk out of the showroom having just saved 6,000. OR the dealer wins and you walk out having merely bargained the price down a few hundred quid.

The more money the dealership makes on a sale, the higher the salesperson’s commission will be. The more money you save, the lower their commission will be.

So it goes without saying that aggressive sales tactics, including intimidating and confusing customers, are suddenly looking pretty attractive. From the point of view of such a car dealer, customer satisfaction is not a very important commodity. What matters are profits, plain and simple.

And this is why most people walk away from their car buying experience with one very distinct thought:

Haggling is unpleasant.

And, truth be told, it mostly is.

First of all, you can spend a lot of time just by driving to the showroom, checking the different cars and waiting for a sales person.

Then, the haggling begins.

Usually, the salesperson won’t be able to make any definitive statements. So whatever deal they propose or whatever offer you make, will need to be verified by their manager.

This process can go through several rounds and is boring at best. On the way, you will constantly be reminded that your expectations are unrealistic and that the dealership also needs to make some money.

And sometimes, the salespeople will still try to sell you stuff you don’t need until the moment you sign the contract.

In direct comparison, online car buying feels like heaven.

How much can you realistically haggle off the advertised dealer price?

Edmunds compared the buying process for a subcompact car. First, they went to the dealership in person and asked for a price. Then, they talked to the online sales manager and asked for a quote on the very same car.

This is what they found:

  • Buying the car at the dealership was time intensive, antiquated and felt unpleasant. It ultimately resulted in a discount of about $1,000. That’s about 5%.
  • Within a mere minutes, they had received an offer from the online sales manager from the very same dealership. Granted, that price was non negotiable. But the process was a lot faster, very agreeable and resulted in a discount of $1,500. Yes, that’s about 7% and $500 less than the haggling price!

Which means that, for most people, who like to avoid aggressive haggling exchanges, the online buying process is actually preferable.

In fact, with numbers like this, it would in fact be a mistake to haggle!

Finance is the new haggling.

So does that mean that you should just accept the offer from the online sales manager without any critical comment?

Not quite.

Although the New York Times have claimed that bargaining will never disappear, haggling in general has become a lot less important when it comes to buying a car in the UK.

For one, more and more people are opting for a second hand car, where haggling is very uncommon.

Secondly, the traditional finance model of a private loan is no longer the dominant proposition. Instead, PCPs have conquered the UK market. This type of financing has the advantage of lower monthly rates. However, it does not allow for bargaining. Everything is based on an algorithm to work out the future value of the car.

For the remaining deals, good conditions for your loan are usually more important than the purchase price. If you can shave off a few percentage points from your rate, that is usually more valuable than a few hundred Pounds more or less for the actual vehicle.

Can you still haggle when buying a car online?

Can you still haggle when buying a car online? - Concept Car Credit
Let’s put it this way: There’s no harm in trying.

The online business is geared towards maximising volume rather than profit per item. Also, online car dealers are in direct competition with other online dealers around the country. They need to keep the price as low as possible to stand a chance.

This is why online prices for any product are typically definitive.

If push comes to shove, however, the online sales manager may still be willing to talk. Mostly it will be easier to add a few extras than cutting the price.

And, don’t forget: Finance is the area where you stand to gain (or lose) the most. So make your loan the priority rather than focusing too much on the sticker price.

If I do need to haggle, do you have some suggestions?

We do.

One of the most important ones is to never pretend as though you’re only coming in to buy a car if, in actual fact, you also need financing and have a trade-in.

Many online articles will suggest precisely this: Get a quote for the car you intend to buy first. Then, ask about a part exchange. Finally, work out a finance plan.

This is bad advice. No dealer in the world can and will treat these exchanges as being separate from each other. To the contrary, if both sides are constructive, you can always work out a deal that’s beneficial for both sides.

A dealer can, for example, be more willing to reduce the asking price if she knows you also have a really great car to trade in. So, be upfront and you can expect the same from the dealer.

Our second suggestion is not to overplay it. There’s no point in asking for a 30% discount in the hope of getting 10%. Dealers will either think you’re arrogant or too inexperienced. In the former case, you won’t get the deal, in the latter you’ll end up with a bad one.

How do I haggle for a good car finance rate?

First off, it’s probably best if you don’t refer to finance negotiations as ‘haggling’. When it comes to interest rates, all banks and dealers have very strict rules and policies.

They are not as free to give you a better deals as they are when it comes to price.

That said, you can improve your deal considerably:

  • Raise your credit score. We’ve blogged about this extensively here, so you have plenty of opportunities for improvement.
  • Offer an interesting part exchange. This will make the deal more attractive for the dealer.
  • Put down a respectable down payment. Save up for it, if you have to.
  • Keep the loan term as short as possible (but only as short as you can afford).
  • Wait for the right moment. Just as with car prices, finance deals tend to be better in the Winter and towards the end of each quarter.

What use is the Parkers price for haggling?

It is always a good idea to get as much information as you can prior to entering a dealership.

Checking Parkers for pricing information therefore makes a lot of sense. Parkers is the UK’s biggest website with pricing data and it’s updated in real time. Very few pages can match its clout.

That said, dealers hate it when you mention Parkers in a sales conversation.

The point is that the prices on Parkers do not take the specifics of a deal into consideration. They also don’t take regional differences into consideration. Finally, Parkers prices as such don’t exist. They are based on actual sales, but processed afterwards and averaged. This means that you won’t get that exact price at any dealer in the UK, probably.

If you insist on the Parkers price, dealers will feel as though you’re telling them you have a right to demand it. Which you don’t.

Our advice is therefore to use Parkers – and websites like ebay – as rough indications and nothing more.

What about buying a used car at an auction?

What about buying a used car at an auction? - Concept Car CreditIf you want to know more about this particular topic, see our article on auctions.

Car auctions are exciting and a great opportunity to strike a deal. They are also perfect for losing a lot of money.

Some people will attend auctions to improve their haggling skills. In reality, bidding is something entirely different than haggling. Bidding is a group event with far more variables. It has very precise rules and conditions. And if you make the last bid, you have to buy the car. There is no room for errors.

Haggling is a dialogue and more informal. Even if the dealer agrees to your proposal, you can still withdraw at any point. This means your risk of ruining yourself is far lower.

We are highly sceptical that non-professional bidders can walk away from an auction with a good deal in their pocket. Our advice is to stay away from them.

29 October 2020 Concept Car