How much money can I expect to save when I buy a new car? It’s the most common question we get here at Driving for Dollars. A recent study by three university professors, published in the March issue of Quantitative Marketing and Economics, found that car buyers can expect to save up to $800 by using some relatively simple strategies, but several top automotive information companies are not so sure. With many cars, they think the savings could be bigger and achieved with less effort.
The study, which was co-authored by Jorge Silva-Risso, an associate marketing professor at the University of California, Riverside, and a former analyst at J.D. Power and Associates, found that car buyers could save $800 on their car purchases by doing four things: finding out what the dealer paid, visiting two dealerships, bargaining, and doing research and price comparisons before buying.
The study cited average dollars saved when using various strategies during the car-buying process. They were:
Knowing the invoice price = $121 savings.
Multiple rounds of bargaining with the dealer = $302 savings.
Spending time researching cars and doing price comparisons online = $287 savings.
Shopping at two dealerships instead of one = $109 savings.
Industry experts at ConsumerReports.org, Edmunds.com and TrueCar.com all reviewed the data from the study and agreed that, while they felt the research in general was sound, the car-shopping experience had changed significantly since 2002, when the surveys were collected, resulting in many cases of savings of more than $800.
They said the biggest change in the car-shopping experience was that bargaining with the dealer is now less important when it comes to save money, so long as the car shopper starts the process knowing the dealer’s cost for the car. That’s the single most important factor in getting a good deal according to both the study and the experts we interviewed. “The basic premise of the study is absolutely accurate: Informed car shoppers pay less,” says Jesse Toprak, vice president of market intelligence at TrueCar. “Knowing the dealer cost is indeed crucial to getting a fair deal.”
Ron Montoya, Edmunds.com consumer advice associate, says “The strategy of haggling with a salesman at the dealership is becoming an outdated strategy,” Montoya said. “With proper pricing information and quotes from other dealerships, a person can take a nonconfrontational path to car buying.”
Mike Quincy, an auto specialist at Consumer Reports who has purchased more than 90 cars for the organization for its testing, agrees. But he cautions that invoice pricing is not the same as dealer cost. “Sometimes a dealer will offer to sell a car at invoice, and buyers think they are getting a killer deal, but that may not be the case,” Quincy says. “Manufacturers give money to the dealer, called dealer holdback, for each car sold, plus some cars have additional cash incentives paid by the manufacturer to the dealer when the car is sold.”
Consumers can only arrive at the actual dealer cost for a specific car when these figures are factored in. Since dealer holdbacks and sales incentives often change, it can be a challenge to find this information easily for free online. ConsumerReports.org provides these numbers as part of its New Car Price Report, which costs $14 for a specific model and is updated regularly to reflect the latest data.
So what can knowing the dealer’s cost for a car and making an offer based on that number save you? Our experts agreed that $1,000 is well within reason for the average car, though they cautioned that some very popular models will net a smaller savings. The savings could be several thousand dollars for slower-selling models.
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