U.S. Markets open in 6 hrs 14 mins

3 car-buying secrets to outsmart dealerships

Jeanie Ahn
Senior Producer/Reporter

When buying a car at a dealership, driving away with a truly good deal means you’ve negotiated on more than just the sticker price. “The biggest secret in the car industry is that there are discounts that you don’t know about,” says Stephen Jo, founder of Make & Model Inc. His car buying and leasing service helps buyers negotiate competitive deals by accessing insider discounts.

In the second half of his Confessions interview, Jo explains the different ways dealerships can make a profit and what consumers can do to guarantee the best deal.

Find out what others paid

At the very least, before you walk into a dealership you need to do some research for the going rate of the car you want. There’s no need to pay full price on the front end, or the sticker price, when it’s never been easier to search for specific sales and incentives on both the dealership and automaker’s sites.

Once you know what you can expect to pay on the front end, don’t stop there. You don’t want to be blindsided by all the different products a dealership can spring on you, says Jo. On sites like Edmunds, Jo suggests looking up what others were charged for gap insurance, extended warranties, fees and more.

“The back end is where it gets tricky. It’s not to say that these products are not good products, you just want to prevent getting ripped off and pay a fair price for them,” advises Jo.

Shop your own loans first

Whenever you’re looking to finance a car, it’s important to know what types of rates you qualify for. It helps to shop for your car loan before you go into a dealership, get a few free quotes online and keep this information in your back pocket. Once you’re negotiating the contract, a salesman can bump up the financing rates for an additional profit.

“You don’t want to be in a situation where the dealer tells you that you qualify for a high interest rate when you truly qualify for something lower,” says Jo. You have the upper hand when you have your own pre-approvals set, and the dealership can try to offer you something to beat it.

Watch Jo’s first “Confessions…” interview here.

Negotiate a deal below what the dealer paid

No matter how much research you’ve done, there are some deals consumers don’t have access to. Beyond the manufacturer’s suggested retail price (MSRP), you may know how much the dealer paid for the car, or dealer invoice. But there are actually discounts beneath the MSRP and dealer invoice, called dealer holdback, which is the amount paid to the dealer by the manufacturer for every new car they sell.

This incentive is provided for the dealership to make more sales, and customers don’t necessarily have a right to this holdback. In fact, Jo recommends not saying the term at all, as you don’t want to appear as a hostile client. “Instead, just know that in the back of your mind you can go below dealer invoice,” says Jo.

Armed with all this knowledge, what is the pricing sweet spot? Typically, if you can negotiate a sale price that is 7% to 8% below the MSRP, Jo says you’re probably under the dealer’s invoice cost.

“You’re not there to strip away all the profits from the dealer, you’re there to get a fair great deal, and for the dealer to make money, and I think that’s a fair exchange,” says Jo.

WATCH MORE:

7 car-buying tips that’ll get you the best deal

5 best cars for $15K

5 car insurance myths that are costing you

Confessions of a car salesman

Confessions of a high-end repo man