How large is the bargaining power of "cash buying"?

Hello,

I plan to buy a new sedan (probably a Honda accord or
a Toyota Camry) within a month's timeframe. I don't have
a car now, so there's no trade-in. I plan to pay full
in cash hopefully expecting the payment less than $22k
out the door for an Accord LX-SE or a Camry LE, both
with a four-cylinder engine and AT.

I have been gathering information online from websites
such as edmunds.com and carsdirect.com and finding
out "fair" market values of those new sedans. However,
I couldn't find information from them about any additional
buying power of cash buying.

Do those fair or market prices of new cars reported on
websites include the bargaining power of cash buying,
if any? Or, do I have some more room for negotiation by
telling them I am paying in cash?

Thank you in advance for opinions and advices.

 

There isn't any 'bargaining power' for cash. New car dealers would
really prefer for you to finance the car; in many cases they make more
money from the financing side of the transaction than they do from the
margin on the sale of the vehicle.

 

Unless the dealer gets a benefit from doing the finance, they get paid
either way, which is all they want. Just tell them you don't need finance
and have no trade-in. Some dealers might be leary of a customer literally
walking in with a bag of cash.

SD

 

From my reading about negotiating for a car at a dealer, I
don't think paying cash on a car gives one much, if any,
actual "bargaining power." I don't think I've ever seen it
talked about in any car buying article, either.

The advantage one does get is that the salesperson can't try
to deceive you with financing numbers. E.g. I understand a
common tactic is for the salesperson to say to the buyer,
"How much can you afford a month in car payments?" That puts
the cart before the horse, compelling the (naive) buyer to
come up with a monthly figure, and then the darned
salesperson can adjust the months of paying until a montly
sum is found that the buyer can "afford." Meanwhile, the
actual price of the vehicle gets lost in the discussion!

I think the vehicle price is the first thing a savvy buyer
will identify, once it comes time to crunching numbers.

I suspect that dealerships in general actually prefer people
to finance their cars. That's where they make much of their
money, ISTM. My understanding is it's such big business that
General Motors, for one, has a whole bank yada now as a
branch of its business, called General Motors Acceptance
Corp. IIRC. (I know about it because four years ago, never
having owned a GM anything, I bought some short-term, then
investment grade GMAC bonds.)

I see a lot of posts from people saying they solicit prices
for cars over the internet (with email) from individual
dealers. It seems one can actually pit one dealer against
another as far as pricing goes (though you have to get in
writing that Dealer X really intends to sell you what you
want, etc.). I think Edmunds.com can facilitate the
solicitation of prices. One evidently can avoid most or all
of the pressure of facing a salesperson this way.

Do see Consumer Reports April Car Buying issue for the
latest tips on getting the best price on a car.

 

Reminds me of a post here that not long ago reported on a
guy who walked in with a bag of cash IIRC containing exactly
how much he was willing to pay for a vehicle he knew the
dealer had. The guy then said to the salesperson: With every
five minutes that goes by, I am taking $100 off the price I
am willing to pay...

 

Damn!! I've paid cash for cars, and agree that the dealer isn't happy
about it. The salesman himself doesn't mind, he is more assured that
he'll see his commision because financing won't fall through.

But it never occurred to me to use this technique. The only problem
is, you have to really research and have a good idea what the car will
go out the door for. Otherwise, you run afoul of the First Lesson In
Negotiating: The person who names the first figure loses. I
negotiate settlements as part of my job, anywhere from a few thousand
to hundreds of thousands, and I guarantee this is true unless you
really know what your doing. And occasionally, you'll have to be
prepared to walk out.

 

No additional power.

The additional power is in letting them think they're going to finance
the deal. They get a commission for selling the financing. If they
know they won't be selling any financing, they'll try to make that up by
keeping the price of the car higher.

 

Right. I don't think I'd ever have the guts to use this
approach. Or it would have to be a very special situation
where, like you say, for one, I knew the car cold and was
prepared to walk out.

 

I would recommend that you do not mention how you intend to pay for the car
until after the price is negotiated. Dealerships can make additional money
by arranging financing or leasing for the buyer and selling extended service
contracts, in addition to selling dealer installed accessories like pin
stripes, paint and interior protection, etc.

 

I am alway quiet about my plan to pay cash for a car. But when I was buying
my Honda the salesman guessed it. I don't think it really makes a
difference one way or the other. Each part of the dealership is a profit
center and they all know how much money they need to make from a
transaction.

 

Thank you for your comments. I now understand that I better
not tell the dealership that I am buying in cash.

I'm not in a hurry at all, so I will take time using email and
telephone exclusively until the last moment of agreeing to a
deal. I don't need to test-dirve them. I know they are good
vehicles. That way, I can easily "walk out of" their court. (Hope
I can work it out this way, though.)

Thanks again.

 

Cash is not an advantage in most cases and may be a disadvantage. Most
dealers will make most of their money on add-ons and financing that the
finance person will try to work into the deal once you are "in the box,"
meaning you have signed a buyer's order and have been turned over to the
finance people. At that point you have agreed on the price of the car and
they try to work you for the real profit.

I would let them assume that you will be financing and negotiate the best
deal that you can then when you get in the "box" tell the finance manager
that you want to pay cash and actually write a check for the price you want
to pay, plus the taxes and title fee. Explain that he can either take it or
leave it and that you have 20 minutes before you walk out the door with or
without a car. Be prepared to walk. They will call you back if you do. It
is almost a certainty, particularly if it is near the end of the month.

Leonard

 

As others said, an offer of cash may not help if the salesdroid
really wants to sell you a loan. OTOH it's possible they need to
meet a quota by the end of a sales period. Then they may accept
anything reasonable with good grace. Even a cash sale is a sale.

Try to minimise the hassle you could be thought of as causing --
present your conditions politely and concisely, then be ready to
smile nicely as you walk out of there, taking business with you.
If they don't want cash, you may as well find out quickly.

And watch out for sales BS, as when your salesdroid says he/she
needs to huddle with some superior, to learn if they can adjust
the usual deal especially for you.

Etc...

 

Ummm, test drive one anyhow. Make sure the car is a proper fit for you.
We've had a number of people here in the newsgroup who bought a car without
an extensive test drive come to find the seat wasn't made for their ass, the
ergonomics didn't fit them, etc...

A car may be good for many people, but due to differences in body height,
weight, width, back problems, etc... may not be good for you.

 

I have found that I can get better deals with small town dealers than
big city dealers. Also buy during the model change over period - in
August I have even got some of the dealer's 3% hold back.

When living in Minneapolis there was a dealer in Sioux Falls SD who
sold into the Mpls market at much better prices than the local dealers
- he would deliver the cars to a vacant lot on the south side of mpls.
I got an equivalent deal in a town 60 miles away.

The big city dealers have always tried to add crap you do not want or
need like fabric protection for $300, undercoating and paint
protection. One crook in Mpls had a $500 Special Value Package which
consisted of a few oil changes which was added on to every car's price.

 

you always have room to bargain when youre paying cash. makes things
much easier, too... no dicking around with interest rates, tradeins,
money down, etc.

youd probably get a better deal on a last generation camry, if there are
some out there. the new ones rolling out right now, so no deals there.

 

the biggest and most shameless ripoff is the line marked:

"additional dealer markup"

 

Also, sometimes the "fit" of one car differs slightly from the "fit" of
another. Of course, we test drove one that was great, and I noticed the AC
sounded a bit off... had them check it, and somebody had grossly overcharged
it... surprising it had not blown out during the drive.

 

With financing options at zero percent (Toyota) around here, I don't
know why you would not consider using their money and not tie up your
own. Use your cash assets to either pay off creditors or invest in your
favorite financial vehicle. A new car paid for by cash usually can't
generate a dime in interest paid to you, or build equity assets for
building your net worth. If you choose a zero percent deal, finance all
you can, remember you are using their money and if you want to, you have
the option to pay it off with no penalty anytime within the term of the
loan. IMHO.

 

I thought those "zero percent interest financing packages"
always or often pre-set the price of the vehicle "for" the
buyer, such that it amounted to a rip-off. That is, the
buyer ended up paying a lot more for the vehicle than if
s/he negotiated with the intent to pay cash for the price
s/he negotiated.

In other words, compute the price you're willing to pay for
a certain model of car well in advance, in the privacy and
peace of one's own home, and read the terms of such
"zero-percent interest" deals carefully.

In this vein, if one has a credit card application with a
zero-percent interest offer for, say, balance transfers,
this might be something to strongly consider.