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Jorge Silva-Risso: Professor offers advice on buying a new car

Buying a new car is a big decision that shouldn’t be taken lightly. But how does a cost-conscious consumer find the right deal?

jorge-risso-silvaTo answer that question, InsuranceQuotes.com talked with Jorge Silva-Risso. He is an associate professor of marketing at the University of California, Riverside, and co-author of a study of 1,400 car buyers that shows how consumers can save money.

How much money can a cost-conscious consumer save on buying a car? And what do they need to do?

It’s possible to save about $800 if you do research and do price comparisons ahead of time, shop at more than one dealership and negotiate on price.

What’s the best way for a budget-conscious consumer to start gathering information and doing research?

The first thing is to decide on the car and the preferred features. Then go online and ask a dealer to make an offer to you online. Having an offer makes it easier to negotiate.

So, a consumer doesn’t have to go into the dealership and worry about high-pressure sales tactics? They can just go online?

Yes, you can use an online service (such as one from Edmunds.com that lets you compare inventory and prices at dealerships.) Or you can contact the car dealership – if you go to any dealership’s website, there should be an online form you can fill out to request a quote. Any car dealership should have an Internet sales manager who will be accustomed to making deals.

Your research found that the more dealerships a consumer contacted, the more money they saved. Why is that?

Consumers saved about $109 when they shopped at two dealerships instead of just one, and they saved about $600 when they shopped at seven dealerships. It’s all about getting information. If a consumer gets a price from one dealership or from Edmunds.com, they typically can push down the price at the second place. Also, when a dealer perceives that a consumer is informed, they reduce the price.

You found that buyers who knew the dealer’s invoice price for a car saved an average of $121. What is the dealer’s invoice price and why is it important?

The dealer’s invoice price is like a wholesale price. The consumer can start negotiating up from the invoice price so the negotiation is about the markup for the dealer. The dealer tries to negotiate down from the manufacturer’s suggested retail price. But typically it’s better for the consumer to start with the invoice price and negotiate up.

How can a consumer find out the dealer’s invoice price?

There are online services that will tell you the approximate invoice price. (For example, Edmunds.com gives the invoice price and MSRP. ConsumerReports.org offers new car price reports for $14, and says it includes the invoice price as well as information on dealer incentives and “holdbacks” that lower the price a dealer pays for acar.)

Do you have any other tips for consumers who want to get a good deal on a new car?

Savings on the price of the car can be offset by the cost of financing. Dealers sometimes attempt to negotiate a monthly payment amount rather than the price of the car. They do that because the focus becomes how much the customer can pay per month, and it becomes difficult to analyze the real price of the car. Keep the price of the car separate from the financing so the two don’t get mixed up.

What if you hate to negotiate? Is bargaining a skill you’re born with or not? Or can anyone do it?

Anyone can negotiate. You can spend an hour or so checking prices through an online service, or calling dealerships and talking to the Internet sales manager to get a quote. Then you have five quotes, and you can pursue the best two. It’s easy.

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