TIP 2: Make sure the new car you want is in stock now
New car dealerships work like this: when a car company (the manufacturer of the car, or the importer of it) delivers a car to a dealer, it becomes the dealer’s property. The dealer pays for it on credit; he needs to sell it to reduce the interest cost of holding it. This is true for every vehicle you can see on the showroom floor, as well as every vehicle you can’t see in the dealer’s warehouse.
Essentially, dealerships use the equivalent of a big, fat credit card to hold their new car stock (which is called a ‘floor plan’ in industry-speak). This can be a multi-million-dollar line of credit – and reducing the amount outstanding can have a profound positive effect on new car dealership profitability.
What this means to you is that a new car dealer is always much more motivated to sell you a car he has in stock now, as opposed to one he needs to order from the car company. The car in stock now is already burning a hole in his pocket; the one he has to order isn’t. It’s that simple.
Therefore, a key question for you to pose is: “How soon can I have it?” (Before you negotiate a price.) If the answer is “Any time in the next few days,” you know the car is in stock, and it’s therefore safe to pitch a nice, low price. If, however, the response is something like: “We’ll have to order that; and currently you’re looking at six to eight weeks for delivery,” then you know to go ask another dealer, who may have the new car you want in stock now.
Of course, some new cars just aren’t in stock now, at any new-car dealer. Popular cars are often on back-order; they get sold faster than they can be supplied. Sometimes car companies simply get caught with their pants down, underestimating demand. When that happens, the factory just can’t keep up. (This routinely happens to Volkswagen with its GTI Polo and Golf models, and it’s happening to Kia at the time of writing with its Optima.) Sadly, there’s not much scope for a discount in this situation.
If demand exceeds supply there’s simply no incentive for a new car dealer to discount, so the price remains high. In this situation you have two options: pay a high price, or choose another new car – one more likely to be in stock now.
Sometimes car companies have a worse problem: they overestimate demand. They expect a flood of orders; instead, they get a trickle. The factory pumps out more than they can sell. In this case, it’s very easy to get a discount. At the time of writing, this is happening with the Ford Falcon.