How To Price A Car

How To Price A Car

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  1. Looking at buying a new car?  Purchasing a new vehicle can be intimidating, but learning how to price your dream car will give you the upper-hand when negotiating with a car dealership.  With a few car pricing tips, you can keep the car salesperson from taking advantage of you as a consumer.  Easily price your next car through following a few simple steps.

    Step 1:  Decide on the type of car you would like.  You want to go into a dealership knowing what vehicle you want to purchase, otherwise you will more easily be given over to the sway of the dealer.  They will point you to the car they want you to buy, which is not necessarily the one that best fits your needs.  Be as specific as possibly in your decision, knowing the type of vehicle (SUV, sedan, etc.) and whether or  not you are willing to buy new or used.  It is best if you even know the make, model, and model year you desire.

    Step 2:  Find the suggested pricing of the car.  There are two main sources for vehicle pricing: NADA (http://www.nadaguides.com) and Kelley Blue Book (http://www.kbb.com).  Either one will give the recommended pricing on cars, but NADA is more reliable for dealer pricing.  Car dealerships align their pricing with that of the banking industry, which typically bases its pricing off of NADA pricing.  Consumer’s usually pay with vehicles through car loans, and financial institutions are only going to give loans for a vehicle value that they feel is reasonable.  Understanding this allows us to understand why dealerships will price their vehicles similar to assigned values from financial institutions.  Because of this, NADA’s estimates will be used as the example throughout this article.

    Step 3:  Research the price at which the dealer is going to try and sell the car.

    • New Cars-Find the manufacturer’s suggested retail price ( MSRP).  The MSRP is the price that the      car maker suggests the manufacturer lists as the selling price.  This is the price posted in the window of vehicles sitting in the dealer lot, also known as the sticker price.  It is not the price you should actually pay for the vehicle, but rather the highest price you could pay.  NADA will even give you the option of emailing a local dealer to get their current price quote for the new vehicle you are researching.
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    • Used Cars-For a used car, NADA will show you the Retail Value for the vehicle.  This is a rough estimate of the price at which a car dealership will be trying to sell your chosen vehicle.   

    Step 4:  Research the price the dealer actually paid for the vehicle.

    • New Cars- If buying a new car, look at the invoice price listed on the NADA page.  This   is the price that the dealer has paid the manufacturer for this vehicle.  One caveat is that  the dealer often pays the manufacturer for shipping and transportation of the vehicle, which is not necessarily reflected in the invoice price listed on NADA. Your offer for the vehicle will have to be above this price, but should be below the MSRP.  The dealer is not going to tell you their invoice price, but you should know it in order to properly ballpark your offer.  The dealer must accept offers above the invoice price in order to make money on the sale of the vehicle. 
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    • Used Cars- The trade-in values for used cars act like invoice prices for new cars.  Used vehicles are listed according to the condition of the vehicle.  These are what the dealer  would most-likely pay for this vehicle (like the invoice value).  In addition, trade-in values will help price a car being sold by the owner, rather than a car dealership.  One detail that is not listed in this pricing is the cost of certification.  Many reputable dealers will certify their used vehicles, and in doing so they incur extra cost when purchasing it.  Certification means that the vehicle has been inspected and any issues have been fixed.  Again, your offer should be between the price the dealer actually paid and the asking price. 
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    Step 5:  Keep in mind supply-in-demand. 

    • New Cars-Typically one type of car will be in high demand, which means it is hard for     the dealer to keep that car in stock.  Be aware that these high-demand vehicles are more likely to cost more because of their popularity, and because of this may sell at or close to their actual MSRP.  In addition, some new cars are limited editions or a special model.  Also, very specific cars that appeal only to a small populous will be less likely to be commonly stocked, so you may have only one or two to choose from rather than five or ten.   
    • Used Cars-Used car stock varies and so do used car prices.  Depending on the economy, used car prices and amount of stock can vary greatly depending on the month or year.  Currently, with the downturn of the economy and the bankruptcy of some car companies, used car stock has diminished.  People are less likely to trade in their cars when they do not have the funds to finance a new one.  In addition, companies such as rental car companies have not had the normal number of cars turned over due to the instability of the car manufacturers’ output, and possibly the decrease of their own funds.     When researching the supply in your area, online resale ads and local dealers are great sources.

    For both new and used cars, if the demand is low, a vehicle may be able to be purchased at only hundreds of dollars above the invoice price.

    Never be shy in asking the car salesperson point-blank any questions about their pricing, but arm yourself with the proper background pricing information prior to walking into the dealership.  Knowing what vehicle you want and its pricing helps keep buying your dream car from turning into a nightmare.

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