The wholesale value refers to the price at which a car manufacturer, such as Ford or Honda, sells their vehicles to car dealerships. Since car dealerships are basically middlemen between manufacturers and consumers, their ultimate goal is profit through as high a markup as possible on the wholesale value of the car. As a consumer interested in getting the most value for your money, your ultimate goal must be to negotiate a price with your car dealership that is as close to the wholesale value as possible.
How To Negotiate Car Price
Researching Your Purchase
Since the average car buyer is typically unaware of a vehicle’s wholesale value, doing a bit of quick research before heading to the dealership will provide you with significant leverage when negotiating your purchase. Sites like Consumer Reports are excellent free resources that provide information on wholesale prices for a vast array of consumer products as well as virtually any vehicle on the market.
Getting a Fair Price
When finally approaching your car dealership it is important to signal to them that you are well aware of the real value of the model that you intend to purchase. By being firm about your expectations and letting the dealer know that you are willing to walk away at any moment, unless they provide you with a fair price, the cost of your new vehicle will come down substantially. A dealer that is hungry for a sale and is aware that they are speaking to a well-informed customer may bring down the price of a car from a standard 8% dealership mark up to as little as 1%. This means that when purchasing a brand new vehicle with a wholesale value of $40,000, you can save nearly $3,000 on the final price!
Advantages of Purchasing a Used Vehicle
Another important alternative to consider when purchasing a car is to buy a slightly used vehicle. Cars, unlike other major purchases, such as a home, have a tendency to quickly depreciate in value. According to Consumer Reports a brand new car will depreciate between 25% & 40% in the first two years, on average. After the first two years of its life cycle the car will begin to deprecate at a significantly slower rate.
Granted that the used vehicle you are considering does not suffer from extensive mileage, it might be best to let another owner or lessee carry the initial burden of depreciation for the first few years. If you opt for a used car, make sure you always apply the same aforementioned principles and that you research the wholesale value of the model that you are interested in purchasing.