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Why Are Car Prices So Confusing?

American Government Special Collections Reference Desk

Why Are Car Prices So Confusing?

Winston Takeda
October 18, 2012


Buying a car can be a frightening process. It's a huge chunk of change, and most people don't ever buy a new car. Buying a used car every five or six years is a sensible solution. One of the main reasons people do this is so they won't have to set foot on a new car lot. But for those who really want that new car, complete with the new car smell and the brand new look, going to a car lot is a necessary evil.

Buying a car isn't like buying anything else. Even if you go and buy something big like a washing machine, where the salesman uses some kind of sales techniques, it still isn't the same. That's because the price of the washing machine is pretty much set. Sure, you might get five percent off, but that's about it.

When buying a car, there's a huge cloud of mystery surrounding the price of the car. Sure, the owner of the lot knows how much he paid for all the cars, but most of the salespeople don't know this. At many dealerships, the owner keeps the wholesale price of the cars a closely guarded secret. That's because they're afraid if they tell the salespeople the real price of the car, desperate salespeople will do anything to simply get a sale.

To make matters worse, even the owner of the car lot might not know the price of the cars. That's because often times they don't own them outright. They pay a certain price for them, but then there's something called "holdback" which means a percentage of the sales price has to be paid to the manufacturer. This is so the lot owner can afford to have more cars on his lot.

So when the poor shopper walks onto a lot and looks at the sticker price, it's really just a starting point for negotiation. Often times they'll ask the salesperson right out there on the lot what the "real" price is, but the salesperson is taught never to answer this.

The shopper is supposed to make an offer, so that they'll "commit" to the sales negotiation process. Once the shopper commits, they are much more likely to make a purchase. So the salesperson uses all kinds of tricks to get the shopper to make an offer. They'll use phrases like, "how much would I have to come down on the price for you to buy this car today?" And other tricks.

So be careful. Understand that when you walk onto a car lot, there are serious negotiations ahead. This isn't the time to be shy. Stick to your guns, and always hold out for a lower price. And even if you agreed to a low price and they give it to you, ask for a lower one. There's no law saying you can't change your mind during a negotiation. Remember, these are car salesmen, not angels.

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