Why Haggle?

You don't negotiate the price of that gallon of milk at the grocery store.  You don't engage in a bargaining session over a two-by-four at the home center or the Barbie doll at the local toy emporium.  So why do we continue to haggle over the price of a vehicle when we go to the new-car showroom?  Is there a good reason for haggling or do we just do it because it has always been done that way?

The answer to that question is a little of both, depending, of course, upon where you sit.  To dealers, a perfect world might be one in which every prospect walked in the door, gave a vehicle a quick once-over and then paid the Manufacturer's Suggested Retail Price (MSRP).  Since that is not going to happen, a good second choice, from the dealers' point of view is individual negotiation or, in other words, haggling.  This method is preferred because it allows the dealership to control its destiny in each transaction more precisely gauged to what the market (in this case represented by a single individual at a single point in time) will bear.

Since a vehicle purchase is a large transaction in the overall scheme of things, the dealership can afford to spend time and effort in an attempt to maximize the benefits (largely cash) derived from each deal.  By way of comparison, a grocery store sees no benefit in forcing the consumer to negotiate the price of milk because the cash that might be gained from such an effort would be more than outweighed by the time-cost of entering into such a negotiation.  As the ticketed price and margin rise there is more incentive to spend time on negotiation, and that is exactly what we see in the automotive marketplace.

Though many consumers profess to hate haggling over the price of their vehicle, there are those who don't feel they could get a good deal if they didn't haggle.  To this group, simply assessing the value offered by a vehicle at a set price is not enough to satisfy them.  They feel they must engage the dealer in negotiation or they are leaving money on the table.  And the fact is, if you don't negotiate and negotiate hard, you probably will leave some money on the table.  But this begs the twin questions, how much money and how much is that money worth to you in terms of time spent and discomfort endured?

Another factor that has perpetuated and will likely continue to perpetuate haggling in the auto purchase process is the nearly ubiquitous "trade in."  In essence anyone who trades in her or his vehicle as part of the purchase of another vehicle is really engaging in two transactions simultaneously.  And since used car values are hardly set in stone, the concept of the trade-in by necessity guarantees that some sort of negotiation will take place.  One part of that negotiation is the trade-in value (i.e. purchase price) of the vehicle going to the dealer, and, since that is already in play, it is not a stretch to throw the purchase price of the new vehicle up for negotiation as well.  Add the bargain around possible dealer financing of the vehicle, and you have the basis for a complicated and often murky series of negotiations.      

All this can have a very negative effect on consumer satisfaction with the vehicle transaction process, because it is easy to become convinced, after the car purchase has been completed, that you didn't get as good a deal as you could have.  Further, many consumers have the sneaking suspicion that the person who bought the same model before them and the person who bought the same model right after them probably got a better deal than they did.  This is more than buyer's remorse; this can be buyer's morbidity.

How do you avoid this trap?  First understand that the new-vehicle acquisition process involves several transactions.  Try to treat them as discrete negotiations rather than lumping them together.  This will allow you to examine each more clearly than trying to make sense out of a multi-phase deal.  Second, arm yourself with information.  The Web has made it much simpler to get key pre-negotiation information like list prices, invoice prices, incentives and even "street prices."  (Kelley Blue Book is the best source for this information.)  Equipped with this knowledge, you can better assess each individual transaction and the acquisition as a whole before you shake hands on the deal.  Finally, don't try to wring every last dollar out of the deal.  There are diminishing returns to prolonging a negotiation, especially in light of the fact that you could well spend hours to capture that last 50 bucks.  Instead, aim for a mutually satisfying deal, a win-win, and you'll be more satisfied in the long run.

Cleveland-based auto journalist Luigi Fraschini has been a student of the transportation marketplace for more than 30 years.