Editor's Note: On Thursday, Aug. 20, the Department of Transportation, or DOT, announced that the "Cash for Clunkers" program will conclude Monday, Aug. 24 at 8 p.m. EDT. The DOT advised dealers to only conduct transactions under the program with consumers who have all of their paperwork ready to submit to the dealer during the transaction, as dealers will only have until Aug. 24 to submit completed applications for reimbursement. Consumers can review the program's requirements at 6 Steps to Cash for Clunkers.
When you're getting $3,500 or $4,500 from the government's Car Allowance Rebate System, popularly known as "Cash for Clunkers," to trade in an old, worn-out car worth next to nothing, it's easy to forget to negotiate the best price for the new car you're purchasing. In fact, consumers trading in their clunkers under the program are paying more for their new cars than consumers making similar deals before the program started, according to Edmunds.com research.
Using actual transaction data, Edmunds' analysts compared new vehicles sales involving clunker-type trade-ins in May and June to the clunkers traded in under the CARS program the last week of July and determined the dealer profit margin on the new vehicle was 20 percent higher under the program.
If you are trading in a clunker now that the program has received an additional $2 billion allocation, make sure you are getting the best deal possible on your new car purchase. Here are five tips that might help:
1. Determine the invoice price. Use a reliable, independent source, such as Edmunds.com, Kelley Blue Book or NADAguides.com, to determine the dealer's cost of the car you want. Be sure to factor in the engine, transmission, drive train and all of the options you are considering into the price.
5 tips for a clunker deal
- Determine invoice price
- Find rebates and incentives
- Research financing options
- Negotiate based on the sales price
- Deduct rebates to reach final cost
A dealer will want to earn at least a small profit over his invoice, but this can vary widely depending on the popularity of the car, how many cars in that particular model the dealer has on his lot and how badly he wants the sale. Generally, there are only a handful of very popular vehicles that will sell for the window-sticker price. The true market value pricing on Edmunds.com reflects data that assesses actual sales in a particular ZIP code and can give you a good idea of how much over invoice you can expect to pay in your area.
2. Find out what rebates and incentives are available. Once you know the dealer's approximate cost, find out what rebates and incentives can be applied. Cash rebates should be deducted from the invoice price and most often can be combined for a larger discount. Financing incentives, such as a zero percent interest rate, usually cannot be combined with cash rebates.
To find this information, visit the manufacturer's Web site and look for a link called "rebates," or "specials." These deals may be cash rebates that vary from vehicle to vehicle, but there also may be deals that are for certain groups of consumers, such as active military or college students. Be sure to read the fine print on each promotion, so you know when it expires, if it can be combined with others and if there are any restrictions.
3. Research financing options. Before you visit a dealer, do some legwork to determine your various finance options. Remember that while a manufacturer may be advertising a low interest rate, many consumers will not qualify for that rate based on their credit scores.
Contact the banks or credit unions you have accounts with and use a tool like Bankrate's auto loan rates to see what multiple lenders are offering in your area. By determining in advance what other financing options are available to you, you'll be better equipped to decide if you want to use a lender associated with the manufacturer or dealership when you are in the dealer's showroom.
4. Negotiate based on the sales price, not the monthly payment. Now that you have a clear picture of what price you should pay for your new car and what rebates, incentives and financing options are available, it's time to visit your dealership. When you begin the negotiations, start by discussing only the price of the new car you want. Do not let the dealer factor in your clunker trade-in. And don't negotiate based on what you want your monthly payment to be. By focusing on the monthly payment only, a dealer can subtly shift the length of the loan so you're paying for the car over a longer period of time without realizing it until after the deal is completed.
5. Deduct the rebates to reach your final cost. Once you reach a price you feel comfortable with, go through the rebates you expect to receive based on your research, then add in your clunker credit. The dealer should also provide you an additional credit that is based on the "scrap value" of your clunker. This amount can be as little as $25, but many salvage yards are offering much higher rates to take these clunkers away -- sometimes as much as $800. Unless you want to call a salvage company to get an estimate, it's hard to know exactly what your dealer can get for your car, but be sure to inquire about this number as well. The CARS program states that the dealer may keep $50 of the salvage value to cover paperwork costs, but the remainder is negotiable between the consumer and dealer.
Following these steps does mean a bit more work in advance, but they will ensure you are fully educated before you negotiate the price of your new car and get rid of that old clunker once and for all.
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