Playing the game when shopping at a car dealer

Car buying is very complicated, and for many people it's unpleasant, and for good reason. New cars are pure purchase and assured depreciation, except in the rarest of circumstances. On top of it, car loans are weighted so you pay mostly interest initially, so you don't have much equity in the vehicle -- whatever it's worth -- for a long time. So of course it's intimidating, but you can do it with our help. The secret is understanding where the dealer's profit comes from -- and knowing when it's time to forget about all that and shop as you would for a good deal on any product.

Though the process can be difficult, buying a new car shouldn't be thought of as a war between buyer and seller; instead, it's really more like a game. The sooner consumers recognize this, the better off they will be. And if you want to win this game, you have to prepare.

As you begin preparations to buy a new car, realize that getting the best possible deal requires a good amount of research and plenty of time. You may need to do a cost-benefit analysis that weighs your time and effort versus the difference between the invoice price and suggested retail. Without investing any time in research or haggle effort, expect to pay the manufacturer's suggested retail price for the vehicle and possibly more for financing and add-on items.

The key to getting the best deal is to understand where dealerships reap their profits and where they serve as middlemen. Two of a car dealer's main sources of profit are the new car's purchase price and your old car's trade-in value.

The price you pay for a new car hinges on a number of variables. They include but aren't limited to: the invoice price; dealer holdback; customer incentives; factory-to-dealer incentives; supply and demand; your car's trade-in value (in some states).

For most vehicle makes, the published invoice price is not the true dealer cost because of dealer holdback. The manufacturer holds a fraction of the invoice total of all cars a dealership sells (typically 2 percent to 3 percent of either invoice price or the manufacturer's suggested retail price) that it then returns to the dealer, usually on a quarterly basis.

Most dealers see holdback as their entitlement, as what keeps the lights on and the kitchen stocked with the coffee and sodas they're bound to offer when you sit down with a salesperson. In the general sense, everything is negotiable, but this is one item on which dealers seldom budge. Including the holdback in any calculations you bring is likely to get things off to a bad start. Your knowledge of holdback is best used not as a negotiable item but to call the salesperson's bluff if he claims he's making no profit on the deal you've proposed.

Supply and demand is a factor that's difficult to predetermine. The latest, hottest model will sell at a higher percentage over dealer cost -- and possibly over sticker price -- than the model that's been around awhile and is in steady supply. But you must realize this isn't just about models; it's about trim levels, colors, and equipment, too. If you want a color or feature that's in short supply, you'll pay more.

It's also important to shop around. By shopping multiple dealerships during an incentives period, you're more likely to get a better deal.

Additionally, don't forget to factor in these costs:

Destination charge: This is a non negotiable fee set by the manufacturer that covers the cost of shipping the vehicle to the dealership. It's a fixed number, whether your dealer is 1 mile or a whole continent away from the factory. It may be called a ``delivery charge," but under no circumstances should you pay a destination charge and a separate delivery charge that a dealer tacks on. One charge is required; the other is padding.

Taxes: You can't avoid these, and they represent a good chunk of change on a purchase this big. As mentioned, the value of a trade-in in some states gets subtracted from the negotiated purchase price, which lowers the tax burden. Other states tax the unadjusted transaction price.

License and title fees: The method and cost varies from state to state, but these fees are unavoidable.

Insurance: Insurance is another unavoidable expense that adds up. Don't leave it out of your calculations.

The car you currently own probably represents profit. The question is, whose profit will it be? With few exceptions, you'll get the most money for your used car by selling it privately. That's because dealers pay wholesale prices -- not retail prices -- for used cars. They sell them at retail, and the difference between the two is the only reason they bother. A used car's profit margin, though based on a lower selling price, is much greater than that of a new car. Don't underestimate your car's value to a dealer.

If you don't want to make the effort or take the time, there's an in-between option that might add considerable benefit for little more cost: shopping your car to used-car dealers. For example, if you have a Volkswagen Passat and you're considering buying a Nissan Altima, try selling the Passat to a Volkswagen dealer yourself. In most cases, a used Volkswagen is worth more to a VW dealer than a Nissan dealer.

Whether you're working with one dealer or two, remember that combining the trade-in and new-car purchase is what you're trying to avoid. Aside from potentially earning you a higher price, this approach simplifies the complicated new-car-buying process. Simply put, keep the trade-in aspect separate from the negotiation for purchase price.

For more information and buying tips, go to www.cars.com.