How to Save $800 on a New Car

Research is sometimes theoretical, sometimes practical -- and sometimes it'll save you money.

Case in point: a new study published by researchers from the University of California Riverside, Yale and Northwestern suggests that new car buyers could save about $800 if they do just four things: (1) find out what a dealer pays for a car, (2) visit two dealerships, (3) negotiate at least a little bit, and (4) research price comparisons before making a purchase.

Buyers who don't like to negotiate or do research can still save around $230 by finding out what the dealer pays for the car and visiting two dealerships. And the more dealerships you visit, the more money you'll save.

UC Riverside professor Jorge Silva-Risso, who led the research team, spent seven years at J.D. Power and Associates developing quantitative models of consumer responses to marketing programs offered by the automobile industry, with a focus on car sales incentives (such as rebates) promotional interest rates and lease support programs. His models were adopted and continue to be used by most of the major car manufacturers.  In short, he really knows the car business.

The study is based on surveys collected in 2002 from 1,402 car buyers who purchased one of eight car models in California. The survey asked about the number of dealers a buyer visited, the buyer's communication with the dealer, sources of information the buyer used, information the buyer learned at each of these sources, demographics, and attitudes toward negotiating and research.

Findings from the study include the following:

• Buyers who learn the dealer's invoice price save on average $121.

• A consumer saves $109, or about 7 percent of dealer gross margin, when a consumer shops at two dealerships instead of one and about $600 when a consumer shops at as many as seven dealerships.

• Consumers with the most willingness to do multiple rounds of negotiating save an average of $302.

It's worth noting that if the same surveys were conducted today, we would expect the savings to be somewhat less considering the shape of the economy. But even a little money saved is a good thing, especially these days.

The paper, "What matters in a price negotiation: Evidence from the U.S. auto retailing industry," was published in Quantitative Marketing and Economics.