First, decide on the size and type of car you want, and then decide what options you want (e.g., automatic, air conditioning, anti-lock brakes).
Second, find out what the car dealer is paying for the car(s) you're interested in. This is known as the dealer invoice cost. this is important because the difference between the invoice price and the sticker price is the amount that can be negotiated.
There are two different ways to go about getting this information. The first (and best) way is to use an auto pricing service provided by a consumer group or an auto magazine such as Consumer Reports New Car Price Service (800-933-5555). This service gives you a complete run-down of the invoice price and the sticker price, adjusted for various options, as well as any rebates or factory incentives. And it tells you how to use the information in negotiating your new car's price. In addition, using an auto pricing service provides you with the most up-to-date information.
The second way is to use pricing guides found on the Internet, such as Edmund's New Car Prices.
If you have a car to trade-in, you'll want to find out what it's worth, too. You can do this by looking up your used car in the N.A.D.A Official Used Car Guide, available online (www.nadaguides.com) or at the library.
The next step is to begin negotiating with car dealers. Now that you know the invoice price, use that information to bargain for the lowest possible markup over the dealer's cost.
Tip: Generally, $300 to $500 over the dealer's cost is a reasonable mark-up, unless the car you want is either hard to get or an extremely popular, exotic or sporty model.
Resist any attempts by dealerships to sell you undercoating, rust-proofing, or other extras. Depending on the repair history of your model, however, you might want to invest in the extended warranty.