One Way To Get A Good Deal Buying A New Car - Part 2 of 3

In Part 1 of this series, I revealed that my wife and I decided to get a new car and that I had sent a request for a quote to nine local dealers using Yahoo Auto - and asked a salesman who worked with us for a quote.  I told everyone that it would be a competitve bidding proceed - and it was!  Here's how it turned out!


The Offers!
Wow.  I was initially concerned that the dealerships might not take an Internet contact as seriously as a phone contact, but all nine dealerships and the salesman had responded to me with quotes within 3 hours- most within 1 hour.  The funny thing was that their offers were all over the map!  Over the course of the next three hours, from the comfort of my office, I competitively bid the dealerships against each other.  Once I reached the lowest price, I drove out to that winning dealership and had the deal signed by 4pm that day.  They had the car ready for pickup in 48 hours and they were happy for my business.  I'll mention specific pricing below.

The salesman came in with the highest bid at MSRP.  (As you know, MSRP is considerably higher than invoice - about $2500 higher than invoice in this case).  When I questioned the salesman about it, he went to "talk to the manager", but came back and said he could not do any better.  By this time I already had several quotes around invoice from various dealers and I mentioned that to the salesman.  He went to "talk to the manager", but they would only back off of MSRP by $500.  That put him out of the race.

This next part may seem a little strange to some people, but I think that people deserve to be compensated for their time - and I believe in karma.  That salesman invested time with us by allowing us to take the test drive with him, but he was going to be out of the running on making a deal.  Maybe it was him not lowering the price, maybe it was the manager.  I know that some people just figure that's a risk the salesman has to take.  However, my wife and I discussed it and we felt that the right thing to do was to give him a $50 gift card to Target.  If it was the Manager preventing the deal, then at least the salesman was compensated for his time.  If the salesman was blocking the deal, then at least giving the gift card to the salesman removed any and all lingering feelings of guilt or obligation from my wife an I.  As you will see when comparing the pricing, it ended up being a very minimal amount to pay for a clear conscience.  The salesman was also thankful for the gift card when we gave it to him later.

With regard to the rest of the pricing, all of the fleet managers/operations managers/Internet sales managers came in around invoice or below.  In fact, the HIGHEST bid I ever recevied from any of them during the process was $100 over invoice.  Their sales techniques were pretty funny, too.

• Many of them tried to get me to stop the competitive bidding one way or another.  They might try to convince me that I should just deal with them, or they "might be able to make a better bid" if I were to just deal with them.  They also suggested that the prices others were offering did not have any impact on their price.  For some this might be true, but most of them were shown to be lying when they changed their price later. 
• Several of them said that they would match the lowest price that I got from anyone - but then when the chips were down, not one single one of them would actually match the price!  That was a little surprising.  When I got back to them with the lowest price, they each meekly said.  "We can't match that" and even doubted if it was a real offer or that the dealership that made it could deliver at that price.  It was a little surprising to me that these dealerships would just fail to honor what they seemed to be so committed to - what they would initially tell me with pride and certainty.
• Just about every single one of them wanted to get me in their showroom one way or another.  I think that they thought that they would have greater leverage with me or wear me down or maybe just driving to their showroom would make me more likely to commit to a deal with them.  I gracefully declined.

When I got an offer from a dealership, I wrote it down and mentioned if I had any better offers.  I treated all dealerships with respect, regardless of offer, because you never know if the winning bidder is going to back out of the deal and you will need to go with number 2 or number 3.

I remember the phone call from the eventual winner.  He called up and asked me if I was "ready for the winning bid".  I admired his ballsy-ness and asked him to go ahead.  It was about $2500 under invoice.  This was for a car with an invoice less than $25K.  The next closest bid was for $1500 under invoice.  I was a little surprised and went through the bid to make sure that we were in agreement as to what he was bidding on.  He was very sure of himself.  He said "Just give me a call when you are done fooling around with the other dealerships and we can get the paperwork done right away."  Like I said - huge balls.

Anyway, he turned out to be right.  I shopped his offer around and the final offers from everyone ended up being about $2500 under invoice, $2200 under invoice, $1900 under, $1700 and $1500 under, and then a few lower bids that I stopped tracking.  Before I shopped that -$2500 offer around, the best offer was -$1500, but all the dealerships seemed to go to their bottom number once the -$2500 number appeared.

In fact, I was a little surprised at the -$2500 bid.  I know that invoice is not what the dealer actually "pays" for the car because there is something called "holdback".  Wherein even if the dealer sells the car at "invoice", the dealer still "holds back" a percentage of the sale when paying for the car.  For example, Honda's holdback is 2% of MSRP, so for a $25K MSRP car, if the dealer sells it to you at "invoice", then he still pockets 2% = $500.

I also knew that the manufacturers often effectively offer discounts based on volume.  However, these are not expressed in the invoice cost.  For example, once a dealer reaches a certain volume amount, the net cost of each car becomes less because the manufacturer gives them some money in one of several ways.  I'm not an expert, but it seems like there can be a "dealer incentive" or "marketing matching dollars" or "manufacturer's program" or several other things that end up allowing the high-volume dealer to pay less per car.

Additionally, dealers are aware of their sales volume and sales rates and may be interested in making especially great deals to get to certain levels of sales.

When I started the bidding, I was aiming to get as deep into the holdback as I could.  However, I was surprised that we were quickly far beyond the holdback.  I began to realize that not only is MSRP an absolute fantasy, but even invoice price seems like it is a complete fabrication as well.  My take-away is that the entire pricing process is so totally non-transparent that you really have no idea whether you are making a good deal or not unless you take competitive bids.

Next - in Part 3 of 3 - I'll tell you about something that blew my mind about the purchasing process, as well as some last-minute pressure from dealers and some bottom line thoughts!