The Car Dealer Pencil

If you have ever purchased a new car you probably recall the salesperson disappearing into the sales office to check if your offer would be accepted.  Twenty or so minutes later, the salesmen would reappear with a document that would be a counter-offer that is composed with a felt-tip marker or a "Sharpie".  This is known in the car business as a "Pencil".

The "pencil" is a written response to the customers offer during the negotiation and it is usually written over the top of the “Write-Up”.  The "pencil" is usually written by the sales manager and it is most effective when it is attempted several times.  

 

The first attempt (or the "first pencil") is a response to the customer's initial offer. Although it would be presented as a response, it will rarely has anything to do with what the customer actually offered. 

For instance, during the commitment, the salesperson probably drilled down to find out how much money a customer would pay.  However, when the "first pencil" arrives back from the sales manager it most likely will contain an inflated payment that is not even in-line with the reality of simple math. The "first pencil" is meant to create a reaction and provoke negotiation.  Usually, the dealer will justify these inflated numbers by explaining that the payments are "normal" for this price of vehicle.

The pencil is often hand written. This is because the dealer wants to keep all the elements of payment and price as vague as possible.  Look at it this way, if they provided the customer with a “pencil” printed from a payment calculator, they would not have any place to hide the potential “Back-End” profit.

Often, during a finance or lease negotiation, the "pencil" will conveniently be missing the selling price and only contain the payments and down payment. This allows the dealership to change the price based on the customer's agreed upon payment.  This is a central theme of car negotiations.  Dealers will adjust the price, interest rate and Money-Factor to their benefit.  This strategy also focuses the attention away from their hidden profit streams as well as the overall price of the vehicle.

During this kind of negotiation, the customer must realize that they are not negotiating with the salesperson that is sitting in front of them; they are negotiating with the sales manager who is in the sales office.  This separation allows the sales manager's "pencils" to be vague and incomplete. In other words, if the sales manager was right in front of the customer calculating the payments on his computer, he would have to address and justify his calculations. 

 

Although it would be presented as a response, it rarely has anything to do with what the customer actually offered.

Since the salesman can’t answer for the sales manager they will simply try to get the customer to submit a counter offer. Then they will leave to see if the customer’s offer will be approved. This is done to create a feeling of alliance between the salesman and the customer.  The salesman wants the customer to believe that they are working together negotiating against the "Desk".