How to Negotiate the Car Dealer's Offer and Close the Deal
| How to Negotiate the Car Dealer's Offer and Close the Deal |
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The “Pencil” is the response to customers offer. This is crafted by the sales-manger. The goal is to “Bump” the customer's offer either in price, payment or Down-Payment. Also, they are tasked with buying the trade for as little as possible.
In traditional negotiations, the customer will offer a low price and the dealer will come back with a high price and eventually after going back and forth the will arrive at a deal.
Since the “informed” customer has placed an offer that is based an amount over cost. The dealer is forced to “pencil” a response using the same base values. In other words, any price that the dealer makes as a counter offer the customer can clearly see how much profit they are attempting to make. Do not begrudge a dealer for trying to make a profit; it is how they stay in business. That being said it is important for a customer to be aware of all the elements to their response.
In the examples below, we have using the "Payment Checker" based on a selling price of $29,194.
Remember, the customer's offer of $29,194 is $300 over the net dealer's cost according to "Cheat Sheet's Car Price Calculator " Calculations.
There are a variety of ways the “Desk” will “pencil” a response. The most common are the “you win” and the “option close.”
The “you win” method is by far the most common (and the cheesiest). Simply, the Write-Up will arrive back with a hand written counter-offer along with a comment from the sales manger that would read “O.K. you win”. In other words, the sales manger hopes that by including a phrase that demonstrates their pricing sacrifice, it will encourage the customer to take the deal.
This "pencil" will usually only disclose certain parts of the deal, like the payment. It will not include the price or interest rate. The “desk” hopes you will commit to only a few of the elements and they can adjust the price or Back-End profit in “F&I.”
Other times, the dealer will include the price or the "Amount to Finance" but not disclose the interest rate.
This is why the customer must have the "Payment Checker" worksheet to verify the payment from the desk. For example, payments on a $28,395 should be $555 per month. However, the desk's pencil could read “O.K. you win $28,395 with monthly payments of $578.” In this example, the "desk" has “packed” the payment with a $13 “Leg” and they will use this to make money on the back-end.
Check the "pencil" with the "Car Payment Checker ".
In the example below, the price is now $29394 which is $200 more than customer's original offer. Therefore the dealer has increased the price from the offer of $28194 by $200. The "Amount to Finance" is also approximately $200 more than your original offer (adjustments made with tax and license) The "Pencil" reads: $28607 "to finance" with a payment of $559 at 6.5% for 60 months (5 years).
Checking the dealer's pencil you find that the payment is accurate and the dealer is not hiding any "leg".
The obvious benefit of negotiating with an offer based on the "Net Dealer's Cost", (like our example of "three hundred over"), is that it eliminates the tiresome "back and forth" negotiation. However, there are many cars that dealers will not sell so inexpensively. Make sure you base your offer on the current availability and demand of the vehicle. If you intend to purchase a rare car that the dealer generally sells for a substantial profit, base your offer from the net cost but maybe offer more than just "three hundred over".
Once you have successfully closed the deal. You still have one more round of sales negotiations. The next sales pitch will come from the "F&I" manager in the finance office.
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