Buying a New Car, What’s the Best Strategy?
Game Theory, Fax Blast, and other Car Buying Strategies Dissected
The Internet is a game changer for car buyers. Consumers now have the power to research cars online and getting prices from multiple dealerships. But there are many dissenting opinions on how to properly use the Internet to get the best deal on a car. Let’s dissect the most popular car buying techniques and see what works and what doesn’t.
Old School Negotiating (What your father taught you)
You probably heard the following advice when you bought your first new car. Negotiate UP from Invoice or Negotiate DOWN from MSRP. The old advice was to throw out a low ball number and hope a dealer takes your offer seriously and wiggles on price. You could either pick a number based on a % above the dealer’s cost (invoice) or something lower than the sticker price (MSRP). Unfortunately, both of these strategies will cost you money. If you mention any price to a dealer, they’ll never go below that number. If you're shopping for a TV online, would decide on an amount and not buy a TV that showed up in a price comparison below your target price? Of course not, that would be crazy. Setting a price floor for yourself can be a costly negotiating mistake.
Strength: At least you know better than to pay full sticker price.
Flaws: Very outdated. You work with only one salesman and don’t see the benefits of price competition.
The fax blast (or fax attack) is a strategy recommended by www.fightingchance.com and the Motley Fool. Both have a similar approach. They suggest you flip through the yellow pages and find a large number of local car dealers. You then send each a fax a request for a car price quote. When you get responses back, send out another round of faxes and ask the dealers to beat your best price.
The theory behind this is sound, but the implementation is flawed. First off, no one faxes anymore. You’re much more likely to get a response to an email. Secondly, it’s easier to manage a process like this with a temporary email account that you use strictly for contacts with car dealers. You’ll have an online history of all your contacts and a record of any offers.
Also, Motley Fool suggests you try to find the Fleet Manager before sending a fax. That may have been important before Internet Salesman came along, but is no longer necessary.
Strength: Competitive bidding is the best way to get the lowest car price.
Flaws: Who owns a fax anymore? Or more importantly, who wants to use a fax?
Game theory is similar to the fax blast method, but instead of faxing, this method recommends calling car dealers to get prices.
Great idea, but the implementation is even worse than the fax blast. Calling car dealers is problematic for several reasons.
It’s much better to get written communications so you have a record of offers. It’s very difficult to take notes on the phone about specific models and inventory while trying to negotiate. Also, phone calls leave the door wide open for salesmen to do what they do best, influence you. The main goal of most salesman is to get you to show up on the lot so they can close a deal. They'll say just about anything to get you off the phone and meet in person.
Strength: Again, competitive bidding is the best way to get the lowest car price.
Flaws: Playing phone tag with dealers is time consuming and it's difficult to track responses. Phone negotiations leaves you susceptible to manipulation by salesman.
This is a similar strategy as the fax blast and game theory, but instead of using a fax or a phone, all of your negotiations are done over email. You start out by getting car price quotes on the Internet. When car salesmen respond, you send out a round or two of emails asking each dealer to beat your best price.
You can use pre-written email templates to say exactly the right things to salesmen to get the best responses. It's easier than a fax and you can track all of your responses in a folder or an car buying spreadsheet.
Strength: Competitive bidding is the best way to get the lowest car price. It's much easier to manage than fax or phone. Also, you can keep a record of your communications and offers.
Flaws: If you’re not an organized person, this might not be for you….but the next option can help with that.
Car Buying Services
Car buying services work by paying a fee to a broker who negotiates a deal on your behalf, usually between $300-600.
Strength: It’s simple and you’ll get a decent deal with minimal hassle.
Flaws: You always have to pay the commission on top of the car price.
My preferred strategy is to take a hybrid approach. Use a free car price website to get dealer quotes and negotiate via email, but also use CarWoo. Sometimes the same dealers respond to both (but they don't know it because CarWoo keeps you anonymous). You may find the same dealership offers different prices! Also, never use the phone to talk to dealers until you have a deal and are ready to setup an appointment to pick-up.