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Comment by alexhutcheson | Hacker News Reader

The appropriate strategy is context-dependent. Your strategy is appropriate for most cases, but there are some situations where your interaction is a one-off, and you don't expect to have to interact with your counterparty at all after the transaction. Buying a car is a typical example here: If you're able to negotiate a car dealership down to a price that's minimal profitable for them, the dealer will be unhappy, but there are no negative consequences for you. In those situations you should absolutely "try to win" - an extra 1-5% off is money in your pocket, and there are no negative consequences beyond some uncomfortable interactions with the dealership staff.

TL;DR - Don't buy a car or house using the same negotiating strategy you would use to negotiate a professional services contract.

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Interestingly, I actually use this strategy when I make large personal purchases as well. It has always gone well. There's an element of strategy involved, however, such as buying on the last day of the quarter when sales quotas/bonuses/manufacturer bonuses, etc all come into the forefront of everyone's mind at the dealership.

I never try to put the other person in the unenviable position of actually having to ask the manager (not the fake ask the manager show they put on). I do however call up friends and find out what the thing costs on the invoice and then go in with that as my offer. (If you are diligent enough to poke around online forums and find the right people you could probably get the same information).

Success rate: The last 2 vehicles I've bought I could have sold the same day for more than I paid.

Interestingly I bought one new car once at below dealer invoice. I did all my research and then their starting offer was low.

Story turned out to be that they didn't control the mix of cars that they got, but they could sell every Prius with all options for top dollar. So internally they marked other cars down to sell fast so that they could get more Priuses.

It goes to show how dealer incentives don't always align with the manufacturer's.

(This was in Santa Monica in 2005.)

There are definitely quirks to the way car dealerships are run. I imagine there are similar 'weaknesses' in just about every industry if you put in the due diligence to find them. I always find it somewhat comical when incentives backfire in interesting ways. There are a bazillion tales from HR/Recruitment/Salespeople out there about spectacularly stupid incentives, and I can't help but read every single one of them.

If you end up with a similar situation in your next vehicle purchase it might be worth writing up a blog. I know I'd read it!

Dealers and manufacturers have reacted to the wide availability of invoice pricing. Invoice is not the real price the dealer pays anymore. There are many other incentives involved, such as survey scores for luxury brands or mix of models sold (sell X of a model that isn't moving and we'll allocate you Y of the really hot model you can sell for MSRP because they're in demand).

The purpose of this system is partially to obfuscate the real "invoice" price so buyers searching the internet (or services like Edmunds) can't accurately price the car. It also allows the manufacturer to exert more control over dealers.

This is not true everywhere. Forward thinking dealerships recognize the truth of this article and have adjusted their revenue models accordingly.

As an example, I got to know the leadership at the DGDG dealer group in the Bay Area over the past couple of years, and they've fully embraced the notion that there's not much money to be made on the sale itself -- and the more you try to make, the more your customers dislike you.

Instead, they aim for the price you might be able to negotiate down to somewhere else, and focus on making it an extremely pleasant experience. The goal is for you to return for trade-ins, maintenance, and all other auto related transactions.

That changes the negotiation strategy for the dealer, but doesn't really change it for you. Even with a "nice" dealer who's planning on making money later in the car's lifecycle, your incentive is to get the lowest price possible, and there are no negative consequences from negotiating a price that is "too low".

...unless you somehow manage to piss off the mechanics who will be servicing your vehicle.

In the UK, sites like autotrader.co.uk make price transparency crystal clear, even going so far as to prominently advise that an advertised price is great/low/fair/high for the make/model/age/mileage in question. Dealerships now seem to make money on finance - why haggle about a £500 price difference on a £20,000 car when there's £7,000 on the table via a 12% APR finance rate?

>Buying a car is a typical example here: If you're able to negotiate a car dealership down to a price that's minimal profitable for them, the dealer will be unhappy, but there are no negative consequences for you.

I am not disagreeing with your negotiation strategy, but why would the dealer be unhappy about making a sale?

They're unhappy that they made less selling the car than they expected to.

Not really true. Most dealer profit on new cars isn’t in markup. It’s on the financing, sales incentives, and the service dept.

If you negotiate an all-in price that's a $1000 lower than a typical customer, that's straightforwardly $1000 they don't get. The fact that your price was lower doesn't cause their other sources of revenue on the sale to go up.

If they give you a deal but get you to agree to a higher finance rate, they make more money

Agreed - you should always look at all-in costs, including financing. Normally better to get financing somewhere else ahead of time if you have good credit.

That is still misleading from the overall profit picture because the dealer can be getting points back on the loan.

That doesn't effect the price you ultimately pay, just who gets what.

(E.g. your "true" interest rate is 2.5%, the dealer gets you to take a loan at 3.9%...they pocket the 1.4%)

To put this another way, in some negotiations, the other side has already decided to play hardball from the start.

Well, not quite -- the post was saying that if you never interact with the other party again, regardless of whether they're playing hardball or softball, there is no post-agreement fallout if you play hardball, because, well, there is no post-agreement interaction (like the buying a car example).

Presumably, for a job or professional services contract, where there is significant post-agreement interaction, the article's prescription for and reasoning behind not playing hardball still applies, even if the other party plays hardball.

This is a good point. And, in particular, the car salesperson already knows that this interaction is one-off and is negotiating with that strategy, so if you don't you are at a significant disadvantage.

The salesperson is not your friend. They know this already and the sooner you realize it too, the sooner you can get to a reasonable deal.

I did this for a recent car purchase and the

>there are no negative consequences for you. did not prove true.

I have free service for the first year or so, not to mention all the warranty issues (none of those yet knock on wood) and guess which dealership is the only one close enough to my house to have free shuttle service?

That's right, the dealership that I absolutely destroyed in a game of hardball when buying the car.

Talk about a Pyrrhic victory.

Edit: maybe the service department of my dealer is just really bad. I was assuming the poor work they were doing on my car was related to my experience with the sales staff.

I guarantee that the only person that will recognize you when you walk in the door is the specific salesperson you worked with—and they likely won't recognize you beyond, "I think I've seen that person before—maybe I sold a car to them."

Making the customer feel that they took the dealer to the cleaners is a time-honored sales technique. They still made money off of you, and will be happy to treat you just like any other customer.

A car dealership is like a casino. The house always wins.

So are you saying they are refusing to give you service or provide you with a shuttle they're providing other customers with simply because you talked them down to a price they still agreed to?

Service and Sales are completely different departments. They rarely speak. They rarely interact. They report through different managers, sometimes up to the VP level for large dealer groups. I've known a handful of car salesmen (half dozen or so) and quite frankly can't believe a story like yours would ever happen at any dealership large enough to have both an in-house service center as well as free shuttle service.

Agreed that OP's post is somewhat nonsensical. How can one "absolutely destroy" a dealer who still makes the deal? Making deals is their business--that's the one thing they have to be competent at on the sell side. Maybe they want some troublesome customers to feel like the customer "won" but there is next to zero chance an average customer pulls the wool over their eyes or successfully strongarms a dealer. You'd have to set up some kind of situation like the one where Donald Trump stiffed a music store owner.

  dealership that I absolutely destroyed

This almost certainly didn't happen. If they made the sale, they were ok with the net over everything. If you saw any crying it was crocodile tears.

To these places you are a "type". They probably clocked you in moments as "guy who like to think he's playing hardball and winning" and walked you through that set of conversational gambits. At the end they end up with a profit in their acceptable range, you end up feeling you came out ahead. "win-win"

Sometimes they think they will get you in finance or in addons and if you don't let them, then yes it's possible to destroy them in relation to a normal transaction. They often get paid on incentives or other structures too so they could be getting destroyed on a single sale. Last car I bought I negotiated the price and then the finance guy came over and hadn't yet understood that I already had financing ready at a super low rate. So they thought they would get me there but I refused to let them even try to run my credit.

It's certainly possible they made no money on the sale itself for a variety of reasons.

They love getting you on financing, but will never count on it if it’s not already on the offer.

You might have got them down to net zero on this on - I have no idea. But the vast majority of people who think they did, didn’t. Just part of the game.

There are pretty reliable ways to get a good/better deal , but they still make a bit of money. And you’ll usually compromise something too.

I don’t understand, you don’t have to interact with the sales team in order to get warranty services.

I understand where you are coming from, and I've heard similar sentiments from other people. Having said that, I have never personally experienced this with a dealer. There just isn't that much interaction between the sales and service department at most dealers, beyond what is required for the sale itself.

There may be exceptions, but I haven't seen them.

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