This is the final post in our family quest for a new car.  At the end of my last post in this series, Time for a new family car- Part 2, my conclusion was that the AVI family would lease a new Acura RDX vehicle.

While the Acura RDX part of the plan did not change, instead of leasing, we ended up purchasing the vehicle. The photo below shows our official transition from the beloved Hyundai to the new Acura-RDX.

In this post I want to share our experience negotiating the purchase of new AVI family vehicle.

Musing

American consumers are not really accustomed to negotiating prices. In our day-to-day lives, there is hardly an opportunity to negotiate for anything. We buy our grocery in a neighborhood store, and even though we know we are paying a premium, relative to what we could get, say at Walmart, we do not complain and simply pay whatever the sticker price says. We venture online to hunt for bargains by doing comparison shopping. We however do not negotiate. So, why is it different when it comes to car purchase?

I got curious, did some digging and came across this fascinating article titled, why do we haggle for cars?.   The article is worth a read for folks interested in this topic.   For all others, below is my summary of the essence of the article

• horse trading mentality has always defined the car market. The following quote from historian Steve Gelber provides a concise explanation of the “trade in” mindset in a car purchase: The process of swapping an old ride for a new one and making up the difference in their values with a cash payment was an established practice in horse trading. The trade-in, however, introduces an unavoidable uncertainty in the transaction hence the need for bargaining.
• time cost of haggling may be significant for day-to-day transactions, not so much for expensive purchases such as a car or a house.
• cars are not like a roll of toilet papers. there are just too many variables that go along with the experience of a car purchase. Even when one has settled on a car model, the range of options are quite broad… from exterior color to interior color to different trims and technology options to various add-ons for safety and comfort both exterior and interior. The willingness to pay for these add-ons vary significantly.
• the unexpected savings of haggling. consumer dissatisfaction that comes with the experience of price haggling may feed into the practice of haggling. The fraction of savvy buyers who are expert negotiators is much smaller portion of the general population of car buyers. The article explains it best as follows: In a world in which most customers loathe haggling, the suckers subsidize the savvy. 

Given these facts, it is a common refrain that when it comes to car purchase, the mantra is Negotiate! 

However as ordinary consumers the deal is stacked against us by a wide margin. The party on the other end of the negotiation table is the car dealership. It is their business to negotiate and they earn their bread doing so every-day of the year. You are damn right, they are very good at it!

Add to the fact that most consumers loathe negotiations, an industry of car buying services have spawned up in recent years to level the playing field some what and spare the pain of negotiations for us ordinary mortals. For a small fee, companies like https://personalcarnegotiator.com/, claim to take over all the pains of negotiating car purchase from a dealership and the consumer walks out knowing that he supposedly got the “best” deal there is.

My negotiation journey

Preparation

When it comes to effective negotiation, time, knowledge and information is our best friend. What do I mean by this? Assuming one knows exactly the car model, the color, the trim and all the add on options that one desires, below are some facts that I think are essential to know before embarking on the negotiation journey.

1. Self-awareness that the game is stacked against me. This point has been made amply clear in my musings. The goal is to not outsmart the dealership, we cannot. Rather, the goal is to simply not be the sucker who subsidizes the cost of purchase for the savvy amongst us.
2. Emotion is the enemy.  Dealers love to invoke “family” into the equation quite often. It is not uncommon to hear sentences such as “you are my family…. I would not do this to my family.. I work for you and in your best interest.. your kids are so adorable, they remind me of my nephew…. “. Hear them out, they are doing a job, but do not get swayed into a deal based on emotions.
3.  Time sink and mental drain that accompanies the entire process. If it becomes too much, it may be worth it seeking services of the middle man to do the negotiating.
4. MSRP is just that.. Manufacturer Suggested Retail Price.  It is also the sticker price that one finds on every new vehicle in the dealer lot. The operative word is “suggested”. 
5. Invoice price is the price that dealer paid the manufacturer of the vehicle to purchase the car. This is official definition of invoice price. In reality though, it is simply impossible to know what is the true cost of car paid by dealer to the manufacturer and it certainly is lower than the invoice price.
6. OTD or Out the Door price, is the net cost of purchase of vehicle. OTD includes the negotiated car purchase price, the taxes, the documentation fees, and fees associated with registration and licensing of the vehicle.

Negotiation Price

After deciding on the model, the trim, and the color of the vehicle we want to purchase, I went about browsing the web to collect as much information as I could on the pricing for a new vehicle. In my case, the easiest place to start was Acura website to find out if there were any company deals available on new Acura RDX. From the site, I compiled the following list of information for our vehicle of choice: Acura RDX SH-AWD, Technology Trim with Black exterior.

Pricing:

• MSRP: $43,200;
• Destination Charge: $995

Incentives:

• 0.9 % APR for financing a new vehicle purchase
• Acura Loyalty Appreciation Offer: $1500 for current owners of 2010 or newer vehicle
• Acura Conquest Offer: $1500 for current owner of 2010 or newer Audi Q5, BMW X3, Lexus NX, Lexus RX and Mercedes Benz GLC

While I do not qualify for the incentives, I became aware that there is money on the table for pickings by a savvy negotiator. The 0.9 % financing offer also seemed quite attractive, something that I missed at the time of writing of part-2 of my post on car purchase series.

Next, I scanned consumerreports.org and edmunds.com website to figure out what are publicly reported numbers on the price for the car paid by an average buyer. Below are the numbers that I got (base price, not including taxes and other costs)

• Consumerreports.org: Market Average $43,684. More importantly, the website also presents the True Car Price Distribution chart and the exceptional price (outstanding deal for the buyer), is reported to be $41,959 or less
• Edmunds.com: True market value $43,167. The chart below provides further details on the price breakdown offered by Edmunds

It is interesting to note that the invoice pricing is about 5 % below the MSRP price. While data is not available on the total price, if we simply extrapolate using the True Marker Value data, the Total Price comes to about $40,993, which is $1000 below the exceptional price for buyer number from the True Market price distribution data.

Based on these findings and discounting for at least $1500 of the two Acura Company incentives and the regional adjustment pricing, I got to the negotiation price of $37,869. With taxes at 10.3 %, registration, licensing fees at ~$200 and the documentation fees at about $150, I was looking at an OTD price of approx $42,119.

The Hunt

With all the knowledge on pricing, I started browsing the web to look for all the Acura dealers in our neighborhood. We picked the dealer nearest to us and the entire AVI family walked into the dealership one Sunday afternoon. We were on a mission to convince the dealer that we were ready to purchase the vehicle that met our required specs then and there, if the dealer met our total price requirements.

Indeed had the dealer agreed to our asking total price, it was a no-brainer deal, especially if I could get the deal at 0.9 % financing terns. However, I made the calculation that there was no way for the dealer to agree to a negotiated price of about 14 % below the MSRP and about 7 % below the dealer invoice price. The best I was hoping was for the dealer to offer me his best offer in writing.

As I noted, dealers are good. There was no way I could convince the dealer to give me his best offer without him getting me to divulge my “buy” number. I caved in and grudgingly divulged my OTD number. At that point the car salesman was convinced that I was serious and he decided to work with his manager to see what they could come back with.

Following were the numbers I got back: (1) Cash offer, OTD price of $43,526 (2) Financing offer at about 3.5 % interest rate, $43,195. I happily declined and walked out. Mission accomplished, I got the dealer to give me his best offer.

An interesting arbitrage opportunity is worth mentioning here. Even if one has the cash to pay for the car, it makes sense to finance the vehicle, set up Acura Financial Services account and pay off the loan in cash online the next day.  Easy way to shave of approx. $300 off the price paid for the vehicle.

The Kill

Instead of walking into remainder of the dealerships one by one, I took cues from a blog article at moneyunder30.com and decided to write a detailed email to all the car dealers at once requesting information on the dealer best price for the car we were interested in, the price I was willing to pay (my price) and the timeline for purchase, 24 hours.

Not surprisingly I heard back from the dealer I had visited the previous day. He reiterated that the best deal he could offer was OTD $43,195 and that I would be a fool not to accept the deal. Below are the exact quotes  from the email I received from the salesman at this dealer,

Of the remainder of the 3 dealers, one got back informing me that they cannot make the deal happen. The second got back informing that he could make a deal happen for total price (not including taxes) for $43,605 and finally the fourth dealer got back seeking more information on my numbers.

I had several back and forth email communication with the fourth dealer. Each time him asking more and more detailed information, i.e., what was my zip code, did I own competing vehicles, would I finance etc.. And finally towards the end of the day, he shot me a final email wishing me all the best with my search for the car.

At this point, I had 2 options, (a) abandon the search and simply wait a bit longer for a deal to materialize (b) reach out to first dealer and lock in the best offer he had. I decided to wait until the end of the month hoping one of these dealers would reach out to me again to see if I was still in the market.

As it happened, the dealer with whom I had long conversations, reached out to me. He wanted me to give him additional $500 to work with if possible. The best offer I had was at an interest rate of 3.5 %, and if this dealer could make a deal happen for $500 more but at financing rate of 0.9 %, it seemed to me a deal that I could work with. I therefore decided to agree to pay $500 more if we could make a financing deal at 0.9 % interest rate. I then waited. Finally, towards the evening of that day, the dealer got back and again with the bad news. His manager simply could not make a deal happen at the asking OTD price of $43,195.

Convinced that “heartmath” was the best I could get, I decided to reach out the first dealer to confirm that the negotiated price was still available. He confirmed and I ended up signing the paper work for a car purchased at OTD price of $43,195 at an interest rate of 3.44 %, financed through Acura Company, with no pre-payment penalty.

Synopsis

While I failed to negotiate my asking price, I got pretty close. I had to sacrifice the lucrative financing offer of 0.9% from Acura Company, for the dealer to work out numbers that could get me closer to my asking price. In addition, I got the dealer to thrown in add on perks such as all-weather-mat and the Acura Protection Package.

I fully intend paying of the car in full very soon and assuming I do, I will have managed negotiating final sale price that is about 10% below the MSRP.

Was I the savvy buyer or the sucker who could have done better? this question for me will now have to wait for at least another 5 years when I expect to be in the market again for a new car!

Video/Book/Article/Audio for the Week

For this week we have,

• Twitter bards that Elon Musk and David Einhorn threw at each other: Check out this Reuter article for more.
• Meb Faber’s podcast interview with the CEO and founder of acretrader.com: Learned a bunch about farmlands and investing opportunities for ordinary investors in this asset class.