Negotiate for a car?? Bahh
5 comments January 24th, 2008 David Bush - Iasta
Charles Dominick had a good story about purchasing a new vehicle, which reminded me that I was going to blog about my own process of buying a new car. Last month, we decided to go through the same assessment in my own purchasing department which includes me starring as CPO, Director and Buyer. The process was handled differently but the results came in pretty good!
To begin, I have to agree with Charles that some of the biggest houses in Indy (just like Pittsburgh) are owned by the car dealers, so all the crying poor should never be believed. Next, his method involved sitting at the table and hashing out the details in negotiation format. Of course, there is no way I was about to do that when I live and breathe the sourcing efficiency model.
Phase I of my process was to soundedly prepare by evaluating the Honda and Toyota options that we were interested in and develop my own specification of EXACTLY what was going to be purchased with absolutely NO margin for alteration. Once it was decided the options that were going to be on the vehicle (from both manufacturers), I did my research on publicly available data to know all the model numbers and option packages. This information would be used to make sure my vendor knew that I knew what I was talking about. Phase II was to begin after Christmas and before New Years, I needed to take advantage of what I knew about my suppliers - they have end of year and end of quarter goals/quotas which effects their incentives and cash back from the manufacturers. Also, unknown to many people, is that dealerships that move higher numbers of vehicles usually get preferential allotments of new, hot models. So, they need to push these cars off the lot, some will be high margin, some not. I planned to occupy the “not” category.
Phase II was ready to go the day after Christmas, when the dealers reopened. I had prepared faxes which clearly stated the model and options I wanted, with no exceptions. I faxed this one page letter to every dealer in Indiana, both Honda and Toyota. Although, I felt the Toyota was slightly better, I was not willing to pay for it. I had condensed this decision into a 6 day window to be sure that I took advantage of my beneficial timing.
I learned quickly, from my supplier feedback, that the Toyota’s were in very short supply, but there was a inventory glut on Honda’s of the competitive model. This quickly changed my strategy to the Honda model, which was now the focus. Based on my fax comunique, I got about 40% response rate and started learning where the price floors were because some suppliers had more incentive to sell vehicles than others, so they came in with aggressive pricing early.
Knowing now what I would buy and having a short list of vendors (and most importantly, knowing where to begin negotiation) I began the process of speaking with my preferred suppliers. Once I made sure that every one understood the specs and we were all talking about equivilent vehicles, I added in a new component of a 7 year extended warranty, which I also knew the pricing floors because of quotes from other dealers. (This is a commodity, they are all selling the same thing and some dealers will mark up the warranty heavily when the invoice price gets too low). Barring some additional gorey details, I made my final decision based on an Indy dealer over a Fort Wayne dealer because I valued my time (2hr drive one way) over the $100 lower cost.
In the end, I got our new vehicle at over 30% off MSRP and an estimated 15% off what I think would have been possible, if I had not all the information clearly presented to me. If you have not figured this out, what I did was a manual reverse auction with all the necessary planning upfront which provided me all the leverage throughout the process. I definitely came through the process as a very informed buyer and, consequently, was able to contract the lowest possible cost that my vendor was willing to provide but still benefit from the deal.
My only regret? I wish I had done this with the Iasta SmartSource software. I feared that my compressed time frame and unknown sophistication of the supply base, might lead to decreased participation and bids. In hindsight, I do not think this would have been a problem, as most dealers were very prepared for online communication and likely would have placed their bids online for each lot that I constructed (base price, taxes, warranty, documentation fees, etc). The additional benefit would have been real time feedback where they could have seen their rank. I think their curiosity would have lead to bid adjustment over the multi-day period.
Man, that would have been awesome. In retrospect, I might have had a chance to make history as being the first consumer to ever purchase a car in an online reverse auction. But alas, I will need to just take the thousands of dollars I saved and be happy with the 4 star resort vacation we are taking in February.
Entry Filed under: General, Reverse Auctions
