E-Sourcing Forum » Negotiate for a car?? Bahh

Negotiate for a car?? Bahh

January 24th, 2008 at 05:45am 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.

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Entry Filed under: General, Reverse Auctions

6 Comments Add your own

1. Alan Buxton | January 24th, 2008 at 6:25 am

http://www.autoebid.com already seems to do this sort of thing, though UK only apparently

I’m in the process of negotiating a hardware contract for TradingPartners, which I’m doing offline. And I tell you, it’s much more of a job overall than the recent reverse auction I did. (Though I guess I would say that, right?)
2. Charles Dominick, SPSM | January 24th, 2008 at 9:24 am

Great story, David!

The thing about buying cars, unlike buying other types of goods and services for a corporation, is that you can rather definitively find out what the supplier’s costs are (including holdbacks and dealer incentives). So you can go in with your target price in mind and say “meet my demands or I’m walking.” For most cars (excluding the higher-end models) as you’ve found, most dealers’ most aggressive prices will be within about $100 of each other.

But I think that your story and mine just go to show how much fun car buying can be!

Keep up the great work!
3. David Bush - Iasta | January 24th, 2008 at 10:20 am

Thanks! This is a story that almost any one can relate to. There is almost nothing worse than being intimidated by your vendor, and only being sure that, the only thing you know, is that they know more than you know. I have bought the last two cars this way and had A LOT of fun doing it, while saving gobs of money.
4. Mike Smith | January 24th, 2008 at 2:13 pm

David,

As I was reading your post andthe sourcing process you went through I absolutely assumed that your plan was to use iasta to run the acution, and i was STUNNED to learn at the end of the article that you hadn’t.

I’ve always believed that the retail car industry in particular is ready for a one-time consumer based reverse auction tool. Here’s your opportunity!
5. David Bush - Iasta | January 24th, 2008 at 6:10 pm

Mike, trust me, I was more disappointed! I thought car salesmen would make pallet suppliers look like Bill Gates, but now I think they could have handled it. Next time you buy a car, give me a call…open invite to test the theory.
6. Mike Smith | January 30th, 2009 at 10:25 am

David,

I’ve been thinking now might be a good time for a new car. Still interested in testing a reverse auction?

Mike

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