Bruce Mesquita - The Predictioneer's Game

So, how else can you buy a car? Here’s what I recommend so that information flows to you and very little information flows the other way; so that beliefs change in your favor and not in favor of the seller; so that prospective sellers are compelled by self-interest to reveal their lowest price (their reservation price, as economists call it) and you are not.

It is always advantageous to control the agenda in a negotiation. In the car-buying context, that means constructing the conversation so that the seller puts her best price on the table knowing that it will not be accepted right now no matter how good it is. To achieve this, the seller needs to be told the game you are playing, including that you’re serious about buying a car. The game goes like this:

Do your homework and decide exactly what car you want to buy. You may go to dealerships for this purpose—I do not, it’s too easy to get sucked in—or you may search online to find the car that best fits your needs. Decide what you value. Is it safety over performance? Style over comfort? Is the color important enough that you’ll pay a premium for one rather than another? Know what options you want and how the options are bundled (sports package, safety package, sound system, etc.). When you know what car you want, including the options, the color, the model, everything, then and only then let your fingers do the walking. Find every dealer that sells the car brand you want within a radius of maybe twenty to fifty miles of your home. For most of us, urban dwellers that we are, that will be a goodly number of dealerships.

Telephone each dealership in the radius you picked. Don’t worry about having to bring the car to a distant dealer for servicing. The manufacturer provides the warranty, not the dealer. Ask to be connected to a salesperson and tell the person precisely what you are doing. Here is my typical spiel: “Hello, my name is Bruce Bueno de Mesquita. I plan to buy the following car [list the exact model and features] today at five P.M. I am calling all of the dealerships within a fifty-mile radius of my home and I am telling each of them what I am telling you. I will come in and buy the car today at five P.M. from the dealer who gives me the lowest price. I need to have the all-in price, including taxes, dealer prep [I ask them not to prep the car and not charge me for it, since dealer prep is little more than giving you a washed car with plastic covers and paper floormats removed, usually for hundreds of dollars], everything, because I will make out the check to your dealership before I come and will not have another check with me.”

If you are making your first call, be sure to tell the salesperson that you will tell the next dealer the price you’ve been quoted. After the first call, make sure the future salespeople know that you will be repeating whatever is the lowest price offered to you so far. That way, future dealers know what price they must beat, and the dealer you are currently talking to knows that if he wants to have a shot at selling you a car, he had better quote his lowest price. Pat’s hands are really tied. Trying to eke out a higher price just means a worse chance of selling you a car. That advantage hardly ever arises when you go to a dealer and give Pat complete control. Instead, you have set up an auction in which everyone knows that they have one chance to make the best bid.

Dealers don’t like getting these phone calls. Their typical first response is, “Sir, you cannot buy a car over the phone.” My reply: “Well, I have purchased many cars this way, so maybe I can’t buy a car from you over the phone, but I know I can from others. So if you do not want to sell a car to me, that is fine.” That is the end of the conversation with a few dealers, but not many. The common follow-up is a line salespeople like to use on the showroom floor when you tell them you are shopping around. “Sir, if I quote a price to you, the next dealer will quote fifty dollars less and you’ll buy it from him.” Pat has reverted to the standard approach and is now trying to regain control by making me feel I should be willing to pay an extra $50, as if I owe at least that to good old Pat. My response: “That’s right. I’ll buy it from the other dealer. So, Pat, if you can quote me that fifty dollars less, this is your opportunity to do so.” Then they often say, “Believe me, come in, we have the best prices in town.” The reply, “Good, then you should be happy to quote the price to me now because you are confident it is the best price. The only reason not to tell me the price on the phone is because you think it will be beaten.” If the conversation has continued—and it does with a substantial portion of dealerships—Pat will quote a price.

I arrive at the lowest-priced dealer, check in hand, just before 5:00 P.M. to close the deal. If there is any change in the terms I leave immediately and go to the second-best offer, and so forth. I have only once had to pay the second-best price quoted to me.

I have found that the quoted prices vary tremendously from dealer to dealer, literally by thousands of dollars. I have personally purchased Toyotas, Hondas, and a Volkswagen this way. Some of my students at NYU have taken up this method and bought cars this way too. It’s a nice little payback for their huge tuition bill. They and I have always beaten the price quoted on the Internet with this method. I even purchased a car for my daughter this way when I was three thousand miles from the dealership (she was going in at 5:00 P.M.). The price was so good that it was $1,200 less than the same dealership quoted to me for the same car on the Internet. How do I know it was the same car—I mean really the same car? The price was so good that I asked the salesperson for the VIN (that is, the vehicle identification number), and he gave it to me.

Why does this method work? Game theory is about strategizing in your dealings with other people. Part of strategizing involves realizing that the other person is doing the same. Pat, the salesperson, is thinking about what to say to get a better price from you. You have to think through different ways to respond to Pat’s arguments. The central concern is to anticipate how Pat is likely to reply to you if you say a really high price, a really low price, a moderate price, or, as I recommend, no price at all. Let Pat put the price on the table knowing that lots of other dealers will be given the same opportunity and that you have no intention of keeping Pat’s offer a secret. When Pat is asked for the dealership’s best price, Pat knows that this is the one and only chance they will have to sell you a car.

Salespeople want you to feel good about them. They want you to feel you are letting them down if you hold out for that last fifty dollars or if you question their sincerity. They believe this will weaken your resolve. Please remember: These are the people who invented “dealer prep”! They just want the best price they can get. They have no plans to be your friend.

The telephone approach solves all of these problems. On the telephone, body language is eliminated from the equation and you, not the seller, are in control of the conversation. 2You have set the sequence of moves and defined the game. They know that you will speak to enough dealers that anyone who is on the cusp of a manufacturer’s incentive, for instance, will give you a really good price. They reveal information to you however they reply. The fact that some of them leave the conversation early is a good thing—it saves you time. You have not lost an opportunity. They know their market; that is part of their business. You have given them an incentive to be truthful. They are better off for it, and most assuredly so are you.

When you buy a car this way, that day at 5:00 P.M. you make a deal that is as close to the seller’s minimum price as you can ever hope to get. You are in charge of the negotiation and entitled to feel really good about the deal you struck.