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How to use game theory to buy a car

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Re: How to use game theory to buy a car

#11

Post by krschultz »

This is practically verbatim copied from "The Millionaire Next Door". Additionally it really has nothing to do with Game Theory, just common sense negotiating. And you can improve on their play by A LOT.

What power does the salesman have? None. He has cars, he wants to sell them. You have the money. You have the power.

He postures that he has the power but really, you can walk out at any time. There are other dealers, there are other kinds of cars, there are other sales guys at that dealer, and you can come back another day. Used cars maybe you don't see great deals all that much but on a new car, there will always be another car.

As a buyer, I want the seller to know two things to make a deal.

1) I'm serious about buying, and have the money/financing to buy TODAY. I can make a deal if he makes a deal. I don't HAVE to buy today, but I CAN. That makes a big difference. No one wants to quote a price that they can never match again, often times there are specific reasons why they can get a price at that moment but can't in general.

2) I'm not interested in the fine particulars. I want the best price. I will look at his lot and his competitors lot, and buy the car that is closest to what I want FOR THE BEST PRICE. Often they have inventory they are desperate to get rid of and will do it with 0 margin or at a loss just to get rid of the car.

An example, my last car was supposed to be $328 a month, but I paid $208 because I got the car in a dark gunmetal gray instead of the black I wanted, even though all the other features were the same no one wanted that color. I eventually grew to like it. I bounced between 3 dealers and they knew I had the cash, they knew I had the credit, and they knew I was flexible. Their initial offer was $250, I squeezed them down from there. If I had just faxed them like this article says I would have gotten nothing because it says I want black, and they didn't have the car in black. If you say you want the car in any color they aren't going to give you a good price because you sound flimsy.

Also as a note, never show one dealer another dealers quote. Tell him the number but NEVER show him the quote. You can cause serious problems for the original dealer and lose your deal. Often times you get these deals with things like the dealer getting a manufacturer rebate that you don't really qualify for but they can fudge some how. You play nice with the dealer, they will play nice for you.

Re: How to use game theory to buy a car

#12

Post by ShabbyDoo »

BobCat wrote: post #6

I will not read this - but here is what I do: Figure out the lowest price they can sell at, add $100 to that, walk out if they say no. If you really want the car, add another $100. Still no, stand up and walk out. Really, you can live without the SUV. Tell them you will discuss financing LATER. You have the total amount in cash [right?] so you can decide whether the financing deal they offer is better than a CD or T-…

>Figure out the lowest price they can sell at

Please elaborate.... How could you possibly know this? Do you have insight into the dealer's cost of capital from his lender? If the dealer sells a bunch of Trailblazer SUV's, does he get allocation of 2010 Cameros that he can sell for $5K above sticker?

Re: How to use game theory to buy a car

#13

Post by unalone »

BobCat wrote: post #6

I will not read this - but here is what I do: Figure out the lowest price they can sell at, add $100 to that, walk out if they say no. If you really want the car, add another $100. Still no, stand up and walk out. Really, you can live without the SUV. Tell them you will discuss financing LATER. You have the total amount in cash [right?] so you can decide whether the financing deal they offer is better than a CD or T-…

If you're not going to read the five-minute-long article, why bother posting?

Re: How to use game theory to buy a car

#14

Post by ShabbyDoo »

tonystubblebine wrote: post #3

A nice theory, but has it been tested? It assumes rational behavior on the part of the salesperson, not to mention assumes that the writer understands the motivations of the salesperson. I once found a car salesman who was asking way too much for a used car on his lot. He refused to budge on price. I couldn't believe both that it was priced so high above market rates or that he wouldn't come down on the price at all.…

I've bought our last two vehicles using a similar method. Most dealers have "internet sales managers" who are salespeople trusted enough by management to quote prices without first asking their bosses. It's not that hard. What was interesting was that one dealer's price was so low that competing salespeople said, "You should go buy that!" Something must have been different about that dealer's incentives -- perhaps they were under pressure from their lender to reduce inventories or something. I'll never know, but the vehicle was about $1K less than anyone else's offer.

Re: How to use game theory to buy a car

#17

Post by fatdog789 »

BobCat wrote: post #6

I will not read this - but here is what I do: Figure out the lowest price they can sell at, add $100 to that, walk out if they say no. If you really want the car, add another $100. Still no, stand up and walk out. Really, you can live without the SUV. Tell them you will discuss financing LATER. You have the total amount in cash [right?] so you can decide whether the financing deal they offer is better than a CD or T-…

Always buy rustproofing, if you bought a car crappy enough that the paint job doesn't include anti-rust elements, especially if you live in a location with lots of water-based weather or near the coast.

Why are you adding money to the lowest price they can sell at? That is your target price -- the lowest price they can sell will always be the lowest price that includes a profit (or the smallest loss, for brands like Chevy). Besides, most of the profit comes from the optional packages, which are marked up 200-500%.

Re: How to use game theory to buy a car

#18

Post by superjared »

The author mentions South Korea and its foreign policy several times. I would prefer to know more about (and attempt to predict) the foreign policy of North Korea over South, because of its closed-off nature.

Did anyone else think that the author meant North Korea?

Re: How to use game theory to buy a car

#19

Post by sammyo »

krschultz wrote: post #11

This is practically verbatim copied from "The Millionaire Next Door". Additionally it really has nothing to do with Game Theory, just common sense negotiating. And you can improve on their play by A LOT. What power does the salesman have? None. He has cars, he wants to sell them. You have the money. You have the power. He postures that he has the power but really, you can walk out at any time. There are other dealers…

It certainly is a game. It's an attempt to construct a game of 20 participants bidding on a scarce resource (you, the buyer) with specific rules. And would likely work, unless say, a few buddies happened to chat over beers and the subject of 'that crazy guy on the phone' comes up. The element of scarce information will then break some of the 'rules', negating much if any of hoped for strategy.

I like your approach much better, going in with maximum knowledge is key.

The one I've read about and wish I had the nerve is to get a few thousand in hundreds and right off spread it out on the table in front of the salesman, say this can but yours today, just hit my price.

Re: How to use game theory to buy a car

#20

Post by cheez80 »

fatdog789 wrote: post #17
BobCat wrote: post #6

I will not read this - but here is what I do: Figure out the lowest price they can sell at, add $100 to that, walk out if they say no. If you really want the car, add another $100. Still no, stand up and walk out. Really, you can live without the SUV. Tell them you will discuss financing LATER. You have the total amount in cash [right?] so you can decide whether the financing deal they offer is better than a CD or T-…

Always buy rustproofing, if you bought a car crappy enough that the paint job doesn't include anti-rust elements, especially if you live in a location with lots of water-based weather or near the coast. Why are you adding money to the lowest price they can sell at? That is your target price -- the lowest price they can sell will always be the lowest price that includes a profit (or the smallest loss, for brands like…

ah, but never buy rustproofing (or optional alarm, tint, etc.) from the dealer! those are the optional extras that are marked up 200-500%. there are specialty shops that will do the same exact thing for much cheaper.

also, every modern car sold today has anti-corrosion measures, as well as corrosion warranties, so i don't see why you would pay extra for rustproofing. this might've been a good idea 20 years ago, but i don't think it's necessary today.

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