Bruce Bueno de Mesquita is the author of The Predictioneer’s Game, a book about using game theory to get what you want in day-to-day life. Mesquita argues that we can predict and engineer the future by understanding the self-interest of those involved in making decisions. What does that all mean? Well, over at Big Think, Mesquita has provided a short video explaining how to use these ideas to buy a new car.
Here are the basics of Mesquita’s method:
So let me lay out how to buy a car. It’s very easy. Decide exactly what car you want to buy, make, color if it matters to you, options and so forth. Then do not go to a dealership. Let your fingers do the walking. Telephone all of the dealers who sell the vehicle you’re interested in who are, say, within a 50 mile radius, a 25 mile radius, 75, however far you’re willing to go.
To each of them make the same statement: “Hi, my name is so and so. I plan to buy such and such a car today at 5pm. I’m going to buy it from the dealer who gives me the best price. What is your best price?”
This technique will probably sound familiar to some of you. I’ve mentioned it here at Get Rich Slowly several times before. Five years ago, for instance, I shared this video about how to buy a new car without getting screwed. The idea is the same as Mesquita’s.
I’ve seen this method work first-hand. In 1995, Kris and I used this technique to purchase a new Honda Civic (but we faxed dealerships instead of phoning them). We sent out a letter that looked something like this:
My name is John Roth. I would like to purchase a white Honda Civic with option A, option B, and option C. What is the best price you can offer me on an in-stock Civic that matches this description? I am faxing this letter to every Honda dealer in the Portland/Salem area. This weekend I will purchase the vehicle from the firm that offers the best deal.
Some dealerships refused to participate, but a few responded with competitive pricing. The one we chose offered a smooth, hassle-free transaction. It was awesome! And Kris is still driving that car today, seventeen years later.
[Big Think: How to buy a car using game theory]
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Great tactic. I should have my parents write a guide to buying cars. They play Bad Cop/Worse Cop. Once they ran into a guy they bought a car from 10 years prior. He remembered them because he said they made almost no money on the transaction.
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Interesting idea, and there’s an internet analog.
Many car companies let you submit a request on their website to get price quotes. Some dealers will call, others will email, but regardless, you’ll get a price quote pretty quickly. I did this back in 2006, and I suspect it’s gotten easier since then.
In fact, when I did it (again, it’s probably gotten better), many dealerships had two options for buying. Option one was more old school, where you pay more up front but they are competitive on service (X number of free tuneups, free loaner cars, etc.). Option two, which I went with, is basically they tell you the lowest price they are willing to go, sometimes tell you quotes from other nearby dealers (which you can compare too since they’ll be calling), and you pick whoever you want to go with. You have the option there of buying a service package at full price, but ultimately, if you don’t want to deal with a commissioned salesperson, you don’t need to.
Given how much data is available online, the car dealers who recognize that they are now a commodity get it right. They know you can look up pretty accurate prices for any location, and often what’s in stock.
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I did the same thing when I bought my new Mini Cooper except I did it all online (a lot more preferable for me than calling on the phone). I juggled emails from several dealerships, including ones that were pretty far away, and played them off of each other. Some just kept telling me to come in person, and I explicitly said I was not going to leave my house until I had a concrete number in-hand. I wanted the number in writing before I actually drove the long distance there. Some dealerships dropped out, but most played along. I got the price to where I wanted and it was easy from there. I also noticed that some dealerships have a sales person assigned specifically to online sales.
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Sounds simple, but it isn’t always so. I tried this same tactic last year. I contacted 7 dealerships. 3 agreed to provide a price this way. 2 offered the same price, 1 offered a slightly lower price. I got to the dealership, the person I talked to was not there, but his associate said, “Yeah, if we had that car in stock, that would be the price.” Mind you, I’d verified not 3 hrs prior that they did have the car, and I had the price offered in hand. He continued, “What we do have today is a newer model with a lot more options. Why don’t you test drive that, and then we can talk price.”
Needless to say, I left without buying anything. Other dealerships played similar games. It was a huge waste of time. I’d had to fight with them on the phone and by email to even give me a price that way in the first place, and they ended up not honoring the offer.
I wound up buying a different (used) car from Enterprise for a very nice price and have been very happy with it. I will never so much as pick up the phone to call a dealership, ever again.
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I did the same Dede did. I sent e-mails to all of the dealerships located in a 15-20 mile radius. I did not hear back from most of them.
The ones that did respond had online sales coordinators. I went to the dealership that quoted the best price and just walked in and handled paperwork. There was the typical upsell in the finance department, but I declined everything extra.
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Email and fax is better than phoning, especially if you’re female. Dealers can use voice to manipulate and make inferences about what they can get away with in ways they cannot do with email or fax.
And don’t forget this (cough cough) excellent GRS guest post: http://www.getrichslowly.org/blog/2010/11/07/reader-story-how-we-bought-a-new-car/
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I read your article, and what got my attention the most was that you didn’t end up buying a Ford F-150! Especially after your experience.
Better breaks + unscathed = teh win.
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I got the best deal through one of the Zag.com programs. In my case, it was the program they run through AmEx. I believe they also partner with AAA and some other organizations. I also tried the dealer email quotes system and the Costco program, but I got the best deal from AmEx. Best of all, the dealer that was 1 mile from my house initially came in $1000 higher, but matched the lowest price from the dealer 30 miles away when I told them about it.
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J.D., your link to his book on Amazon is actually a link to buy YOUR book, not his.
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Oops. Thanks. I always use my book as the base for links and sometimes I forget to to finish the switch because I get distracted. In this case, I was reading excerpts of his book!
I’ll fix it.
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That is an awesome strategy and well worth utilizing. The dealer that wants the business most is going to participate with the best price. And you save a lot of time that would have been spent driving around all of the place.
You can spend a lot of time searching for a car, but this method seems a whole lot better and smarter. And to still be driving the same car around 17 years later – awesome! Great tip on the ‘proper’ way to shop for big ticket items!
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I think the strategy will work better if done towards the end of the month when the dealerships are trying to meet sales goals and thus more inclined towards closing the sale.
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I did the same thing for a recent car purchase. I also walked into a local dealership to see what kind of price they could get me. I was told, “that is a very popular model. We cannot sell it to you for less than Invoice.” So I drove 40 miles to the place that could give it to me for $1500 less (for a Hyundai Accent). My time is not worth $1000 per hour…
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If this advice was coming from anywhere else I would say, “that would never work.” It seems so simple! Thanks, I’ll be excited to try it when I need a car.
I just read The Millionaire Next Door (recommended by GRS), and the section about how millionaires buy cars is enlightening. There are some similar tactics in that book as well.
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I first used this back in 1962 only we used snail mail. Most dealers did not respond. We picked the best price and bought the car.
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Excellent stuff. We’re big fans of both Bruce and Rob’s methods – so much so, in fact, that we launched a business based on the same “competitive bidding” model. ( http://www.speedbilly.com )
The idea is to let local dealers compete with one another on price in an open marketplace. That way, users can see their best offers on a given car, and so can competitors. Like Bruce says, it’s a way of letting the information flow from the dealer to you. And it basically “automates” the bidding process – this way, you don’t have to deal with all the phone calls or emails.
We’re keeping it local to New England for now, but so far, the prices are landing well below KBB’s Fair Purchase Price.
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Can you share how much you were able to save from the list price?
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Game theory like this only works if those whom you are using it on are unaware of your methods and motivations.
There’s a reason why several previous commenters are reporting that they didn’t hear back from every dealership they sent a request to. Car dealers know what this is all about, and they are declining to play the “game.”
I’m afraid this advice, if not already passé, will soon become so.
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That’s the thing with game theory–specific strategies work in limited scenarios. In real life the game goes on and on and players continue to adapt.
I could think of a variation on the method but it would take more effort.
You call dealer 1 and get a price quote. Then you call dealer 2 and say I got this quote, can you beat it. Then you call dealer 3, etc. You go back to 1 and say I called earlier, someone else, etc.
You continue going around until someone tells you to go to hell, then the next person, then the next person. When there is only one dealer left you say “okay, I’ll take your deal,” or something along those lines.
What you ultimately want to do is set up a reverse auction on your purchase. How you manage to set up that auction may vary. In theory the only way to beat that would be to form a cartel, but that’s illegal–though it happens.
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My brother used that technique of playing dealers against each other. Also, even though he planned on buying with cash, he said he was going to finance it. After he accepted the best price, he then “decided” to use cash, and the dealer kept the price the same (even though they tend to give you a better price when you finance). He got a great deal.
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We found that as soon as we got a price from one dealer everyone else was willing to play. Either they said they could match or beat the price or they said they couldn’t. We just needed the one opening. Before then they were cagey.
And yes, we did something like 3 rounds going back to previous dealers getting them to beat each other’s prices.
This worked well because we were buying a Honda and there are a lot of Honda dealerships in a 2 hour radius. My sister couldn’t do the same thing when she bought a car because she was buying a mini-cooper and there was only one BMW dealership around. So they had a local monopoly.
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I used a similar tactic except all the negotiating was already done for me. I used USAA’s car buying service. Lucky for me I lived in the DC metro area which had the lowest prices in the nation at the time. I basically stole the car from the dealer as it was 2 year ago when the auto industry was hurting. I highly recommend USAA’s car buying service assuming they can still get people great deals like they did for me!
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Please keep in mind that car buying services are not there to save you money. They are there because they make money for the sponsoring organization. I use USAA, and I like USAA, but using any car-buying service will not get you the best price on a vehicle. They will get you a discounted price from MSRP, but you could get a better price if you negotiated on your own behalf. Yes, it’s more convenient. But, we pay for convenience. (Are we back to the convenience food discussion?)
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(0) Figure out exactly which car you want (which packages, options, color, etc). Exactly. Cruising the most popular forum for that car (i.e., VWVortex, ToyotaNation, Hyundai-forums, etc) for recent price brags or common problems is a good idea.
(1) Figure out the approximate cost to the dealers through Edmonds (i.e., invoice less dealer holdback and incentives).
(2) Get the email address for every dealer’s fleet manager (some are also called the internet sales manager) within ~100 miles. Carwoo, Zag, TrueCar, and Costo buying programs automate this to a degree, but they’re imperfect. Not a bad plate to start, but generally inadequate to get the best deal alone.
(3) Around the end of the month email each manager more or less as suggested above: “I want X. I’ll buy in Y days. I’ll finance Z amount. I’m emailing all fleet managers in the region and will buy from the one with the lowest out the door price.”
(4) As you get offers, respond “Thanks, but Mr. ____ at ____ dealership offered it for $$$. Can you beat that price?”
(5) Buy. Understand the financing before you sign up for anything.
(6) Yelp about the great or terrible dealers you dealt with to save the rest of us the trouble.
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I wonder if this could work for used cars? We are planning to buy a new to us car later this year or early next year but there are so many variables with used cars (mileage, condition, model etc) that it would be hard to employ a tactic like this.
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Maybe (it occurs to me) you could say:
“I have X money for a used car, and i’m looking for a) b) and c) features– what’s the best car you can offer me for the money? ”
People may try to upsell you but you say “no, this is all the cash i have sorry”m So they will offer you something that fits your price.
Once you have an offer you could say “Carmax is offering me one with-n miles and +d features in this model. Can you improve your offer?” Or something of that sort.
Actually Carmax doesn’t bargain– but someone else who would.
So instead of asking for a better price, you’d ask for a better car for the money. See how much car you can get for $5000 or something.
Anyway, that’s my crazy idea.
A crazier idea would be to put an ad on craigslist for “sell me a car” and say how much money you’re willing to pay, what you’re looking for, and see what people offer. I’d venture you could turn your house into some sort of crime scene this way, but people would compete.
Maybe there’s a safe way to get people to make their offers online.
But anyway, if you create the market you have a chance of controlling it, I guess.
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I always learned to buy cars much more directly. You decide what you’re willing to pay for the car, even if it’s well below list price. You inform the nearest dealer and go see the car. Inevitably, the dealer tells you he just can’t get it to you for that price. So you give him your business card with the description and the price on it and tell him to call you back at the end of the month when he still needs to move the inventory.
Every car my parents have bought my whole life has gone that way. The dealer always comes back. It works especially well in the fall when they have to make room for new model years.
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This totally works! It just dawned to me that you just need to ask for it the right way and you will surely get options. This is the best way to get a wide variety of options, not only about payment methods or prices but also with different types of cars. It is easier today as you only need to email them to get quotes and they add several things to it just to encourage you to choose them. Thanks JD. Cheers!
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The car I really want, a Toyota Prius, has this reputation for never being sold below the MSRP ever. Is that possible? Or would something like this work?
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Bryan, I think that used to the case, but now there are a lot of hybrids on the market, so Toyota doesn’t have the monopoly it once did. Check out the TMV feature at Edmunds.com to see what people in your area are really paying.
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I did this sort of thing via fax with my first new car in 2001. But I did it a little different. I went and visited several dealerships further away to figure out what I wanted exactly and what was the “walk out price” – the price at which I was most comforatable but they let me walk. Well below list. I also went ahead and got pre-approved for the zero % financing (so I could keep my cash that I had saved). Then a month or so later at the end of the month in the FALL I faxed all the dealerships in my city and told them the make, model and features I wanted at the price I wanted (color needed to be flexible). Almost all called back and a bidding war began. Then when I had a deal, I went to the dealership to purchase I told them, “oh by the way I want the 0% financing” they tried to tell me I wouldn’t be approved, that the deal didn’t apply etc. I told them to check their system as I would be in it. I was. I got what I wanted. It was pretty easy and worth my time. You have to have done a lot of research, know what a good price is and not have an emergency situation, you have to be willing to walk. And keep walking until finally they come back and realize that a sub par sales for them is better than NO sales.
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I WORK WITH ROB GRUHL! INTERNET FAME (by proxy).
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Excellent! I did this for my last car 13 years ago. They still tried to get me for $495 for undercoating when I walked in to sign the papers. Before I walked out, I told them I’d give them an hour to correct the problem and deliver the car to my home. They did.
In case you still do not feel comfortable doing this, you might try a broker. I just met a guy here in Los Angeles who used to be a car dealer. Now he helps people buy cars independent of dealerships. He charges $400 to negotiate the price for you, and accompanies you to the dealership to sign the papers – in case the old undercoating option pops up.
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In December 2011, I bought my 2012 Mazda6 through the e-mail, competitive bid method. It was EXTREMELY SUCCESSFUL and the winning dealership was an absolute pleasure to work with. Ultimately, I got my car for $4,907 below MSRP, $2,848 below what TrueCar said is invoice, and $148 below the lowest “point” on the bell curve of what TrueCar said was a “great price,” plus a 10 year extended warranty thrown in.
First, I did a bunch of research online to identify cars that would be in contention. This included looking at different levels of the models and options and making sure the cars were generally in the price range I wanted. This also included using the GET RICH SLOWLY ARCHIVE to find articles about car buying methods. I read A LOT of the Get Rich Slowly advice, as well as Motley Fool and Edmunds, and decided e-mail competitive bidding would be the way to go.
Second, I test drove the comparative models (including desired features) of four different car makes. I liked the Mazda6 best.
Third, I updated my research specific to the Mazda6 (and the features I wanted). Especially helpful to me in preparing for negotiations was TrueCar.com.
Fourth, I sent out a form e-mail to every dealership in a 50 mile radius. I live in a big city, so there were actually seven different dealerships. The one where I test drove got a more personalized e-mail. I am pasting my form at the bottom of this comment for reference. Note: I pulled my invoice and dealer incentive numbers from TrueCar and Edmunds, after entering my precise model and features.
Fifth, I received bids back by e-mail from five of the dealerships, and most were in the “great” to “good” price range according to TrueCar. Interestingly, the two dealerships that had my car in stock did not respond. The winning bid was about a half hour drive away. The rep’s response was exactly what I asked for in terms of giving me both the out-the-door price, as well as the details of how that broke down. He even added in a free extended warranty and a screen shot of what my deal would be. He made it clear this was a firm commitment on behalf of that dealership.
Sixth, I gave the dealership that I test drove at an opportunity to meet/beat that best bid. They played games for a couple days, even raising their price, and ultimately told me there was no way they could give me that price and the best bid dealership was going to play games with me if I showed up at their door.
Seventh, I worked with the best bid dealership. I knew from his original e-mail that they were going to have to trade with another dealership to get my car. There were two cars in state that fit my request. The best bid dealership got on the phone to trade, but the first dealership they called was “busy” and then sold the car overnight. The second dealership they called didn’t really have the car “new” because the boss’s wife had been driving it a few thousand miles. So, the best bid dealership, honoring their e-mail commitment to me, actually ate the cost of getting the next geographically close car that matched my request — a pretty big expense for them to get it flatbedded from 600 miles away. My experience working with this winning dealership and its rep (titled its “Internet Manager”) could not have been better. I am still shocked how easy the process was and how honest the winning dealer was.
—————-
THE FORM E-MAIL:
Dear XXXXXX,
I am looking to buy a new car this week. Over the next couple days, I will be taking bids on the car I want, and I offer your dealership this opportunity to win my business.
Specifically, I want the 2012 Mazda6 i Grand Touring with the Technology Package. The color can be either steel blue mica or polished slate (but please let me know which you are pricing or if your bid applies equally to both). For your reference, I built the car on Mazda’s website, printed the car summary, and am attaching it to my e-mail.
For this car, I see the total MSRP is $XX,XXX, and the invoice is $XX,XXX. I am also seeing a $X,XXX dealer incentive right now (leaving aside dealer holdback).
Please e-mail or fax your bid to me, confirming all of the features/options on the car you are pricing and itemizing the selling price, sales tax, license, title, and any other fees, and the total purchase price.
I look forward to hearing from you no later than noon on Monday, after which time I am no longer accepting bids.
Thank you,
Sara XXXXX
Fax: XXX-XXX-XXXX
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I tried this old trick about a year or so ago with a bunch of Honda dealers. It worked initially (great email quote!) but once we went in to test drive, they pulled the “oh, I see what they did here” with the quote after which I was informed the price was actually an extra $2000. I said I would not pay it as I had been quoted a specific price. The salesman went to talk to his boss, who came out with all this information and paperwork showing me what he actually paid for the car and this and that. I told him I would pay the quoted price, but nothing more. I ended up walking out.
Ultimately, I think car buying is an absurd process. I wish I could just go onto a carmaker’s website and buy the car directly from them for a no-haggle price, whatever the price is that dealerships pay. Why make me go talk to a bunch of slimeballs when I can just order the car online?
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JD, I clicked on the book link, and purchased the book. I was on my iPad, not paying attention. When I opened my kindle, I noticed I purchased YOUR book, not the Predictioneers Game.. You need to fix the link, and I’m hoping this was an honest mistake, and not a sneaky way to drive up sales…
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Another way to save money on a car is to use a car broker. Basically, pay a guy to buy the car for you. It CAN be as cheap as doing it yourself, depending on your negotiating skill. Plus, you don’t have to handle dealerships at all. It isn’t for everyone, but it’s an option.
Another thing to look for is a family member or friend that works for a dealership. Unfortunately, my relative doesn’t get commission (he’s a mechanic, not a salesperson), but the rest of us all get employee pricing.
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I’ve done this and it works. Without having read all the other comments, here are some other considerations:
Shops when there are good incentives.
Come prepared with your own financing.
Be clear beforehand on if you want extended warranties.
Accessories: do your research and know what you’re willing to pay.
Don’t just go on price- google the dealers and see what reviews they have. This is the only thing I regret not doing beforehand.
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We did this same thing when buying a new car, except we did it all online and saved a ton of money). I detailed out the steps in my blog post:
http://www.pohlman.us/blog/2011/03/08/how-to-buy-a-new-car/
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This is an excellent tactic and I’m sure there must be other scenarios this would work with.
After, reading the comments, many people have suggested e-mailing or browsing the web for price research, but I think something has to be said for the phone, and it’s inability to be ignored. I think the internet is deemed as browsing, whereas the phone call means business and therefore a sale. I’m sure the price of a car would come down even lower if a sale is inevitable.
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That’s a great tactic! My wife and I will be in the market for a new car in the next year or so, we’ll have to try this out. I’ve never bought a car from a dealership before, so it’ll be interesting to say the least.
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