I've already made every imaginable mistake so that you don't have to.

First Pencil


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Whether scribbled on the back of a napkin or delivered warm from a laser printer, the initial offer presented to the customer by the salesperson is called the First Pencil.

  1. With the most absolutely extraordinary luck, the first pencil could be a competitive offer on the vehicle you wish to purchase equipped as you want it.

  2. There is also a very substantial chance that the first pencil could be an uncompetitive offer on the vehicle that you wish to buy.

  3. Finally there is even a meaningful chance that the first pencil will be an uncompetitive offer on a vehicle far different than that which you wish to buy.

    While I did say "finally", there may be a greater chance of this scenario than scenario one.

The more prepared you are before entering the dealership, the greater your chance of scenario one, but even then it is absolutely not guaranteed.
I once went into one car dealership very prepared with a stack of competing offers for various configurations for the dealership to eventually beat, should the initial offer even prove to be at all competitive.
However, that dealership's initial offer proved to be MSRP minus the rebate that the manufacturer was offering.
While superficially it might seem tempting to call out that dealership and shame them, from the perspective of that dealership it would not be shaming them at all.
The strategy of some dealerships is to make a small profit on a large volume of cars.
The strategy of other dealerships is to emphasize gross profit per vehicle over volume.
Regardless of how prepared I was, I was simply sitting in the wrong dealership if I wanted the absolute lowest price.
While their offer was thousands of dollars more than what an informed consumer would pay, from the dealership's sales manager's perspective how would he know I would not agree to pay his above-market price if he did not submit it to me?
I would love to close this page by saying having once been handed an offer of MSRP for a vehicle, I have now seen everything and nothing new can ever surprise me.
However, such a naive statement would only suggest that I have even more to learn than I think I do.