The High Pencil

There are many little tricks car dealers make use of when you sit down to negotiate.  Generally, the purpose of all of these is exactly the same: to push you towards agreeing to a deal that works great for them and not so great for you.

One of the most common is called a “high pencil” or “first pencil.”  The way this strategy works is that the first offer coming across the table at you from the dealership will intentionally high (it’s known as a ‘pencil’ as it is easily erased to negotiate a lower price).

The purpose of this tactic is to shock you so that subsequent offers will seem reasonable in comparison (there isn’t really a way to avoid this tactic but be aware that it’s likely to be coming at you).

This illustrates one of the many reasons why you should be sure to focus on the price of the car rather than negotiate on the monthly payment.  Dealers just love “payment buyers” because they can squeeze the most profit when you negotiate based on payments.

If you are negotiating simply on a monthly payment, you probably will have no idea of how unreasonable their “high pencil” offer is in reality.  They’ll usually quote you a down payment as well, but unless you’ve done the calculations ahead of time you won’t likely know how they compare to a more realistic price.

By negotiating just on the price of the car, you keep things simple.  There’s plenty of time after you’ve agreed on a purchase price to talk about down payment and interest rates.  The fewer different variables the dealer has at his disposal to manipulate the sillier a ‘high pencil’ looks because there’s nothing to justify it.   Remember, keep your negotiating focused and you may not even see a “High Pencil” offer at all!