The “Pencil” is the response to the customer’s offer. This is crafted by the sales manager. The goal is to “Bump” the customer’s offer either in price, payment or Down-Payment. Also, they are tasked to buy the trade-in for as little as possible.
In traditional negotiations, the customer will offer a low price and the dealer will come back with a high price and eventually, after going back and forth, they will arrive at a deal. As the “informed” customer, you have made an offer that is based on an amount over cost; therefore, the dealer is forced to “pencil” a response using the same base values. In other words, any price that the dealer makes as a counter-offer allows you to see clearly how much profit they are attempting to make. Do not begrudge a dealer for trying to make a profit; that is how they stay in business. With that said, however, it is important for you to be aware of all the elements to his response. There are a variety of ways the “Desk” will “pencil” a response.
The most common are the “You win” and the “Option close.” The “You win” method is by far the most common (and the cheesiest). Simply put, the Write-Up will come back with a hand-written counter-offer, along with a comment from the sales manager that reads, “O.K. you win.”
The sales manager hopes that by including a phrase that demonstrates his pricing sacrifice, it will encourage you to take the deal. This “pencil” will usually only disclose certain parts of the deal, such as the payment. It will not include the price or interest rate. The “desk” hopes that you will commit to only a few of the elements and they can adjust the price or Back-End profit in “F&I.”
At other times, the dealer will include the price or the “Amount to Finance,” but will not disclose the interest rate. This is why you must have the “Payment Checker” worksheet to verify the payment offered by the “desk.” For example, payments on a $28,395 vehicle should be $555 per month. However, the desk’s pencil could read, “O.K. you win: $28,395 with monthly payments of $578.” In this example, the “desk” has “packed” the payment with a $13 “Leg” and they will use this to make money on the back-end. Checking the dealer’s pencil, you find that the payment is accurate and the dealer is not hiding any “leg.” Once you have closed the deal successfully, you still have one more round of sales negotiations. The next sales pitch will come from the “F&I” manager in the finance office.