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At some point in our lives, we all have to buy a car. Whether it be brand new or second hand, we usually end up going through a dealer. This list is designed to help you save money by not being ripped off by the little tricks that dealers use to maximize their profit and your loss. Be sure to give other tips for saving on a new car in the comments.
This is the most obvious of ways a car dealer makes a profit. The difference between the dealer cost (invoice) and MSRP is typically 5-10%. This may not sound like a ton of mark-up, but when you consider that you’re dealing with thousands of dollars then the profit margin could be quite significant. For example, a car that a dealer pays $30,000 could generate a profit of around three-thousand dollars. And then multiple that times a few hundred cars a month, and a car dealer could make almost a million dollars a month on mark-up alone.
When a dealer sells a new car (not a pre-owned), the sale is RDR’d to the manufacturer (basically informing the manufacturer that one of their units has been sold). Once this sale has been verified, the manufacturer pays the dealer a set amount of money for “hold-back” and advertising. This amount is listed on the invoice in a less-than-obvious location and is often abbreviated/written in a way that a customer will be unable to figure out the information in the event he sees the actual invoice. For example: if an educated customer will only pay a certain percentage over invoice, then that percentage is calculated by the “invoice” price before any “hold-back” or advertising is deducted. Once the deal is funded and the contract is RDR’d, the manufacturer will send the dealer a pretty substantial amount of money (I’ve seen some “hold-back” and advertising fees as much as $1500).
When a person trades in a car, the dealer will surely attempt to undervalue the trade to make an immediate profit, and then a profit later when the trade is sold. The immediate profit comes from what is called the ACV (actual cash value). If a trade is really worth $11,500 (ACV) and the dealer only shows the customer $10, 500, then there is an immediate thousand dollar profit from the start. The trick is to know where a dealer gets his appraisal information (the most common are Black Book and Manheim Auction Reports. Dealers will RARELY match Kelly Blue Book and NADA) and work off that number to get a fair value for your trade. The other means the dealer will make a profit is when he sells your trade in. There are many financial and credit factors that can generate a profit from your trade. Simple example: your trade is bought from the dealer for $10,000. The dealer will then send your car through service and detail and make sure it is prepped for retail and safe to drive (he’ll also insure the car in most instances). Your old car will now be put up for sale for $13,999. Now, here’s where many factors come is based on the potential buyers situation. The lenders will “book out” a car based on a standard process (typically, a program called Dealer-Track will provide access to NADA for the banks and the dealerships to see how much a car can be sold for). Banks will loan a certain percentage of the cars loan value based on the customer’s credit worthiness. Let’s say the car “books out” for $13,125 (this is 100%), and the potential buyer has great credit. The lender will loan up to 135% of the cars value for that customer. Which means the dealer can sell the car to that well-qualified customer for over $17,000 and make a nice profit ($7,000). On the other hand, if a person has poor credit, then the banks will loan less than 100% and the dealer will have to take the deal at a lesser profit, or the customer will have to put some cash down to generate a profit the dealer will agree to.
New and Used cars are “packed.” This is a number that is immediately added to the car (in addition to the already existing mark-up). This is typically money that goes to pay the owner. The amount of pack varies between dealerships, new, used, etc, but I have never seen a “pack” less than $500. I’ve even seen some cars “packed” $1500. Let’s say a dealership sell 250 cars in one month, and the average “pack” is $1000: the owner makes a nice quarter million dollars a month on “pack” alone (3 million a year- not a bad salary).
This is the biggest farce of them all. This is a dollar amount the dealer says goes to pay for the process of handling your paperwork, tag work, title work, tax work, loaner car, etc. The doc fees will fluctuate from dealer to dealer (I’ve seen $299 to $699). This is a legitimate process that does require paying a handful of people for their work, but- in no way does it cost anywhere close to the amount they’re charging. Most of the paperwork can be done is a few minutes and over the phone, internet, fax, etc. The overage naturally goes into management’s pockets.
Bad bad business practice right here. A “bump sticker” is legitimate-looking sticker that the dealer places next to the manufacturer’s window sticker with a higher priced MSRP than the actual MSRP. The dealer will try and justify this added cost by suggesting the car had some special product applied to the paint or the fabric, or some window etching was done, or they’ll try and itemize all the work that needed to be done to get the car prepped for retail (insurance, gas, detail, service, PDI- [post delivery inspection], etc), or they might try and tell you that this car had additional mark up because it’s a “hot item” and people are paying over retail for that car. It’s all a joke and educationally insulting. The theory is once the “bump sticker” is negotiated away, then the customer will feel that he got a pretty substantial discount, when- in fact- he’s simply paid full MSRP for the car: not a very good deal.
When a customer agrees to numbers, they will have to go the F and I office (Finance and Insurance) to finalize the car deal. This is where all the legal forms are signed, etc. However, this is also where a lot of money is made for the dealership. One of the big money makers in the car business comes from the sale of Extended Service Contracts (extended warranty). I would say nine out of ten extended warranties will cover things that are never likely to break. Additionally, you’ll need to pay a deductible (on top of the $1400 dollars you just paid for the warranty) each time you try and use the warranty. The mark up for this product is typically mandated by the state you live in, but you can expect to pay twice its original value. One good thing about an extended service agreement is that most of them are refundable (prorated based on what you haven’t used). Additionally, a certified pre-owned model is typically a better bet than an extended service agreement (because it’s backed by the manufacturer’s name. Extended warranties are typically backed by the private dealer with a lot less public reputation at stake).
Now this is a product that I strongly recommend you buy: it could turn out to worth its weight in gold. However, you don’t have to pay $599 for it at the dealership when you can get it at your local credit union for $150. Basically, GAP insurance satisfies the car loan in the event of theft or total loss. Your insurance company will only pay ACV for your loss, but GAP insurance picks up the “negative equity” you have remaining on your loan. For example: My car is worth $11,000, but I owe $16,000. In the event of a total loss of my car, the insurance company will only pay my lender $11,000 towards the loan leaving me having to come out of my pocket $5000 to satisfy the loan. However, GAP insurance pays the difference and I’m off Scott free to go buy a new car free and clear of any additional payment on the lost car.
A person with good credit should never have to put a down payment towards the purchase of a new car. However, there are some instances where it may be a necessary (too much negative equity in trade, personal need to lower monthly note, etc). But typically, if a customer is satisfied with their payment, and they don’t have a significant amount of negative equity, then the bank should have no problem lending money to a well qualified buyer. Sometimes a salesman or sales manager will say ‘The lender is requiring 20% down,” or they might say “You’re going to have to pay your taxes in cash. The bank will finance the car, but they will not finance any taxes or fees.” This is a lie. If you can secure your own financing (personal bank, credit union, etc) before you buy, then that would be in your best interest and eliminate a lot of the shenanigans that can happen at the dealership. Additionally, when the sales managers offer is itemized with a down payment and payment listed, the payment- more times than not- can be retained without the requested money down. Down payments usually result in sheer profit for the dealership.
This little gem is another reason car dealers get a bad rap. When a sales manager submits your application to lenders for approval, the lenders will reply with what’s called a “call back.” The “call back” details the requirements for the loan. Example: let’s say the sales manager submits the numbers to a prime lender- we’ll use BB & T- for approval. BB & T will reply with terms (24/36/48/60/72 months), maximum amount financed, stip’s (proof of income, proof or residency, references, etc), and what’s called a “buy rate.” The “buy rate” is the interest rate the lender has approved for the loan- let’s use 7.9%. Well, here’s where the finance manager can steal from you. Typically, the lender will allow the dealership to make 2 points of rate if you’re still ok with the payment. That means the rate you’ve earned is 7.9%, but the dealer can contract you at 9.9% and the bank will pay the dealer the overage from the rate. This puts LOTS of cash in their pockets. Next time you buy a car and finance with one of the dealerships banks ask the finance manager to see the call back from the bank and compare that rate with the interest rate he’s trying to sign you up for. If he refuses, then he’s holding points of rate and he doesn’t want you to see that he’s trying to get you to pay a higher rate.
Contributor: Kay Jay
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March 10th, 2009 at 1:36 am
Great tips. Some I knew. Thanks.
March 10th, 2009 at 1:36 am
pretty good list, although some of the items were rather confusing….. to me at least. specifically the whole 4 PACK thing.
other than that, great list! keep up the good work.
March 10th, 2009 at 2:01 am
Sadly I just bought a Chrysler 300c and I kinda fell for some of the tricks above
March 10th, 2009 at 2:07 am
I didn’t understand most of this. Okay, I didn’t understand any of this. But I clicked on the google ad links at the top to generate revenue for the site.
March 10th, 2009 at 2:08 am
Gasolined guns on the list, g – guess this would be best for Biz Econ test -101 under duress yo – what nexto, how to withdraw checks ala presto?
March 10th, 2009 at 2:11 am
It is really not that complicated. Three simple rules for buying a car…
1. Arrange financing with someone else.
2. Research the model you are going to buy, find out the prices at different locations and find out anything negative about it.
3. Play several dealers against each other, and do not – ever – be afraid to just walk away if they try to play you.
March 10th, 2009 at 2:17 am
Frank: your final point is correct in ALL negotiations – not just car ones. If you have the ability to walk away and leave it – you are in the strongest position possible and you will always win.
March 10th, 2009 at 2:35 am
No. 9 and No. 7 I really don’t understand. Could someone clarify?
March 10th, 2009 at 2:44 am
Sadly, I also fell for most of these tricks (mark up, down payments, customer service fees, service contract, etc) and I feel so stupid, angry, saddened, embarrassed, all at the same time. Is there any way to reverse some of these?
March 10th, 2009 at 3:05 am
The best advice I’ve had was to never buy a new car because manufacturers always produce too many car and end up selling them off cheap after a while, I got a nearly new car (3k on the clock) that was 1 year old for £6k less than book price.
Today is even better because there are loads of cars just sitting in massive car parks that they are unable to sell.
March 10th, 2009 at 3:31 am
This may be the most useful list on this entire site. Extremely well done. Thank you, Kay Jay.
March 10th, 2009 at 3:36 am
Kay Jay
Can you come with me next time I buy a car?
Great list
March 10th, 2009 at 4:24 am
this is a good list, but I have to say that there are some cars that are ‘hot’ or ‘in demand’ and will sell for well over sticker price. For instance, when the civic hybrid was new, dealers had a hard time getting their hands on them they sold so fast. Naturally, they were asking more than sticker price. Also with the 2009 Ford Mustang KR500, The MSRP on the one I saw read $45,820. But they were selling for well over $100,000 at the time.
March 10th, 2009 at 5:09 am
Reminds me of that Seinfeld episode “The Dealership”.
March 10th, 2009 at 5:16 am
Yeah well sixfivejive if you’re buying a car for 50 grand you probably don’t need these tips. They’re good for the rest of us though
March 10th, 2009 at 5:27 am
Good list. As Frank mentioned before, one of the best ways to buy a vehicle is to get financing from a third party. A credit union is the best choice. If you belong to a local CU they will usually finance at a great rate. Also don’t ever feel pressured or afraid to walk away. It’s your money.
March 10th, 2009 at 5:34 am
I work for a dealership in DC and they swear by Manheim. . .
That is until they sell us a vehicle.
And I used to be an honest guy, too.
March 10th, 2009 at 5:47 am
car dealers are wankers!!!!!!!!!!!
March 10th, 2009 at 5:56 am
I like lists like this, perhaps I will get around to writing the English version. As some of the US terms don’t translate across too well.
The thing that really bugs me about the American car market – and I have family in LA, is that you seem to do everything on credit at the dealership, whereas here in the UK a much larger proportion of sales are cash sales, or from direct bank loans.
The other point worth noting is that here – if you have a trade in vehicle (UK – part exchange) the dealer will normally offer you a much better price than you would achieve selling it elsewhere. eg. private sale value £2,000 – dealer will offer you £2,700 so he can secure the sale.
It’s almost used as your ticket price reduction.
March 10th, 2009 at 7:26 am
My family has 4 dealerships and I have a couple of things to say. First of all the largest of our 4 dealerships sells about 75 cars a month. Not the hundreds described here. I am sure some of these things do happen at large car lots but not at the smaller dealerships around here (Wisconsin).
For one profit is not a dirty word, it just shouldn’t be excessive.
Secondly, why shouldn’t the dealer be allowed to keep the holdback and generate profit from the sale. We pay 8% interest on every car on the lot with the floorplan, shouldn’t the dealer be allowed to recoup that loss and make some profit.
Another point is the “paperwork fee”. If you are paying that much for a document fee you deserve to get taken, negotiate it down to a more reasonable amount. Ours is $95.
As for service contracts, they are not a bad deal. Just make sure the one you are buying is from the manufacturer. For example we have Dodge, Chrysler, Jeep dealerships so we sell Chrysler service contracts that extend the warranty from the manufacturer.
I know this wasn’t attacking all car dealers, and that I have a biased opinion, but there are 2 sides to every story.
March 10th, 2009 at 10:24 am
About 15 years ago I read a book called “Don’t Get Taken Every Time” by Remar Sutton, which has a lot of similar good advice about buying cars. It’s sometimes over-the-top, but has a lot of good information. Since then, I’ve been very pleased with all of my car purchases.
Great List!
March 10th, 2009 at 12:24 pm
I have been in the dealership industry my entire working life. The auto industry employs somewhere close to a half a million people in the US and then another half a million people in Canada. We are in the middle of a severe recession and this is just further damaging the public’s perception of the auto industry. Not to mention, a lot of that information is pretty exaggerated.
Auto and motorcycle makers have been in a situation for years where sales are slowing and margins are getting smaller and smaller and have resorted to advertising cars and bikes at less than dealer cost, making it necessary for the dealership to keep the holdback to even break even and pay the unit out. Like smbrickner said, most dealerships are not seeing hundreds of deals per month and dealerships have to finance their inventory as well, and pay 5-8% financing on their floor plan. Depending on how much a unit costs and how long it’s been sitting on the lot for, the unit you are looking to purchase could have already cost the dealership hundreds of dollars in financing, completely voiding any measly profit they would have otherwise seen.
I am located in Canada and the increase in the Canadian dollar made the values of most trade ins drop like a rock and we lost hundreds of dollars, sometimes thousands of dollars, per trade in. The banks either aren’t lending or have very strict lending restrictions, making it impossible to get anyone approved for financing except for those who don’t really need to finance. Not to mention, the dealerships do not determine whether a down payment is required, the banks do. It isn’t some nasty trick the dealerships use to get more money out of u. If nothing else, we make more money the more you finance….we don’t want you to put money down. That takes money away from us. It is determined by your TDSR, which is the amount of money you make vs the amount of money you have already borrowed (credit card limits, loans, lines of credit). Most banks will only accept a TDSR of around 40% before they will consider you overextended. They are also increasing their finance rate and reducing any profit we would make there. I’ve also seen a lot of banks refuse to finance any administration fees, licensing fees, extended warranty.…..
Also, it doesn’t take a matter of minutes to do a finance contract. Between taking the credit application, fighting to get the customer approved, getting all the necessary documentation to make the contract legal, getting licensing done and then getting the contract signed, I’d estimate there is a collective average time length of three to four hours to complete one finance deal. Administrative fees are necessary.
I get it this article is to educate people but the facts are grossly exaggerated and my opinion is with the current economic situation and so many people relying on the auto industry, I find it a little bit irresponsible to be misleading so many people.
March 10th, 2009 at 1:23 pm
Great, useful list! I’ll definitely come back to it when it’s time to purchase a new car.
March 10th, 2009 at 2:13 pm
bah just wrote a big comment about me selling cars and it didnt work not gonna write it again
March 10th, 2009 at 2:15 pm
what i will say is that with new cars, they are all the same and you can go to any dealership in the country and get the same car and the price might be different. this makes it VERY hard for us to make a profit on any vehicle as another dealer will just undercut us and get the sale.
i found it to be a very ugly industry to be in and will not be going back
March 10th, 2009 at 2:20 pm
Another useful tip that I found out about is that if you are a woman, it is better to go in with a man at your side. Now before everyone accuses me of being sexist (I am a man) I have seen this happen in reality. When my mother was looking around for a new car she went to a lot of places alone and felt that many of the salespeople were patronizing to her because they felt that she didn’t know what she wanted and could be convinced to buy accessories that she didn’t want or need at all. She asked me to go back with her to some of these places. (Note that I don’t know anything about cars and I consider my mother a much smarter and saavy shopper than myself) According to her the salespeople were much more responsive to her hard questions and were more reluctant to push things that she didn’t need. She felt that because I was there the salespeople were less pushy and more respectful of her. I would also say that I noticed that when she asked a question about mileage, maintenance or reliabilty, more often than not the salesperson would answer the question to me rather than her. Once again I’m not trying to be sexist or suggest in any way that women aren’t able to negotiate a fair deal, but I do think there are Car dealerships that seek to take advantage of women who are alone.
March 10th, 2009 at 2:24 pm
Sorry, but I forgot to say that I am not trying to say that all car dealerships are shady or trying to rip people off. There are many honorable and respectable dealerships out there, but there are always exceptions that make the entire industry look bad.
March 10th, 2009 at 2:44 pm
I see people who work in dealerships complaining here, but the car/dealership industry has been built on hiding areas of profit, exagerating fees, and playing games during negotiations. Your industry has also preyed on uneducated people. So, you deserve to get exposed and have educated customers rake you down to minimal profit. You guys did this to yourselves.
Like most businesses, my company charges the same price to all our customers, with a known margin. If we discount, then it’s a discount for everyone, not just selected ones. If you are going to play the game of negotiation and move price around, then understand and accept that the sword cuts both ways.
March 10th, 2009 at 2:48 pm
Excellent list. I don’t think all of these apply in Canada. I don’t believe holding points of rate is legal, not that that would prevent it from happening. I do know they receive volume discounts from whatever lending company they use. CIBC runs the dealer plan loans here. Or at least the couple times I’ve bought from dealers.
The only other point I would suggest is to buy your car from a rural car dealership. Try and avoid the ones in the city. My sister saved over 10 grand on her van (required for work) by traveling 20 minutes. Same deal with our old Honda. Valve seals were like 75 bucks at the dealer in Barrie, 2 bucks each at the dealer in Orangeville. 75 vs 16.
Also try and remember that factory warranties are transferable; most don’t need any further guarantee.
March 10th, 2009 at 3:00 pm
I agree with Marv. There are some that are trying to rip you off, but not all.
Having said that…got a good story for you. I work for a financial institution…so I know my stuff. Went to buy my current vehicle. The 1st dealership I went to scared me right out the parking lot. Didn’t even make it out of my car. As I pulled in, a golf cart with 4 people came tearing at me! I pulled right out the other entrance. It was the 2nd place that I went to that was just fine. They were perfect, kind and very helpful….it was the finance manager who tried to pull stuff. I walked out and the manager of the dealership came running up and he took over from there. Got a fantastic deal because of it. So…as it was already said…don’t be afraid to walk away. They do need your business.
March 10th, 2009 at 3:26 pm
I laugh no jelly fish in pool… I must allow afraids
March 10th, 2009 at 3:37 pm
This is a fantastic list overall, especially adding in the comments. But a few of the points could be explained better–what they mean, and most importantly, how to actually avoid them. E.g., many companies nowadays add a BS customer service fee, but is there actually a way to get them to waive it? I haven’t bought a car, but no other company I’ve dealt with has been willing to lower that fee at all.
(This would also be easier to read if an editor had fixed the spelling and grammar errors. There are missing words, verb tense disagreements, punctuation errors, etc. And my pet peeve: it’s “try to,” not “try and.”)
March 10th, 2009 at 3:42 pm
those BASTARDS!!!!!!!
March 10th, 2009 at 4:25 pm
I can’t help coming back to point out the silliness of point 3. Worth its weight in gold? How much does $150+ worth of gold weigh, and how much do a few pieces of paper weigh?
It’s also “scot free” (where scot was a tax). Although if it rids you of some dude named Scott, that might be worthwhile, too.
March 10th, 2009 at 4:53 pm
Marv, you are so right-on with your comments. I have a female friend who went to a dealership about ten years ago. She was in the market for a new vehicle and was the one in the driver’s seat (pardon the pun), but took her husband along for moral support. She was outraged by how condescending the salesman was to her, especially the fact that he pretty much spoke only to her husband, even when responding to questions she’d asked! (What’s worse is that her husband continually reminded the salesman that it was his wife who was in the market for a car and it was she who would be paying, not him.) Recently, m partner also had a similar experience when he accompanied his mother to a dealership.
March 10th, 2009 at 5:32 pm
Mom424: I agree w/ you; cars (and car parts) are cheaper in smaller towns.
I currently live in a smaller-sized town (approx. 25,000 ppl), but when I go an hour north to my parents’ (population of the entire county: 14,000), I’ll see 4-5,000 dollars difference in price. I usually go up to the dealer that my family has gone to for the last 50 years. More than one reason, though.
First, as I said, the vehicles are usually cheaper.
Second, The dealer goes by NADA; I usually get book value for my trade-in.
Third, Since we’ve used the same dealer (most of the time) for three generations, the salespeople know us, and don’t try to bulls*** us.
Finally, while I go to my choice of banks first for loans, they will also check out other credit unions for me to see who has the better interest rate, etc. I have been surprised a couple of times about who can offer a different rate.
To those who’ve mentioned about the woman thing; I understand, especially when I go to the larger dealers. However, I usually take my dad along because he’s a “car man”; he knows what to look for, etc. My hubby doesn’t know squat
OH! Great list, by the way, lol!
March 10th, 2009 at 6:39 pm
hmmm .. this is slightly confusing to me considering I have not bought a car myself yet. However, I did go with my parents to buy my first car a few months ago, and all I remember is that whatever the price was, was non-negotiable because they couldn’t even keep the make on the lot .. I had to wait a few weeks for them to get in more stock of the car. I have no idea if that’s normal or not.
March 10th, 2009 at 7:41 pm
I was able to purchase gap insurance from my insurance company, and it came in handy when I actually did total out my car. My agent pointed out that the cost for it is minimal and is a much better deal over the life of the loan than purchasing a separate policy elsewhere.
I do have to agree about bringing a man along when car shopping. I’m a female, but since my dad owns a small dealership, I know my way around cars and dealerships, but I can’t get a dealer out here to negotiate properly with me. It would actually save me money to fly my dad out across the country to help me buy a car. As for the last time I bought a car, I bought it from my dad and drove it back, all for $5000 less than the same exact model would have cost me here. My dad didn’t make anything from that sale, but knowing his kid didn’t get suckered was worth it for him.
March 10th, 2009 at 7:45 pm
As a stone cold capitalist, sometimes I just can’t figure the whole sales thing at car dealerships. With the possible exception of buying a house, I cannot see any of this going on for any other retail type of item. I go to the store, I see the price, I purchase it for the price, I take it home. That never happens at a car lot. I know a car is more expensive than that, but I don’t have to put up with any of this mickey mouse horse manure when I buy anything else.
I think Steelman’s got a point. The Auto industry is in a deep pile of shit right now, and although this kind of ring around the rosey stuff has been going on for a very long time, it’s no wonder they are headed for the scrap heap.
Here’s an idea, make a decent product, don’t try to bend me over when you try to sell it to me.
March 10th, 2009 at 9:40 pm
“Another point is the “paperwork fee”. If you are paying that much for a document fee you deserve to get taken, negotiate it down to a more reasonable amount. Ours is $95.”
What’s your hourly shop labor rate? Are you having a master technician do the paperwork or a low paid clerk? Do you charge a lot sweeping fee? A window washing fee? Toilet paper fee for the restrooms? Paperwork is part of the cost of doing business just like a lot of other things. Most DMV paperwork is handled by computer and takes about 5 minutes. I know, I’ve watched it being done. “Doc fees” are nothing but a huge scam to pad profits. Charge a fair price for the vehicle and and be done with it.
March 10th, 2009 at 11:42 pm
Junk #22. I don’t think the intention of this post was to turn anyone against the automobile industry… it just helping average citizens avoid vulnerability by providing them with knowledge so they’re not taken advantage of.
I’m pretty grateful for this post. Very informative! Good job.
March 11th, 2009 at 12:15 am
Is it bad that I could not follow about half of this?
March 11th, 2009 at 12:16 am
What the hell car dealership sells 250 cars a month?
March 11th, 2009 at 3:42 am
I think the whole distrust of the auto sales industry stems from a perceived “mark everything that we can up and see if they notice” attitude. I don’t want to haggle. I want to know the lowest price, period, so I can shop around and get the best deal for my money. I don’t want to think I’m being taken advantage of because I didn’t think to check this item or read about this fee. Those of you in the industry who have posted: I don’t begrudge your desire to make a profit: that’s business and I understand and accept it. I have a problem with deceptive and opaque business practices that leave me feeling like I’ve been fleeced. You want my business? Give me the clear, undisguised bottom line and don’t make me feel like my money is more important than my satisfaction. If you don’t do that, your competition gets my business instead.
March 11th, 2009 at 6:29 am
My husband is a car salesman…and he is always broke if it wasnt for me we would have no running water But the owner on the other hand makes 2,000 pack thats more than most dealers it makes me sick…
March 11th, 2009 at 6:35 am
Here is another very interesting article concerning car selling and car dealerships. This guy went under cover.
http://www.edmunds.com/advice/buying/articles/42962/article.html
March 11th, 2009 at 6:49 am
The “pack” is another thing I would like to address. It doesn’t always go into the owners profit. I use it to create a write down account that goes to reduce the cost on units that are sitting for a while. Or if something breaks on a car and there is no warranty, then we can fix it. Customer Retention is the corner stone of our business.
My dealership is located 8 miles from the nearest city or four lane highway. We are in an unincorporated town, which means we don’t even have a post office we use the one 8 miles away. And we have been here since 1945. So all you people , especially Chuck, that think you know how the business is run, and how it should be run, I would love to see you try it out here. We rely on customer loyalty and it works.
If people today would show a little loyalty to thier dealership, hardware store, local grocer (not Walmart). The counrty would be in much better shape.
March 11th, 2009 at 8:01 am
Uh…Chuck. You can’t just hire a “low paid clerk” to do the paperwork for a car sale. Especially a finance contract. A customer comes in an signs the paperwork and if one small thing is wrong with the paperwork, the bank will not pay the dealership for the deal. If you can’t get a hold of the customer to correct whatever is wrong, a customer just got a car for free. That is why you must hire someone who has experience and education in doing a legal document. $95 is very low for an administration fee. Oh, and the DMV just does the licensing. Of course it isn’t going to take long. And you pay for that too.
March 11th, 2009 at 8:10 am
*from the road*
Everyone seems to have some valid points, but one can avoid the entire circus if they follow the rule my husband and I have always set for purchasing anything: Pay in cash. Pay in full. Pay upfront.
Sure, this means we go without having having things *NOW* that we’d like to have *NOW*, that’s called delayed gratification. It works for us. The only purchase made not following the rule was, of course, the house.
Our car, a 1991 Lexus, was paid for in cash. It has been serviced on the Lexus schedule, has 356,000 miles on it, and runs and silently and powerfully and the day it was new.
When you’re paying cash, it’s a powerful bargaining chip, and the dealer is usually more than happy to accede to most any wish you have (within reasonable bounds) as far as add ons.
Let me assure everyone, we are not rich, we are middle-class. We are simply happy with delayed gratification. We decide ahead of time what we want, and start saving for that particular thing, in addition to our regular savings and stocks…don’t even get me started right now…but the savings for special items is always a special savings.
Just a thought.
March 11th, 2009 at 9:27 am
Very complete and factual list. I was in the business for about 15 years and everything listed is factual. Just remember that the salesperson deserves to be paid as well and business is designed to generate profit just read “The Book of Five Rings”.
March 11th, 2009 at 10:28 am
Wow. Thanks for all the responses. I see that some have taken my expressions as an assault on the car business; that is surely not my intention. And I do agree that profit is not a bad word, but- in this weak economy- a few dollars saved can be extrememly uplifting to a family. Profit is needed, but cash wasted is not. Thanks again.
March 11th, 2009 at 12:23 pm
I think there should be some kind of broker..kind of like a real estate agent you go see when you want to buy a car. Fight like hell to get a lower price and they get a certain percentage.
And I believe that since the auto industry is having such a difficult time selling vehicles AND the auto unions here in Canada are crying because of wage cuts and job losses, they should cut the prices on vehicles and THEN they could sell more and make more. I don’t remember hearing that all the imported companies having trouble selling as many cars as Ford, Chrysler or GM…are they??
March 11th, 2009 at 1:40 pm
I think that Honda in NZ has got it just right, as Buclism pointed out you go into a shop see the price and pay for it if you want it. Honda has that motto to an extent, they have one set price for all whether you are a big company buying 100 vehicles for your fleet or a small family buying one car you pay the same price. The theory being that the discount is shared equally, so the big companies pay slightly more for their cars and the retail customers get a better deal. it gets rid of the honda dealers undercutting each other and it ensures a set profit on each car.
this does not stop them from offering discounts but when they do they are advertised and offered to all.
March 11th, 2009 at 2:22 pm
So I’m all ready to buy a new Jetta last year and the salesman shows me the form and there is a $1500.00 charge for paint. I asked him for a bare metal car instead and he laughed and said not possible. If it’s an add on it must be optional.
I go to Ford and to get a Fusion, $1800.00 for delivery. “But it’s already here.” “Yeah but it had to get here,” “From Oakville that’s 40 mins away, I could catch a train and drive it home.”
I bought a Honda.
March 11th, 2009 at 9:29 pm
Great tips!
Don’t be afraid to stick to your guns, either.
I just bought a new truck this weekend, and wound up paying almost $3k under the price that was on the sticker.
March 12th, 2009 at 2:06 am
Good list, but seems a bit angry towards the car industry:
For example:
“Let’s say a dealership sell 250 cars in one month, and the average “pack” is $1000: the owner makes a nice quarter million dollars a month on “pack” alone (3 million a year- not a bad salary)”
Yes, but this would only be true if the dealership didn’t have to pay its staff, pay rent on its lot, pay taxes, pay all the other things it has to finance etc. If it was all this easy then so many dealerships wouldn’t be going out of business.
March 12th, 2009 at 9:26 am
LESS COMMON SENSE LISTS MORE WTF IS GOING ON LISTS. Like, on… things irrelevant to my life but are also interesting enough not to skim past. For example: 10 Bizarre Disappearances. I did not care about these people and they are really nothing but interesting stories, those are WAY BETTER THAN THIS PLEASE THANKS also I hate the internet.
March 12th, 2009 at 6:17 pm
I was in the auto business for 15 years and there arent more than a hundred dealerships in the nation that sell 250 new cars per month. The other part about the pack is most dealership do pack their used cars inventory. This extra money is used at most dealerships for the cost of the detail and clean up of the vehicle and the inspection and scheduled maintence. Most dealerships run their business off less than 5% mark up on a vehicle. That is true that their profit on a $30000 car is $1500, but how many businesses want to put out $30000 only to make a 5% return on investment?
March 12th, 2009 at 8:45 pm
AWESOME: Renew your Dungeons and Dragons subscription, replay your high school band highlight film, and leave us in the intelligent world alone!
MIKE: You must live in a town the size of sub compact coupe! I live in Fort Walton Beach, Florida (not a megalopolis by any stretch of the imagination), and there are three dealerships (FORD, TOYOTA, NISSAN) in this small town that sell AT LEAST 250 a month (the Toyota store sells close to 400). Before you post next time, PLEASE, step out of insignificant-town America and vote republican next time.
March 13th, 2009 at 10:25 am
KJ, you make some good points, but they are certainly not
close to being the WHOLE truth. As a second generation car
dealer, we closed our doors about 6 months ago after being
in business for 48 years. We were located in a small town
and were very active in the community, churches, civic clubs,
etc. There is almost no way to stay in business in a small
town that long without treating people fairly.Every single
item you mention has a whole other side to it that I would
be happy to discuss with you. I find it ironic that we are
out of business because people were always wanting to go to
a larger dealership where they thought they could get a
“better deal”. This was inspite of the fact that I could show
with the manufacturers’ data that we actually did charge less
per car on every carline and made less on finance than the
“Big Boys”. Sometimes we(the public) get what we wish for–
“a better deal”. If this business were as lucrative as you
make it out to be, there would not be so many dealerships
closing the doors, and there will be many more. The sad part
of this is that it will be the honest, ethical small town
dealers who will bite the dust first. As is the case in most
things in life, you would be wise to to go to a rural town
and do business with someone who you have built a trusting
relationship with. As a former salesmanager who was training
me when I first started said,”We don’t EVER lie at this
dealership;but, if we did we could never lie as much to the
customer as they lie to us.” I’ll close by agreeing
with one good point that was made in the comments–A lot of
dealers have brought this on themselves, but please don’t
judge all of us the same way.
March 13th, 2009 at 10:30 am
Kay Jay – How do you know this for a fact? How do you know they each sell at least 250 a month? Do you work for each of them? I’ve worked in the F & I office for five dealerships in the last 12 years in some major cities in Ontario and it was only back in 2001 or so that any of these were selling 250 vehicles a month and it wasn’t 250 BRAND NEW vehicles either. It would be between new and used. And it wasn’t every single month you hit 250. Some months you hit 150, other months you hit 400 and even other months as low as 75. Also, I’m a little shocked at your condescension towards Mike. Are you not the person who wrote the list? Mike has every right to scrutinize facts in the list and call out errors, as does anyone else. Especially with 15 years of dealership experience. If no one did this, misinformation would be rampant. The fact the comments are open is an invitation for a discussion, not petty remarks about his location and his voting preference.
March 13th, 2009 at 2:49 pm
Kay Jay As I’ve written before, this is a good list. I would counsel you to receive questions and / or challenges with better grace than you displayed in post #59.
March 13th, 2009 at 6:41 pm
I totally relate to the comment re women going alone to buy a car. It’s like lambs to slaughter. As a result, I refuse to buy another car ever again. I’m just going to bite the bullet and repair the one I have – it’s the devil I know.
How about the car industry stop charging more for a car unassembled? I could buy Krugerands for what they say they’ll charge me for a part. It’s a VW. Those damn Germans.
I have no sympathy for car dealers because of their long history of slimey, double dealing, opportunistic, hard-ball tactics.
March 15th, 2009 at 2:14 am
This was a great help.
I had 2 da an asignment on how car companies make money of the consumer.
I got most of my answer from this
Thanx heaps
Xx Dianna
15 yrs old
March 16th, 2009 at 11:44 pm
Thanks for these nice tips. These 10 tips really rock.
March 17th, 2009 at 6:35 pm
word to the wise…gap insurance is a brilliant purchase…even at the dealer price it’s well worth it. especially if you put little down or get little off your trade in. it saved me once already, and i doubt i’ll ever buy a car again without it unless i buy it outright.
March 18th, 2009 at 10:52 am
Great list. I’ll find out today if that extended warranty I bought was actually worth it…I would also suggest checking out Carsala (http://carsala.com) as an alternative to car dealerships. They specialize in finding used cars all over the U.S. and negotiate the price down for you, so you don’t have to haggle with car salesmen at the dealership. Usually they can save people around 25% off KBB prices.
March 21st, 2009 at 11:47 am
Great article, Kay Jay! I must say, however, that though your facts were dead-on point, you underplayed the tendency of the American auto industry to attract the worst, sleaziest and most predatory sales people. Not all of them, but most: if you’re not a scumbag, you won’t last long. No matter how pleasant they seem, they want your blood, financially speaking.. . Your commentor “past dealer” mentioned that customers also lie profusely, but it’s probably mostly self-defence! THE TWO MOST IMPORTANT things in buying ANY car:
ONE: KNOW YOUR FACTS; if you don’t, go get ‘em
TWO: BE WILLING TO WALK AWAY from ANY deal.
April 3rd, 2009 at 6:37 am
thanks for sharing
April 7th, 2009 at 8:58 pm
yasa
May 13th, 2009 at 4:04 am
I haven’t read the comments because I was floored when I read that you recommend GAP insurance. Why?
In early November 2008, my husband totaled my 2006 Kia Sorento. We owed around 24k on the loan, it was valued at around 18k… GAP claimed that because we had had one late payment right after we purchased the vehicle, they left us with almost 3k out of pocket. This, coupled with buying another new vehicle means we’re still paying for the Kia and the new car.
June 1st, 2009 at 10:04 am
Hi there,
it is great to advocate for consumers.
As a car dealer, though, I must say I had a couple of giggles here. Most of your assumptions about what we make don’t include all the expenses we shoulder in order to do business.
Before you assume that the car business is a great way to “get rich quick”, do a little research. I think you’ll find that the average car dealer makes around a 1% of sales Net Profit. That is before we pay the Government about 50%, leaving about $150 of that $30,000 sale to cover our reinvestment and then try to build capital.
So, while cars can be a good business, if you think about it, we have an awful lot on the line compared to many other businesses. We need huge facilities, employ more people than almost anyone else in town, and commit hundreds of thousands of dollars to the local schools, property taxes, and governments.
It’s very unfortunate that so many businesses in the automotive industry have had to go belly up, for the average citizen to realize how much revenue we put into the local community. The economic void that has replaced some thriving areas of our business will reach far outside Detroit as you see many banks, suppliers, and local community stores will be impacted by the losses in the car business.
Thanks for the opportunity to contribute my 2 cents.
Nancy
June 7th, 2009 at 10:40 pm
These tips are great!
But I do have a question…
I have been to some of the top dealerships in the mid-west: Sherman Dodge (Skokie, IL), Golf Mill Ford (Des Plalins, IL), Boucher Saturn (Waukesha, WI)… and a few small dealers on the side.
Golf Mill was the most polite and seemed to want my business.
However they didn’t have the car that I was looking for…
The other dealerships confused me and I am wondering what is it that made them turn me down and all I wanted to do was finance for a 00 model that was between the prices of ($7500-$5500)
My Credit Score is between 605-615
I make $800-$1200 a month (depending on illness)
I am a college student…
20 yrs
and Female…
Sherman wanted me to have two co-signers and the others didn’t even want me to come in.
Can any one tell me what is wrong?
June 11th, 2009 at 6:15 pm
@Joyous (73): You don’t make enough money each month. The banks are going to want to se at least $1800-$2000 per month and your score could be a 750 but if you have no auto credit, it’s not going to matter.
June 11th, 2009 at 6:39 pm
I’m wondering if our savvy customers here might go after the hospitals, doctors, health insurance companies and banks like they go after auto dealerships. You know, cause you’re a car buying expert now that you’ve read something on the internet a few hundred times. Rehashing the same old crap. If the 5% percent profit is so GD rediculous, I’m sure we’ll see none of you in Wal-Mart any longer more paying $29.97 for a 3.76 toaster made in China, will we? Truth is, We Americans are automobile whores and I see it everyday. You’re just a little more than mad cause you keep getting weak in the knees over some sheet metal that you think your neighbors would envy. I didn’t make your bad decisions, so don’t get pissed when I can’t fix ‘em. Got news for you, only in real estate companies and your local independent gas stations (gas only), do they have less of a profit than new automobile sales. Every, and I MEAN EVERYTHIGN you savvy consumers are buying… well, you’re getting screwed, I can only hope that the poor lady checking out your Cheerios in Wal-Mart doesn’t have to put up with you like the salesmen at the dealerships do. You know, with your fountain of information and misdirected anger. BE SMARTER!!!
June 11th, 2009 at 7:09 pm
@Eric (75): …
I typed this really slow to get it through my head… to try and give you the BotD, but come on…
“…only in real estate companies and your local independent gas stations (gas only), do they have less of a profit than new automobile sales…”
At the present moment, there’s only one reason that both auto sales and real estate are failing. A lack of liquidity and therefore finance. It’s not because of the great, great prices at Ernie’s Car Yard!!!!11!!!1one!!
July 13th, 2009 at 8:50 am
I’m sick to death with people putting car sales people down!!! They are just trying to make a living, by selling a product that people need! Dealerships offer the BEST finance packages, insurance products and advice. I admit that there are a few ‘old school’ sharks out there, but if you visit a main, franchised dealer you will get the best service! The levels to which these guys are trained is second to none, and at the end of all the miss- guided advice from 3rd parties, they are professionals in there field and should be respected for that fact! And GAP insurance is only the difference between the cash price for the car when bought and the value of what the insurers will pay you, NOT what you owe on finance, that is Finance GAP, or Loan GAP! There is something called CSI in the motor trade (customer satisfaction index) and dealers are VERY hot on this and will not allow ANY customer to be miss-leaded in any way! If you know what kind of car you want, how much you can afford and how long you want the car, trust the dealer to give you the correct product and advice. They are, after all, just trying to supply you with a solution to your needs and wants! What gives a customer a right to demand a discount or extras for free? Do you get to the check out at your local Wal-Mart and ask for a discount? I doubt it!!
July 13th, 2009 at 6:26 pm
You are obviously ignorant of how any business operates. Have you ever heard of overhead? Most car dealers struggle month in and month out just to break even. Would any company in the world be able to operate without gross profit to offset expenses? Why are so many closing? Some of your statements(million dollar salary) are just ignorant.
August 19th, 2009 at 8:57 am
What when a dealership says that they will have to charge us an additional $1500.00 to pay the bank so they will finance us? Isn’t that illegal?
August 24th, 2009 at 6:29 pm
Dealerships are actually able to hold up to 2.5 points in rate. this is called dealer participation which is profit to pay finance for the work they do to fund your deal. Typically when a bank gives an approval, it is at a discounted rate from what a customer would be quote from that lender. Those 2.5 points either go to the finance manager who is shopping various lenders to get you a good rate, or it can all go to the one bank you chose. when a typical consumer has 2 to 3 banks they can shop for rate, a dealership can have 30 to 40 lenders to shop rate and can typically save you 5 to 10 percent in rate. Credit Unions give a flat rate to the dealer that does not affect your rate at all.
August 24th, 2009 at 6:34 pm
Kim if your credit is a little rough the bank can charge a fee, and in this economy i’ve seen bank fees in excess of $4000! I recommend again to ask to see the call sheet, or approval sheet. That will show the bank fee, or discount.
October 7th, 2009 at 5:39 am
what the?! how do i become a dealer? where do i sign up?
October 13th, 2009 at 4:39 pm
I got tired of all the games after 3 low trade in offers on 3 seperate occasions and decided to start my own site trying to get people a better value for their trade. http://www.beatmytradein.com
October 19th, 2009 at 6:55 pm
a car mecanic salse me a car and i give him the money and he does not give me the car or return the 75% of the money i payed him what do i tell him to get my money back
October 23rd, 2009 at 7:42 am
Eric…here-here! well put my friend!
October 23rd, 2009 at 7:45 am
jo-ey, save about $1M dollars, have the balls to put your entire life savings, your home, your family and all you hold dear to you in jeapardy, and pray that some liberal, save the universe ass doesn’t try to expose you and all of your peers as crooked sleazy low-lifes because the people who shop with you are not educated and choose to make a completely and irrational emotional decision based on their lack of good judgement. Good luck to ya joe!
October 23rd, 2009 at 7:46 am
derrick, did he fix your car, or make an attempt to fix the car?
October 23rd, 2009 at 7:50 am
kim, in your case, it is probable that your credit is “less than perfect” and the lenders can and will charge an “acquisition fee” in order to loan you the money, which is not illegal. You understand that those fees that you are being asked to pay are completely based on your credit profile, right?
October 23rd, 2009 at 7:54 am
According to the National Auto Dealer’s Association, the average Domestic dealer’s net profit (2009) was less than 1% of their total sales. Some simple math for you all: A $30,000 automobile will equate to a $300 net profit for said dealer! Difficult to justify your witch-hunt now huh?
October 23rd, 2009 at 7:58 am
Mark, I think you are missing Eric’s point…no one questions a jeweler’s markup, or a furniture dealer…electronics…the list goes on and on…
October 23rd, 2009 at 8:01 am
Joyous, It is unfortunate that none of the dealers in this case actually told you that your credit profile does not justify an automobile loan. And you have to understand, you musn’t shoot the messenger. The dealer, in this case, is a third party…the loan is denied by the lender(s), not the dealer. Perhaps you should visit your own bank, if you have one, and see their loan officer will approve your loan. You will likely get the same answer.
October 23rd, 2009 at 8:04 am
CatChick, there is more to your story than what you have written here. GAP insurance, when written by a reputable dealer and GAP carrier has much value. It is however a calculated risk, like life insurance or health insurance…and COMPLETELY your choice.
October 23rd, 2009 at 8:10 am
Donaldo, it is obvious that you have been taken advantage of by an unscrupulous dealer. Your bitterness is unfounded and could be taken as offensive, if anyone valued your rude and uncompromising attitude. What can you tell us about the Health profession? Or perhaps the struggling Restauraunteur that charges $4.50 for a cup of coffee that cost 10 cents to make? I’m sure, based on your obvious knowledge of the car business, you could enlighten us on a few other professions that we should all keep an arms length.
October 26th, 2009 at 11:19 am
Ok can someone comment on deposits? Like if I want to show good faith in a car I’m interested in until I check out another, and sign the contract but don’t take the car. My understanding is that it is not a deal until I take the car. I left a check behind to show my interest – as I read this is a book many years ago. But does this tactic still apply these days? No deal until I have driven away?
October 26th, 2009 at 11:24 am
Oh and document and clerical fee – they wanted $280 friggin’ dollars. They had it listed separately – $180 Clerical Fee and $100 Doc Fee. I crossed out the $180 and recalculated the total. I thought $100 was above and beyond what they should get for this. Then the Finance Manager gets all pissy and tries to tell me that I had to pay it and it would be illegal for me them not to charge me this fee? Fact of fiction? I am in New Jersey so is this true? I will walk away over this if I have to. I mean I have no problem registering the car myself – it’s like they are forcing you to pay for something you should be able to choose to do if you want.
October 26th, 2009 at 12:32 pm
@eyesotp (95): I doubt that it would be illegal for them not to charge you that fee. I live in texas, and our state has a law ststing that the max fee for documents can only be like $75. This was written in the fine print on the contract they gave me. I would also consider any check that you have written to be money down the drain. If you do not pay them, and do not take the car, I doubt any deal has been officially made, but once again, consider the earnest money gone. Read the whole contract before you sign it. IT takes time, but it is important.
November 10th, 2009 at 4:54 pm
Great info. I came across a great site I would like to recommend to everybody. http://www.sell-cars-for-profit.com Lots of good info. on buying and selling cars and making a profit.
November 12th, 2009 at 9:24 am
I have seen an advance copy of a book, 365 POWERFUL WAYS TO INFLUENCE, by Dr. Donald W. Hendon. Title of chapter 1: Never Buy a Car from a Dealer with a Gong in the Showroom. It’s based on an audio tape the author made when he went to a car dealership in Las Vegas, Nevada. It covers 33 tactics (out of 365) that Harry Hardsell (sales manager) used against him…mostly dirty tricks. The book itself is full of tactics that you can use in areas of persuasion, influence, conflict management, relationships, seduction, manipulation, salesmanship, buying, etc. I understand it will be published in December 2009 or January 2010.
December 27th, 2009 at 11:59 am
Most financial experts say you should not be financing something like a car that depreciates immediately after buying. I paid cash for the last 3 cars I’ve bought, all slightly used, but near new for the last two (and not cheap). This saves a ton of money, and also gets rid of a lot of complications, not to mention giving you more bargaining power.
It may be hard at first, but buying only what you can afford makes good sense.
December 27th, 2009 at 9:39 pm
I’ve priced and bought 3 cars via the internet. In each case several local dealers were asked by a free internet service for their best price on the exact car I wanted. I always paid far below MSRP with no effort at all. I tried to beat the internet price the first time, and failed thoroughly — didn’t try very hard the other times.
I paid cash, but could have financed via my credit union.
By my count pricing via internet avoids 5 of the 10 points, and getting your own loan avoids 4 more, leaving only the trade-in point.
I do have the advantage of living in a densely populated area, so there are many many dealers that have to compete for my business.
December 28th, 2009 at 6:19 pm
Compared to other businesses the auto mark up is nothing. I used to work for Radio Shack where the mark up was insane. We would charge 10$ for a part that cost us .75. Other retail is the same. Those 85.00 Juicy sweats that girls are wearing cost Nordstrom a measley 10.00. The problem is consumers blaming others for taking advantage of them because they are ‘uneducated’ or ‘uninformed’. Educate and inform yourself before you buy anything.