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
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.
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.
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.
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
Thanks for these nice tips. These 10 tips really rock.
Too bad they are mostly false.
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.
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.
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.
thanks for sharing
yasa
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.
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
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?
@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.
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 *****s 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 *****ed 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!!!
@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!!
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!!
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.
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?
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.
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.
what the?! how do i become a dealer? where do i sign up?
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
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
Eric…here-here! well put my friend!
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!
derrick, did he fix your car, or make an attempt to fix the car?
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?
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?
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…
Most people I know question a jeweler's markup, and I own a furniture store, and trust me, they negotiate. BUT I don't understand why people single out car dealers so much, its like a goddamn witch hunt, I agree with you. Get a fair discount, pay for the car, and move on people….I'm sure many of you are so overpaid the dealership pales in comparison to your billing overages. Its time we respect car dealers, they work hard and make an honest living…..Unlike most lawyers I know.
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.
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.
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.
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?
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 *****y 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.
@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.
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.
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.
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.
Paying cash does NOT give you "more bargaining power". Financing does.
Here's a trick, I won't even charge you for it. Negotiate the price of the car to be as LOW as possible, NEt NEt NET. Then tell them you don't care about the rate, and you're happy with a payment that allows a high rate (you can find a way to explain this). The dealer will think they are making a killing on rate, and then you pay off the car and they get charged back…..
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.
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.
This is the sort of list that scares me, because it makes me sure I’m being had. My approach was to avoid all of this and not negotiate on my own at all. Instead, I used the the non-profit Consumer Checkbook CarBargains service (http://www.checkbook.org/auto/carbarg.cfm). I bought a Subaru, and they got six quotes from local dealers–all of which were quotes relative to invoice, without specifying exactly which options would be included. For my model and trim line, the quotes ranged from $1500 below invoice to $100 above invoice. I then called dealers to locate the cars and find out which options were included. The CarBargains information listed the invoice price for the car and the options as well as any additional dealer charges (e.g., the $55 document fee). The dealer told me the price, and it matched exactly what I expected it to be. So the pricing was completely transparent. I would otherwise have negotiated hard and thought I was getting a good deal if I got to, say, $500 above invoice…and paid an extra $2000 more than necessary.
I’ve sold cars for 5 years now so I have some experience in the industry. Most new cars today are sold at or near a loss to the dealer. The holdback from the manufacturer is the only way that many dealers afford to keep a franchise. The bad old days of dealerships hiding profits and making enormous profits on cars is over and has been for some time. Also, as noted in a previous comment, a mantra in the car business today is that if a customer’s lips are moving they are probably lying. Of course there are some bad apples out there in the industry but in my experience the average car salesman is more honest than the average customer. We actually have a reputation to uphold and the manufacturers take our Customer Service Index scores very seriously. People complain about having to haggle and negotiate to get the “best price” but never take the time to think that almost no other industry gives them the ability to negotiate the price of a product. If you walk in and pay sticker price with your own financing the process would take about 20 minutes. Above all else a car dealership is a convenience center for customers. It is a one-stop shop for new or pre-owned vehicles, financing, service, parts, information. As with anything else in life there is a cost involved with that convenience. If you want to pay bottom dollar for a used car then spend hours online or in the newspaper looking for private sellers. When that car breaks down then try to go back to that private seller and ask them to fix it for you and see what kind of response you get.
How about what customers do to sales people the way they lie and treat car dealers.
Why don’t we talk about that?
I am actually a car dealer. I want everyone that read this that yes some of this or most of this information is correct except all the the dollar amounts used. Pack is normally around $300. It’s used in case there is a problem with the car and you need to bring it back for some reason, or to fill up the gas tank etc. Then there is the holdback or ad money which the writer wrote about. Well it’s used just for that to place ads. How much do you think cars.com or autotrader charges a dealer how about those tv commercials or news papers. The cheapest a news paper will cost a few thousand dollars for one day . This is not a bad article but misinformed. Everyone forgets about all that a dealer has to pay. How about the electric bill alone. Remember it’s not just lights but mechanics lifts etc, you get the point. We’re a small dealership and our elec. bill is almost $5000. a month. How about heat. People shouldn’t be so quick to just look at the numbers but look at the overall picture. Honestly alot of dealers are just getting by these days. Look at all the dealers that you have seen go away in the last few years. Now if they were all making $3,000,000. a year in “pack alone” why would they not still be doing it and why are they in bankrupcy court and losing there houses??? I can put anyone who gets in touch with me in touch with ten of my friends who are not in business anymore and are broke because customers would come in and nickle and dime them and because they needed to sell a car and get it off there floor plan had to lose money to sell it which in turn put them out of business. Oh yeah floor plan so it’s a line of credit to a dealer from the manufactorer which every 30 days you have to make a curtailment payment on the cars so it’s on avergae 3% so a $30k car would be a $900.00 payment times 100 cars that’s $90k a month just to have cars there to sell. Everyone please read this and look at the overall picture. I have friends that have lost it all by being misinformed. Thanks.
I know my grammar was off in my post. My hands could not keep up with my mind. Again thanks for reading I just wish the writers would tell all. Car dealers do have a bad rep. But the money is not there like it was 10 or 20 years ago. It’s like every othere business guys are just getting by. And it will never go back the other way for dealers again.
First of all:
-As far as trade in's, most dealerships buy vehicles at wholsale prices and sell them for retail, it's just the only way they could ever make money off buying cars
-Most services fees go to the vehicle being washed and detailed, in whole pays for the person to prep your vehicle for delivery
-Dealerships make no money off of cash deals or down payments. None Zilch 00
All businesses make money. Lets start talking about how much companies make on a gallon of milk. The company makes $0.25 a gallon times 4 million gallons per month thats 1 million dollars for the owners, thats a pretty good salary. Please make an ad on how to save those $0.25. The store than makes another $0.25. Start by negotiating. If he does not go down at least $0.20 walk away from the milk. Its your money. Who ever wrote this ad is a dum*a*s. Of course dealers need to make money. Why open a business and not make money. You bring cars in and fix them, wash them, pay rent, mortgage or taxes on property, pay employees and sell them at acv like you say, to break even. Dont be an idiot by writing columns like this one.
I have been in the car”biz” for over 20 years since I was 19 years of age. I have seen a lot of changes , with the internet , and CSI (customer satisfsction Index), new technology and the economy. All of these changes have been beneficial for the car”buyer”. An informed buyer, does not equate to a smart one though.
Some coments are very true and some are not. Here is some of my insight and I thank you in advance for your time.
The price is the price. No amount of down-payment changes the price which means down-payment cannot = profit unless the price raises
The “doc fee” whether it be 79 or 599 must be charged to everyone or to no one, it must be charged the same amouint. Ant to all retail deals, if it is negotiated down, than the price will drop that amount but it will still be itemised to show it was paid.
The taxes go to the state it is not profit
The salesman gets paid only on the profit relative from cost to saleprice ONLY, we do NOT get paid on any fees upto and icluding doc-fees
The dealer principle. The name on the building that’s the guy who gets paid on any of those fees
There are operating costs and salaries to be paid so whatever profit the owner makes there are bills to be paid as well its not all “into his pocket”
I am a consumer when I am not on the lot and I want the best deal too but when do you stop ? I have had many customers shop sooooo much that they will get on a plane and buy several hundred miles away to save 100 bucks. There is such a thing as overnegotiation.
A motivated car dealer will do anything and evrything in his power to sell a car. That means good service for the customer , don’t mistake zealousness for sleaziness.
The number one thing out of a guests mouth is “just looking” even before a hello. If guests just stated simply I am looking for a four door blue with a sunroof. Well guess what , we will find one for you. There is no reason to be rude to us, most of us are meeting for the first time, we have famlies and we are not cheating robots. All we want to do is get you into a vehicle that will fit your needs and make you happy. God forbid we try to make a living off taking care of customers “wants and needs”. What other businesess do that? Or try! Hmmm all of them , maybe.
I left a lot out for the sake of length I apologizw for grammer and punctuation errors as I am just a carsalesman
But I am proud to be one
spoken like a true salesman
Dark Horse, you must realize though that WalMart is already as cheap as it's gonna get. But Best Buy? I got a $900 TV for $750 and then paid full price for 3 HDMI cables. I returned the cables the next day, and went online and got them LITERALLY for 10% of the price. I win! The reason cars are focused on the most, is because they cost the most. You wouldn't ask for a 30 cent discount on an item at WalMart, that's just stupid. But you would ask for a $50 discount on a $1000 product at Best Buy.
Why are people so against car dealers? Why don't you negotiate with your health care provider or lawyer, they are the ones ROBBING US BLIND!
Find the car you like, get a fair price, and be done with it. You won't get rich trying to screw over the dealer for a few hundred here or there.
How much is your power bill at home? Multiply that by 20 and the dealer has to pay that every month even if they don't sell one car. They also have to insure the cars, pay workmans comp, and everyones salary including the salesmen who everyone seems to think has no bills and should make $50 a car. At our dealer an average salesman will sell maybe 12 cars a month. We only have 8 guys selling. So do the math the dealer would probably have to make 30k a month just to keep the lights on and the minimum wage draw employees paid. If you pay $150 a month to insure your car and the insurance company knows your driving history the risk to them is fixed so your rate can be $150 a month, however we have people come in that their driving history is unknown therefor the insurance company takes a higher risk affectively making our cost to insure greater. With that being said let's assume we have to pay just what you pay for full coverage insurance which we don't it's more, then you can multiply $150 by on average 300 times just to insure the cars on the lot so we can make them available to test drive. I could go all day with the costs associated to dealer loss, but the bottom line is it sucks that everyone comes in and acts like they are getting ripped off for paying a couple of hundred dollars in markup. That attitude is what is making the auto industry so expensive and difficult. If you were to come in to my dealership and just state what you need and want you would leave happy and all would be great. Don't be unreasonable That's how you get screwed the salesman will purposely make more on you because you were a pain in the butt. Be nice and clear and you will get your best deal.
My name is Bill Soma, General Manager of Lehighton Kia. My concept is business is "Good, Honest , Deals". I understand it's difficult getting what you percieve as a "fair" deal and strive to make as many small deals rather than several big deals. I believe doing this will ensure repeat and referral business. Maybe most of you are shopping at the dealers who don't subscribe to this point of view. bsoma@rosadogroup.com or 610 377 1570
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good publish, i obviously love this web site, keep on it.
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I have enjoyed reading some of the rhetoric here. I’m new to this and planning on buying my first car within the next few months. I have one simple concerning tactics as a consumer: Is it a good idea to just be upfront and tell the dealer, politely, that whatever price you get at the end of the day is just something that you plan to use as a negotiaion point to be used at other dealerships? i.e. – undercutting. I know it may seem, curt or rude to say so, but doesn’t this just save time for everyone, and mitigate the minutia and headache of contesting everyone of the 10 points of departure given here. e.g. please be forthwright and give me your best deal, because I plan on seeing who will beat you (all figures included). Opinions?
one simple question concerning tactics*
Most of this is so far from the truth and you dont know the actual percentages of any of it. Holdback is not just a random number placed on a vehicle for profit means. It is a percentage guarenteed to the dealership. Based upon the MSRP of the vehicle. In todays age everyone wants their vehicle as cheap as possible and that is understandable. With the competitive prices and dealers matching mostly invoice pricing, holdback allows the employee’s of a dealership a paycheck. Bottom line pricing is lower than it ever has been and if not for holdback companies would go out of business.
To have a $1500 hold back on a vehicle you need to be looking at a vehicle over $50,000. No dealership is making 1500 bucks off a Fiesta I don’t care how in tune you think you are to the operations of a dealership. Average cost of a vehicle sold in my dealership is $27,000 with a hold back of roughly 800. Most of these vehicles are sold at invoice. Dealer gets 800 bucks. To pay his employees and his day to day operative costs.
Pack is taken from the gross of a vehicle. It is not added into the price of a vehicle. You are giving the impression that $1500 packs are the norm when in fact that could not be further from the truth. Not in the real world. The Pack at my dealership is $175.00. Taken from the gross of the vehicle. NOT built into the price of the vehicle.
As far as trades go yes a dealership pays less than Kelly Blue Book and for good reason. Kelly Blue Book uses the original MSRP of a vehicle to calculate it’s current value. Unfortunately the MSRP is not the actual value of the car. If the car cost $40,000 and you bought it after rebates and deductions for $32,000 that means the value of that vehicle is actually 32 or under not accounting for profit. KBB uses the original 40,000 dollars to calculate its pricing since it has no clear way of knowing what you purchased the vehicle for. Also last time I checked Kelly Blue Book isn’t buying vehicles. If we used Kelly Blue Book we would be selling 2004 F-150′s with 150,000 miles on them for upwards of 15 thousand dollars….not very realistic is it?
Every customer is capable of securing their own finance rates. Their is no secret here. If you finance with your dealership you are buying that service. You do not have to take this. A dealership even taking a point on an interest rate still secure you rates typically better than what you can achieve because of the volume of business sent to the banks. So you still save money…..and have the option to not take this…..I don’t see the scam.
Down payment….you didn’t explain this, just accused. There is no way to make money on a down payment that is absurd. A down payment is used to lower a payment or to secure a loan. Show me how we make money off your down payment, other than selling you the vehicle because the down payment secured the financing. Almost slanderous on your part.
With your scenarios, all car dealers are selling 200 vehicles a month with 1500 dollar hold backs in play. That is so unreal it’s insulting to me. I would disclose my own books and records for this years sales showing my profit margins on vehicles. The world you paint has us all as rich aristocrats praying on your every whim. Give me a break.
A dealership is like any other business. It provides paychecks to it’s employess who have families. Misconceptions about the auto business are just that. With the internet and all of the tools available to potential buyers the risk has been all but removed from the experience. If you go in looking for a scam and a bad experience thats what you will get. Articles like this only prevent an industry from moving forward. You honestly should be ashamed of yourself.
Also the documentation fee for NY is capped at $75.00. Not sure what state is allowing 699.00 for this but I’m pretty sure you made it up. People I am sorry but this article is the most exaggerated thing I have ever seen. The documentation fee is waived for customers who complete their own paperwork at the DMV and bring it in to the dealership. $699….you are unbelievable. I’m looking into this article for slander.