By on November 22, 2010

Well, it depends on the car being sold, doesn’t it? TTAC commenter and Hyundai salesman dwford writes in with a prime example too get the conversation started: the 201;0 Hyundai Elantra (sold at full MSRP).

MSRP: $17,760
Invoice: $17,472
Holdback: $511
Dealer Cash: $750
Total gross profit: $1549

That’s 8.7% of MSRP

From that, the dealer pays: My commission: $100, a portion of my weekly salary and related taxes, the cost of the detailing for delivery, any floorplan expenses if the car has been here longer than 90 days, and then a percentage of the costs of running the store – electric, heat, rent, phone, etc. Couldn’t tell you what that all adds up to.

The dealer could potentially earn extra profit from the sale of financing, extended warranties etc., but let’s keep it simple and talk about front end profit.

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89 Comments on “Ask The Best And Brightest: What Is Reasonable Dealer Profit?...”


  • avatar
    jmo

    I got mine for invoice -$1000 in owner loyalty.  I didn’t feel the need to try and go after the holdback – the guy has to make a living.

  • avatar
    umbabaru

    I was recently negotiating for a new Mazda3 here in North Cackalacky and walked away from the deal when the dealer refused to drop (for what he called legal requirements) their $500 documentation fee, on top of the $1000+ in profit I had built into my asking price, using a similar calculation as yours above. I figured 3-5% was fair, but apparently not.

    • 0 avatar
      itsgotvtakyo

      I bet you were an absolute joy to work with. For the record, they weren’t lying to you about the doc fee. What that money actually pays for can be debated but it’s on file with the DMV and is non-negotiable; everybody pays it.

    • 0 avatar
      ajla

      Many salespeople and purchase forms try as hard as possible to make it seem like their dealer fee is a government mandated expense so their customers don’t question it. I consider this to be a very sleazy tactic.
       
      The existence of the fee itself is not a legal requirement, but it is true that if they charge a dealer fee for one person, they can’t just waive it for the next person.
       
      However, a dealer can reduce the vehicle’s purchase price (or raise your trade-in value) by the amount of the doc fee- effectively eliminating it.

    • 0 avatar
      itsgotvtakyo

      Of all the things some dealerships do you think the doc fee is particularly sleazy? I would argue it’s the least. It essentially gives the dealer a way to guarantee that any money they make on the front or back of the deal is profit while the doc fee covers the expense of selling the car. Having it clearly pre-printed on all the purchase orders I’ve seen protects the ill informed customer from “fluctuating” doc fees.

    • 0 avatar
      MadHungarian

      @Itsgot, there are doc fees and doc fees, IMO.  If the dealer is doing the title and tag paperwork, there are certain fees charged by DMV, and if the doc fee is principally covering those pass- throughs, that’s cool.  I lived for a long time in PA where most title and tag work for sales between private parties is handled by third party companies who of course charge something for their services, so I don’t have a problem with some compensation to the dealer for that.  However, some shops are making doc fees a profit center and I think it’s fair to put that on the table in negotiation.

    • 0 avatar
      Steven Lang

      Cost of transferring a car title in Georgia: $18
      Cost of a 30 day temporary tag: $2
      Cost of a Bill of Sale issued by the GIADA: Approximately 50 cents.
       
      What Carmax charges for a doc fee? $149
      What dealerships typically charge? $99 to $799
       
      Profit from said paperwork? Priceless.
       

    • 0 avatar
      itsgotvtakyo

      @madhungarian Well to be fair I only had experience at one store a while back. If things have changed in the following five years or other stores do things differently I don’t know. It was also a reasonably well respected store that had been a part of the community for a long time and seemed to do things on the up and up. I really don’t think you can open it up for negotiation though, that will just lead to the same shenanigans that forced it to be regulated. Customer A comes in and the doc fee is $1000 and they raise hell and get it knocked down to $500. Customer B comes in and the doc fee is $1500 and they don’t say boo. That’s sleazy and underhanded, not having it clearly printed on the purchase order and making sure everybody pays it. If the customer has a problem with it they don’t need to buy the car there.

    • 0 avatar
      ajla

      @itsgotvtakyo:

      Of all the things some dealerships do you think the doc fee is particularly sleazy?
       
      Yes. I’ve heard many salespeople say something like “this is our document and processing fee. By Florida law this amount is non-negotiable and can not be waived.” It isn’t a lie, but that makes it sound like it is an officially required expense, when in reality it isn’t.
       
      If the dealer fee is really one of the least sleazy things out there then I’m scared by what some dealers must do to people.

    • 0 avatar
      NulloModo

      Ajla -
       
      I can see how you could see the doc fee as sleazy.  At my dealer, it is clearly printed on a sticker in the window of every car on the lot, we are up front about it and make sure the customer knows it is there.  If someone negotiates an ‘out the door’ price, and then complains about the dealer fee, it is the customer that is being disingenuous.  What does it matter how the costs are divided up when the bottom line is what was agreed upon?
       
      If the deal is making money, yes, the dealer will likely find a way to lower the selling price or bump the trade to eat the fee and keep the deal together.  If the customer has already whittled away all profit in the deal, demanding for the dealer fee to be waived could be the straw that makes the dealer decide to walk away and say no deal.
       
      The fact is that every dealer has some variation of the dealer fee, whether they pad charges for things like window etching, pinstripes, or paint protectant, or they are up front about what it is.

    • 0 avatar
      itsgotvtakyo

      @ajla Well we’ll just have to agree to disagree. You readily admit that it isn’t a lie but you still think it’s sleazy? Would you like the salesperson to qualify it with the information that the dealer decides exactly how much it is? Why? Would it make you feel better about the deal? I’m sure the store makes a couple bucks out of it after your car is inspected, detailed, titled and registered but so what? Should the store do these things out of the goodness of their heart? If you want to get indignant over something get indignant over the 100% warranty markups, 1000% VIN etch markup, 1200% pant protection markup… need I go on? Or just negotiate your deal well, decline the add on BS and be happy you got a good deal while enjoying the convenience and pleasure of having a safe, clean, titled and insured car when you drive over the curb.

  • avatar
    kenwood

    Hmm.  Something seems to be missing.  On my past three new cars, I’ve negotiated right about 10% off of the car’s MSRP, plus I got the 0% and 1.9% financing.  My trades were all within reasonable Edmunds pricing. Each time I left thinking, damn, I should have tried for a couple hundred more off.

  • avatar
    MrBostn

    It’s a race to the bottom. Dealer 1 tries to hold the line at $1000 profit (just guessing). Dealer 2 across town, is happy at $750.

    If the customers aren’t closed properly then they leave, go to dealer 2 and bam, write the deal.

    Dealer 1 then makes execptions to the $1G rule-takes $750 deals.

    My point is, there’s always a dealer willing to undercut a deal to make the sale.

    • 0 avatar
      jmo

      My point is, there’s always a dealer willing to undercut a deal to make the sale.
      That’s how a market works.  At some point they won’t go any lower and that’s the price the deal goes through – the market clearing price.

    • 0 avatar
      dwford

      Very true. It comes to a point when it is $100 to me regardless of the selling price, so I just make the deal and collect the mini. I am lucky that I am in a position where the managers trust me to negotiate my own deals. Similar short deals worked with other salesmen and the managers might end with letting the customer walk.

  • avatar
    highlandmiata

    It is not reasonable to “keep it simple” and only talk about front end profit.  I would venture to say that the owner of a car dealership would find a different business to be in if they could only make money from the sales of cars.  Think of the parts and service department and the dealer financing and extended warranties, as that is where the money is.
    Many businesses do not make that much money on their “core” business, but rather all the upsells and extras.  Often times there will even be “loss-leaders” to get folks in th door to buy all the stuff they have a better margin on.  A car dealer can likely charge less than “invoice” and still make a healthy profit.

    • 0 avatar
      itsgotvtakyo

      Very accurate. The time I spent in the business was brief but not too long ago and it was considered a successful month if the sales department broke even. It was the body shop, service and parts that printed money, in that order.

  • avatar
    CJinSD

    In my experience back end is worth worrying about when it comes to dealer profit. Invoice is obviously just a game, when there is only a $288 gap from list price.  1.6%. Why does ‘invoice price’ even exist, other than to take advantage of people who think a little knowledge is enough to get a fair deal? Dealer cost is actually $16,211 before the sales team starts martyring themselves about the tiny markup over Invoice. As a customer, I don’t really care how much the car costs the dealer, or how much of the sale price impacts the salesman’s commission. I care how much the car costs me. If I don’t stay vigilant every second I’m in the dealer, I will get raked over the coals in the back office. I’m a cash buyer and have been to three dealerships that have let me write a check for the full agreed price of a car with taxes and fees only to still try to work me in the back office for useless add-ons. I know it works on many people too, because I try to prepare people for dealing with the situation only to have them come back and tell me how they bought three thousand dollars of nothing in spite of my warnings. I’ve also had a dealer say that a credit application has the information they need for creating a title and that they wouldn’t run the credit check after being paid in full for the car. Then I sat in the finance office and the creep had the nerve to say we had great credit before pitching thousands of dollars of nothing. They still managed to slip window etching into the contract, hidden in a fold and never performed on the car. I mentioned fees. When talking about dealer profits, the $69 to $599 of ‘processing fees’ are pure profit for the dealer. They’re worth talking about too, in a world where the dealer model pretends a Hyundai Elantra has a $288 mark up.

    • 0 avatar
      dwford

      Yes, as you can see from my example, $288 is not the total potential profit for the dealer. Where I work, the “documentation fee” is actually a taxable item, but is profit for the dealer (not for the salesman, of course!).

    • 0 avatar
      CJinSD

      dwford,

      I learned much of what I know about the process by selling cars for a systems house dealership one summer in college. My experience has served me very well, but I’ve seen a few things recently that take unethical behavior to a whole new level. The dealer that ran a credit check after lying that they wouldn’t, that stuck us in another negotiating room after we’d paid for the car, and that managed to hide a fee for fictitious window etching in a fold between taxes and license fees on the contract also sold us a car they didn’t actually own. The title didn’t come in the mail because they didn’t have it. This was from a Honda new car dealership that is part of a big chain of dealers. Remarkable, even to a guy who learned from a place that taught salesmen the art of misdirection in the first week.

  • avatar
    Bytor

    I have a hard time believing those MSRP and Invoice prices, they are way too close.
    My take: 5% is fair markup.
    I went into my last car purchase looking for 5% off (assuming they were making 10%) and was up front about wanting that and thinking it fair. The dealer literally started up with the “Taking food from his kids mouth” nonsense. So I went to another dealer than they gave me about 7% off without even negotiating. I really had to wonder what the first dealer was thinking. It was not a rare car or anything. The dealer I went with did a dealer search to get color/option package I wanted, from another dealer, so it wasn’t even on his lot.

  • avatar
    murphysamber

    It seems most peopel think the dealers are rolling in money on new car sales.  It’s just not the case.  to find slimmer margins you have to be in the grocery business.  The point of selling new cars is to drive customers to your store for warranty and service work.  whether you think car salesman are all jerks or not, most sales people in the car business aren’t making a ton of money.  Except for the domestics.  In Detroit you’re basically a file clerk “selling” domestic cars to employees and their family and you get paid an ass-ton for “skill”.  GM seems to shovel tens of thousands of dollars a month at new vehicle departments for no other reason than they always have.  Imports are a lot leaner.

  • avatar
    RayH

    In the mid/late 90′s, I was selling new Nissans/Oldsmobiles/Mitsubishi and later Kia at the same dealership.  There were very substantial  bonuses for the dealer if they hit a sales target (especially true of Nissan and sometimes of Mitsu and Olds.  One month they needed to hit 12 Sentras to hit a $10000+ retroactive bonus.  On the 31st of the month at 10pm at night, I sold a lower end Sentra at half price to a family member.  It cut into the $10000 about 3k, but the dealership (came out $6000 ahead (I got $1000 of it and the family member got a deal too).
    Every month there was at least some type of bonus like that ranging from $1000- $15000 (sell 6 Auroras this month!) and I made sure to check the sheets faxed to us the beginning of the month and other times to know what to sell (knowledge is key and hitting the up looking at an Altima over a Pathfinder was smart sometimes.  One year (just from what I know) the dealership made almost $200,000 in those retroactive bonuses.  I think that’s what kept the lights on.

    • 0 avatar
      MBella

      That is why I find it funny that this whole the new car department makes little to no money is so believed by even most dealership employees. It may be true that service and parts make the most money, but it is very naive to believe they make little profit from new car sales. Dealers wouldn’t fight so hard to sell you a car if their profits were so low.

  • avatar
    mpresley

    Insiders understand, but the average cat on the street has to be clueless.  How could they not be?  While shopping I went to look at Lexi (didn’t buy, just wanted to look).  Before you could even see the cars you’re greeted by a…well…a greeter who is really just a floor toady.  He/she has to take you on the tour: the business lounge, the kiddie area, the snack bar, the gift shop, etc.  Who’s paying for all this?, I asked myself.  I felt like I was at the airport, except there was no duty-free shop and I didn’t get felt up.  How much of this nonsense has to be included in the car’s markup, and is it worth it to anyone?  I’d rather buy a car from Wal-Mart, to tell you the truth.

    • 0 avatar
      jmo

      How much of this nonsense has to be included in the car’s markup, and is it worth it to anyone?
      You can just buy a Toyota.

    • 0 avatar
      gslippy

      I’d rather buy a car from Wal-Mart, to tell you the truth.
       
      Agreed.  And by the way, Wal-Mart has one of the premier distribution systems in the world, whose efficiency is a major contributor to keeping their prices low.  You should think of them as a distribution system that happens to sell goods, not a retailer with a distribution system.
       
      Trade-ins could be managed by on-site independent brokers.

    • 0 avatar
      dwford

      Considering that Wal-Mart is out of stock on most of the essentials you want to buy by midday and never has any registers open, I don’t think I would want to buy a car there!

    • 0 avatar
      mpresley

      You go there at 3AM to negotiate your deal, right after the trucks are unloaded.

  • avatar
    DeadFlorist

    A far more efficient model is to bypass dealerships althogether and order direct from the manufacturer, point, click, deliver.  No salesmen to pay, no buildings to light.  Of course, that’s impossible because of the tangle of laws there to make sure dealers have “jobs,” no matter how pointless.

    Ain’t America great.  If you get enough power, you can legislate customers for yourself. 

    • 0 avatar
      dwford

      Yes, dealers have legislated themselves into perpetuity, but so many customers still prefer to be able to touch and drive the cars before deciding. Even an internet based model would still need store fronts for test drives and service. The resulting system probably wouldn’t be any cheaper for the consumer, since there would be no competition for the sale other than a different brand.

      Haggling and price shopping will result in a lower net price for the active consumer, at the expense of the lazy, uninformed consumer. Free trade.

    • 0 avatar
      don1967

      No buildings to light?  “Pointless” jobs?   Maybe… when the internet can provide test drives and warranty repairs.

    • 0 avatar
      dastanley

      I take the chicken-shit way out and order my vehicles (about once every 7 years) through the USAA website with their participating dealers for various brands.  The vehicles are guaranteed to be the exact price quoted on the web.  If not, I can call USAA, tattle-tell on the dealer, and USAA will pull their information off the USAA website.  I can also buy from any non-participating dealer – I just have USAA negotiate the price for me directly with the dealership owner – the salesman gets cut out.  If I’m happy with the negotiated price, I just go there and pick up the car for that price.  Their brokers certainly do better than I can at negotiating.  Ahh, one of the benefits of being a veteran.

    • 0 avatar
      jkross22

      “many customers still prefer to be able to touch and drive the cars before deciding.”

      Yeah, I thought the same thing about shoes, books, camera equipment, even speakers… the internet can be a wonderful thing.
       

  • avatar

    Great question. I don’t have an answer–too much I don’t know anything about, having never worked in the biz, and a lot of existential questions (how much is a salesman worth; how well should people be paid in general), but the answers people are giving fascinate me.

  • avatar
    ajla

    I don’t know what I would consider “reasonable”, but here in Florida it seems like every single car dealer is constantly tacking on $800+ dealer processing fees, $200 Nitrogen tire fill, $300 pinstriping charges, and other superfluous crap that I absolutely hate having to deal with.
     

    • 0 avatar
      aspade

      Starting $2000 high and then coming down to the same price you were going to sell it for all along lets bad negotiators think that they’re really good.
       
      The occasional widow or moron who actually pays $2000 for pinstripes and scotchguard is just icing.

  • avatar
    aspade

    Paperwork – most of which exists because the dealers lobbied for it to make private party sales difficult – PDI, and using their lot as a receiving address are worth a couple hundred bucks to me.

    I’d rather buy one from Wal Mart too.
     
     
     

  • avatar
    Robbie

    As far as I am concerned, it is zero, $0, nada, nothing, nihil. I know what I want, and want to pick up my car from the regional distributor at invoice. This will make the manufacturer and myself better off, and perhaps will cure people of the “drive them to death” habit that is caused by having to deal with sleazy dealerships.

  • avatar
    Birddog

    Wow.. $100??
    I was getting $50 for a mini, which is what that sounds like, plus I’d get a % of the back end, and 80% on spiffs.. This was back around ’04 though.. So I could turn $50 into $100 if I sold the “protector”, and if they had rough credit, Well.. “Bustouts” paid my mortgage. Till the fun died..

    • 0 avatar
      dwford

      Tiny commissions, tiny salary, forces you to hit the volume goals to earn bonuses. It all adds up to a real income if you are consistently selling.

      At my previous store, a lot of months the bonuses were clothes! “the store sells 100 units, everyone gets 3 pairs of dress pants from Kohls!” Not kidding.

  • avatar
    nikita

    Edward, I dont think it is possible to talk “front end markup” in isolation. The total profit on the deal has to include financing or leasing, trade, lojack, extended warranties and all of that. That is just how the business currently works. I would guess that less than 5% of retail sales are a straight cash purchase like I do. Since the sales person is only making the minimum $100 or so, I dont want to waste anyone’s time playing games. At one very large Toyota store, when the F&I lady saw that I wrote a check for the Tundra, she did not even try to sell extras, just got the paperwork done as quickly as possible.

    • 0 avatar
      dwford

      She should process you quickly. The salesman might make $100 on the deal, but she makes $0.00 processing a cash transaction when none of her “products” are purchased.

    • 0 avatar
      NulloModo

      The cash buyer percentage depends on the store.  At mine, roughly 50% of our customers are cash buyers.  What continues to surprise me is how many customers think that they are unique for being able to buy in cash, as well as how many think they should get an extra discount for it.  When you finance the bank writes the dealer a check within a couple days, same as cash, plus some finance money, if anything, being a cash buyer would put someone at a disadvantage.

    • 0 avatar
      Steven Lang

      You can always tell them…
      “Sorry, but we can’t sell it you to then. We make far more money with our finance customers.”
       
       

    • 0 avatar
      CCH

      I did the exact same with an 07 tundra, the f and i guy spent about 2 mins talking about lease options as i was writing the check and that was it, by far and away the easiest way of purchasing.

  • avatar
    John Horner

    The big money is made on financing, add-ons, extended warranties, used cars and parts and service. The front end new car sales transaction is the mother ship which provides most of the other opportunities. Many of the best used cars start out as new car trade ins. The rest of the used car inventory on the lot typically comes from rental fleets and various manufacturer special auctions. New car dealers are typically able to command a higher price for a given late model used can than could a private party or used cars only dealership.
    The add-ons typically sold in the finance office are huge margin makers, particularly things like Interior Scotchguard, paint protectants and such. Extended warranties and financing are also big money makers.
    Looking just at the margins on the new car portion of the transaction is silly as that is a small piece of the puzzle.
    Successful new car dealers make a lot of money, but they don’t make it primarily on the new car sales themselves.
     

    • 0 avatar
      geozinger

      In my experience, the real money on new cars is the financing and insurance areas. Used cars are a whole different issue. It’s almost like the new car is incidental to the financial dance taking place.

  • avatar
    xyzzy

    When I was a younger man I was into the grind it out at the dealer game but my family hasn’t bought a new car since 1997, so I am so out of the game I would dread getting back in.  We;ve only bought used since then.  Most recently in 2002 from a dealer.  I have a feeling we overpaid, but my wife undercut my negotiating power because she was so obviously in love with the car.  These were all cash sales (as far as they were concerned, I had obtained financing elsewhere in advance).
    Anyway the point is that I wonder if it’s even possible to be a cash buyer any more.  Last summer I was looking for used trucks and I quickly learned when dealing with dealers that the first thing the salesman asks is cash or credit and if you say cash they brush you off with some pretty outrageous lies — my favorite was that the last guy who test drove the truck I was interested in took the keys with him and they can’t get into it, let me take your name and number and we’ll call you when we get a new key made (2 guesses on whether they ever did).
    I seriously considered lying and saying I was a credit buyer then bringing out cash at the closing table, or using the 3 day revoke period to pay off the loan. I didn’t bother as I found what I was looking for from a private party, but I wonder if it would be possible to do those things or if the dealers are prepared for it.
    Of course these were all used car dealers.  Not sure if it’s the same for new car dealers, but from what some cash buyers have written here I wonder.

  • avatar
    stones

    So what’s fair for Canadians?? Dollars pretty well at par and there is about 4500 dollars difference in car prices. Maybe we should do the math go in and say this is what the car is actually worth today after the exchange is calculated so this is what I’m paying. We get fucked on everything while you worry over a grand.

    • 0 avatar

      Is our fluctuating dollar the dealership’s fault? No, of course not, and it’s not the manufacturer’s fault either (even if they’re the ones who set the prices).
      But how often do you think the manufacturer should adjust their prices? How would you feel if you signed the contract on Monday, and when picking the car up Wednesday, you suddenly owed $5000 more because the dollar nose-dived? Or adversely, if the dollar picked up two weeks after buying your car, making it instantly worth $5000 less?
      Oh, or I’ve got one for you – we’ve got quite a few manufacturing facilities here. Should the staff there be paid based on the American dollar? Again, how would you feel if your employer deemed you were worth less because the dollar was up?

  • avatar
    lahru

    can we put this order direct from the manufacturer stuff to rest.
     
    how do state inspections get dealt with
    PDI
    approved for financing
    trade ins
    payoffs of loans on trades, try getting approved for 2 car loans at once
    registration in your state
    state documents that transfer title from mfg to consumer (MSO) look that one up!
    dealing with scratches upon arrival
    proper tire pressure at delivery
    explaination of features
    I can go on
    what dealers perform for the public is more than putting up a sign and selling vehicles.
     

    • 0 avatar
      gslippy

      Sorry, any major retailer could handle these issues.  Trade-ins could be handled by independent brokers.

      Wal-Mart, Best Buy, and Sears have to deal with defective merchandise all the time, as well as handling credit for millions of customers.

    • 0 avatar
      holydonut

      I don’t think anyone wants to get rid of dealers – they want to do away with the franchised dealer network model that relies on independently owned shops (independent of the automaker) selling cars while waving the flag of the manufacturer.  Instead, the manufacturer would own the dealers (complete with requisite sales, service, and paperwork handling), and allow direct factory to customer online ordering and other “novel and new” sales techniques currently prohibited by state laws.
       
      If the sales team is captive then there is no need for the headquarters to fluff the vehicle margin knowing that some dealer owner, general manager, sales manager, financing manager, etc need to “make a living.”  For sure the “owner’s son” won’t be taking the best car for a spin on a daily basis and dealers wouldn’t have their names vinyled on the trunk lids of their cars.
       
      The manufacturer could also better manage inventory and stop cross-dealer undercutting since they could price regionally rather than by zip code.  You wouldn’t pit individual dealerships against each other – even though you would still pit individual salespeople against each other.  But individual salespeople don’t have full access to the vehicle margin during their negotiations.  Separate of this, you could shut down under-performing locations and consolidate without massive payouts or going bankrupt.
       
      The only truly valid argument I’ve heard against the captive sales channel is the management of used car transactions and inventory.  We know that the combination of new and used is usually required to make a dealer profitable.  So basically the automaker would be giving up all that used-car margin since it’d likely have to outsource the sales/transaction of used vehicles.
       
      Personally I think the reduced overhead on the new-car sales level coupled with improved transactions with customers who absolutely HATE the current sales channel would more than offset the used car issue.  I also think firms specializing in the secondary market would be open to negotiations on terms.
       
      But the point is moot since the law prohibits direct sales to customers (well, unless your name is Tesla Motors).
       

  • avatar
    JimC

    Let’s see what I get in return for $1549…
     
    Dealer photocopies my driver’s license and maybe has someone come along for the ride.
    Dealer hands me a pamphlet on the car and talks about some features… scratch this, I already know more about it from doing my homework.
    Dealer might tell me about having to make a living, feed hungry kids, etc.  How entertaining.
    Dealer draws up bill of sale, warranty disclosure, and a couple other documents.
    Dealer hands me keys.
     
    Yep, that seems fair.

    • 0 avatar
      dwford

      If it makes you feel better, we are selling these Elantras for $13972 after the $2500 in rebates. So the $1549 shrinks to $261, plus our $349 doc fee, of course.

    • 0 avatar
      cirats

      JimC – I can’t believe I’m coming to the defense of car dealers here because I tend to want to avoid them as much as the next person, but that line of thought really makes little sense.  How about the fact that the dealer has a nice big store there with lots of inventory that you can come in, take out for free test drives, etc.  Apply your logic to any other sort of store where you walk in, pick out what you want, and take it to the check-out counter to pay for it, and where does that leave you – with the store not being able to justify any sort of mark-up at all?

      I don’t like to buy new cars because I don’t like taking the depreciation hit (or stated differently, I can always find a used car I like a lot better for the same price as a new car), but I would never begrudge a car dealer for trying to make a 5% or 10% profit on a car.  Now the other types of sleazy behavior you often see, and the upcharges for dealer prep and documentation and the ridiculous mark-ups on warranties, etc. – that’s a whole other area, but even then, I suspect dealers are basically driven to that since it’s gotten to the point where they cannot make decent money just selling new cars any more.  Seriously, if a dealer makes $1000 per car and sells 2,500 cars per year (I have no idea if that’s a reasonable number to sell, but it seems like a lot of cars to me), that’s $2.5 million, which doesn’t sound like much money to me if you’ve got to pay employees, keep the lights on, maintain insurance, etc., etc.

      [washing my hands for coming to defense of car dealers]

    • 0 avatar
      JimC

      Cirats, some of what you said seems fair, but to a point.  Each model really only needs two or three demo examples to cover major variations across the line.  The rest of a dealer’s inventory just waits for a buyer.  Lots of inventory x $1,000 per car seems like awfully expensive parking.  Earlier today, somebody else pointed out on one of the other articles that this business model smooths out plant production through the slow and fast seasons… that makes sense, but at the end of the day it’s a parking lot and it costs very little $ per car to park dozens of them for the proverbial 90 days.
       
      If I buy power tools, a computer, or some other major goods I get to play with the store’s samples first, a salesman/associate/store person asks me if I want any help (but doesn’t tell me about his supposed financial woes and why I should pay more, how bad he thinks Brand X’s product is, or how other competitors don’t take as good care of their customers), and then I take a nice new one home with a fair markup.  Best of all there is only one price.  Imagine buying a $10,000 garden shed/workshop kit from a home improvement store and muddling through MSRP, Invoice, Store Holdback, and then finally negotiating a price for it.  But wait… there is also a transfer fee because we don’t have that exact kind at this store, and some random administrative fees… don’t worry, it’s all on the receipt.  Here’s a complimentary pound of nails and if you recommend a customer to buy one of these sheds you’ll get a free gallon of paint.
       
      For me, car salesmen add hardly any value and that’s why I now bypass them as much as I possibly can (see dastanley’s comment about pre-negotiated prices and direct ordering).
       
      Other dealer services–financing, maintenance, add-ons–those are not the same thing as actually selling goods and all of them can be found elsewhere (even conveniently) but even so they make money on their own.
       
      Sorry you had to feel dirty defending the dealers at large! :)

    • 0 avatar
      NulloModo

      JimC -
      You may be well educated about the vehicle you intend to purchase, but most customer aren’t.  You may feel that driving a vehicle that is pretty close to the one you would like is sufficient before ordering, but most customers wants to see and/or drive the exact car they will be taking home at the time of purchase.  The dealer pays to maintain the inventory to make sure that most people will find something they are happy with when they visit, as well as to train the salespeople about the product.
       
      If you are dealing with salespeople that tell you sob stories about hungry kids, or belittle competing products or dealers, you are shopping at the wrong stores, all of that is bush league.  As far as pricing goes, at the end of the day, it is the customer that creates the confusion with MSRP/invoice/holdback/etc.  When you go into Best Buy and see a TV for $1,999, if you like it, you pay $1,999 for it.  Cars all have MSRP stickers just like that TV, and dealers would love it if it were as simple as pointing to the price.  Competition amongst dealers has led to the current system of pitting them against each other and counter-negotiation systems to get the sale now at the highest profit.
       
       

    • 0 avatar
      d002

      The dealers don’t own the demos ; they are leased from a finance company like GMAC.

      And its not like buying TVs at Walmart ; the factory produces a range of cars with different colours and accessories and the dealers “bid” for a car that is near to what the customer wants.
      Then they often have to fit accessories that are not put on at the factory, such as different sound systems, and so on.  (Also those “package deals” like mudflaps and bonnet protectors, for which the manufacturer pays a bonus to compensate for the fact that customers order fewer accessories on those models).

      As costs vary depending on the exact car, taxes and commissions are unique to each car – hence all the add on expenses.

    • 0 avatar
      NulloModo

      D002 -
       
      It’s clear from some of your posts than you don’t know a whole lot about how car sales work, at least in the US, but I’m curious to know where you are getting some of your ideas from.
       
      What do you mean by the dealers don’t own the demos?  Are you talking about some hypothetical situation where the manufacturer owns all dealerships and provides each dealer with factory owned demonstration cars?  The way ‘demos’ currently work, yes, the dealer does own them 100% in most cases.
       
      Dealer installed accessories differ from manufacturer to manufacturer, but in almost all cases the upgraded sound system is a factory installed item, which the dealer has a minimal mark up on.  I suppose a dealer could install some ghetto-fabulous subwoofer intensive sound system into a car, but I somehow doubt that is what you are talking about.
       
      Dealers don’t ‘bid’ on inventory.  The manufacturer generally provides a breakdown of how many of each trim level for a particular model it wants the dealer to order.  Certain trims are more profitable for the manufacturer, and in some cases there are bonuses paid to the dealer if they order more of those models, but this is fairly rare.  In most cases the most a dealer can expect from ordering more of a profitable-for-the-manufacturer but harder to sell model is that they will get a greater allocation of an easier to sell trim level or option package.
       
      Taxes are unique to each car only as far as the price of each car is different.  If the sales tax is 6%, yes, you will pay more tax on a $40,000 car than a $18,000 car, but that tax goes to the state, not to the dealer, the dealers can not legally profit from taxes.  Commissions are usually a flat percentage across models as well, with the occasional bonus paid for selling something that the dealer has too many of, or for moving aged inventory.

  • avatar
    lzaffuto

    I’ve always thought that around $1000 pink (after everything is totaled in) was a reasonable profit for the dealership… although I’d like to hear dwford’s opinion. I know a lot of people that have the goal to buy at(or below) “invoice” but really I don’t want to screw the dealership out of business and I don’t want to deal with a dealership that wants to screw me.

  • avatar
    Robert Schwartz

    As far as I am concerned any nickle I give a dealer is five cents too much. I am sure feeling is mutual, but on a life time basis, they are still way ahead.

  • avatar
    holydonut

    Sounds like somebody played the “this is the vehicle invoice… we all gotta make a living” ploy.  I’ve seen dealers make phoney invoices to present to customers full knowing the the actual transaction between manufacturer and dealer occurs at a lower price (even lower once you consider holdback, ad-sharing, and variable sales quota targets).
     
    That invoice price listed is way to high, Hyundai would be crazy to make their factory to dealer invoice price that close to the Monroney MSRP; and last I checked Hyundai isn’t crazy. I can’t think of anything in the marketplace that has a % margin that close to MSRP. And yes, I’ve worked pricing for an automaker, and I’ve worked with industry-wide analysis of wholesale vs MSRP for all the major OEMs. Hyundai’s invoice is not that high as a % MSRP (don’t care if you count base or options).

    Manufacturers would not handcuff their own distribution network in this manner unless they owned the majority of their distribution network (like Apple with their captive Apple website and stores). And even then they have to make sure that the other guys (Best Buy, Staples, etc) have enough margin to play with in order to dump outdated inventory.
     
    To be fair, the salesperson is often left out of the loop on this since the sales manager usually has knowledge he (or she) won’t share with the troops on the floor.  After all, the front-line sales force is really just brokering deals between the smarmy ones in the back-room (or raised pedestal) and the actual customer.
     
     

    • 0 avatar
      NulloModo

      I’ve never seen a dealer print phony invoices.  With the advent of the internet age and information for everyone, plus car manufacturers competing with each other in added content as well as price, total mark up on vehicles has declined dramatically.  In my experience, GM and Toyota have some of the highest mark up as far as mainstream brands go, and Ford and Honda have some of the lowest.
       
      A mid-level Fiesta hatchback has a total markup (invoice minus holdback to MSRP) of around $950.  From that amount the dealer has to pay the salesperson their wages, the costs of floorplaning the vehicle, the costs of cleanup and delivery prep, etc.  There is no dealer cash, but rebates don’t eat into this amount, but have to be given to the customer regardless, so can’t be hidden.

    • 0 avatar
      dwford

      Holydonut,

      I am not playing any sort of boo hoo game. I just presented a scenario with real numbers and asked for opinions. The numbers I presented are real and correct. Go to Edmunds.com and check it out. The Edmunds invoice # will be $250 off, because Edmunds doesn’t include the $250 “advertising ” charge Hyundai puts on all the invoices.

      As I showed in my example, the difference between invoice and MSRP is not the whole story. Most manufacturers give the dealers “dealer cash” that the dealer can keep or apply to the sale as an additional discount. This is how dealers sell “below invoice.”

      I have shown in my example all the potential front end profit on the car itself. The dealer will also make money from the doc fee, financing commissions from the banks, and profits from the sale of warranties etc.

    • 0 avatar
      holydonut

      Edmunds “invoice” is not true wholesale invoice.  Again, let me be more clear about this.  The information the public sees regarding “invoice” is higher than the true cost to the dealer (throw floorplanning and PDI and whatever you want in there).
       
      I know unequivocally that true wholesale invoice was less than what the Internet sites would reference as invoice.  I think it’s great for the supply-side that customers are armed with “knowledge” about the dealer margins since the customers are usually getting it wrong.  TTAC is doing a disservice to readers if some people takeaway the notion that Hyundai’s wholesale invoice to a dealer is 98% of MSRP.

      Customer and Dealer cash exist because it’s easier to subtract from pricing than add to it, but no vehicle launches with much cash on the hood. The expectation exists that the initial MSRP vs Invoice margin should be enough to sell the car when it’s hot. Once supply catches up with demand more and more discounts need to be applied since nobody is going to re-print new Monroney’s.
       
      EducatorDan’s point is most valid – people will pay what they think they’ll get out of a car, working with dealer margin doesn’t really matter.
       
      But the unfortunate reality is that since customers have to negotiate with an antiquated sales model, many customers get roped into looking at dealer margin “to feed some families” and monthly payments.
       
      Front-line salespeople and the need to juice the sales manager are just cogs in a machine that should have been overhauled a long time ago.  They’ve conjured all manner of ways to boost their margins/profits over time which has left a ridiculous sour taste in the mouths of most customers.
       
       

  • avatar
    qest

    Toyota has taken to putting holdback on their invoices as a supposed cost to the dealer, so if you buy a Toyota, the dealership gets double the holdback, once from the customer, and once from Toyota.
    Those hidden incentives are there providing substantial hidden profit, so my goal is generally invoice less holdback and I keep the other fees under $250 maximum.
    I recently helped a friend who lives thousands of miles from me buy a new car.  The deal she was going to take before her parents forced her to call me included approximately $11,000 in profit on a $23k car!  The stealership was essentially proposing grand theft trade-in on top of gouging her in every way under the sun.
    She was way too anxious to get the car and between her running to the dealer daily to oggle the car despite my suggestion not to, and me being too far to show up at the closing, she finally got the deal I wanted her to get, but then they stole her $1,800 warranty on her trade-in.  Next time, I’ll tell her to pay to fly me out as that’d be less than $1,800!

  • avatar
    Educator(of teachers)Dan

    Whatever the car sells for is obviously it’s fair market value at that time.  When Chevy can only sell a Cobalt coupe for $13,000 after all the rebates, that’s obviously what it’s worth.  If that’s not what the dealers/manufactures costs are, then they have a problem, not me.  Things sell for the price the market will bear.

  • avatar

    In the more than 30 years I’ve been in the business, it was a surefire rule of thumb that in the best of times, the dealer profit contribution of new car sales is in the low single digits. A dealer makes more than 90% of his money with “non new car related” activities: Parts and service, financing (those were the days …), used cars etc.  In the not so best of times, the new car is a loss leader for said activities.
    This is a worldwide trend, even in China it is like this.
    Unloved parts and service can be a huge cash cow for both manufacturer and dealer. The mark-ups for parts are obscene. I pay $3-5 for a set of OEM quality brake pads in China, from the same factory your OEM buys it before he throws it into an “Original Parts” box. How much do you pay for that set of pads? For “proprietary” plastic parts, sensors, body parts, the profits are better than selling drugs. As a rule of thumb, the dealer makes the price of parts again in labor. How much do you pay for an alleged hour on the lift? How much does the dealer pay his wrencher?  There is a reason why this is the 3rd largest industry, after real estate and health care.
    The trouble is, most dealers can’t keep their service customers. As the car ages, expenses for parts and service goes up. Who gets that money? Not the new car dealer. There is a HUGE business with cars older than 4 years, and the dealer gets very little of it. After a few (in-warranty) years, the service customer deserts him. Auto Zone, Pep Boys, Midas et al get them and their money.
    If the car dealer, and the manufacturer, would focus their attention at keeping the service customer happy and in the shop, both dealer and manufacturer would be much better off. But they don’t, to the glee of Auto Zone, Pep Boys, Midas et al. Does the layout of a dealership reflect the fact that they are making next to no money out front, while money is being printed in the back?  I think that “Mr. Goodwrench” was one of the better inventions of GM. Maybe not properly executed  at the dealer level. To kill the poor guy was stupid. The customer is not. He knows that behind the curtain of brands, service is all the same. GM had brand equity in that guy. GM threw it in the bin. If I had the money, I’d buy Mr. Goodwrench from GM and start an independent franchise.
    Dealer cull is a further nail in the coffin. A customer drives 50, 100 miles to get a deal for a new car. He’ll never come back. He wants his car service close by.
    Looking for a solid stock? Stay away from GM. Look at the Auto Zone chart.

  • avatar
    87 Morgan

    4%.  That is what the average domestic dealer hopes to earn on an annully.  Enough with the dealer bashing already.  Go spend 10 mil on a building + the cars + the tools to fix them + the advertsing + employee expense and make 4% ROI and see how you like it.  Stupid business to be in from the retailer standpoint.

    No one screams that furniture stores make 40%, electronic folks (best buy etc) 80%, starbucks insane profitability; do you really think a cup of coffee costs $4?  No forces Starbucks to sell for cost.

    If you hate the dealer, buy on craigslist.  But…don’t bitch if it is garbage.  If you pay cash at the dealer, bring a certified funds or expect your credit to be pulled.  Period, end of question.  Any reject can ‘make’ a check on his home computer and be gone with the car.  Seriously, it is not hard. 

    Import stores in the US will hammer you on the add ons.  Domestics are just happy you came on the lot and agreed to buy a car and will actually treat you fair.  Exceptions apply of course; but by and large a fair and easy deal can be had.

    As for Autozone?  The import buyer believes their car needs to be serviced by the dealer.  The domestic buyer buys the car and leaves the dealership and the car in most cases NEVER returns to a dealer.  All cars need replacement parts, the domestic buyer has to buy them somewhere….AutoZone, Napa etal.  Do you think Lexus guy works on his own car?  really?  Chevy guy does.  Corrolla/Camry/Accord guy?  Stop it.  Chevy/Dodge/Ford truck guy fixes his rig or performs the maintenaince.  Camry guy goes to the dealer.

    @Holydonut: Hyundai rapes their dealer network.  All of the dealer monies come from the monthly retro cash if they sell quota.  If they don’t, no dough.  Why do you think the Hyundai finance guy is so slick?  The only $$ the dealer makes is finance.  But, since the cars are service hounds the dealer makes money fixing them.   

    • 0 avatar
      Quentin

      Time is money.  The Lexus guy, just like Caddy guy, feels that his time is worth more than the money he is spending on maintenance.  Chevy guy, just like Toyota guy, is more likely to be a do-it-yourselfer because their time isn’t worth as much and they probably have more time than money.  It is unfair to compare Lexus to Chevy because the people that drive them are typically of vastly different income levels.  Why wouldn’t the Accord driver be any less likely to do their own service than a Malibu driver?  The cars cost about the same amount and have the same purpose.  This is some passive aggressive jab at import owners being stuck-up and/or incompetent.  When my parents went from a Ford-only household to driving mostly Subarus and Toyotas, Dad didn’t stop doing the basic maintenance.  Funny, though, the Ford that remains in the household is the vehicle that gets the most attention… because it keeps breaking.  

      I maintained my Toyota, VW, Subarus, and MINI myself… to a point.  Diff & engine oil changes, visual inspections, tire rotations, etc are all done by me.  I’ll also do part replacements that are within reason as far as tools and the time I have available.  A coolant flush and brake fluid change can be done for $100 by my local shop.  It is a service done every 2 years.  Not having the proper equipment to complete the job and not having a good method of dealing with the old fluids means that I’d rather pay to have someone else do the job.  An oil change, where I can get full synthetic and a filter for $25 from Advanced Auto Parts, is a different animal.  Autoparts stores take the old fluid and the job takes me about 30 minutes from start to finish.  Seeing as it is a 2 or 3x/year job, I can’t imagine paying the $60 ~ $80 it would cost to have a synthetic job done at the dealer.  

  • avatar
    d002

    Yeah, good luck buying a new car for cash !

    “From that, the dealer pays: My commission: $100, a portion of my weekly salary and related taxes, the cost of the detailing for delivery, any floorplan expenses if the car has been here longer than 90 days, and then a percentage of the costs of running the store – electric, heat, rent, phone, etc. Couldn’t tell you what that all adds up to.”

    No, detailing, florrplan expenses and store costs are covered by the “dealer delivery” charged to the _customer_.

    The add the fat margins on :
    - auto transmission (like anyone buys manuals anymore).
    - a duco colour other than white.
    -  adecent sound system etc.

    That’s before you consider the fat margins on auto finance, insurance and the lie.
    And then there’s servicing costs, manufacturer’s bonuses, spare parts, doing work changing parts under warranty vastly in excess of what is required and charging it to the manufacturer, the huge margins on trade ins and lease returns etc.

    • 0 avatar
      NulloModo

      The mark up of options is already included in the overall invoice to MSRP, and they are marked up a lot less than you might think.
       
      On a Fusion, the markup on an automatic transmission is only $114.  The markup on a package that contains the upgraded stereo and a moonroof is only $198, and again, both of those are already included in the invoice to MSRP difference.
       
      Trade ins can have good margins, but often don’t depending on how much rehabbing is needed to get it ready for the used lot.  A $2,000 front end gross on a used car is on the generous side of average.  Lease end cars might be the bread and butter of luxury lots, but in my experience with Ford, they often go right to the Ford Credit auction, they prices are too high for the dealer to want to buy them to put on the used lot.
       
      Also, dealers don’t make any money off of your insurance.  If you really want to find the crooks in the game, look at those insurance companies, which are happy to charge you month after month for doing nothing, then raise your rates if you actually ever have to take advantage of their service.

    • 0 avatar
      d002

      A Fusion is a mid-level car, so the price is arranged assuming that most people will buy an auto.  On a cheap car though, an auto can cost an extra $2 000 – $3 000, a lot of which goes to the dealer and salesman ; that’s how a white stick shift 3 door hatchback can appear so “cheap”.
      IME trade ins are collected buy a dodgy car dealer, who pays a commission on the sale price.  A nice easy cash source, the trade in “value” is not a real value but a discount on a price of a car-package (most cars available to dealers have accessories) that the dealer can live with based on the estimated average commission received for tarde ins.

      Leases are valuable not for the end price – which is usually overvalued, that’s why businesses lease – but the fact that a customer is effectively “locked” into getting services done at the dealership.

      IME the chip insurance and extended warranties give kickbacks to the salesman, that’s why they hassle you so much to get it.
       
       

    • 0 avatar
      NulloModo

      What do you mean by ‘chip insurance’?
       
      Yes, car dealers do generally profit from extended warranties.
       
      You are no more obligated to service a lease at the dealer than a purchase.
       
      I challenge you to show me one inexpensive  vehicle where the automatic transmission is $2,000 – $3,000.

    • 0 avatar
      dwford

      An automatic is a $1000 option on a Hyundai. Most people buy automatics, so it’s not like I get an extra commission for selling an automatic car. 95% of my new car deals result in a $100 commission.

    • 0 avatar
      dwford

      Many people buy cars for cash. My boss hates it, but I get paid the same regardless. Since in reality my commission stays the same regardless of the selling price, my job has become minimizing the discount on behalf of the dealership.

  • avatar
    stryker1

    I used to believe that the only way to buy a car was to take the lowest offer a salesman was willing to take, and demand 1 to 2,000 lower. It’s a family thing (on my dad’s side). Fortunately, I was really bad at that, and realized that that tactic probably only ever worked on used cars anyway. Now I just skim the interwebs until I find a price that looks good, and then see if the dealership will honor it. Sometimes, they actually will. And the best part is, you do most of your shopping from your computer desk.

  • avatar

    Not sure what I consider fair, but on my last new car purchase (2008, Mazda dealer), here is what I did. Went in, made nice with the sale guy, drove the car. Told him there were other car types I was driving and that I’d get back in touch if we were interested in the Mazda. About two weeks later I emailed the sales person directly, said that we would prefer to buy the car from him because it was the closest dealership and asked for him to email his best out-the-door price once all fees etc. were figured in.
    He responded with what I thought was a fair price, as it was very close to Edmund’s “What others are paying” number for the car. I was busy, and didn’t need to buy right away. A week later, got another email from him knocking $500 off that price. I called him, went in the next day and picked it up.
    I think that in this case asking the salesman to go on record with a best price up front via email sent multiple messages that worked to my advantage:
    1. You’re only going to have to spend a very small amount of time on this transaction whether you get the sale or not.
    2. I quite probably am shopping this with other places.
    3. I know what I should probably pay for the car.
    4. The number is sent off to me as a bid to me, not as some kind of ongoing negotiation in a room some where.
    These things taken together ended up producing what I felt was a pretty decent car buying process. He sold the car with very minimum of time spent. I got the car for price range I was looking for, and there was no pressure regarding aftermarket stuff, processes, etc. I walked in, made sure the papers reflected the email price, and we did the deal.
    Incidentally, I did query three other dealers for the same car via email. Only one responded. That price was $100 less than the close dealer, but I would have had to drive 60 miles for it, and I had felt that the provision of the long test drive I got at my near dealer was worth not griping over the $100. I made a point of telling him in the end that I had received slightly lower price quotes from others, but that I valued their no-pressure, very easy to deal with style enough that I went with them anyway.

  • avatar
    saponetta

    I have held every job in the front offices of a car dealership.  Salesman, finance/business manager, used car manager, general sales manager and now general manager of a dealership.  I have worked at a Porsche/audi store and now a Mercedes dealership but this applies to all new car franchises excluding Ferrari/Lambo etc.
    At a small to medium store, It is very hard to even keep a new car program in the black, let alone make a significant portion of the dealers profit from it. Most folks are not signing up for backend products on new cars nowadays either. This leaves Financing and leasing to carry most of the burden as far as profit on new car transactions. 
    For years we had a $2498 addendum on all cars showing market adjustment, free washes and service loaners.  WE almost always got this.  An agressive dealer across town decided to start whoring themselves and their car so we were forced to drop this. New car sales are so trickly and twisted, you should see the writeoffs, adjustments etc to stock number sin the book. New car sales are so un profitable that our highly profitable service department bares the lions share of new car operation costs.  Used cars is a little too tricky to explain to people outside the business as we brass hat only a small portion of our 100+/- car inventory

  • avatar
    slance66

    Put me in the Wal-Mart style purchase camp.  What would be ideal is a dealer with several makes, who charged a $10 no hassle test drive fee.  $5 for each additional car.  No salespeople in the car, no attempt to sell, and no haggle discounted pricing.  You could use Kiosks like at the airport, to scan the driver’s license, process the CC, and dispense the key.
    I have never, ever encountered a car salesperson who truly knew more about the car or its competition than I did.  Sites like this one, Edmunds, Cars.com and others mean that many of us don’t need any help.  I’d buy a car from a vending machine if I could sit in it and drive it first.  Best Buy is here and Circuit City is gone.  Why?  Circuit City had commissioned sales staff.  Many people don’t like to be sold to, it’s annoying and adds cost.
    The world has changed.  People under 55 use ATMs and don’t set foot in a bank if they can avoid it.  Older people like the human touch.  My wife uses a self scanner at the supermarket.  We buy online, we communicate online, share pictures online.  Then you get to a car dealership and some stranger attaches themselves to you and won’t let go.  It is an unwelcome experience for many.  The first dealer to alter this model significantly, while still allowing the test drive experience, will be a huge hit.
     

  • avatar
    cdnsfan27

    I worked at a small family dealership where I was lucky to be able to sell both new and used cars. We salesmen rarely made more than minimum commission on new cars. Pushing the add-ons helped a little, paying attention to the cars the manager wanted off the lot helped a lot (though most of the salesmen were to lazy to bother). Used cars on the other hand paid well enough to stay at the dealership. I could not have made a living on new cars alone.

  • avatar
    stevelovescars

    One small clarification, there is no law against factory direct sales… as long as the factory doesn’t already have franchised dealers.  Tesla can sell directly and have factory-owned dealerships simply because they never had franchised dealers in the past.  The dealer protection laws are based on state franchise laws.  Similarly, if you paid to open a Subway Sandwich franchise you wouldn’t want the corporation to start selling sandwiches at a factory owned store on the next corner… presumably with sweet insider pricing on the bread and bologna.

    I have no problem buying from a dealer and I’ve found most salespeople pleasant and professional if you deal with them the same way. 

    I find the profit issue interesting… and granted, dealers are greatly responsible for this attitude based on generations of horsetrading tacticts.  However, I have difficulty thinking of any other item that consumers buy where they even care what the seller is making in profit. 

    If you’re buying a new TV, you can compare prices across stores and the Internet.  You care that you are paying as little as possible on what is essentially a commodity item, but you don’t care that Best Buy is making 5% or 50%… just that it’s the best price.  Even for homes, you rarely care that the seller bought it for a song and is flipping it, you just make your offers based on similar market values.

    I think the key issue with cars is that customers really just want to know that they aren’t paying more than the next guy. 

    I know that salespeople at the dealerships work hard and spend a lot of time showing the cars and giving test drives.  But in my recent buying experiences once I’ve shopped and decide what I want, I just email the various dealers of that make near me and ask for the best price.  Some never respond, but inevitably, you’ll get that guy who is two units away from hitting a retroactive factory spiff and will sell the car for less than you ever imagined.  On my last one, a VW, I called back the very pleasant salesperson that had helped me, told him the offer and gave him a chance to match it.  he couldn’t even get within $800 of the price.  I have no idea why one dealership would be willing to sell the car for that much less, but they did.  If it was a question over $100 or so, I probably would have just gone back to the guy who spent time with me, but the difference was a lot more. 

  • avatar
    dwford

    I agree with everything you just said. And you are correct. If you can find that one dealer/salesman that needs to hit the stairstep bonus, you can get a great deal. You wouldn’t believe the difference one car can make when it comes to hitting a bonus.


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