By on June 28, 2011

One of the greatest things about the internet is its ability to disseminate information that levels the playing field in relationships that have long been defined by asymmetrical information. Our buddies at TrueCar are tackling one such informational imbalance by posting its dealer holdback calculation for every brand on sale in the US. They note

Dealer Invoice is generally the amount the dealer pays the manufacturer for the vehicle. Because Dealer Holdback is paid to the dealer after the vehicle is sold, it represents an additional profit center for the dealers that is not immediately available to consumers. This is one reason why some dealers are able to sell some vehicles below Invoice and still make a profit.

The more you know!

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77 Comments on “The Truth About Dealer Holdback...”


  • avatar

    Who the heck cares. The consumer’s problem is not in the byzantine system of back-end transactions, but the ability of dealer to haggle. That is what makes the cat buying experience so miserable. Maybe we need a brand that just publishes the prices.

    • 0 avatar
      colin42

      you mean like Saturn?

    • 0 avatar
      hreardon

      Pete -

      I totally appreciate your point. However, if you look closely, the price on the window sticker *is* the price of the car.

      Negotiating off of that price is a purely consumer driven phenomenon. If you don’t wish to participate, almost every dealer I know will gladly take an MSRP deal without haggling.

      It amazes me that it is standard operating procedure to haggle over cars, and yet very few people will do the same for furniture, clothing, jewelry, computers, etc.

  • avatar
    Flybrian

    Kind of wonder why there isn’t this sort of transparancy in every other field of consumer purchasing.

    • 0 avatar
      jmo

      Because cars are one of the few items that are still haggled over.

      • 0 avatar
        JasonH

        Everything can be haggled over, most things just aren’t worth the effort. The more you’re spending, the more it is worth your time to try to haggle.

      • 0 avatar
        paul_y

        This. Haggling over cars is absurd.

        …of course, at least in the US, the entire dealer-franchise system is completely insane. The auto-dealer lobby holds manufacturers and consumers hostage by perpetuating a system that is outdated and anti-competetive.

      • 0 avatar
        jmo

        They let you haggle at the grocery store? Wasn’t it F.W. Woolworth who revolutionized retailing with his fixed, clearly marked prices, sales model?

      • 0 avatar
        Pch101

        If the sales person is on commission or the item is relatively expensive (and these two things generally go together), then chances are high that its price can be haggled.

        I’ve haggled for furniture, camera equipment, AV/ home theater gear, musical instruments, my (overpriced) suits, and all sorts of stuff. It’s hard to believe that so many others don’t even try, but they don’t.

      • 0 avatar
        c5karl

        Pch101 nailed it. The appliance salesmen at Sears ignore the posted prices and quote whatever “I can give it to you for” price they feel like. That’s why I don’t buy appliances at Sears anymore.

      • 0 avatar
        mnm4ever

        @c5karl — thats how it used to be, but Sears has made a big attempt to get away from that used-car-salesman process. Not sure if all stores are the same, but the ones locally are pretty good, and much easier to deal with than Lowes/Home Depot.

  • avatar
    Zackman

    The kicker that invalidates all this info is the fine print at the bottom of the chart!

    I suppose it’s nice having that info, but I much prefer a no-haggle employee or supplier discount. Makes it easier all around. The way certain OEM’s are getting, almost anyone can get a break being a friend-of-a-friend-of-a-friend- or some similar nonsense of someone who works for that OEM to put money on the hood so it doesn’t make the OEM overtly appear to be dumping one’s products.

    I don’t know how good of a deal I received on my Impala, but I figured my GM supplier discount was worth (?)% plus the additional $3K rebate. I’ll have to check the sticker, which I still have, and figure it out.

  • avatar
    mtr2car1

    This has been my favorite last tidbit to bring up whenever we get to the point in the negotiations where the salesperson breaks out the picture of his kids and wife – standing there with no shoes and tattered clothes – complaining that “I guess it’s ok to go with your price, they don’t need to eat Every day.

    • 0 avatar
      SVX pearlie

      At that point, isn’t the response:

      If you wanted a job that paid well and provided for your family, shouldn’t you have studied harder in school and become a doctor instead of a car salesman?

    • 0 avatar
      Zackman

      “where the salesperson breaks out the picture of his kids and wife – standing there with no shoes and tattered clothes…”

      Ha ha ha! I prefer the faded photo of the wife standing on the corner, at midnight, under a street light, in the rain, with no umbrella, waiting for a cab that never comes!

      My wife and I actually were confronted by a Jeep salesman trying to sell us a new Liberty back in 2001, conceding he had to pay his mortgage, too! We immediately walked away and bought nothing until over a year later.

  • avatar
    CJinSD

    Hold backs are really about shafting the salesmen. All the commission models I’ve seen are based on a ‘gross profit’ that is calculated using the invoice. ‘Non-profitable’ sales result in a token minimum commission. I suppose that there are ignorarant buyers who care what the invoice says, but they wouldn’t get a good deal anyway.

  • avatar
    Pch101

    Hold backs are really about shafting the salesmen.

    Not really. Salesmen get shafted, regardless.

    The holdback should, in theory, pay for the floor plan. If the dealer can sell the car quickly enough, the holdback should exceed his financing costs, and he can pocket the difference as profit.

    “Invoice” is dealer cost, sort of. Ultimately, it determines the amount that can be floor planned (borrowed.) Car sales profits are ultimately about the effective use of leverage (debt), and the key to making money is moving inventory as fast as possible while paying as little to carry it as possible.

  • avatar
    boombox1

    Interesting about the asterisk next to BMW (and comment at the bottom of the chart.) One thing about BMW sales that has that ticked me off is the speech the salesman / sales manager gives explaining how “if you don’t give me perfect ratings in your satisfaction survey, we don’t get paid.” I’m sure other manufacturers have something similar.

    Anyway, if you did a great job, you wouldn’t *have* to ask me to give you perfect marks.

    • 0 avatar
      SVX pearlie

      Exactly right.

      Good ratings earn themselves.

      • 0 avatar
        R.Fortier1796

        They beat the “you need to give me all tens” into you because if you don’t get a ten, you might as well get a zero. I’ve worked for a BMW dealership on the service side, GM as what they call an “Area Sales Manager”, and now in the financial industry, and at everyone of these jobs, I’ve had these surveys. They are so weighted that unless you get the top score, you get a zero. Even 9s aren’t good enough.

    • 0 avatar
      Pch101

      One thing about BMW sales that has that ticked me off is the speech the salesman / sales manager gives explaining how “if you don’t give me perfect ratings in your satisfaction survey, we don’t get paid.” I’m sure other manufacturers have something similar.

      Some of the luxury brands tie holdback almost exclusively to CSI scores — BMW is the most noteworthy example. But this isn’t the norm.

      • 0 avatar
        geozinger

        I was selling Toyotas about 20 years ago, we had a similar system. I don’t remember if it was a Toyota or the distributor’s survey, but these things can be gamed.

        I don’t know how or why no one at either the distributor or Toyota HQ never noticed that I personally owned about 26 Celicas (not to mention all of the trucks I owned, too!) in 1991 and all of them were addressed to me at the dealership’s address. One would imagine this would cause some alarm bells to go off somewhere. Maybe I was a lot better off than I realized back then.

        This is part of the reason why I don’t have a lot of faith in surveys.

        From my dealings with GM surveys, I see that the process has improved and the correct address is used. I’m pretty sure they know I don’t have 26 cars, but we still get separate phone and email reminders from the dealership to give them a good rating.

      • 0 avatar
        CJinSD

        Thanks Geozinger. It is always good for members of the public to see just what reality consists of.

  • avatar
    NulloModo

    All cars do have a no-haggle price clearly printed on the window sticker, the MSRP. Available incentive information is widely available, many times on the manufacturer’s own website. When people say that they want no haggle prices on cars that isn’t really what they mean. What people want is to walk in and buy the car for the same amount the dealer paid for it without haggling.

    Any retailer, and car dealers are just retailers at the end of the day, has to have a profit margin to stay in business. Most people wouldn’t try to find out what Best Buy paid for a TV before buying it, or feel ripped off if they bought a bottle of perfume at Macy’s and paid 20% over what the wholesale cost of that bottle was. Yet with cars, any deal that leaves any money on the table for the dealership is considered to be a bad deal for the customer.

    Dealers provide a valuable service. They hold a lot of expensive inventory so that potential customers can come in and see/drive the cars in person, they pay for knowledgeable and trained sales staff that can help potential customers find the right vehicle to meet their needs, they willingly buy used vehicles from customers to save the customer the trouble of selling the trade themselves, they provide financing options for those who do not want to do the legwork and arrange a loan for themselves, and they handle tagwork, registrations, and all of the other little piddly state required bits of paperwork and oversight that go with the purchase of a new car. Like any other business that provides a service the dealer deserves to make a profit from the service they provide.

    Dealers do somewhat perpetuate the haggling game by advertising that they’ll beat any other dealer’s prices, etc, but it’s the customers that want to bargain down the price at the end of the day.

    • 0 avatar
      SVX pearlie

      “All cars do have a no-haggle price clearly printed on the window sticker, the MSRP”

      @Nullo: So the dealer is legally obligated to sell any car to any buyer for the MSRP?

      Even a limited edition Ford GT? Or a new, new Mustang?

      Can we outlaw ADP and all of that crap?

      I’d be all for that.

      • 0 avatar
        Pch101

        Nullo is right. If you don’t want to haggle, then pay sticker or find someone else to cut the deal for you.

        I like to haggle. It saves me money. A good haggler will beat an auto broker or alleged discount just about every day of the week.

        Can we outlaw ADP and all of that crap?

        Why? You can do what I do with the window sticker — ignore it. It may as well not exist. If the dealer wants to move the unit and you know how to negotiate, then the sticker makes absolutely no difference at all.

      • 0 avatar
        NulloModo

        SVX –

        You do get the occasional car that sells over MSRP due to demand, but for the vast majority of vehicle purchases the dealer would be more than happy to sell at MSRP.

        When you get into products where the demand is much higher than the supply there is always going to be some profiteering involved. Whether that ends up being a Chevy dealer charging 125% of MSRP on a Volt, Porsche setting the MSRP higher for a limited edition model where all they did was strip stuff out, or a guy selling Tickle Me Elmo’s out of the back of a pickup truck on the road to the mall for $100 bucks a pop the week before Christmas. Sometimes the manufacturer gets the extra bucks, sometimes the dealer, sometimes whoever was lucky enough to be first in line to buy the item and then put it up on E-bay. All of those cases are rare enough that I don’t think they apply to the overall argument about how cars are priced.

        When you go to dealer fees, some states have regulations as to what dealers can charge. I’ve seen less and less of the dealer added equipment of dubious nature lately – no $500 pin stripes or $1,500 undercoating charges, but I’m sure some places are still doing that. I agree there could be some reform in those areas, for example the manufacturer making it a part of the dealer agreement that additionally installed equipment can’t be marked up beyond a certain percentage of actual cost.

    • 0 avatar
      ajla

      All cars do have a no-haggle price clearly printed on the window sticker, the MSRP.

      Not really. The true no-haggle no-hassle automobile experience equals paying MSRP + dealer fees + dealer add-ons + extended warranty + any dealer “market adjustment”.

    • 0 avatar
      Zackman

      O.K. Nullo, if you would, break the process down for us on an actual vehicle you have currently in inventory. Give us the MSRP, dealer hold-back, what the dealer actually paid for the vehicle, additional fees, etc. Then show us what someone would normally pay, including rebates/incentives and what exactly comes out of that price for the salesman, facility, interest, etc. It would be interesting.

      • 0 avatar
        Pch101

        Then show us what someone would normally pay, including rebates/incentives and what exactly comes out of that price for the salesman, facility, interest, etc.

        The mistaken assumption is that there is some standard discount. There isn’t.

        Presuming that a car isn’t hot (and most of them aren’t), the price that you pay will be primarily determined by how well you negotiate. The worse you are, the more that you will pay.

        The dealership’s job is to size you up and to extract as much out of you as he can. A customer who can be convinced, praised, abused, intimidated or befriended in order to pay more will pay more.

        Your job is to minimize the extraction. Once the dealer has figured out that the minimal margin deal is the best that he’ll do, then that’s what he’ll take unless he thinks that it is likely that someone else will roll up to pay more. It’s more about you than anything else.

      • 0 avatar
        johnxyz

        +1 Hear! Hear!

        But it may not be fair to ask Nullo to show his hand on a public forum (why should he) And even if he does, he may not include all the components – we won’t get a complete picture – but I bet close enough). Lastly if he is not the owner or a Sr. VP exec in the auto group dealership (does he even work for a large company?) , he may not be aware of all the dealership costs or all the revenue streams/profits and bonuses from the mfg.

        Lets appreciate Nullo for the perspective he brings to the forum (from the dark side…)

      • 0 avatar
        NulloModo

        Here’s a breakdown of an actual vehicle, a 2012 Focus 202A package SE Hatch Automatic

        MSRP: $20,680
        Invoice: $19,610 (including advertising assessments and other charges levied on the dealer by the manufacturer)
        Holdback: $599
        Rebates: $500 if you finance with Ford Credit at 2.9/3.9/4.9/6.9 at 36/48/60/72 months, nothing if you don’t finance through Ford

        Selling price: This will differ dealer to dealer, Focuses are selling at or close to MSRP at mine right now, but let’s say you got an internet quote at $300 over invoice. As far as dealer fees go in my area they range from about $400 to $800 depending on the dealer, so we’ll hit right in the middle at $600.

        I’ll keep this simple and not get into profits from finance (there can be some depending on how the vehicle is financed, but that isn’t my department and I don’t know all of the ins and outs) and I’ll stay away from the fees which the dealer collects for the state, but does not profit from (such as tag work, doc stamps, sales tax, title/lien recording, battery/tire disposal, etc).

        Including the dealer fee, and assuming the dealer retains the entire holdback* (not a given) the total gross profit would be $1,499. From that, since I am not paid on holdback or the dealer fee, this would be a mini deal, and I would get $150 for my efforts. Another $150 would go to the detail department to cover the costs of cleaning/waxing/fueling the car. The sales manager and general sales manager would also get a cut, although I don’t know how much they take (I’ve always operated under the rules of etiquette that it’s rude to ask your bosses how much they are paid). Another cut would be assigned to cover the costs of the accounting department for filing all of the necessary paperwork and arranging for your tags. Finally, depending on the time the car had spent on the lot, a certain amount would be assessed for interest already paid by the dealer to Ford for the car. So, what starts as a fairly modest 7% profit margin quickly drops as everyone along the chain needs to be paid and overhead costs are figured in.

        *Now, since this was an article about holdback, it’s worth noting that the dealer doesn’t necessarily get the holdback listed. If the car was purchased from another dealer for example, the other dealer likely kept the holdback money, so the true dealer cost in this case is probably invoice. If the car was traded from another dealer, it’s common to keep the holdback for the car you are trading, so if I bring in a $65,000 F-350 and the other dealer takes a Ranger back, I’ll have a F-350 with $600 worth of holdback, and they’ll have a Ranger with close to $2,000 worth of holdback.

      • 0 avatar
        Zackman

        Nullo, thank you for the reasonable breakdown explanation. That makes sense.

        I thought it interesting that you included internet transactions – a factor I forgot about. In 2002 when we bought our Honda CR-V, the dealer would only discount the vehicle $250.00. But getting an internet price at the same dealer netted us a $500.00 discount! Not much. I really wasn’t too happy about buying a vehicle that close to MSRP, but this was my allowing my wife to buy the vehicle she really wanted – not my choice this time (it would’ve been nothing!), but I let her. It was a vehicle in high demand at the time, the most I’ve ever paid for anything besides a house, and she’s been quite pleased (mostly) with it. Me? Not so much, but it does its job, I suppose, but I’m not an SUV fan, strictly a car/pickup truck guy.

        So, thanks again for your sane approach, unlike some of the nay-sayers on here that dismiss almost everything!

        Now, on the used-car end of the spectrum, that’s a whole ‘nother story, I’m sure!

    • 0 avatar
      tirving

      “Dealers provide a valuable service. They hold a lot of expensive inventory so that potential customers can come in and see/drive the cars in person, they pay for knowledgeable and trained sales staff that can help potential customers find the right vehicle to meet their needs”

      “Knowledgable and trained sales staff” HAHAHAHAHAHAHAHAHAHAHAHA Very funny.

    • 0 avatar
      mnm4ever

      OMG you are so full of crap its sad. What, do you own a dealership? Are you a car salesman?? There is no other business in the world that is more secretive or sleazy than car sales. The entire business model is built around misleading the consumer and preying on the customer’s ignorance. They pad every deal with as many fees as they can legally get away with, and buyer beware if you arent smart enough to figure out the real fees or costs involved. And “they employ knowledgeable and trained sales staff”???? HA, where? I havent been a dealership in years that had salespeople who knew crap about thier products. All they know is what the brocure says, and even thats too much for some of them.

      The reason people dont complain about electronic costs at Best Buy is because everyone who walks into Best Buy gets the same price. It is easy and clear to quickly search the internet for the true price of any item they sell. And every item has a clear set of specifications that can be easily compared to competing products. Also, electronics in general cost a LOT less than a car.

      If car dealers want to make a profit for thier services fine, then publish those fees up front, and give me the choice of using those services or not. They need to clearly show the true costs, the profit margin, and all fees. And before you say that Best Buy doesnt have to do that, the reason people dont trust car dealers is the decades of scamming that has gone on. Thats what makes them have to live up to a higher standard than the electronics industry. They need laws in place to FORCE them to be honest until the public can trust them.

      • 0 avatar
        hreardon

        mnm4ever -

        As Nullo said: if you want to pay the same listed price (MSRP), you are more than welcome to. Just like everyone would pay at BestBuy.

        The price is right there on the window sticker.

        Are you arguing that just because a car costs more there should be a more significant discount? In purely numerical terms that can sometimes be the case (more markup in a $40,000 BMW than a $1,000 TV), but that’s a silly argument at the end of the day.

        As for the fees – they’re shown to you when you buy a car. When you sign the paperwork you are entitled to walk away if you feel the fees are gouging. Keep in mind that most fees charged are not profit for the dealer – they’re fees collected for the state and in some instances a small portion is kept for overhead (someone has to process the paperwork).

        Look, I’ve negotiated many an auto purchase over the years and it isn’t hard and it isn’t sleazy unless you want to deal with sleazy people. It’s easy to get up and walk away and go to another dealer.

        Most of the cars I’ve bought were as simple as asking “please show me the vehicle invoice”. If the dealer wouldn’t show me the actual factory invoice, I walk. Simple. Once I see the actual invoice (which includes the manufacturer fees for things like advertising), I make an offer over that number and they either take it or not. It isn’t that tricky.

      • 0 avatar
        Pch101

        The reason people dont complain about electronic costs at Best Buy is because everyone who walks into Best Buy gets the same price.

        The typical pre-tax margin for a dealership is about 2%. http://www.autoremarketing.com/content/trends/nada-franchised-used-sales-almost-15-dealer-profitability-40-year-over-year

        Best Buy’s typical pre-tax margin is about 4%.

        I’d rather haggle. (You’ll almost never find me at a Best Buy.)

        You ought to learn how to negotiate. You’ll save money AND have a lot less reason to be angry. The dealership is what it is; you can either play the game, or get played.

      • 0 avatar
        Extra Credit

        @Pch101

        From your comments, I have to believe that you have no interest in service. Your focus on price precludes your retailers of choice from having any resources available to deliver any level of service to you. At 2% margins, why would anyone want to be in the car business? You must whine about oil company profits too, when the real issue is return on investment. I guess your company must be teetering on the brink of profitability and your compensation reflects their precarious position. Otherwise, you wouldn’t have a hope of sleeping at night, because you’d be too worried about your organization being profitable. I sincerely wish you luck.

      • 0 avatar
        Pch101

        At 2% margins, why would anyone want to be in the car business?

        I’m not in the car business. This isn’t my problem.

        In any case, a lot of dealerships have moved toward the supermarket model, which focus on volume. The name of the game for the larger guys is inventory turn.

        You must whine about oil company profits too

        You’d be wrong about that. And I have no idea what that has to do with this topic.

        I guess your company must be teetering on the brink of profitability and your compensation reflects their precarious position.

        I’m self employed and business is pretty good. (I do focus on margin.) But thanks for your concern.

      • 0 avatar
        mnm4ever

        @pch — I know how to negotiate and I have only been screwed over on a new car ONE time, my first time, whem I was 20 and didnt know any better. I play the game just fine, and I feel confident that I got good deals on any car I have purchased or helped purchase. And I am not angry, I just think that Nullo is off his rocker with his comments, and, worse, he believes his own BS.

        @hreardon — you miss the point entirely. First off, the MSRP is not the cash and carry price. Even if one were so dumb as to pay full MSRP, different dealerships charge different additional dealer fees, detailing fees, pinstripes, protection packages, etc. The stuff that was legendary from the 70s wheeling and dealing is still going on today. Second, this has nothing to do with discounts, I dont trust the pricing model from the beginning. The window sticker has nothing to do with the real price of the car, the real cost of the goods or anything for that matter. It doesnt take into account the excess fees, the add-ons, etc. Third off, obviously you are good negotiator, or at least you are comfortable in the car buying process and you know what to look for. I feel the same way, I dont worry about myself. But I know dozens of people who simply cannot understand the process, do not know what to look for, and generally end up paying too much. Dealers prey on those types of people. Advertising is aimed at those types of people. The upside-down financer, the poor credit people, the uneducated and those that simply do not know the resources we have at our disposal to research a car price. They purposely make it confusing and difficult to compare prices, options, etc, and then use high pressure sales tactics to get you to sign. You and I dont sign, we walk. But my mom, my grandmother, my aunt, the secretary at work, etc etc, they dont walk. Even your tactic, “show me the invoice”, how do you know you are seeing the real invoice? If you dont work at a dealership, you wouldnt know. There is no law that says they cant lie to you. And that doesnt even begin to cover the padding in finance, warranty, protection packages, maintenance packages, accessories, etc. Even the not-so-sleazy dealers still will let an uninformed consumer buy anything they want to buy, good deal or not.

        All businesses should make a profit, I am not denying them some profit. The only reason I beat them up so hard on negotiating is because I know I can, and I know they make 3x the money off the next sucker in line. And lets face it, not too many dealership owners are having any trouble feeding thier family. They arent making all that cash off $150 “no profit” deals!

      • 0 avatar
        Pch101

        I play the game just fine, and I feel confident that I got good deals on any car I have purchased or helped purchase.

        As a consumer, it’s hard to feel all that great about Best Buy, which doesn’t have particularly competitive pricing and which clears higher margin than does the average car dealership.

        I’d rather haggle. I accept that dealers are what they are. If they want to pack on fees, I don’t pay them. If they want to upsell the vehicle, I don’t pay them for the upsale. If they want to lowball the trade, I don’t take the lowball.

        It may seem irritating to have to deal with that aspect of the buying ritual. But at the end of the day, for the good negotiator, it’s a better deal than Best Buy, which offers lousy service yet earns double the margin for it.

        Nullo Modo is playing for his team. That’s his job, and I don’t have a problem with that. Just remember that he’s playing for the opposing team, not for yours, and respect him as an honorable opponent in a game that you should play to win.

      • 0 avatar
        NulloModo

        mmm4ever –

        What constitutes paying too much? Is it paying more than the dealer paid for the car, paying more than the absolute minimum the dealer would accept, paying more than the next next guy to buy a similar model, or paying more than you wanted to when you walked in?

        At the end of the day if someone feels like they got a good deal, that the price they paid is worth it to them for the car they bought, then they got a good deal. There is plenty of space between ‘paid the absolute minimum’ and getting ripped off. If the car and it’s features are presented honestly and the customer pays a price that they feel is acceptable, then whether or not someone else paid more or less has no bearing on that transaction.

        As far as warranties, accessories, finance, etc, go, yes, there is profit involved, but no one is forcing anyone to take any of it. Of course the dealer makes a profit on selling warranties and accessories, or else they wouldn’t do it. The car comes with a warranty, you don’t have to buy an extended one, and if you do, you can buy one from a third party over the internet after you buy the car if you don’t like the warranties the dealer offers. The same goes with accessories, you can pay a premium for the official rubber mats, rain guards, or racing stripes, or you can buy from somewhere else if you feel that product is a better value. When it comes to financing the dealer does sometimes bump the rate to profit from offering the loan, but no one is going to turn away your business if you come in with a draft or check from a bank where you arranged your own financing on your own terms.

        As far as dealer fees go, certain states limit the amount a dealer can charge, and others have their own regulations. In FL it has to be disclosed in certain advertising and is printed on an addendum sticker displayed on each car. The other fees – tax, tags, title, etc, are going to be charged the same anywhere, those are just part of buying a car.

        At least in my experience the days of ‘losing’ the trade keys, badgering someone in a hard sell, or showing fake invoices are behind us, at least at any manufacturer-backed new car dealership. There are likely still some holdouts doing things the old way, but I think most people have pretty much figured out those tricks and aren’t putting up with them anymore.

        The information anyone needs to negotiate the best deal is available on the internet. It isn’t the dealerships job to disclose profit margins or give away money on a car deal. With the Best Buy example I can see what Best Buy charges for a particular TV as well as see what I could buy it for through Amazon or one of their affiliated merchants. I certainly don’t expect the guy at Best Buy to tell me I could buy the same Mitsubishi DLP for $500 less online, or to tell me I could buy a SquareTrade warranty for less than the Best Buy extended service plan he offers me.

        If your secretary at work buys a Mustang and pays full sticker, but is happy with the car and the amount she paid, is that a bad deal? What about when she buys a pair of shoes at Dillard’s that would have cost a couple hundred less on Bluefly.com ? What about when you go out to dinner and pay twice as much for a bottle of wine than it would cost at Publix ?

      • 0 avatar
        mnm4ever

        No Nullo, looking at it your way, its not a bad deal. But it does make the car sales business sleazy. And your idea that those types of old-school scams are gone is false, they still do it at many dealerships, although I will concede that the tide is slowly turning as the general public becomes better informed.

        The only industry I can relate to car sales is timeshares. I have been on a few of those timeshare sales presentations, and its the same type of thing, all pressure and tricks, trying to convince you to buy without giving you time to inform yourself. Compare that to say appliance sales at Sears, where they will not only offer you the best price, but they will comparison shop for you, and match prices if they find a better deal elsewhere. Now THAT is GOOD deal.

    • 0 avatar
      stuki

      “What people want is to walk in and buy the car for the same amount the dealer paid for it without haggling.”

      I don’t think people are quite that stupid. Instead, what they want, is assurance that noone else is able to get the same car for a lower price. Being a “smart shopper”, and “not being taken advantage of”, is something many pride themselves on.

  • avatar
    threeer

    tirving,

    Sadly, I have to agree with your reaction…we recently went car shopping to numerous, numerous different brand locations, and the salesforce at all but one (I’ll get to that one in a second) was virtually clueless about the cars they were attempting to sell. Car sales is not a job for the gearhead, apparently. Knowing your product is not important…getting you to stroke a check is. Is this an over-generalization? Maybe…but after setting foot on Ford, Chevrolet, Hyundai, Chrysler, Mazda, Toyota, Kia, Nissan and finally Fiat dealerships, my relatively small sample size resulted in only one saleman who was very, very familiar with his product (not to mention genuinely passionate about it), did not push in any way and gave us all the time in the world to review the product and ask questions. That was the Fiat dealership…and truth be told, we almost bought a 500 based on his service alone, but in the end, despite the incredible lack of knowledge the salesman presented at Toyota/Scion, my wife fell for a tC.
    So what does this seemingly aimless rambling mean for me? In nearly 90% of my experience, I don’t NEED a salesman. I’ve done the research, just have a sign-out sheet at a vehicle outlet facility, let me test drive the car and I’ll make up my own mind without the added pressure of a salesman sitting in the car continously asking me “what will it take for you to buy this car today?”

    • 0 avatar
      geozinger

      @threer: Sadly, this is the case in many sales jobs. I was a motorhead who stepped into the world of auto sales, only to be glad to step back out. None, absolutely none of the other guys I worked with at the dealership group really cared about cars. They were concerned about getting the check, getting the check… I knew a guy who went from selling Kirby vacuum cleaners to selling Hyundais. He eventually came back to selling Kirbys because there was far less paperwork involved. But, to these guys, selling is the job. It could be refrigerators, electronics, houses, whatever. With some of the ones I’ve met, it could be all three in the same week!

      I’ve seen Nullo Modo’s posts here for quite some time now, and I find him a very interesting guy especially when he speaks about the retail end of the business. His example above is pretty much what I remember from being one of those SOBs on the floor, and I think he speaks truthfully about matters that would have given my old sales managers fits. You may disagree, but he’s being truthful about his work. He could have his own site, The Truth About Car Sales.

      Buickman brings another perspective to the business and I think his methods are old school and cool. Again, another salesman who knows his sh!t, one of very few who is willing to share what happens on the other side of the desk. Of course, his running battles with GM management speak to his passion for what he does. Damned few folks in any profession are like that. We seriously need more passionate people in all fields…

      Now the trick is finding these guys in your neighborhood. Good luck…

  • avatar
    Dynamic88

    Dealers do somewhat perpetuate the haggling game by advertising that they’ll beat any other dealer’s prices, etc, but it’s the customers that want to bargain down the price at the end of the day.

    At the end of the day, the dealer wants to haggle just as much as the customer. If I walked in and looked at a plain Jane in stock Focus, agreed to pay MSRP, then agreed to the additional fees, title, plates, taxes, dealer prep, etc., you’d feel bad that you didn’t try to get me for ADP. Maybe not you personally Nullo, but most car salesmen. The money on the table thing works both ways, and the dealers/salesman feels just as bad if he doesn’t squeeze every nickel out of the buyer as the buyer would feel if he paid a nickel too much. That’s the problem, the system is set up to fleece people as much as possible. With most other purchases, the price is not “as much as we can extract from you”. With dealers supposedly not making much profit on new cars – but instead making their $ on used cars, service, parts, etc., there is a real incentive for the dealer to change the system. But buyers don’t want to end haggling -you’re absolutely right about that. They want to get a “discount”. In the information age, I don’t see how you ever get more than a mini deal.

  • avatar
    jacad

    I am a retired automobile dealer after 42 years of managing and owning new car dealerships handling multiple domestic and foreign brands. At the end of the day, it is an extremely lucrative business where great profits can be produced but also a business where the investor most often is subject to great risk.

    The reason vehicles are sold the way many describe is because it works. The very best most profitable dealers can also often be the ones best at manipulating the consumer. The object is to make as much profit on every car sold as is possible and explaining in detail how the business works doesn’t fit with that objective. In all reality, it is not the consumer’s business what the dealer does or does not make. The dealer’s job is to get all they can and the consumers job is to buy it as cheap as possible. The consumer usually always loses but most think they actually won and for the dealer that is a GOOD thing.

    While many cry for change, the simple fact is people don’t really want change. They want to leave the showroom thinking they were the smartest guy in the room and selling cars for one non-negotiable price never fits with that reality. Every manufacturer has had a group of young egg-heads with no real knowledge try to change the system and it has failed every time. Saturn would be the latest and greatest experiment that cost GM billions of dollars.

    While the young man trying to explain some of the reality of the business has much of it right, in many areas he is a lost ball in high weeds. He will in time either learn to ignore all the chatter or leave the business entirely. The real business is about making money…not friends.

    • 0 avatar
      hreardon

      In many, many ways jacad is absolutely right. I have friends who have tried to run “one price” dealerships and they have all failed, miserably.

      The fact is, consumers want to feel like they got a deal. For some people, “a deal” is $50 off of sticker. For others “a deal” is $1,000 under invoice and they won’t be happy until that’s what they get.

      There are very, very few people who walk in and say, “my time is very valuable. Mr. Salesman, I want to purchase this 2011 Whatchamacallit and will pay what the window sticker says.”

      I’ll virtually guarantee that nobody here would do that. I know I sure wouldn’t.

      I think what people are upset about is the history of shady dealerships before good, easy to find data was available. There are plenty of horror stories about little old ladies paying double MSRP or someone getting $50 for a $10,000 trade-in. The truth is, today the majority of buyers are a lot smarter and come better equipped to negotiate in good faith. Again, it isn’t hard if you come with data and are ready to walk if you’re not comfortable with the dealer.

      What makes this doubly absurd is when you look at the markup on other consumer goods. The average piece of jewelry is marked up over 200% and good jewelry is often on a 700% margin. Furniture routinely has between 300 – 500% markup and clothing is some of the most phenomenally overpriced goods you can buy, upwards of 1,000%.

    • 0 avatar
      johnxyz

      Wow – JACAD pretty much summed it all up…no further questions. I want to own a string of dealerships in my next life – its good to be king…

    • 0 avatar
      CJinSD

      I worked for a multi-brand dealer one summer in college. They definitely operated on the principle that each customer should be taken for the maximum amount of money possible, even if it meant that half the cars from our most profitable brand that were to be seen in our town were wearing the license plate trim rings of a less-predatory dealership that was 40 miles away. We would not compete on price. Nor, by all indications, did we compete on service. Once we sold a car, any problems that occured were compounded rather than resolved. Our used car lot? If there were any good used cars to be had in 1989, we didn’t have them. Perhaps anybody that had a car that still worked wasn’t desperate enough to close a ‘deal’ in our dealership(s). Perhaps the good ones went to auction so as not to show up the other dogs on the lot. Repeat customers, needless to say, were scarce. That was okay with management, as our town was growing by leaps and bounds, so there were always new victims. We were a systems house, and the managers bragged that we never let anyone buy a car without our business office taking the customer to the cleaners. I suppose any attentive customers had already been weeded out by our policy of only taking offers to our managers when they were accompanied by a deposit that we would only refund upon failure to buy a car after tying up the customer’s money for a couple weeks. What was the result of all this underhandedness? Today the same company has dealers all over the region. The relatively ethical competitor from 40 miles away? They’re under new ownership and their customer friendly policies are a memory.

      • 0 avatar
        johnxyz

        Thanks for that post Cj – bookends beautifully w/ JACAD’s post. You just have to arm yourself with all avail. info and stick with a strict car buying strategy in order to buy a new car at a “low” price and unfortunately let them make it up on the next guy. But as you’ve both pointed out the house always wins – even if you think you got a good deal – the dealer has the last laugh. Maybe just stick to used cars from CL sold by private buyers….

      • 0 avatar
        CJinSD

        I’ve used the lessons that I learned that summer to make various dealers furious. You can get a good deal on a new car, but you shouldn’t return to that dealer until the people who dealt with you are a distant memory. 18 months should do it.

        One way I’ve used the lessons I learned working at a systems house to good effect is the misdirection method. Dealers are soft on price if they think you’re going to give them your trade in. I’ve taken advantage of this by bringing the most valuable car I can get my hands on to the dealership. When they appraise it for 60% of wholesale, I don’t even flinch. I hammer them on the new car price, and they pretend to be crestfallen while giving me back 75% of what they didn’t offer me on my trade. I accept their price reluctantly, then inform them that I have a better offer on my trade, so I’ll be paying cash for the entire purchase price. They know they’ve been had, but they can’t do a thing about it. Satisfaction. I follow this up by giving every undesired answer possible in the finance office. The advice available in this post is worth thousands of dollars.

    • 0 avatar
      gslippy

      If dealers are so profitable, why are the manufacturers trying to close so many of them?

      I’ve seen lots of dealerships occupied by nothing but crickets and bored salesmen.

      • 0 avatar
        Pch101

        If dealers are so profitable, why are the manufacturers trying to close so many of them?

        Because the manufacturers have to carry the float for their floorplan, and then overproduce inventory to fill their lots. The automakers don’t just build cars, they also act as banks, and there comes a point when it no longer makes sense for the bank to lend any more money to certain customers.

        What’s good for the dealer is not necessarily good for the manufacturer, and vice versa. The GM bailout should have made that clear to everyone.

      • 0 avatar
        NulloModo

        There are plenty of profitable dealers, and also plenty of unprofitable ones. The US is littered with boomtowns gone bust since the housing crash, and areas that depended on construction for their livelihood can no longer support many of the businesses they once did.

        Even aside from those areas, there were plenty of dealers on life support before the economy took a dive. There were dealerships opened for the sole reason of keeping someone else from opening up a dealership there, and for other reasons that might have made some sense in short term thinking but aren’t good for long term survival. A town of 20,000 people doesn’t need its own Chevy dealership if a city of 100,000 fifteen miles away has one.

      • 0 avatar
        golden2husky

        Nullo, why the “Dealer Fee”? The negotiated price should be the price the dealer is willing to take, period. What is the point of having the customer think they have the car for $300 over invoice only to add back $600 in dealer fees? If $900 over invoice is the lowest the dealer will take, then that should be the number period. Nobody is fooled by this practice. I’d way prefer a simple negotiated value and be done with it. I feel that anytime I buy something and a “fee” is added to it (excluding plates, taxes and the like) I consider it to be a junk fee and an attempt to extract cash out of my pocket. Don’t negotiate below what is acceptable and there is no need for “fees”.

  • avatar
    Tommy Boy

    One thing I’ve noticed around my area is that the KIA dealers, judging by their TV ads, are really going for the bottom-fisher market and high-pressure (and misleading) approach.

    One on local TV is advertising stuff like (at high volume of course) “no credit-check Mondays!” and “up to $5,000 MINIMUM TRADE-IN VALUE!”

    Trolling for less sophisticated folks who won’t pick up on the “up to” distinction is really sleazy.

    I kind of like the styling of some of the KIA’s, but wouldn’t consider one just because I don’t even want to walk on the sidewalk in front of dealerships like that.

  • avatar
    Zackman

    I guess I can close this out with my experience buying our 1990 Plymouth Acclaim. Before the internet existed, I went to the library and they had this buyer’s guide that listed the base price, the invoice price and what you should expect to pay.

    I found out that the car with all the extras I wanted – not much – auto, PS, PB, tilt, cruise, A/C – came normally equipped that way.

    I added everything up and came up with a price that the dealer matched exactly. The car stickered for something like $12,000 and I paid $10,450. I felt I received a fair deal.

    Kept that car 10 1/2 years, too.

  • avatar
    Pch101

    If your secretary at work buys a Mustang and pays full sticker, but is happy with the car and the amount she paid, is that a bad deal?

    If a buddy of yours paid $500 for a sixpack of Miller Lite and a bag of potato chips, would that be a bad deal?

    Of course it would be. Paying a price far above market is, by definition, a bad deal.

    This is one thing to watch from car dealers. A car dealer would define a “good deal” as a deal that makes you happy, even if your deal is completely stupid.

    What serves one side of the table does not serve the other. A typical car purchase is a win-lose style of negotiation. Instead of trying to create a win-win or become friends with the dealer in the hopes that you gain some sort of inside track or special relationship, you should instead resort to clobbering him. No need to be rude or confrontational, but in terms of the pricing objectives, it’s a no-mercy, screw-them-’til-they-scream kind of transaction.

    • 0 avatar
      NulloModo

      A sixpack of Miller Lite is what, $5 or so? So yes, I would consider spending 100x that amount a bad deal. But with the Mustang example we’re talking about maybe a 5% difference between invoice and MSRP, so wouldn’t say my buddy got ripped off if he paid $5.25 or even $6 for that sixpack.

      • 0 avatar
        Pch101

        Overpaying by $2000-3000 for a car would be more costly than it would be to overpay by $490 for some beer and junk food, especially when the car is financed and includes interest charges.

        You’re playing an old car lot trick of trying to redefine “good deal” to suit your side of the table.

        A “good deal” is, by definition, at a price below equilibrium — the “good” comes from having beaten the market. It is determined by economics, not by emotion. A stupid deal is still stupid, no matter how blindly naive one might be.

      • 0 avatar
        Extra Credit

        @NulloModo – Your logic of defining a margin as a percentage of the selling price is a sound and widely accepted economic practice in the business world. Pch101 has made it clear that he focuses on margin for his business too. Now we understand that he concentrates on maintaining his margins between 2-5%, because anything more would be a bad deal designed to cheat his customer. Of course, if he is doing quite well by focusing on higher margins, then he’s simply redefining a good deal to suit his side of the table.

      • 0 avatar
        Pch101

        Pch101 has made it clear that he focuses on margin for his business too.

        When I’m on the seller’s side of the table (i.e. selling my own company’s goods and services), I play for the seller. And yes, I certainly account for margin.

        But when I’m on the buyer’s side of the table, such as when I’m in the market for a new car, then I play for the buyer. I switch hats, because it makes sense to do so.

        Nullo sells cars. I expect his position to be self-serving.

        I don’t sell cars. My position is self-serving on behalf of the buyer.

        Well, guess what? As it turns out, people like Nullo and myself have very different agendas. He wants to push prices up, I want to push them down.

        I don’t blame Nullo for claiming that a stupid deal for us is a good deal for him — he’s right if we look at it strictly from his perspective.

        But he tries to make us forget that there is a distinct difference between what is a good deal for a car salesman, and what is a good deal for a car purchaser. Since this isn’t a website dedicated to help car salesmen to earn more money, you can guess on which side of the table that most of the readers belong.

        People who are car buyers should ignore Nullo’s definition of a “good deal” because it will cost them money. A lot of money. But, still, it’s good for them to hear it here, so that they know what to expect when they’re in the shark tank of a car sales lot.

  • avatar
    gslippy

    I want to purchase my next new car at Best Buy or WalMart.

  • avatar
    Point Given

    I’m a fleet manager at a nissan dealer(Canada). I work with a different spread than NulloModo.

    On my Nissans I’ve got the spread between MSRP and Invoice, plus holdback(say 335 on an altima) plus another chunk of cash called WISP(550ish on same altima).

    It should also be noted that once you hit your monthly totals target the dealer gets a per car amount of cash($400?). I don’t really know that number other than a brief alluded to in conversation. I suspect quarterly, and yearly bonuses based on volume and CSI scores.

    On fleet deals, depending on whom I’m quoting for, I take out holdback, WISP and fleet rebate plus my markup. (50 on a sentra to 1200+ on an armada) Rental car company deals are like 75 bucks over which completely sucks ass.

    For my retail deals, I do $200 over invoice for most new vehicles (keeping holdback and wisp) with no extra fees(doc/nitro/undercoat/security etch).

    Used cars vary greatly on markup based on demand/condition of the car. I have charged a friend about $2400 over on a used QX56. Super low KM, super clean condition. AND I TOLD HIM ABOUT IT. He was fine with it.

    I don’t deal with those who treat car salesman without respect, or those who don’t think I have the right to earn a reasonable markup. I just say “I don’t think I’m the right salesman for you” shake their hand and send them on their way. If winning at all costs matters, getting that 800 to 1000 bucks that I’m holding for youself…..then we can’t do business. I’m a relationship seller, and it works perfectly for me. I don’t know how many I turn away in a year, I recall only one this june. One more started down that road and I said basically the above to him and he settled down.

    I typically sell 40-60 retail deals a year through friends and referrals.. I take care of my customers and expect to be *reasonably* compensated for it.

    So that’s my insiders take.

  • avatar
    obruni

    back when CarsDirect had great deals, it was a great tool for haggling with dealers.

    • 0 avatar
      Zackman

      Edmunds.com has a great series called “Confessions of a car salesman” originally published in 2006, since updated. A great funny read. Check it out.

      There are still lots of snakes out there – on both sides of the table, but with such a large sum of money at stake, that’s the real reason why buying a car is taken much more serious than a TV.

      • 0 avatar
        geozinger

        @Zackman: You bring up another important point. Most folks pretend they’re acting in good faith, and many are just shysters, period.

        I can’t tell you how many people come in to a dealership and expect you to kiss their *ss, but once you start running the the TRWs and credit scores, you find a whole different person.

        Many people think they will get the best deal by trying to play tricks and games with the salesmen about their credit, their job, their trade-in, and a whole host of other things. The salesmen see so much of this activity, they become jaded, and I can’t say I blame them. Not unlike certain cops.

        If you think you’re being taken advantage of, get up and walk away from the deal. If you’re trying to scam the dealer you’ve got nobody but yourself to blame for the way you’re treated. The salesmen who have been doing this for a long time have a pretty good bullsh*t detector and usually can figure out what you’re all about in a short conversation.

        It’s the newbie salesmen who get screwed in all of this, because they don’t want to miss the chance to get a commission. It creates a vicious circle of deception on both sides of the desk, IMO.

      • 0 avatar
        hreardon

        Geozinger makes some good points. I think that today there is enough reliable information and a wide enough variety of dealerships that it is not necessary to play games.

        You walk in after having done your homework on Edmunds.com. You ask to see the dealership’s invoice. Those two should be pretty similar. You ask what the associated doc and processing fees are.

        You make an offer over the invoice (assuming no additional factory spiffs) that you feel is fair.

        I kid you not, I’ve never had a problem with this in the cars I’ve purchased. I usually consider $500 over invoice for a good dealership to be fair, assuming the car isn’t in high demand. Most of my deals have been 45 minute in-house affairs and slightly more time via email negotiating everything ahead of time.

  • avatar
    Junebug

    I think it was 2003, my wife and I were looking at a Honda Accord. We were trading a fully loaded Nissan Pathfinder. We had made a deal verbally one night and had to leave for some reason I don’t remember. The next day we got there near closing time since we both work, had to get the kids to grandma and then drive a hour to the dealer. It was Valentines Day, my salesman had gone. The only people left were the finance lady (HOT!!) the manager and a sales guy to swap the plates. The paperwork came – the sales guy had gave us 2K more on the trade, took 2k off the car, and completely left out about a 900 dollars worth of “extras”. The wife gave me that look, that – if you say anything I’ll kill you look. We sat down, signed, and shook hands. They were happy and we were about to crap our pants. Since it was Valentines Day, all the good eating establishments were full, we ended up at Bojangles, ate heart shape biscuits and read the sales agreement. In NC, there is NO cooling off period, you sign – a second later it’s final, done, over.

    We got a call from the original sales guy later, he wanted us to come in and “talk” about the deal, I politely told him that we had signed their paperwork. He paused……..then said well, you got a deal, enjoy the car. I kinda felt bad, I called and talked to the sales guy that was there the night we got it, he said,”don’t worry, we make enough off other customers!” And that guy still has a job.

    Score one!

    • 0 avatar
      Zackman

      I’m glad someone gets a great deal – I’m not that fortunate.

      • 0 avatar
        hreardon

        Zackman -

        Please don’t take this the wrong way because I’m genuinely curious: why do you not think that you get good deals? What’s the threshold or magic number that makes you think you got a “good deal”?

        As I mentioned earlier, everyone seems to have a different idea of what a good deal is, so I’m curious.

  • avatar
    Ubermensch

    The isssue I have with car buying is caused by the problems with buying and selling in a more rural area where I live. Few dealers, especially for import brands, and very few possible buyers for low mileage used cars on the open market. Most of the advice to sell your car yourself or walk away from a bad dealer is just not very practical in my area. This isn’t as bad when shopping for a new car, but with used cars the selection of more rare cars is terrible to non-existent and you have to take what you can get. To find most of the cars I have been interested in would involve driving 3 hours or more to find a decent example.


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