By on March 2, 2016

Car Cash Loans Commercial, Image Source: Bobby Mascio/YouTube (https://www.youtube.com/watch?v=dwcm7CbTel8)

If I’ve seen it once in the comments on this site, I’ve seen it a hundred times.

Never once in the history of the Internet has anyone, anywhere admitted that they paid more than invoice for a new car.

Everybody gets the best deal possible. We all “stick it to the man.” However, despite the well-known and understood tendencies of most people to lie on forums, in comments, or even when writing about their own business practices on the Internet, this might be one of the few times when the braggadocio matches reality.

The truth is that virtually everyone gets a “good deal” on a new car.

The invoice price now seems to be the starting place of negotiations on commonplace cars. And yet, franchise owners all across these great United States (and Canada, I presume) are raking the money in, hand over fist.

Many of the questions you’ve all been so kind to send into the Ask Bark mailbox lately have been regarding crazy leases, manufacturer incentives, and other such deals that seem too good to be true. How can anybody be making a nickel on these $69 a month Cruze leases? What gives?

Relax. Uncle Bark is here to pull back the curtain and show you how the dealer is more than happy to have you sign on the dotted line for that once-in-a-lifetime deal.

2012 Chevrolet Volt plug-in hybrid Monroney sticker, Image Source: Mariordo (Mario R. Durán Ortiz)/Wikimedia Commons

For years now, OEMs have been slowly but surely reducing the amount of profit on invoice statements, to the point where something like a Ford Fiesta ST offers less than $700 difference between sticker and invoice; lower trims have even less. A decade ago, it wasn’t uncommon for a dealer to average around $1,500–1,800 on the front end (the actual profit made on the sale of the car before any finance, insurance, or warranty products are involved). Now? The majority of domestic cars don’t have that much profit built into the sticker.

Not that anybody pays sticker. Invoice pricing is hardly a secret, available to the public on any number of third-party sites, along with actual transaction data for your zip code. It’s beautifully simple to find out what the dealer paid for your dream car, as well as what others in your area forked out recently for the same car you’re eyeballing. If you don’t personally enjoy the haggling process at a dealer, there are even lead generating companies that will happily do the negotiating for you, provided that you’re okay with them selling your data to the highest bidder.

So in this age of information, how do dealers still manage to squeak out any money? Simple: That profit that the OEMs have been taking out of the invoice? They’re giving it back to the dealer in a variety of different ways, either via manufacturer rebates or any number of incentive programs that reward specific behavior an OEM is looking for from its franchisees.

One reader recently wrote to me with the following question: “Why do auto manufacturers like GM put so much cash on the hood? Obviously it helps move the cars, but to me the optics of a lower MSRP would be a lot better.”

Well, that would make more sense to us — the end user — but remember the golden rule of the car business: the OEM’s customer is the dealer, not the buyer. So that cash on the hood, in the form of a factory-to-customer rebate, just ends up being a down payment that is paid directly to the dealer. Sure, you could request it as a check made out to you, but nobody ever does. Most consumers view a rebate as a reduction of the sticker price, when it’s actually nothing of the sort. Rebates are only relevant after the final sale price is negotiated — then the rebate is applied. That’s an easy way for a dealer to hold on to a grand or two with an ill-informed customer.

But what about the dealer who’s willing to sell at invoice minus rebates? Well, that’s likely a dealer who’s trying to hit a OEM sales target.

Depending on the OEM, these are either paid out monthly or quarterly and, depending on the volume of the store, they can be extremely large dollar amounts. And it’s not just the sales numbers that matter. In order to qualify for the highest possible payouts, dealers also need to hit any number of moving targets — including, but not limited to, responding to internet leads within a predetermined time frame, making recommended facilities improvements, having dealership employees complete required online product and sales training, and, most importantly, good customer satisfaction index scores. You know that survey you get a couple of weeks after your purchase of a new car? If you circle anything less than a “10,” you’re likely costing that dealership money. CSI scores are incredibly important to every dealer on the planet. But if a dealer hits all the goals set by the OEM, it’s more than enough money to make up for eating a grand of dealer contribution here or there on a lease.

Speaking of those ridiculous leases that seem to be pervasive at domestic stores early in 2016 — Malibus for $149? Edges for $166? — dealers love them! It’s the easiest way to get another checkmark on the wall of the sales tower, and it ensures you’ll be back again in 24 months so that dealer can get another crack at selling you a new car. The dealers aren’t assuming any of the risks associated with flooding the market with cheap and easy leases with inflated residuals. Let GM Financial worry about that (which is another subject for another time). It’s party time in the break room!

Of course, let’s not forget that “invoice” doesn’t really mean “invoice.” With only a few exceptions (mostly imports), dealers keep an additional 2- to 3-percent “holdback” on every car they sell. Holdback isn’t shown anywhere on any invoice; it’s built into the invoice price. While some dealers will try to tell you that holdback covers the cost of floorplanning their cars (a floorplan is basically a giant loan that dealers use to finance the cost of their lot inventory), in actually, it actually allows the dealer to borrow a little bit more money because it’s an invisible addition to the invoice that artificially inflates the value of a car.

Then there’s the virtual gold mine that is the Finance and Insurance office. Several times in the last 10 years, I’ve had dealers become magically amenable to my purchase terms when I agreed to allow them to match my bank’s financing offer. If they can’t make any money on the front end, they can still make money on the loan itself, as well as on gap insurance and extended warranties. This can easily add up to as much or more money than the dealer would expect to make on the sale of the car — anywhere from $1,000–2,000.

Unfortunately, many of these additional dollars that the dealer principal gets are rarely shared with the front-line salesperson. Even though a dealership might end up making $3,000-4,000 on a new car deal when it’s all said and done, if the front end gross is minimal, then your hard-working salesman/woman might not see anything above a $100 mini-commission. Just another way that the rich get richer and the poor stay poor.

When it’s all said and done, maybe you did or maybe you didn’t get such a great deal on that that new car. The minute you walked out the door, the sales managers could have been high-fiving each other as they put another checkmark on the glass, moving the store that much closer to the OEM target. As long as you’re happy enough to give them a great CSI survey, in the end, what difference does it make?

[Image source: Top, Bobby Mascio/YouTube; Monroney Sticker, Mariordo (Mario R. Durán Ortiz) [CC BY-SA 3.0], via Wikimedia Commons]

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147 Comments on “Bark’s Bites: How Do New Car Dealers Make Money?...”


  • avatar
    dwford

    All true, but the holdback is on the invoice if you know where to look. Basically most of the money is made in the finance office these days, with the finance manager juggling competing bank offers with the accompanying commissions with the profits earned from extended warranties, Simoniz, etc. Often the finance manager will take a lower profit on the financing itself in order to convince you to buy the after market warranties etc.

    Don’t feel too bad for those salesmen making the mini commissions. Salesmen are paid in a variety of ways – base salary, commissions, bonuses (usually tied to # of units sold) and manufacturer spins (money paid directly to the salesmen for each new car sold.) Some manufacturers put spins on every car, some only on certain models, and the money varies – Hyundai was particularly generous back in the day. A salesman selling 10 cars a month is going to make around $50k a year – working 50-60 hours per week.

    • 0 avatar
      jmo

      “working 50-60 hours per week.”

      Do people really buy cars at 11am on a Tuesday?

      • 0 avatar
        krhodes1

        I bought my 328i at 10am on a Tuesday. That was when I made the appointment to go in and discuss things with them. Took a couple e-mails and a phone call to finalize the price after.

        I don’t generally just show up, though that is kind of what happened when I bought my Abarth. Actually, that was mid-morning on a weekday too. I had a flight cancel, could not get out of Dodge until the next day, decided to stop by the Fiat store on the way home and look at some cars. Bought it the next day.

      • 0 avatar
        duffman13

        I almost always buy cars mid-week unless I can’t avoid going on the weekend. It’s a much smoother process since the foot traffic is so much lower.

    • 0 avatar
      brn

      I agree with dwford.

      Things like holdback used to be a way they made money. That’s not as true as it used to be. Dealers just don’t make much, if anything, on the price of a new car.

      F&I is where they make the money (and they do need to make money somewhere in the process). Lots of buyers haven’t figured that out yet. The salesperson hands the F&I person a buyer that thinks the the deal is done and hard part is behind them. That’s when F&I can dig in, with impossible to understand rates and all kinds of extras (extended warranty, keyfob replacement insurance, paint protection, etc).

      • 0 avatar
        johnny ro

        My Audi dealer cheerfully agreed he was trying to sell me bird shit insurance among the rest of it.

        No, No, no, no, no and no. No. What else are you going to offer me.

        After the last offer he lightened up and made a few jokes.

      • 0 avatar
        zerofoo

        “and they do need to make money somewhere in the process. Lots of buyers haven’t figured that out yet”

        I hate dealers and offer no added value to my purchase of a new car. I don’t care a thing about the dealer – whether they are profitable or not is none of my concern.

        Dealers only act as a middle man between the producer of the product and the consumer of the product. If it weren’t for dealer franchise laws, the internet would have killed most car dealers a long time ago.

        I’m considering a Telsa Model 3 as my next new car purchase simply due to the fact that I can buy direct from the manufacturer.

        The whole process of buying a car needs to be burned to the ground and rebuilt from scratch.

        • 0 avatar
          krhodes1

          The current way of selling cars is kind of like Democracy, it’s a lousy way to run a country, but it is better than most of the alternatives.

          I suspect that by the time you can by a Model 3, you will be buying one from a dealer. Tesla’s current model is really not sustainable at the volumes they will need to move to make money on the Model 3.

          What I would like to see, as I have said on here before, is the model used in the IT industry. In many cases you can buy direct from the manufacturer, or you can buy from a reseller such as my employer (one like Amazon of CDW). That reseller may add value in many ways, or may just sell the thing to you. Your choice. Buying direct may or may not be cheaper depending on when you do it, phase of the moon, who is in charge of things that month, etc.

          But as Ruggles likes to say, and I agree with him, the Tesla model just means *everyone* overpays. I prefer to take my chances, as an informed consumer I figure I will be among the winners in the dealer game. New cars are not unique flowers, any one of multitudinous dealers can sell me the exact same thing. And some of them may have incentives to part with it the car for less money than others.

          • 0 avatar
            tjh8402

            @zerofoo and Krhodes – dealers can be good and bad. In some ways it doesn’t make sense to have the extra overhead that has to be paid for by having a dealer like you point out zerofoo. It also allows opportunities for unscrupulous places to take advantage of people. OTOH, most consumer goods are not sold direct from manufacturer, or if they are, it’s in a bigger marketplace like Amazon where Amazon is still taking a cut (like Krhodes talked about).

            as he also said, it does allow more informed consumers to get a better deal. The ability to threaten to go somewhere else for a better price is a powerful negotiating asset. Smart phones have really made it easy. I could sit in the dealer and, when told that their offer was better than anyone elses, pull up similar cars on the autotrader and carmax app and show them they were about the same. In my case, similar cars were listed at the same price as my dealer ($16k-17k) around the state and nationally at carmax, so their starting offer wasn’t really any better than what others were offering. When I pointed that out, they asked me to make an offer. I thought $15k was a reasonable discount vs asking prices (especially since some were no haggle) and they eventually accepted.

            A (good) dealer service department can also be a helpful intermediary between customers and manufacturer, especially when it comes to warranty claims. In the local BMW club, it was known which service advisors were worth going to at the dealer who would be willing to stand up to BMW and fight for you if they were going to give you grief about a warranty claim. That’s a big reason I take my car to my dealer for all it’s services and try to keep the relationship positive there. I know that having them vouch for my fidelity to the car’s proper servicing and go to bat for me will be critical if/when Fiat tries to get out of paying for a major repair when my car is high mileage. It’s in their interest to do everything possible to keep repairs under warranty because that’s what will keep me coming back to them vs going to an independent mechanic.

            The competitive dealer model also means better perks as a buyer. Both Fiat dealers in Orlando offer unlimited free car washes to people who buy their cars there. My dealer goes a step further by offering lifetime service loaner cars if you buy from them. They also have free coffee espresso and gelato (it is an Italian car dealer), which makes for a nice treat while you’re getting your free car wash. If they were all the same corporate ownership, I’m sure they wouldn’t be offering little extra perks like that to try to entice you to buy from them vs another dealer.

    • 0 avatar
      everybodyhatesscott

      I have a friend who sells cars in a Chicago Suburb and makes about 63k +- 5k depending on the year. That’s not exactly bad. Probably works about 45 hours a week and I’m guessing he’s middle of the pack at his dealership. He isn’t the hardest worker. He wants to get out of the car selling grind but it’s hard to find something that pays that well starting with “Selling cars” as your experience

  • avatar
    Gardiner Westbound

    The so-called Destination Charge is a big scam in Canada. How can it cost C$1,800 to ship a new Dodge Challenger the 45 kilometers from the Brampton Chrysler assembly plant to Toronto, but only C$1,380 to ship it the 4,100 kilometers to Los Angeles?

    • 0 avatar

      Remember, the charges in Canada and U.S. are typically different. Destination charges in the U.S. are just that. The fee in Canada is destination and PDI lumped together.

    • 0 avatar
      TDIGuy

      The invoice cost is also not as freely available as it is in the US. In fact many of the Canadian buyers I speak to are not even aware of it. In the previous car buying experience, the sales droid actually looked surprised when I showed him I had the invoice cost. He thought I had the US data. Previous car purchase to that, once I showed I had the invoice cost was she took me right to the sales manager and I dealt with him.

      • 0 avatar
        IHateCars

        ^Very true…only a few sources like unhaggle.com will provide invoice data up here. And dealers are typically leery and sometimes hostile when presented with that info.

    • 0 avatar
      danio3834

      Surely you must understand that delivery charges are much more easily managed by using an average and not billing each delivery on a mileage basis.

      “The fee in Canada is destination and PDI lumped together.”

      Huh? Many manufacturers allow the dealers to bill them for the PDI, or the dealer adds fees on their own.

    • 0 avatar
      mike9o

      In the US, destination charges were not discounted to the dealerships, e.g. they did not receive hold back on them. They were a great source of manufacturer profit per vehicle, given that the actually cost to deliver to a dealership is maybe a quarter of the destination charge. That’s the way it was done 10 years ago – I don’t know how it is done now.

  • avatar
    an innocent man

    I thought they lost money on each individual sale, but made it up on volume. Well, volume, plus parts and labor.

  • avatar
    ajla

    I’ve always thought that most internet bravado around here on great new car prices was generally true. The B&B tend to have a decent combination of knowledge and insufferability that makes getting a deal more likely.

    OTOH, dealers can knock low information people (like Rodney’s grandmother) out of the park. Someone with middling credit, no knowledge of rebates, and no confidence to question dealer fees, Tru-Coat, and pinstripes is going to give a huge profit.

    Then there is the service center…

  • avatar
    JimZ

    this is one reason I like the fact that I can buy on plan. Here’s the price, here are the available incentives, it is what it is.

    • 0 avatar
      johnny_5.0

      The problem with the plans that general consumers can get access to (e.g. X-Plan) is that the deals are often terrible compared to what you can do on your own with very little to no effort. Your local dealer is probably advertising common cars like a Mustang GT Premium for $5K under MSRP. That’s way better than X-Plan.

  • avatar
    28-Cars-Later

    I don’t have the time right now for a worthy analysis, but I’d argue there are few buy “deals” from the new car shop. Leasing sorcery is another story, but then of course you don’t own anything and are ultimately at the mercy of leasing co/dealer.

    • 0 avatar
      dal20402

      With some of the lease deals out there it is way cheaper to lease than it is to end up owning anything. *IF* you are certain your circumstances won’t change meaningfully during the lease term.

    • 0 avatar
      Jimal

      From my experience working for a few years at a premium German brand dealership (though not in sales) your best opportunity for a deal is on an oddball car; typically something the manufacturer concocted and pushed out to the dealers whether they liked them or not. Weird color combos, weird option packages… the longer they sit and take up floor plan, the more the dealer is going to be willing to cut a good deal.

  • avatar
    PrincipalDan

    Hmmmmmmmmmmmmm where’s the profit? Well let’s take my local Ford store as an example.

    New cars, used cars, they have their own finance department, they have their own in house insurance department, body shop, service shop, and oh they are more than willing to sell you performance parts for that F150 you just bought in their separate performance shop.

    Nope, I don’t know where the money is…

    • 0 avatar
      krhodes1

      Certainly from my friends who have sold cars (and one was an F&I dude too), the real profit is on the used cars side of the house. Service is a gold mine too. And of course F&I – the profit on extended warranties alone is immense. New cars are a way to get the service business and the premo used cars to sell. And then there is the $300-600 “doc fee” which is pure profit.

      I paid about $500 over invoice for my M235i, and that was still over $6K off US MSRP. Then got that $500 back from BMWCCA. I feel bad for the fools who paid $10K more to have a 2014 when they first came out – had to have the new shiny!

      • 0 avatar
        Carlson Fan

        “the profit on extended warranties alone is immense”

        The 6/60 extended warranty on the 2013 Volt I bought last week started out at around $2500 and then suddenly it was only $2K. No thanks. The probability of me sticking $2K worth of work into that car before it hits a 100K miles it next to nil. No trade in or financing to make money off of either. But I’m sure they still made a decent profit between what they bought the car for at auction and what I payed them for it.

      • 0 avatar
        hgrunt

        When I was buying a new car some years ago, the F&I guy tried his damndest to sell me a warranty. He even dropped the price on the highest tier warranty from $3200 to $1600 to see if I would bite.

        I knew the common issues on the car (window reg, water in headlight) would cost a combined $1800 to fix at dealership rates using dealership parts. That’s assuming I kept it past the original factory warranty. I was going to change my own oil, and I doubt I would’ve kept the car 7 years…so I said no.

        The guy’s face turned very red, and as politely as he could muster, gave me my paperwork and shoo’d me out.

        • 0 avatar
          Carlson Fan

          “The guy’s face turned very red, and as politely as he could muster, gave me my paperwork and shoo’d me out.”

          My F&I guy didn’t push too hard. I just said “no” without any explanation. That just gives them an in to keep trying. And he knew I was paying cash for the car so that often helps keep them at bay. The whole dealer experience was pretty good. The fact that that they had the car priced so reasonably is why I was there in the first place.

        • 0 avatar
          krhodes1

          I’d almost like to experience one of these pushy sales types just once. I’ve bought five new cars and every time it is a simple “here is the list of what we offer, let me know if any of it interests you”. And that included buying my Fiat, where the F&I paper signing was actually at the Chevy store that owns the Fiat Studio. So about as non-premium as it gets. I had never heard of this business of sticking mandatory stuff on cars like pinstripes and “protection packages” until I started hanging out here – just not a thing in Northern New England I guess.

      • 0 avatar
        brettc

        Do any of the B&B know how much it actually costs to do the admin work for the sale of a car? I’m pretty sure it doesn’t cost the local greasy multi-brand dealer $499 to do it, but that’s what they charge.

      • 0 avatar
        Lou_BC

        Agree on used vehicle profits. I’ve seen it multiple times where a used vehicle is sitting on the lot with a price tag comparable to a new unit on the other end of the lot.

  • avatar
    Master Baiter

    “…then your hard-working salesman/woman might not see anything above a $100 mini-commission. Just another way that the rich get richer and the poor stay poor.”

    OK Bernie. Last I checked, salaries were determined by the free market. If car salesmen don’t make enough money, they are free to do something else.

    • 0 avatar
      dal20402

      But it sure wouldn’t be a “free market” if the salespeople banded together and charged for their services as a group, now, would it?

      “Free market” in rhetoric usually means free for capital but not for labor.

      • 0 avatar

        And don’t forget about those pesky minimum wage laws. They must have been instituted by “the free market.”

      • 0 avatar

        “The worst sin capital can commit against labor is to fail to turn a profit.” – Samuel Gompers, founder of the American Federation of Labor (the AFL part of AFL-CIO).

        • 0 avatar
          bunkie

          I’m pretty certain that you intentionally left out what Samuel Gompers had to say about what should be done with some of that profit. That’s the part that capital seem to have swept under the rug in recent years.

          • 0 avatar
            dal20402

            And that problem just gets worse where we have a tax system where:

            1) on the one hand, if the owner keeps the profit they get virtually all of it (minus piddlingly low and easy-to-avoid capital gains tax), but

            2) on the other hand, if the owner tries to pay it to skilled or professional labor, 35 percent or more immediately disappears off the top in federal, state, and local payroll and income taxes.

            It’s no wonder concentrating wealth in the hands of capital looks attractive under such a tax system. It’s the most tax-efficient use of the money.

        • 0 avatar
          Lou_BC

          @Ronnie – I see you have grown fond of that quote. Any links to the original quote?

      • 0 avatar
        Brock_Landers

        Wow, I wouln’t expect to see socialist ideologies campaigned here. I think the U.S. has relatively sensible labour and tax laws. Here in Europe socialist wellfare-states and strong unions have created a over-regulated society where everybody is safe, doesn’t matter what kind of contribution you make to the society and labour market. The socialist dream is also the main reason what attracts the refugees. Europe is f….d in so many ways that its even hard to immagine. PS! After the crappy products the strong and needy unions were the second main reason what bankcrupted the GM.

  • avatar
    VoGo

    Bark,
    What you wrote is factual, but way off the mark. New car dealers make the vast majority of profit off servicing. The sale is something they are happy to do at cost, provided the new owner comes back for maintenance and repairs.

    • 0 avatar

      Even the Cadillac dealer where I took the Saturn for its lifetime oil changes (sadly, it appears that deal has expired along with the Saturn’s transmission), told me that they break even in the front of the store. Profit is made on used cars, service and parts. Perhaps if car dealers in general improved the customer experience, both as a new car customer and when using the service department, they would likely reap rewards.

      FWIW, Suburban Cadillac, in Troy, Michigan, has given our family very good service.

      • 0 avatar
        sportyaccordy

        I feel like the flood of information available about new car transaction prices and costs have pretty much killed that. A good customer experience should be ground zero, not an added charge

      • 0 avatar
        bunkie

        “FWIW, Suburban Cadillac, in Troy, Michigan, has given our family very good service.”

        I wish I could say the same about Cadillac service here in NYC. I’ve really enjoyed owning my Cadillacs but the service and dealer experience here in NYC is uniformly awful. We have a dealer we really like but he’s 150 miles away.

        • 0 avatar
          56BelAire

          Have you tried Brogan Cadillac in Totowa, NJ? I have used them over the years for service, they’re pretty good and only about 1/2 hour from Times Square mid-day.

          • 0 avatar
            derekson

            My first car was a 1991 Cadillac Sedan Deville that my grandfather bought at Brogan Cadillac!

            …and my second car was a 1998 Deville that he also bought there. I still kinda miss that one. Before the NorthStar was destroyed by DexCool that was a great car.

          • 0 avatar
            28-Cars-Later

            What happened to the ’91?

      • 0 avatar
        28-Cars-Later

        Ronnie, did the transaxle go out on that SL1 you had? If so, a common problem is the valve body and it can be fixed by a competent shop for a few hundred dollars.

    • 0 avatar
      JohnTaurus_3.0_AX4N

      He didnt state that this is the ONLY way they make money, just *how* money is made off selling or leasing cars for so cheap (including below invoice). His explination stayed on that point just fine.

      • 0 avatar
        VoGo

        Read the title John Taurus. To state that you are going to tell us how new car dealers make money, and then omit how they actually make their money – that’s lame.

        I might as well sit through a 30 minute tape of some dude drawing so I can find out that one weird trick to dramatic weight loss.

        • 0 avatar

          False. I told you how new car dealers make money on the New Car side of the business. People think that New Cars are a money loser, or, at best, a break even. It simply isn’t so. Any number of dealership employees repeat that same lie, because they aren’t privy to the financial statement.

          • 0 avatar
            DeadWeight

            Your points are mostly correct, but you should know (and maybe do a separate article) as to how small to mid size dealerships are going to go extinct in favor of megadealerships due to heavy incentives from manufacturers for achieving huge sales targets on a monthly, quarterly or yearly basis that midsize to small dealers will never be able to achieve.

            There’s already been litigation filed in major markets by smaller and midsized dealerships and dealership groups under various legal claims, as they simply can’t compete with larger dealers given the size of the incentives and volume goals.

            As just one example of this, GM has a “Brand Essential Program” that provides dealers with as little as $380 per vehicle to nearly $1,000 per vehicle (separate from other forms of incentives, which can be stacked):

            Here’s a great article that explains what GM and its dealers are “dealing” with (Brand Essentials and Standards of Excellence being two such programs rolled out):

            GM dealer upgrades fuel a 2-tiered price war

            http://www.crainsdetroit.com/article/20121105/FREE/121109941/gm-dealer-upgrades-fuel-a-2-tiered-price-war

            Excerpts (that show such programs can result in vehicles being sold to meet program at THOUSANDS below dealer’s actual buy price:

            ” GM is spending more than $5 billion on the transformation over seven years, through 2016, according to an Automotive News estimate based on GM documents that detail the program. The company calls it the most extensive dealership network makeover in the industry’s history.

            But not all of that cash is going toward shiny tile and silver exterior cladding. The way the money is flowing from GM’s Essential Brand Elements program has triggered side effects. Dealers say the cash, awarded in quarterly bonuses, is stoking price wars and widening disparities between big retailers and small ones. And GM has had to crack down on some dealers for trying to wangle more cars than earmarked to them because the payments are based on vehicle orders.

            Because the cash is based on the number of units that GM ships to a dealer — $300 to $700 per vehicle for dealers who comply — it’s gravy for many high-volume dealers who are reaping much more Essential Brand Elements cash than they’ll ever spend on their dealerships. They’re free to use the bonus money as they see fit, creating disparities that lead to low-balling on price, especially in metro markets, many dealers say.

            Steve Rayman figures he’ll get $1.2 million in bonus money this year while selling more than 2,000 new Chevys at his sparkling new store in Smyrna, Ga., near Atlanta. He doesn’t need it to finance the work on the dealership — he did that through the sale of a few other stores — but the Essential Brand Elements cash will keep flowing through 2016.

            “It’s changed the way we’ve done business. We can be a lot more aggressive because of that,” Rayman says. “It’s such a big part of our profit. It’s imperative that we’re in the EBE program.”

            “Dealers who order big with an eye on the extra cash still have to move that metal. The bonus money allows dealers to discount cars more aggressively. But dealers can also use it to beef up advertising or commissions to sales staff, for example.

            One dealer who owns multiple Chevy stores across two states said he has seen rivals sell cars at $1,500 below true cost, even after the automatic holdback payment made after the sale. He blames the program’s cash and other back-end money that GM funnels to dealers.

            “It’s terrible business acumen, and it’s driven by egos,” says the dealer, who didn’t want his name published. “But when they’ve got an avalanche of cash coming in on the back end, they think they’re rich.”

            —-

            “Essential Brand Elements is just one program that pays bonuses to GM dealers. They also can pocket quarterly bonuses under the Standards for Excellence program, which requires dealers to hit customer-service targets and increase quarterly sales year-over-year. And this year, GM has increased its use of stair-step programs, which pay dealers escalating bonuses as factory-set sales targets are met. A large dealership could earn $2 million a year from the various reward programs.

            The cumulative result is that a growing percentage of GM dealers’ new-vehicle profits is coming from various rivulets of cash paid on the back end of sales.

            GM isn’t alone. After backing off such programs after the recession, several automakers, including Nissan, Honda and Chrysler, have rekindled them over the past year. NADA is harping on the issue of two-tier pricing and has a task force analyzing it.

            But the breadth and perceived inequity of the Essential Brand Elements program, especially among smaller dealers, has made GM the industry poster child in the controversy over two-tier pricing.”

          • 0 avatar
            VoGo

            Bark,
            The title is misleading. Full stop. As I wrote, the article is factual, but it does not reflect where dealers make most of their profits.

  • avatar
    omer333

    Why is GAP insurance considered a scam? When I got my Dart, that wasn’t even pushed on me, same with my Accord. I figured it was because the MSRP on my Dart was around $21-$22k, and I got it for around $18k, while my Accord will hold it’s value (comparatively speaking) better than cars like my Dart.

    • 0 avatar
      JimZ

      to me it makes sense if your down payment is small. when I bought my Mustang, the combination of my trade in and cash in hand meant I was right-side-up from the start, so they didn’t even bother to try to sell me on it.

      though you can make a strong argument that if you can only afford a small down payment (and need gap insurance as reassurance) then maybe buying a new car isn’t very wise.

    • 0 avatar
      VoGo

      Gap insurance isn’t a scam, but it is often overpriced. My personal belief is that if you can’t cover the difference between your car’s value and what you owe, then you either are buying too much car, or need to put down more of a down payment. But that’s just me.

      You should only buy insurance in one of three instances:

      1. You are forced to, as in car liability insurance or PMI if you have less than 20% equity on your home

      2. You are faced with a loss too severe for you to cover. So if your death means your kids will be destitute, then life insurance is a smart buy

      3. You know something the insurer does not. For example, if you are certain that you will be in many car accidents next year, then extra insurance is a smart move.

      • 0 avatar
        bball40dtw

        I don’t think GAP coverage is overpriced when you add it as a line of coverage on your auto policy. One of my cars is at 0.9% and the other is at 1.7%. There is no way I am taking money out of pocket with interest rates that low. Loan/Line payoff on my auto policy costs me $65/year for two cars.

        Now GAP coverage from the dealer…..yeah, that is a a poor choice.

        • 0 avatar
          MWolf

          I agree. I got my gap through my insurance. The dealer did offer it, but not at a price I’d like to pay. I did, however, buy their warrenty, as I bought used. I’ve had transmission and engine difficulties in other cars. With this, I can simply say it blew up, they’ll drop a new engine in it (or tranny), and it costs me nothing over the price of the cheap-by-comparison warrenty. All done while I drive around in a loaner.

        • 0 avatar
          87 Morgan

          @bball40dtw

          I’m afraid your thinking regarding GAP from your insurer is better than GAP fron the car store is all wrong.

          65 a year for 5 years is 325 or 390 for 6. You need to read the fine print, you don’t have gap for the life of the loan #1.

          But more importantly, if your car gets totaled due to someone else’s negligence you STILL have to file a claim with your carrier to clear the difference. What happens when you make a claim with your carrier? Rates go up, what happens if three weeks later you hit a deer with your other car and now have two claims in a month, one entirely not your fault? Great way to find yourself looking for a new carrier and no longer in the affordable section. Don’t believe me? Someone here has to have experience with USAA or New Jersey Manufacturers both will drop you Ike a hot potato if you make what they think ar too many claims.

          GAP insurance retail price is negotiable, you can easily buy for $300 for the life of the loan from your dealer, just ask.

          • 0 avatar
            VoGo

            Why would you pay for gap insurance for the life of the loan? You should be above water for the last two years at a minimum, right?

            I just don’t get why someone would pay hundreds of dollars to cover the gap between what they owe and what the car is worth. Essentially, you are agreeing with the dealer that your car is a POS that will depreciate so rapidly that you can’t even cover the depreciation on your own, so you pay even more money – to the dealer – to cover it.

            This just sounds like the height of consumerism run amok. Buy a 4 year old car for half the price if your finances are that bad.

            The more I think about it, the more I see that gap insurance is a tax on the poor and/or uneducated.

        • 0 avatar
          Lou_BC

          bball40dtw – agree. I got private coverage which covered write off over a 5 year span plus new parts guarantee on any collision repairs and they paid the deductible on windshield claims.

  • avatar
    Land Ark

    I’ve only ever bought one new car, a Scion, so I have never successfully completed negotiations for a new car. I’ve tried, but I always leave in the car I drove there.
    But I will freely admit that I an not a good negotiator when it comes to the used cars I buy. I should be, since I am armed with so much information. But what tends to happen is I get it in my head that I want a very specific car to the point where there are only a couple for sale in the country. And then I crumble because I convince myself I won’t find another one as good and end up feeling like I got a terrible deal.

    Question: Say you are negotiating and agree to finance to get the price where you want it. Can you do the fake-out in the F&I office and pay cash or would the F&I guy blow up the deal?

  • avatar
    Rick T.

    Are the rest of us better off just going through Costco, maybe paying a bit more than rock bottom but saving all the hassle?

    • 0 avatar
      28-Cars-Later

      I’d have to crunch the numbers but you might actually beat “rock bottom” on semi-premium marques through Costco.

    • 0 avatar
      johnny_5.0

      That depends on what you are buying. Costco ends up being right around dealer invoice. That’s fine for some cars and isn’t much worse than you could do on your own. For other cars, you’d be insane to go with the Costco negotiated price as it is several thousand dollars more than that same dealer is advertising on their website (e.g. full-size trucks). Bottom line is I don’t think you need to be a great haggler to do far better than what a car buying service like Costco provides. Looking around at local(ish) dealers online will usually find you what you want for significantly less. This goes to Bark’s point above that the gap between MSRP and dealer invoice is quite small these days. Dealerships sell cars for less than invoice all day every day.

      • 0 avatar
        brenschluss

        Does anyone know How Costco’s program handles cars that are typically being sold with ADM?

        • 0 avatar
          johnny_5.0

          I was curious about trying this on a GT350. I imagine it shows you the ~invoice price, and either nobody contacts you, or more likely plenty of dealerships contact you saying they can’t honor that price but will happily sell you one for X thousand over that price.

        • 0 avatar
          Scoutdude

          If you are talking about “specialty” vehicles/models like say a Corvette, Hellcat, or Raptor they are almost always excluded.

  • avatar
    BoogerROTN

    Less than six months ago I was in the market for a full-sized, crew-cab truck. The local Chevy dealer had several Silverado 1500 4WD 1LT “All Star” editions for $32K. The phony discount/sale sticker listed a $44K MSRP, a GM “All Star Sale” discount and a dealer clearance discount; if I remember correctly, it was supposedly ~$12K “savings” in total.

    Anyway, I wanted to put $15K down and finance the rest through my credit union. Alas, I could not get either the GM nor the dealer “discounts” w/out financing through one of three preferred lenders. Because I didn’t really need the vehicle, I decided to walk away from the deal and simply save towards an all-cash purchase later this year.

    What I would like is a better picture of the financing kickback shenanigans that the dealer is getting from their preferred lenders and/or GM in order to make this a profitable sale. Matching my credit union’s terms, in addition to the discounts offered, didn’t seem profitable for the dealership…even if a crazy hold-back percentage was built into the invoice.

    • 0 avatar
      28-Cars-Later

      Who were the preferred banks?

    • 0 avatar
      bball40dtw

      It depends on the bank, but many have low or now early payoff penalties. I’d finance with GM’s captive finance company and then just refi with a credit union. I did this with Ford Credit when I purchased a Focus ST. The cashback offer required financing at a poopy rate through Ford Credit. I refi’d my loan before the second payment.

      • 0 avatar
        dal20402

        Never, ever, ever take out a loan that has any sort of prepayment penalty. That’s a practice that should be banned, and amounts to debt servitude in the truest sense of the word.

        I’d happily sign with the manufacturer’s credit arm at lousy terms to get a big up-front discount. Unless there was a prepayment penalty.

        • 0 avatar
          krhodes1

          I haven’t seen a pre-payment penalty per se, but I have seen where you had to keep the loan open for a few months or pay back the rebate. Had that on my Mom’s Prius V actually. So she paid all but two payments worth on the first payment, then made the next two when they were due. And she had put down the absolute maximum down payment they allowed, which was like 50%. Silliness, but spending a few bucks on interest to save $3K was just fine.

          I can’t imagine they worry about pre-payment all that often, just not many people who can throw down cash for a car, other than all of us on the Internet – am I right?

    • 0 avatar
      GermanReliabilityMyth

      All you have to do is finance through their preferred lender for the deal, wait a month or two, and then refinance with YOUR preferred lender. You can also make your $15k down payment at that time if the lending institution has no penalties for doing so.

      I’ve worked in sales in the past and many, many people do this to get Nissan’s captive finance incentives (much to the chagrin of the financing department). Any salesperson worth their salt would’ve told you to do this instead of letting you walk away.

      Edit: Dammnit, bball, you beat me to the punch.

      • 0 avatar
        bball40dtw

        Haha. And yes, the guy I buy my cars from told me to refi my loan ASAP. It’s all about moving units.

        • 0 avatar
          28-Cars-Later

          The spice must flow.

        • 0 avatar
          Detroit-Iron

          My credit union couldn’t beat the captive finance so we just kept the loan. I supposed it may have been possible to do better than we did, but not according to truecar and the effort we put forth once we picked the car we wanted was minuscule. Just emailed all the dealers in the area and picked the one with the best price.

  • avatar

    Many new car stores simply keep the franchise banner up to add credibility to their used car department as well as source better financing for their used cars.

    • 0 avatar
      bball40dtw

      Like that dealer in Iowa that wanted something silly for the 30 year old POS VW wagon? Hyundai dealer selling $38K Chevy Avalanches with 67K miles.

  • avatar
    ericb91

    $100 mini? That would be swell! Keep in mind folks- the salesperson doesn’t necessarily share in that profit, just like Bark said. If a dealer makes $4,000 on the dealer but only $600 of that is profit on the selling price of the car, I get commissioned on the $600.

    My new car minimum is $50 and used car minimum is $70. The dealer where I work employs 17 sales consultants and sells about 200-275 cars per month. Our bonus structure starts at 12 cars with bonus of $350. At 16, we get $500 on top of that $350. Every car above 16 is another $100 bonus. It’s not like we’re making stupid money putting up with the tough negotiators. We make our money in accessory sales and trying to earn the dealership some profit. Forgive me if I try to make a living and decide to start negotiations off at sticker price. If I don’t ask for money, I won’t make money.

    /rant

    • 0 avatar
      johnny_5.0

      Serious question, why do people sell cars if their situation isn’t financially attractive? I’ve seen people just out of college making six figures in sales at various startups. Selling cars to people like me seems terrible. I could never succeed in sales because I don’t have the personality/skills for it. If I did, I’d be in sales in some other market.

      • 0 avatar
        VoGo

        Why do people flip burgers? The poorly educated need to live on more than just The Donald’s love.

        • 0 avatar
          johnny_5.0

          Flipping burgers isn’t quite the same transferrable skill set as selling cars, unless you can become executive chef somewhere or get your own show on Food Network. If you are good at sales, you can generally do well across different industries/verticals (of course they will desire someone with experience specific to that sales role).

          • 0 avatar
            VoGo

            I have never met a great sales rep at a car dealer. A competent order taker? Yes. But never someone who could sell a higher margin good like enterprise software, consulting services or commercial real estate.

      • 0 avatar
        laserwizard

        I sold cars for two months – sold 16 over that period – loved working with the clients but hated everyone who I worked with – they aren’t ethical or even remotely interested in customer service – I sold two cars to people on a Saturday whom my sales manager told me to blow off because they were just wasting my time. I knew the cars better than anyone did on the sales floor and made it a point to do that because I wanted customers to feel like they weren’t being BS’d. I never went home after a sales day like I ripped anyone off. Even the guy who bought the turd brown car that no one else could sell had his chance to negotiate. But he was willing to pay full sticker for the orphan on the lot and it was then that I knew I had all the skills to do whatever I wanted in my life. I even asked the guy if he was sure that he was willing to pay that price. After that, it was all on him.

    • 0 avatar
      krhodes1

      The salesperson is probably not going to make much on me. On the other hand, I absolutely will minimize the time they need to spend with me. If my BMW sales gal made $100, then she made more than $100/hr on my sale. And she got a very nice bottle of wine hand carried back from Italy as a bonus.

  • avatar
    Crancast

    Good read. Made me think of the Cleveland Grandma who got royally f’ed on her Buick deal. Forget if that was a Jack or Bark story. Anyone know how that ended up, do not seem to recall an update.

    • 0 avatar
      Detroit-Iron

      That was Jack’s friend Rodney. No word if every drop of money drawn by the f&i man’s capriciousness has been paid by another drawn with the fists of Rodney and Jack beating them up, but I certainly hope so.

  • avatar

    MY parents bought the ’57 Chevy at the very end of the model year, in order to get a deal. I don’t have the #s in front of me right now, but they paid three grand plus for a stripper 6cyl no radio 210 station wagon, about $800 over MSRP (around $5,500 over in today’s dollars). I don’t know what they thought they were doing, and they’re gone, so I can’t ask them. After that, my mother handled car buying by calling around to dealers, asking each if they could beat the previous dealer’s offer.

  • avatar
    matt3319

    Just bough a 2016 Cherokee trailhawk. Did most of it via emails and texts with the salesmanager. He was absolutely outstanding to work with even at a Chrysler Jeep dealer. Kudos to Scott.

    Anyways, MSRP was $35400. Paid $29340 which included $3K in rebates and 3% holdback. This dealer gave me over $2K more in trade than any dealer. My trade was a 2015 Chrysler 200S AWD which I decided to trade NOW since it’s being phased out soon. Think I was wise on that move. Anyways it was easy to work those numbers. The dealer even drive 280 miles to get it. They couldn’t match my credit union rate of 1.85%/72 even after they tried. They didn’t push any extras. The credit union offers me gap at $495 and just extended the loan one month to 73 to pay for it. Couldn’t pass hat up. Over all zero money out of pocket. Scott the manager got all 10’s and exceeded all my wants. So he got heck marks from me. I always felt it was manufacturer unit/CSI bonus money that he gets. The salesman who delivered the car and most likely for a $100 mini was a dufus at best. Now I will drive this jeep for 4-5 years and then do the same thing all over again. I think I did well.

  • avatar
    hubcap

    My grandma used to say “a good price is a price you’re willing to pay”.

    I agree, but you don’t want to throw money willy nilly out the window. Better to go in knowing what you’re willing to pay and don’t be afraid to walk out.

  • avatar
    dangit56

    Having 25+ years of experience selling Honda/Acura and more, I can comment on a few things relevant to the discussion.

    In Pennsylvania at least, we were required to offer the same plans/options/insurances/and warranties to each and every customer. To decide that they were not interested nor able to afford the choice was NOT our choice to make, doing so was discriminatory. There is a checklist every customer was required to sign accepting or declining them, it was stored in the deal jacket. We had been sued by the types who never changed the oil but then claim they were never offered extended warranty protection, or “Honda Sentinel” pre-paid service plan.
    After a change in ownership, I spent a few months at a friend’s Ford store. It was during the credit crunch of 2008, about 50-60% of our buyers were X-Plan or A, Z, whatever.

    As “Plan” selling prices are always below invoice, I’d get a $75 minimum commission, but the “wash-out” sheets, which show the real money being made, indicated the house was getting paid about $2500 by FoMoCo on an average deal (Fusion, F150,Exploder).

    The fair commission under the comp plan would pay me a minimum of 25% of profit, or $625. Instead, the house would steal average of $550 (25% of $2500=$625, but paid $75) from me on each of my average of eight “Plan units” in a given month. I was out of there quickly then, and my friend the Sales Manager and I no longer speak.

    Rest assured, the dealer always finds a way to come out well-ahead of any and everyone: employees, vendors, customers.

  • avatar
    fvfvsix

    I find that trying to squeeze the dealer out of an extra couple hundred dollars is never worth my time, and it makes the purchase experience less enjoyable than it already isn’t. I go in with a spreadsheet, I set my min and max for the car I want to buy at reasonable numbers, and I try and avoid sales dillholes who want to play the game with me.

    I’ve been toying around with the idea of incentivizing my next sales person with a few hundred bucks cash-in-hand for hitting my target price in a timely fashion. Anybody have experience with doing this?

    • 0 avatar
      bunkie

      Only a dumb salesperson would play along with you on that one. I’ll bet that the employment contract has some pretty stiff language about private deals between customers and salespeople.

      If I were a sales manager and found out a customer was offering cash directly to my salespeople, I would immediately fire that customer.

      • 0 avatar
        krhodes1

        At how many dealerships today do the salespeople have any power over the pricing? In my dealings, it seems that all they can do is take your offer to the management, they are just relationship managers. Certainly my BMW sales gal is right up front that she has absolutely NO say over pricing, other than she can write the deal at MSRP-incentives herself.

        I should ask my couple of ex-car salesmen buddies how it worked for them. They all sold less-premium brands. BOP in one case, Ford in the other. My F&I guy friend worked for the Saab store.

      • 0 avatar
        Master Baiter

        “I would immediately fire that customer.”

        Huh?

        • 0 avatar
          dal20402

          Business is a two-way street. Sellers can fire buyers the same way buyers can fire sellers. “Please leave this property and don’t come back. We won’t do business with you.”

          • 0 avatar
            krhodes1

            My employer has fired any number of clients over the years I have worked there – and a couple of them were REALLY big names. There comes a point where you are just not worth the bother of dealing with. Of course, it helps that we are a private company beholden to no one but the two owners, and the managing partner has NO sense of humor about BS.

        • 0 avatar
          bunkie

          When I had my consulting business, I took great pleasure in firing bad customers. One of them was a long-time client with which I had a great relationship until upper management brought in some Harvard MBAs who completely screwed things up.

      • 0 avatar
        fvfvsix

        @bunkie – Um, okay. Sounds like a terrible customer. First of all, I didn’t say “give me a deal that will make your manager fire you”. I said “If my target seems reasonable to you, don’t play games”. For the record, I’ve taken some better sales people out to rather expensive dinners in the past for not wasting my time. I am always totally aboveboard and their GMs are always aware. I’m merely talking about switching from gifts to cash. I guess money’s a dirty thing with business owners, huh?

    • 0 avatar
      Toad

      Trying to give a bribe to a salesperson probably won’t work; the dealer has probably been working at sniffing out scams for a couple of generations and most salespeople know it.

      However, I have had luck asking the salesperson what they have spiffs on; often the salesperson can snag a nice bonus by moving some dusty metal that has been overlooked. I snagged a sweet deal that way on a Tundra that a Ford dealer had not been able to unload.

  • avatar
    CincyDavid

    Honda lease deals are pretty seductive…just got a ’16 CR-V, stickered around $28k, paying $265/mo with no money down, 12,000 mile a year lease for 36 months. I figure we’ll do 5-6 oil changes, 2-3 tire rotations and put gas in it. Spring of 2019, walk in and get a different one.

    I do all of my negotiations via email, then walk in, do a quick walk-around to make sure there’s no lot damage, do the paperwork and get the heck out of dodge. In under an hour we had turned in our old lease, and got through the f& i office…another 20 minutes for a bluetooth tutorial and we were out of there.

    I figure the dealer will get in my pocket one way or another…that’s why they are in business. I just don’t want them to hammer me.

  • avatar
    dr_outback

    CSI is such a joke. Some salespeople only make $50 for their first 5 or so sales and then if the CSI survey is plowed, the salespeople make nearly nothing for the rest of the month and could lose their job over petty reasons.

  • avatar
    zip89105

    My view is new car dealers are making bank on used car sales and financing. New car sales just put more used cars on the market.

    • 0 avatar
      danio3834

      A dealer can easily lose his ass on a new car deal if he isn’t paying attention to all the programs and back end money available to him. This conversation has revolved around the car dealer in general, but they vary greatly in their practices and competence. The bigger corporate stores are usually right on top of everything down to the last cent. The smaller independent joints might not be. Of course one of the bigger stores might have a incompetent management at the moment. So there are a lot of dealers who indeed can’t make money on new cars, but it’s not as if the profit potential isn’t out there. For example I know of two dealers about an hour away from each other who have similar sales volumes, but one can consistently double the gross per unit of the other on a given model.

  • avatar
    Robbie

    The message here is: every time you buy a new car, you will be ruggled out of a fortune. If cars were simply sold at the manufacturer’s website, you’d save thousands. So: buy once; buy well; and keep your car at least a decade.

    • 0 avatar

      You’d still need to be able to accept the running costs, new tires/shocks/brakes, etc. You will discover the part that pukes at 75k, just out of warranty. This works if you buy into an established line-and won’t if you buy the first one on the block. Buy later in the production run so the problems will be fixed.

      The CTS I bought for 16k was a 49k car in 2010. The BMWs I cross shopped were 50k new, 25k used. Infiniti also got it, 45k new, 23k used.

      Much like AWD, there is a disproportionate reliance on “warranty”, and when it goes away, folks run screaming. If you lease, no issues, but I think folks eat too much depreciation for the “warranty’. You could buy engines for the depreciation in the first three years.

      • 0 avatar
        DeadWeight

        You can get a 2013 Cadillac XTS that had original MSRP of over 60k with 22,000 miles for $26,000 right now from a Cadillac Dealer on M59 in Clinton Township – my uncle has a salesperson calling him asking him if he will buy it as he knows that my uncle is unhappy with his 2014 CTS.

        That XTS probably had an actual sales price (new) of around 54k or 55k, so that’s $27,000 or $28,000 of depreciation in 24 months or so (or $1,000 per month).

        Cadillac’s have awful resale value; just horrific.

        • 0 avatar
          28-Cars-Later

          Been that way for a long time for Cadillacs not named Escalade.

          • 0 avatar
            DeadWeight

            Cheap gas prices + Escalade = stay of execution for JdN & Cadillac’s clueless & utterly incompetent management.

            JdN should make sweet, sweet love to a different Escalade every night he has remaining as head honcho at Cadillac.

    • 0 avatar
      danio3834

      “If cars were simply sold at the manufacturer’s website, you’d save thousands”

      How much did you save on your Tesla?

      • 0 avatar
        mcs

        >> How much did you save on your Tesla?

        On a Model X, there would be a hefty additional dealer markup. Probably on the Model 3 as well.

        • 0 avatar
          mcs

          Oh, and let’s add to that the time you’d lose if you needed to supercharge at the dealer and they were using the space to display used S Classes, and you had to ask them to move them. Or, maybe the dealer won’t let you charge at all because you didn’t buy your Tesla at their dealership. This stuff happens now at Nissan dealers.

  • avatar
    runs_on_h8raide

    Surprised no one mentioned “the pack” aka the owner’s hooker & blow money.

    • 0 avatar

      You can’t pack a new car. That’s a used car thing.

      • 0 avatar
        danio3834

        A dealer can pack any deal.

      • 0 avatar
        runs_on_h8raide

        Bark M. you’re wrong. New cars get “the pack” treatment at a lot of stores across the land. At a VW and Honda store I once worked at, the new car pack for a VW was $1250 and on the Honda it was 700. I left once I saw my commissions after the 1st month there was light and they didn’t explain pack to me when I was a green pea hire.

        Used cars you battle the old RO( that’s repair order in case you didn’t know since you didn’t know about packs)…like taking in a car that’s 6m old with 5k miles for 15k…selling it for 20k and there’s an RO on it for $2000 after you sold it) not so much a pack.

  • avatar
    Ol Shel

    So, even if you can buy a car with cash, work them down on sale price with the promise of financing, and then immediately pay it off?

    • 0 avatar
      duffman13

      Look up incentives before you go in. If the incentives are tied to financing through a captive lender, that’s absolutely best the way to go about it.

  • avatar

    I once saw an invoice on a car I was buying. There was a credit to the dealer’s parts department on it…the salesman was miffed as he pointed out he gets no commission on that part (Ford).

    My most recent transaction I was done for $1k extra interest over the life of the note in the F&I office. I refinanced at a rate more appropriate for my credit rating and a shorter term after the deal. I wonder if they still get the extra interest point if it gets paid off in advance …

    I’d hate to be a car salesman. The customer AND the employer is your enemy.

  • avatar
    dangit56

    When I left my middle-management job at a Honda store, in addition to holdback, dealer incentive money (stair stepped) they also were reimbursed by the factory for
    DMA: Dealer Marketing Allowance ($200-275/unit),
    FPA, Floor Plan Assistance (90 days of interest reimbursed regardless of time on the lot),
    Deal prep cost
    Full tank of fuel (generous allowance)
    and those are just off the top of my head, all to get down to the triple net cost.

    Ever notice how many sports teams are owned/were owned by dealers? Bud Selig, Marge Schott, Norm Braman (King of grey market Hondas in the 80s/90s), and on and on.

  • avatar
    RHD

    What a pain in the @ss. I’ll just keep doing what I have been doing for decades – buying a good used car from a private party at a fair price. The cost per mile is just a small fraction of what the buyer of a new car pays. Doing most of the maintenance myself not only saves money, but is supremely satisfying. A brake job isn’t rocket science, it’s actually pretty easy, and time well spent!
    At the risk of looking like a complete cheapskate, my cars have never had comprehensive insurance. Three have been hit (not my fault), and each situation resulted in a satisfactory settlement.
    To me, making monthly car payments and trading in every three years wouldn’t make me more of an automotive enthusiast.

  • avatar
    dangit56

    When I left my middle-management job at a Honda store, in addition to holdback, volume bonuses, new facilities allocation bonuses, dealer incentive money (stair-stepped) they also were reimbursed by the factory for
    DMA: Dealer Marketing Allowance ($200-275/unit),
    FPA: Floor Plan Assistance (90 days of interest reimbursed regardless of time on the lot),
    Dealer prep cost (18 y.old in the wash bay)
    Full tank of fuel (generous allowance)
    and those are just off the top of my head, all to get down to the triple net cost.

    Ever notice how many sports teams are owned/were owned by dealers? Bud Selig, Marge Schott, Norm Braman (King of grey market Hondas in the 80s/90s), and on and on.

  • avatar
    jimmyy

    My neighbor owns a Toyota and a Chevrolet dealership. He tells me he makes about $2,000 on each new car deal, and he said Toyotas are more profitable then Chevrolets.

  • avatar
    Robert.Walter

    On Monday, my sister bought a 2016 H o n d a F i t E X L:
    – I did all research since Sept (first I went to each dealer site and used their inventory tool to specify the vehicle, then copied link into an excel table. Each subsequent check was sped up by me clicking all the links, recording the stock level of all trim levels, and if an EXL, I took color and VIN info.), and negotiating; final research on Friday, confirmed no other dealers could beat final quote on Friday, fixed deal on Saturday, bought on Monday evening:
    – new, not demo, 40 miles on clock;
    – financed thru our long-time CU (6y @ 1.75%, based on 766 FICO); dealer couldn’t match;
    – MSRP: 21,000$ (incl 820$ destination charge)
    – Agreed price: 19833*
    – DOC: 210
    – CVR: 24
    – Txable price: 20067
    – Tax: 1204
    – Plate: 94
    – Title: 15
    TOTAL: 21,380, paid with AMEX via Pay with an Watch.
    Notes:
    * this is 270$ over original 19563 agreed price as we charged the whole purchase on AMEX. Dealer paid 90$ AMEX fee on the down payment portion of 3k$, and we split cost of 3% fee on remaining 18k (270$); got 41k Skymiles for that 270$. (Although AMEX is currently trying to reneg on 10k of that.)
    The original 19563$ was 500$ below next closest, 600$ below second closest, with 9 dealers clustered around 21600-21800 and two stragglers at 22 and 22500.

    Dealer was upfront about why he immediately quoted 500$ below my best price. He wanted to meet a quota to grab a factory incentive. (When one car can make or break getting a spiff, offers are very aggressive.) Besides incentives, dealers who move large numbers of cars get preferential treatment during channel filling with new MY launch.

    I made a final loop to all other dealers as shown above. Two dealers warned me about getting a bum car (but fact is, we had him pull a car, from our local dealer (who had 3rd best price) to get the desired color. We paid the acquiring dealer 200$ to do that and when we went the card route at signing, probably 150-160$ of that helped offset him eating his 1/2 of the AMEX fees.

    One dealer said invoice was 20451, another said 20451.

    I think we did all right.

    Key to above was watching stock development online in about 47 dealers (This took maybe 6 hours since September.) The EXL took forever to come in quantities worthy of getting competitive quotes. When we did the deal, there were 16 vehicles spread across these dealers; none had more than 1 in stock. Of these, there were only 6, 2 each, in one of 3 desired colors. From Dec, this trim level model seemed to sit in dealer stock between 4-6 weeks, so I think waiting until the channel stagnated to buy gave a pretty good result, and finally freed us of more than 6 months of carpooling.

    Full disclosure: I could probably have executed the above at the end of the preceding month, but lost track of the end of the month and had to wait 4 weeks to hatch my plan.

    • 0 avatar
      28-Cars-Later

      Nice post. I’m curious who is your credit union that gave you a sub 2% rate?

      • 0 avatar
        Robert.Walter

        Happy coincidence. We started looking for a 2015, but decided to wait for 2016 believing it would get CarPlay (it didn’t.) Then it took forever for Honda to fill the channel. As we waited, the CU had a 1 mo celebration related deal of 1.75% that they held open for me. If we had bought when we first started looking, it would have been 1.99%. If we bought now, 2.5%.

        If this article had appeared a week ago, I would have asked what additional incentive the dealer would have given if I financed with him. And if it brought something I would have taken and done a refi with our CU. This angle never occurred to me (as the 1.99 factory financing seemed to have disappears from the Honda site, after only being there a short time.) I only asked him if he could beat my 1.74%, he said no way. I checked the Honda site, and they weren’t even offering factory financing in Feb for the Fit ( in January they offered it for 1.99%, and that was the first time I saw that in 6 months of looking for incentives in Honda’s web site. Everything else had a deal it seemed besides Fit.)

        I live overseas, so did all my negotiations via Skype toll free from Switzerland.

    • 0 avatar
      DeadWeight

      I’ll be blunt (as usual).

      Why, Robert?

      Are you in the U.S. or Canada?

      If the U.S., you could’ve gotten an Accord LX for about 21k or an Accord Sport for 23k.

      If in Canada, probably not.

      Did she have to have a Fit for some specific reason?

      I’m really not trying to be an a$$, but am genuinely curious.

      • 0 avatar
        Robert.Walter

        S.E. Mi.

        She wanted this car because it was small and mpg. (That criteria was fixed before the recent drop in crude prices.)

        She had shopped, cars in the a/b/c class from Smart, Ford, Chevy, Dodge, Fiat (originally wanted a 500 but decided it was too cramped inside), Hyundai. Some she thought cramped, or ugly, or crap, or poor value.

        Nothing quite appealed to her like this car. And the risk of being upside down on a 6 yr loan seemed to be mitigated by good resale prices.) Everybody she knew with one raved about them (one friend’s 10 yo, 200k, Fit got T-boned a couple of weeks ago and still got a 5k$ check.) Also her garage is kind of short and with a Deere garden tractor parked in front of the car, a longer one wouldn’t fit.

        My job was to try and optimise the result.

        Ps I drive a 10 yo Brabus ForTwo. Compared to my car, her car is a fuselage era Chrysler Newport in size.

  • avatar
    laserwizard

    Well, this is all rainbows and moonbeams, but seriously, how can you discuss a deal on a car without discussing the notorious trap of what the dealer will “allow” you for your trade-in?

    This is the way that they mask their profit in many ways. They’ll “allow” you (that is not the same thing as what your trade-in is worth) an inflated number on a trade and then confuse you with the four corner close of monthly payments, down payment, etc.

    A car salesman who is skilled won’t even let you know how much you will be paying for a car you are buying from him/her because that is a lose-lose for them. The salesman will always find your sweet spot for a payment and contrive a deal to fit that parameter and can easily do so by adding months to your loan term.

    F&I is where the real money is made and that person is so skilled at stealing your money that even the best prepared should view this as the worst part of the whole deal. Why? Because you are conditioned to expect the worst to be meeting the salesperson, the four corner deal, and the Neanderthal polyester suit, gold chain wearing sales manager who will be deployed to give you the rock bottom best deal which is no deal and is never rock bottom.

    I know. I used to sell cars. And I was as honest as I could be and I was easily outsold by the most disgusting human debris sales people on the floor. These are the same clowns who would make their own mother pay double for a car if they could.

    This analysis above is really worthless.

    It ignores that you should shop at night and at the end of the month; be prepared to walk out when they reject your deal. Chances are they’ll call you back if there is time left in the month – NEVER sign anything at night until you see and drive the car during the day. All cars look beautiful under the lights – bad paint jobs are hidden then – you must must must see the car in daylight and you must always drive the car in as many scenarios as you can – put it on the interstate if you can – see the acceleration – and find out if there is road noise in the car – something you don’t hear at slow speeds – but will drive you nuts at higher speeds.

    And ALWAYS ——- before you sign – walk around the car and devalue it like they will do to your trade-in – find every imperfection and have it noted in writing and then have it fixed before you sign the papers. Don’t wait to pick the vehicle up AFTER you sign and expect they’ll give a flying monkey about the imperfections then. Laws differ from state to state but you can pretty much bank on once you sign, you bought it.

    And never mention you have a trade-in until you get to find the price of the car you are buying straightened away. You can always say, well, I talked it over with my other half and we’ve decided we will trade in the car after all! And clean that trade-in like you’ve never cleaned. Make that car look like new. The time you spend now will save you big bucks at negotiation time – and for pete’s sake, vacuum the interior and remove the garbage!

  • avatar
    tjh8402

    I bought my car used, but I bought it from a new car dealer, and it was 2 years old, so the sale process was somewhat similar (just no incentives). I feel like I got a good deal on it. My sale price ($15k) was less than any comparable asking prices in the state, including Carmax (all of which were over $16k). It was also less than the original for sale price for the car a few weeks prior ($18k), as well as the then current asking price ($15k). I made the offer and they accepted. Either I overpaid (possible, but I don’t feel like it given the other pricing data), or I think I had two things going in my favor mentioned by Bark here – I was upfront about wanting an extended service plan and was open to dealer financing as long as they could match my credit union. I also think it helped being a local buyer with an ESP, as they would be my dealer of choice for servicing the car, so they were setting up a stead stream of (warranty reimbursed) revenue for the service department for years.

  • avatar
    dolorean

    “Unfortunately, many of these additional dollars that the dealer principal gets are rarely shared with the front-line salesperson”

    The Dealer Principal, huh? Can’t wait to meet that guy! :)


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