Ask Bark: Why Don't Dealers Just Make Better Deals?

“I’ll tell you something.”

Normally this sort of phrase is followed by, well, something. But the grizzled old dealership veteran seated across the desk from me seemed to be sizing me up a bit, seeing if I was worth the time it would take for him to dispense some of his six decades’ worth of wisdom. After a deep sigh, he must have decided that I was, because he continued.

“This is the worst business. The absolute worst. I invest $30,000 to make $500 — if I’m lucky. Even Vegas would give me those odds. If I had any sense at all, I’d liquidate every car on the damned lot and put all of my money in the stock market. If I had done that at the beginning up the year, I’d be up a couple of hundred grand right now.”

I sensed that I was supposed to say nothing. So I did just that, silently encouraging him to continue.

He noticed my obedience and nodded gently. “Of course, I’d never do anything of the sort. I was born into it, you know. I’m a little bit older than most people think. My father opened the first of the Japanese stores here in (undisclosed state). Then he opened another one. I opened the first Korean store. And now look at me — master of all I survey, owner of ten points.

“As much as I want to get out the business — as much as I wish Daddy had never even thought about buying a car lot — I can’t. But you, young man, you should get out now. I mean now.”

It only took me about seven more years to follow his advice. I am officially out of the car business — kinda. I still have clients who have automotive clients. But I don’t directly sell to car dealerships anymore, which is why I have no problem pulling back the curtain in answering this next question from our friend and reader, Bart.

Bart writes:

My question concerns dealership sales practices. The consumer wants a fair deal and the dealership wants to maximize profit per car. From the eyes of a consumer, most feel like they don’t get a fair deal when buying a car from a dealer.

Instead of a dealership maximizing profit per car by seeing how much they can take from each consumer, why not switch up the sales model to one that is volume based?

I would respect and want to build a relationship with a dealer if they showed me the invoice from the mfg and said, I need to make $500-$1k per car to eat and pay my bills. In this transaction the dealer makes money, the salesman is paid for their time, and the consumer feels like they had a positive experience.

The more cars the dealer moves, the more incentives the mfg rebates back to the dealer. Additionally, the consumer refers more customers due to the positive experience.

I am sure this is too simplistic, where is my logic flawed?

Thank you!

Well, Bart, remember the story I told about half a page ago? Let me go a little deeper and explain why my old friend was right about the car business being the worst business of them all.

Dealerships really only sell new cars for three reasons:

1. The legitimacy that having the franchise gives them. Customers inherently trust a franchise dealer more than an independent. They probably think that the OEM is holding the dealer to some standard of excellence (insider joke alert).
2. It helps them get trades for their used car department
3. They get the service and warranty work

That’s it.

Nobody believes this when I tell them, but the readers who are in the business must have been either smiling and nodding or shaking with anger when they read your question — because they know that’s already what dealers are doing. The new car business already is a volume game, and it has been for a long, long time, even back when Doug Demuro was asking, well, uninformed questions about it. Alas, your assumption about the money isn’t exactly right. The dealer is making money, yes, but the sales guy? He’s making a mini commission of maybe $50.

Outside of a few holdovers at luxury brand stores, pretty much every other dealer is already either breaking even or losing money on the front end of the majority of new car sales (front end = the profit made on the actual sale of the car, not including rebates or finance and insurance). Customers don’t believe this, largely due to the terrible reputation that car dealerships have rightfully earned over the years. As Ursula once said, it’s sad, but true.

Unfortunately, Bart, the reason they don’t do this with every customer from the get-go is that there’s an axiom in the car business that will be true until Elon reneges on the last mall lease he’s got, and it is this: In order for some customers to pay too little, some customers have to pay too much. There is the occasional mark who walks into a dealer and pays whatever the sticker tells him to pay — mostly immigrants, the elderly, and subprime customers. (By the way, that dealer was a Toyota store in South Florida. Fuck ’em.) But everybody else has the internet, and they use to it to research the hell out of car purchases.

You mentioned that customers feel they’re getting ripped off, and you’re right, they do. But the ones who feel the most violated are typically the ones who got the best deals! They’re the ones to whom the dealer did show the invoice, the ones for whom the dealer went into holdback and bought too heavy on the trade. Those customers leave the dealership pissed off and ready to tell the world on their Facebook page how long the deal took and how hard they had to fight.

The happiest customers are always the ones who get straight up cracked — they rave about the excellent service and attentive salespeople. Well, no shit, Betty — the rep got a $1,500 commission check on your deal, of course he was attentive. Again, sad, but true, so your point about people who got good deals referring more customers doesn’t hold up.

So, my point in all of this rambling is this: Car dealers are already doing this, they’re just not advertising it. The market has already demonstrated that it doesn’t much care for the fixed-price model (see: Scion, Saturn), but we essentially have an unadvertised fixed price model now — sell the car at invoice, keep the holdback, hope for the OEM volume bonuses. It’s why my dealer friend complained about the new car sales model — in 2012. You’re not being simplistic, you’ve just been uninformed.

Now you know better.

Send Bark, a recovering automotive advertising semi-lifer, your questions at barkm302@gmail.com, and look at pictures of his kids playing soccer and monitor his borderline-obsessive workout schedule on his Instagram. He promises to post more pictures of cars.