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How Much Profit Should A Car Dealer Make?

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  • dino001dino001 Tampa, FLPosts: 3,483
    Well, the same with salesman "Oh my God, I can't tell him my best numbers (or even close), not in writing, not ever the internet or fax, cause he will take them and shop me". Cuts both ways.

    2012 BMW 328i wagon, manual and sports package. No. sold in the US: 1. Probably.

  • shasta67shasta67 Posts: 109
    I always figure the dealer made the first offer. It is the sticker on the car. I always know about what I am willing to pay and will offer the dealer pretty close to that. I admit it is usually on the low side but something I am confident they have sold cars for before. If they take it great. I have done plenty of research to know it was a good deal. I don't really wonder if I should have tried to beat them out of another $200. If they don't then I will usually thank them for their time and go find another dealer. Mostly I just use the phone or computer to do this now. Saves me lots of time and frustration.
  • mikefm58mikefm58 Posts: 2,882
    Or how about the idiot car salesman who's first question to my buddy this past Saturday was, "How much are you willing to pay for that vehicle?" as he was shopping for an Altima for his son.

    He said $100, then laughed and said "Stupid questions get stupid answers." He did eventually end up buying the vehicle but only after he left when they wouldn't meet his price and they came running out as he was getting in his car to leave.
  • dino001dino001 Tampa, FLPosts: 3,483
    Not sure why the question is stupid. For every transaction to occur a buyer has to be willing to pay amount of dollars that the seller has to be willing to accept. Unless two Bobsts are talking, it's usually the range that may or may not have common area. Whole buying process is about finding out if that common area exists and both sides are trying to get to their side of this range, hence various tactics on both parts, one of which is not to divulge your real range too early. Question is perfectly legitimate, as much as buyer asking "so how much are you willing to sell it for?". It's not necessary to answer it with your "best number", but I see no harm or stupidity in asking it. Perhaps there were additional circumstances making it "stupid", but on the face value - I do not think it was.

    2012 BMW 328i wagon, manual and sports package. No. sold in the US: 1. Probably.

  • I may not call it "stupid" but getting an honest answer is probably wishful thinking... As a buyer I would also like to get answers to questions like: How many of these have you sold this month? Are you just short of making your numbers? What is the lowest price you have given on one of these units in the recent past? I may get answers to all of these but I suspect most will not be completely truthful...

    When I had asked for a "best" price quote, I have been answered: MSRP? Is that the same as $100 answer?
  • bobstbobst Posts: 1,783
    "getting an honest answer is probably wishful thinking"

    Oh yeah, I definitely agree!

    That's why I don't ask the sales persons any questions other than, "Do you accept our offer?"
  • mikefm58mikefm58 Posts: 2,882
    Sorry dino, I disagree, we're all looking to pay as little as possible. Asking someone a question like that is, well, foolish IMO. A better question would be something like, "What would it take for me to put you in that car and drive it home today?" The salesman is still asking the buyer to name the first price, just a bit differently.
  • dino001dino001 Tampa, FLPosts: 3,483
    Sure, I want it as cheap, too and the dealer wants as much as possible. So what is the difference between "how much are you willing to pay" (supposedly stupid asked by the salesman) and "tell me your lowest/rock bottom/best price" (supposedly smart question asked by the buyer)? I just see no difference.

    2012 BMW 328i wagon, manual and sports package. No. sold in the US: 1. Probably.

  • shasta67shasta67 Posts: 109
    So the difference between asking "What would it take for me to put you in that car and drive it home today" and "how much are you willing to pay for that car" is enough for your friend to respond by telling him a "stupid" answer for a "stupid" question? Man I wish I had quality friends like that.
  • newbee7newbee7 Posts: 30
    I'm a consumer in the market for a car, so I wish there is an answer to the question "How much profit should a car dealer makes?"

    But, I doubt that we ever find an answer. Because if we do, we could find an answer to "How much profit should company X makes?" (replace X with Walmart, Shell, the company you're working for, etc.)

    As far as both sides happily agree to a deal and there is no trickery/coercion or unlawful practices about the deal, it's OK. I find it equally fine if somebody wants to haggle over the invoice (like myself :-) ) while somebody else wants to pay MSRP + 20K for a car.
  • A typical dealership has profit margins of about 1-3% on NEW car sales but this is after all expenses: financing, staff, rents, taxes, etc. So if you know the "real" cost (after all kickbacks and this may change daily or weekly) and you know their fixed cost (associated with sales only) plus their monthly volume... you can figure out what should be the "expected" price.

    FYI: New car sales profit margin sales have been on a steady decline for the last decade but the profitability on other products and services has taken up the slack.
  • volvomaxvolvomax Posts: 5,274
    Actually, a "typical" dealership loses money in the N/C dept.
    If the typical dealership had a 1-3% profit after expenses, that would mean a gross profit in the 5-10% range.
    Probabaly closer to 10% with the size of the nut most of these stores have. No way are they averaging that kind of profit.
    Service and Parts, esp Parts are where the big profits are.
  • You could be right because my information is dated. However, 5% on an average car is $1-1.5k and holdback accounts for a good chunk of that too. How many cars today do not have any dealer incentives? How close is invoice to the actual cost? We all know that margins on new vehicles have been sliding for a decade. Moreover, we all certainly agree that used, parts, service, and F/I are where real profits are generated more and more.

    Let's not forget: Cars are a captive product/market! Dealers and manufacturers could/do sell them at a loss as long as they are assured to make a profit during the life of the vehicle. Today you bought a car, over the next few years you are almost guaranteed to be in an accident for which dealer/manufacturers will sell rediculously overpriced parts for which driver only pays indirectly (via insurance)... Then, one can also convince/scare plenty of buyers to "maintain" their cars on the "severe" schedule. It is all good :P as long as they make money... on average.
  • grandtotalgrandtotal Posts: 1,207
    I plan to buy a new car soon. It is (supposedly) a "hot" car. For the last four months I have been tracking the dealer's inventory on line and have been surprised to see how long the vehicles are actually sitting on the lot before being sold. I think the negotiations may get interesting when (if neccessary) I demonstrate that the car they are likely to claim is in great demand actually is not so much.
  • Every one here seems to agree that a dealer should make somewhere between 3-5% profit on a car, per customer,so why is it that no-one that I know does? I am a Mazda salesman and I know that out of my last 5 customers they would only agree to paying 300.00 over invoice! Let me make this as simple as possible, I make 25% commission on the PROFIT of the vehicle over invoice. 300.00 profit = 75.00 commission for the last 6 hrs that I just dutifully spent with you. I have no problem spending that time to help you out and I can tell you that there is only $900 worth of markup from invoice to sticker on a Mazda 3.

    A fully loaded up CX-7 with all of the options has I think somewhere around 2000K worth of mark up, on a car that is $34,000k = about 5.8% profit margin. I have told people that we are making less than 6% profit on sticker off of them and they seem to be fine with it, UNTIL they ask, " How much money is that?" When I tell them about 2k then they say, "2K?!?! That is way too much to pay I will pay you 500 over" Do I take it? Of course, because if I said no then I would lose my job. So now I just made 125.00 for 5 hrs of work,and I work about 55hrs a week. Half of that time is spent waiting for clients.

    Or ther are lots of people that say they will only pay 100.00 below invoice only, and I have to sell it or my job is in trouble, Well I understand that people have bills to pay, but so do I! I make on average about 50.00 per customer and I am expected to make a living. Is there any possibility of us getting this changed?
  • qbrozenqbrozen Posts: 17,208
    5-6 hours with a customer?? That's ridiculous. Either you or they need to speed up the process!

    The conversation you described should have taken all of 2 minutes. Add in a 15-minute test drive, 15-minute demo, and let's say a half hour while you appraise the trade, chat with your manager, get coffee, whatever. That's an hour. So let's stretch it and say 90 minutes TOPS before you pass off to F&I.

    '13 Stang GT; '86 Benz 300E; '98 Volvo S70; '12 Leaf; '14 Town&Country

  • audia8qaudia8q Posts: 3,138
    I think the negotiations may get interesting when (if necessary) I demonstrate that the car they are likely to claim is in great demand actually is not so much.

    With one of my mfg the car shows up on the consumer locater when the car is ordered...thus showing in inventory for 3-4 months before it actually hits the lot...how would this play into your negotiations?

    Also, lets say they claim its a hot car and its been there for a month...you point this out and the sales manager says "so what"....now what do you do?....just wondering.

    The days in inventory angle of negotiating has never worked with me...unless the car has been in stock for a year or its a used car that I made a big mistake buying or over valuing.
  • dino001dino001 Tampa, FLPosts: 3,483
    Do you numbers include dealer's doc/whatever fees, ext. warranty, accessories, "protection package", financing/lease?

    See, my guess is quite a few people "could easily live" with dealer making nominal 3-5% profit on the car if it was a final figure. The problem is it's not and you know it, and I know it. Invoice level or so are very good starting points to achieve 3-5% at the end of the day, after everything is added.

    I know that your pay may not be calculated based on those items, but that's not our (customer's problem). Our job is to find out at what level your boss is willing to settle. Invoice plus a few hundred plus the rest seems to be just that.

    2012 BMW 328i wagon, manual and sports package. No. sold in the US: 1. Probably.

  • jipsterjipster Posts: 5,345
    Is there any possibility of us getting this changed?

    Not unless you're talking about something illegal... or voodoo.

    Dealerships have no incentive to change the system. It works well for owners, managers, and a few salespeople per dealership. So, it's up to you to adapt.
  • The problem is that the dealership real cost is not really invoice if one is to include all other incentives, holdback, volume discount, etc. Is the cost really invoice? Similarly, there is a lot of money on the back end (as has already been been stated above). If you are unhappy about only making a commission on the front end, that is not the fault of the customer, it is the fault of management at your dealership that has convinced you to work for $50 every 5-6 hours.

    I think you should check your facts before you start complaining here. $20k Mazda 3 has about $1.5k in distance from invoice to MSRP. At invoice, many dealerships still make holdback and doc fee but only if they move their inventory instead trying to squeeze pennies from every walkup. Why would I buy from you at $300 premium if I can buy it no-haggle from a place like fitzmall.com who sells the 3 at invoice?

    Irony: I was recently shopping a mazda and some dealerships were crying about not making any money at invoice less incentives but others were selling exactly the same vehicle for $2-3k less than that!

    Cobraboy1: When consumers get full disclosure on relavant information from folks like you, then you will get your 3-5% no questions asked!
  • jipsterjipster Posts: 5,345
    When consumers get full disclosure on relavant information... then you will get your 3-5% no questions asked.

    Doubtful. I think most people (myself included) would try for a lot less than 3-5%, even given full disclosure. Maybe, 2-4% a few questions asked, and... 0-2% no questions.
  • Consumers are not going to have any agreement on any actual percentages if the level of BS (as per cobra's post) persists!
  • boomchekboomchek Vancouver, BC, CanadaPosts: 5,108
    :mad: :mad: :mad:

    But what difference does it make how much money is on the back end? Consumers wanted invoice, so that's in the open now, but how far do dealers really have to open their books to Joe Carbuyer?

    If there is holdback, it's usually paid to the dealer after quotas are made, so why should that be given away as well?

    And why should volume discount come into play?

    And salesman bonuses from the manufacturers? Should we give those up as well? Or commissions? Or year end bonuses? Or maybe we dealers should just work for free and HOPE that at the end of the year the manufacturer will pay us our holdback, from which the dealer would pay bills, salaries, and costs?

    I can understand the fact that as consumers we'd like to pay the least for any product or services especially big ticket items, but to be digging through accounting books and figures of businesses to figure out how much they make and how much we as consumers should allow them to make is I think a bit silly.

    If you go to any business and receive good service, and you pay what you think is a fair price for a product, then who cares about what goes on in the back end?

    If I hire a taxi cab to take me downtown, I don't ask the driver about what his expenses are, or how much he will spend on gas to drive me there.

    If I buy a suit (that is probably marked up 200%), I don't ask the store to show me an invoice from China as to how much the materials cost, what the taylor got paid, or what the store is making on it.

    If I buy electronics, I don't do that either.

    If I, or anyone else for that matter is buying a house, do we ever ask for the cost sheet of the materials used to build it, what the previous owner paid for it, nor do we DEMAND what they should make on it?

    So why should car dealers be under such scrutiny even though the business changed quite a bit from the old days?

    That's all for now....still love my job. :P

    PS Braindrainer, this is not directed at you specifically, I'm just thinking out loud in general.

    2007 BMW 328i Sports Pkg, 1993 Honda Accord EXR (my 33rd car).

  • shasta67shasta67 Posts: 109
    But what difference does it make how much money is on the back end? Consumers wanted invoice, so that's in the open now, but how far do dealers really have to open their books to Joe Carbuyer?

    If there is holdback, it's usually paid to the dealer after quotas are made, so why should that be given away as well?


    Well to say invoice is in the open now is kind of a stretch. A number they say is invoice is out in the open but the "true" cost to the dealer is still pretty well hidden.

    You are right, it does not matter. The only thing that matters is what a dealer will sell the car for. I think the biggest problem with the whole system is it was set up to intentionally confuse and mislead the consumer. Now with the internet a lot of the mystery has fallen away dealers are having a hard time making as much profit as they used to. (on new car sales at least) My own personal opinion is it will only get worse. I think the present system is perfect for someone like myself. I can use the internet and phone to get a great deal but there are still enough people out there paying too much so the dealer can afford to sell to me. My fear is that someday all car salesmen will be $8-10 an hour and the price will be set but at a price higher than I now pay.
  • dino001dino001 Tampa, FLPosts: 3,483
    I'm glad you love your job, Boomcheck. The worst can happen if one hates what they do.

    About asking dealers for their invoices or discussions about "fair profit" etc., I believe it's the industry who opened the door to these kind of discussion, not customers. It all starts at "bazaar" setting at the car store, practically unprecedented in any other retail business. You have sentences like "we have to make money, you know" - totally unnecessary and not really relevant, if you think about it. I don't care if you make money - for all I know you may be paying me from your own pocket if it takes to sell that dud on the lot that is already sitting there for six months. The automatic response to those is "Allright then, lets show how much exactly you are making here". Once this door is open, there is no coming back to "it's not your business". When you stay away from the subject of your profit, commission, livelyhood, all is fair game (within law and basic ethics, of course).

    If you feel no remorse of snatching big profits when you have a hit on your hands (and why should you - it's your job to do so), don't bring your kids' college fund (or big screen TV - whatever it is you are saving for), when you are trying to unload that stinker. The awards come with risks - one of them is being stuck with a wrong product. I may feel personal sympathy to you, especially if you are my compatriot in a foreign country ;) , but as a customer it's my duty to get it the cheapest I can within bounds of the law.

    Your industry believes that the current way is the best way of doing their business (for them of course ;) ) - if they did not, they'd change it. If you accept that, you have to able to tolerate all that comes with it, including customers wanting to see your paperwork including your birth certificate. Does not mean you have to give it to them, but then you also have to be willing to let them walk.

    Most of people are reasonable most of the time. They often get unreasonable when they're put in situation they don't fully understand. Car shopping is currently such a situation for many, as they have no time or patience to thoroughly follow the market, yet they here about those dirty tricks, huge markups, enormous incentives reported by similarly ill-informed reporters or their neighbors.

    Car transactions are complex enough by their nature: options, financing, trade. Yet, you see dealers making lots of effort to make it even more muddy than it needs to be, just for a chance of scoring a whale. While you are fishing for that whale, you risk alienating majority of non-whale customers to the point they won't believe a word that comes out of your mouth or those who will try to take last $100 from your paycheck. Apparently it is worth the risk, as not much has changed in last years in the way the industry operates.

    2012 BMW 328i wagon, manual and sports package. No. sold in the US: 1. Probably.

  • boomchekboomchek Vancouver, BC, CanadaPosts: 5,108
    It all starts at "bazaar" setting at the car store, practically unprecedented in any other retail business. You have sentences like "we have to make money, you know"

    I agree with you on that Dino, but it is the customer in many cases who asks for discounts and invoices, and not the salespeople.

    If a customer comes in and wants to buy a car at MSRP, I don't think you will hear whining from salespeople about putting kids through college, or that we have to make money.

    On the other hand it CAN be as simple as customers want it to be:
    "I'd like to buy this red Civic DX-G, and I see that this Honda costs $XXXXX. How much is the total with tax?
    Thank you, here's the full amount. I need the car by Friday."

    I had deals like that where a customer was on the road within 1 hour in a new car. They paid the sticker price and drove away happy. It's as simple as that.

    And off you go in your shiny new automobile! :shades:

    On the other hand you can make a process complicated for ANY purchase, from a pound of bananas, to a Plasma TV.

    You can go to your supermarket, and out of town supermarkets, research banana prices, and banana brands, and even research the stock market prices for banana companies, and commodity prices for bananas, and how much supply and demand there is at a certain time of the year for bananas.

    Then you can find insider info on how much your supermarket pays its employees, and how much it buys these bananas for, and whether they have volume discounts from their wholesalers on these bananas. Then based on that you can go to a couple different supermarkets, and test them to see which one you like the best. And finally when you're ready to make a move on two pounds of bananas, you can send emails for banana quotes, and go into a few stores to see if they can cut you a deal. Maybe even talk to the fruits manager, and see what he can do for you. And hopefully after two months of researching you can walk away with two pounds of ripe bananas. :shades:

    HOWEVER, you won't want to hear that your neighbour picked up similar ones for two bucks less across town, then you'd be thinking your supermarket ripped you off and that they're nothing but liars, and cheats! :mad:

    2007 BMW 328i Sports Pkg, 1993 Honda Accord EXR (my 33rd car).

  • newbee7newbee7 Posts: 30
    If a customer comes in and wants to buy a car at MSRP, I don't think you will hear whining from salespeople about putting kids through college, or that we have to make money.

    On the other hand it CAN be as simple as customers want it to be:
    "I'd like to buy this red Civic DX-G, and I see that this Honda costs $XXXXX. How much is the total with tax?
    Thank you, here's the full amount. I need the car by Friday."

    I had deals like that where a customer was on the road within 1 hour in a new car. They paid the sticker price and drove away happy. It's as simple as that.


    How many percent of your customer pay at MSRP?
    When you go out and buy a car for yourself/spouse/children/relative, do you pay MSRP?

    Why did you sell a car for less than MSRP? If selling a car for less than MSRP is a loss, why are you still selling cars?

    A customer makes an offer you don't like just say you don't accept the offer. Who forces you to whine and then still sell the car for less than MSRP?

    Taking your buying bananas example, I guess I can still do all the research and make a lower offer for the bananas to the supermarket. But, the problem is the supermarket will never accept to sell the bananas for less. Therefore, I know it won't make any difference for me to make a lower offer.
    Or, I can simply go to a different supermarket whose bananas price is more reasonable.

    If car dealers do the same and hold the MSRP firmly, the customers may not have another choice. But, hey you guys don't do that. You made it possible for us to buy at less than MSRP. We, customers, just take advantage of that. Money are not easy to make for some of us. The money we saved by paying less for a car goes to our kid's tuition, clothes, vacation, etc. too. The reasons a car salesman uses during his whining always go both way, not just for him.

    Its part of your job to live with the fact that somebody will pay at MSRP while many others won't. If you choose to do this job and still can't make enough money, it's your choice.
  • boomchekboomchek Vancouver, BC, CanadaPosts: 5,108
    If selling a car for less than MSRP is a loss, why are you still selling cars?

    I never said that selling it for less than MSRP means it's a loss to us.

    And second of all I do not whine, I was just quoting what Dino was saying, even though there are some whiner salesmen out there.

    Dino said that the process is complicated, and I was saying that it doesn't have to be if you do pay MSRP.

    And you are right. It is the desperate dealers and weak salesmen who need deals that will blow a car away below cost when they don't have to. But guys like that don't last very long because they see that they end up working for almost nothing, and the dealer won't afford to stay in business.

    As for the money is not easy to come by part, it goes both ways. We all need to feed our families and go on vacations.

    2007 BMW 328i Sports Pkg, 1993 Honda Accord EXR (my 33rd car).

  • dino001dino001 Tampa, FLPosts: 3,483
    On the other hand it CAN be as simple as customers want it to be:
    "I'd like to buy this red Civic DX-G, and I see that this Honda costs $XXXXX. How much is the total with tax?
    Thank you, here's the full amount. I need the car by Friday."


    Well - it obviously can, yet if you have a lot of people willing to do that, the dealers immediately take it to the next level: suddenly all those cars will have "protection package" for $799, "strake kit" for $599 and F&I guys will make a lot of effort not to let you sign that paper in 10 minutes - rather they will run you through an obstacle course with extended warranties, life insurance and other add-ons.

    I think a lot of people pick up the fight and fortify themselves early exactly because any early concession is seeing as a sign of willingness to let their wallet be vacuumed with "extra care".

    BTW, I would never say that the guy is a liar just because his price is higher than what I think it should be. But I would say it if he started making false claims about customer rebate/financing availability, tried to get me 9% APR with 750 FICO score and insist it's the best deal in town, or push a lease/baloon program without full disclosure of terms.

    2012 BMW 328i wagon, manual and sports package. No. sold in the US: 1. Probably.

  • dino001dino001 Tampa, FLPosts: 3,483
    or invoice in my dealing unless dealer expressly opens the door with their own remark.

    Another legitimate situation where bringing invoice in is relevant are those special programs, like GMS, Ford X/A plans, VIP plans, etc - those usually expressly use invoice cost as determinant and require dealers make full disclosures, including dealers incentives, not only consumer's.

    Other than that - here is your price, here is mine, can we talk about it? Yes - so let's talk, no - see you. I may be back if I find my idea about the price was incorrect, otherwise your next shot is in 3-8 years, maybe. No name calling, no cries, no foul.

    Name calling often starts when we agree on something, then suddenly the final bill looks somewhat different - new surcharge, new "package", etc. We agreed to $20K+TTL, but the bill says $20K+$599+$399+$15+$200+TTL. Then we do have a problem...

    2012 BMW 328i wagon, manual and sports package. No. sold in the US: 1. Probably.

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