Any Questions for a Car Dealer?

bretfraz

I know that both Lexus and Infiniti are required to have same brand loaners available for service customers (that means no 1986 Yugos for the LS430 owner who's in for an oil change). It is part of their franchise agreement and the number of loaners is proportional to their new car sales and a few other factors. For example, MFULLMER, go to Infiniti in Roswell and you should find 50+ Infinitis as loaners. Troncalli will have about the same number.

Saab and Volvo also offer service loaners but the contract language is not as strict so they can subsitute rentals as long as they are free to the vehicle owner. I've driven cars from brand new 9-3 cabrios to a PT Cruiser with brake problems, but they've never cost me anything.

MBz, BMW, Audi, Acura and other luxury makes are ones I am not familiar with. When it comes to domestics I think service loaners are up to the individual dealer so you can't count on anything unless you know what that particular dealer's policy is. Ask the Service Manager.

robr2

...There was at one time a dealership south of Boston who carried BMW as a low end line - something for the bourgoius to buy from them. They were using Alfa Milano's for loaners and then turned to Sentras when Alfa went out. Could you imagine dropping off a Ferrari and being given a Nissan Sentra to drive for the day??

There is an Infiniti dealer around here who uses I30's as loaners with their name on the doors and trunk "Courtesy of XYZ Infiniti". Nice thought but I'd rather not have their name emblazoned on the car.

landru2

In my 10+ years of experience, I have never seen a "leftover" go anywhere but to a retail buyer. Others may have different experience, of course.

10 years ago, every Ford dealer around here had a small fleet of service loaners. Now none do.

xccoachlou

Were there any reports of bunions among the sales staff due to excessive leaping and dancing for joy when one of the leftovers was taken away?

landru2

Those things often carry $500 or $1000 commissions.

zueslewis

It was a Saturday and I sold the Ford F-150 4x4 XL that had been there 14 months and two used trucks we'd had for over 120 days. I made $2,250 on three deals.

The Ford F-150 story is funny (I think). Consider Wyoming a pretty conservtaive place. We had 3 F-150 Supercabs (XLTs) that were white. My boss wanted some cool custom graphics painted onto one of them for a car show and parade we wee doing. The XLTs had 351s, autos, loaded up.

The new lot boy grabbed the wrong F-150 and took it to the body shop across town. We ended up with a $1,750 red scallops paint job on a bare bones, XL trim, no air, 6 cylinder, 5-speed truck white truck. It was a supercab but didn't have a rear seat (a delete option).

The boss was PO'd and it stayed with us for 14 months. Affectionately called "old flame", the boss put a $1,000 spiff on it, after the $500 and $750 didn't work.

I sold it to an older guy, trading in an '89 Dodge 3/4 ton 4x4 - he wanted some basic that rode nicer and got better mileage - the lightbulb came on over my head and I said "What would you think about something that looked cool, too, at a great price?"

alaskadiver

Here's a question that I've been wondering about.

In a typical dealership, what would be the typical percentage of revenue that comes from new car sales vs other sources such as parts and service?

In other words, do dealers maintain parts and service departments in order to sell cars? Or do they sell cars in order to maintain service departments?

Frankly the markup on new cars seems quite low compared to other consumer products where 40-50% markups are common. I'm just wondering where the real money is for car dealers.

landru2

dealerships, selling new cars is a money loser. Without Parts and Service the vast majority of dealerships would not be viable businesses.

tboner

I suspect New Cars are a very large portion of revenue. But then you also have to ask the question, what percentage of the costs are also apportioned to New Car sales.

If you simply look at it from a cashflow point ov view, then New Car sales probably doesn't make much money. But, if you look at it from the perspective that most dealers today don't buy the cars outright, but rather borrow the money to buy the inventory, the return on investment % is probably better that what it might look like if you are comparing $500 over factory invoice on a $20K car.

But, probably the most important question is, are you happy with what you are buying? If not, deal numbers are really pointless.

TB

mfullmer

We had an instance once, where an '89 Grand Prix (coupe, loaded) was still sitting around in the fall of '90. I still can't figure out why that car didn't move other than, in those days very few cars came from the factory with moonroofs and we always had a hard time selling them. In any case, my mother had put a $1,500 spiff on the car in August (90)but it was still there in mid October. She ended up giving the car to my niece on her 16th birthday.

The crazy thing was when my niece graduated from high school and was given a Trans Am, my mother put that GP on the lot and it sold in 2 days!!!

CRAZY

If my mother saw me writing this, she'd say "That's why I'm not in the car business anymore!"

rivertown

What is holdback?
I've got the impression holdback is a percentage of the car's price (MSRP, invoice, other price?) 'heldback' from the dealer by the manufacturer (manufacturer, manufacturer's finance subsidiary?, other?) until some settling up time. I get that the % varies between manufacturers/makes, but what is it a %age of?
How's it work? Say . . .
Dealer takes delivery on the car. Incurs a debt for/pays the manufacturer some price (invoice price?) plus holdback? Invoice price includes holdback? Dealer sells the car, and collects money from the customer (or company financing the customer's purchase). Dealer pays his debt/deposits in the bank/keeps in safe/whatever. Holder (who?) of the holdback funds settles up with dealer at some point, and the dealers gets some money? The amount of the holdback paid by holder to dealer is the amount of that %age, the amount of that percentage minus the cost of financing to the dealer?
How large a positive factor in a dealer's profit is holdback typically/on average/etc?
So, what's holdback, how does it work, and how large a positive factor in dealer profit is it?

mfullmer

The holdback is a way for the Manufacturer to help the dealership with the financing costs. Here's how it works.

The Dealer purchases the car from the Manufacturer. The invoice price of the vehicle is due the manufacturer when the vehicle is ORDERED not sold. The dealer then (usually) turns around and uses his line-of-credit (called a "Floor Plan" in the industry). The dealer gets a check from the Manufacturer once a quarter for this holdback regardless of when the car sells.

So, essentially the holdback is divisible by 90 days of the car being on the lot. This is why you can't figure the holdback into the deal because that holdback may or may not already be used up.

Example: Car is ordered and paid for on October 1. On December 29 the holdback has already been paid in full by the Manufacturer and has (in theory) been used to pay for the financing of the vehicle.

If the above car sells on December 30 then there is NO holdback available to the dealer for the vehicle.

The only time I have ever mentioned holdback income to the dealer was on my recent '03 Tahoe purchase. Since I had been given the opportunity to take the vehicle for a day I had looked to see when it was manufactured, which was Dec-02. I mentioned "well you have at least one month left of holdback" and we all kind of chuckled.

Edmunds does a good job of explaining this under "Tips and Advice" - Dealer Holdback.

mfullmer

...but what is it a %age of?

It varies by manufacturer but most are a percentage of MSRP. The others are a percentage of Invoice. Again, Edmunds has the details of each manufacturer and how they do it.

...So, what's holdback, how does it work, and how large a positive factor in dealer profit is it?

The holdback is only a profit factor if the vehicle is sold within the first 90 days of the vehicle being ORDERED. (Again, the dealer pays for the vehicle up ORDERING.)

rivertown

TY, mfullmer.

Fair to say holdback finances the car while the dealer order is processed, the car is transported, and for a short period of time while it's being shown and sold?

rivertown

I just read the Edmunds article. 'Tween your reply and it, I got it. TY!

For anyone else interested:
http://www.edmunds.com/advice/incentives/holdback/index.html

P.S. I've never introduced 'holdback' into the negotiation, and I can see why it's a good idea not to. When salesguys have talked 'profit', etc., it's simply registered on my internal hooey meter, which is now better calibrated. TY, some more.

mfullmer

I'm not sure, after all of these years, why the car dealership industry still has so many questions both to the salesmen and consumers.

I can't tell you how many salesmen and yes, even GMs, that always think of the holdback as profit on every car. My mother started a program in her dealerships back in 1988 whereas no one was allowed on the floor until they had spent 2 days in the Management Office. As I was the Business Manager and managed the "back office" I would go through the financial statements with them, show them how a Balance Sheet works, teach them that the vehicle went on the Balance Sheet as soon as the order was confirmed as an "Asset" and how and when the flooring was booked as a Liability.

It was amazing to me just how much goes on in the business office that many of them just don't know about. They also sat with the payables person and had to do commission calculations. This prevented the "What, I thought I was getting more." that we had always had a problem with.

Any Dealer Principals out there - suggestion: Make your Salesmen/GM/F&I learn the back office. Who cares if they see your bottom line? They are your employees and by knowing what it takes to run the business, they are more apt to "own" it in their every day dealings.

zueslewis

is a lot more surprising than most people think!

I was amazed to see the true "net" after a large "gross" deal - after a two pounder deal, the dealer netted $350 - so where does a $500 deal put them?

rivertown

TY, again, Fulmer

I could do a long, complicated thing here; but the bottom line seems to be that confusion is rampant. And, can be cleared up with straight facts.

If you're suggesting that folks in the biz would do well to know the facts, I agree with you wholeheartedly. If one doesn't already know the truth of the matter, adament argument supported by patently wrong 'facts' . . . well, you know.

zueslewis

making accusations and screaming fraud when consumers don't know what's on someone's books doesn't help either.

I always knew my bottom line, because in my position, I had to.

vikd

that you suggest mfullmer, seems like quite a lot to invest in someone, who based on most statistics, will not remain an employee long. I do completely agree with the depth of knowledge you (as would most people I'm sure) see as necessary for every new salesman, it just isn't very practical. As long as were talking business, it also isn't very cost effective. Perhaps they are not paid during this period of training, but they also aren't selling veh either.

Regards... Vikd

ateixeira

Actually, a used Hyundai still carries the 5/60 warranty, but you're right in that the 10/100 is done.

Shouldn't the PCM be covered under the 5/60 bumper-to-bumper? You sure it wasn't 63k miles instead of 53k?

-juice

mirth

Recent report from the NADA convention stated that the average net profit on new cars sales was $255 per vehicle. Just FYI.

rivertown

I'm not trying to be argumentative or disrespectful; but I still don't know if you know who owns the cars, and that's a strain on credibility.

I may have missed a post along the way, in which case I owe you an apology.

mfullmer

I understand your point but then we get into basic good business. By hiring the RIGHT people and INVESTING the time into them, it makes for a better sales staff which, of course, results in happier customers. I don't know the statistics, of course, but I knew very few salesmen in my mothers stores that were the "here today, gone tomorrow" sort. While the GMs would make occassional bad decisions, those individuals were gone pretty quickly.

Agian, this also goes to the crux of the problem. Being a car salesman is a professional career. If dealerships only hired professional, career oriented salesmen, then things would be much different. If you treat these professionals, professionally (ie: invest your time in them) then they will take "ownership" of the business and do well by the owner.

By the way, this I do remember about her stores:

Every GM had worked for her for at least 5 years as a salesman/finance person. As opposed to hiring a GM who had worked somewhere else.

The very first store she sold (1998) was sold to the GM who had worked for her for 23 years.

Every store except for the the last 3 (Ex got those in a divorce) were sold to the GMs of those stores.

mfullmer

Go to the Business Office and ask the Business Manager. I think where people get off is they make the offhanded remark that "the bank owns it" just because there is a loan on it. Thats not technically or practically true.

If you will look at the list of assets that make up the balance sheet, you will see "Inventory". This is cars that you own. It can't be on the Balance Sheet if you don't own them. In the liabilities section, you will see "Flooring" or some such "current Loans", "line of credit", etc. This is the flooring on the inventory.

Sorry for all of the negativism before. Unfortunately, I have the experience of being an Accountant (foremost) and have worked for my moms companies. I'm also one of those schlubs who sometimes thinks "If I know this, why is it so hard for everyone else to understand?".

No hard feelings I hope.

zueslewis

river - I can't make sense of 90%of your posts - does that affect your credibility?

You need to delve deeper in the subject, something I'm not willing to do at this point, to understand the whole concept of dealer/vehicle ownership.

Many dealer groups have no paper whatsoever - the cars are "owned" by a financing company and the dealer simply sells them - just like a JC Penney store sells jeans. JC Penney stores in the local mall don't own the Levis the sell, they consign them from a parent company.

Very few dealers actually "floor" their own cars, it's done through a financial arm and teh dealer usually doesn't take money out of his own bank account to buy inventory - that's what I was talking about. Any further misunderstanding is placed solely on the reader of my posts.

My "credibility" is certainly not in question. In the last two years, I've testified in one Federal trial, 2 trials in PA, 2 trials in NJ, 31 arbitrations in NJ and 48 in PA. I was certainly credible during those official meetings, as certified by several courts and arbitration panels. All of these appearances involved automotive law.

mfullmer

But I think there is a mistake in the process. You state, correctly that the "Parent Company" owns the Levis, not the individual stores.

The same is true in large dealer groups. The Parent Company owns the vehicles and the individual stores sell the product. The Parent Company holds the liability of the loans.

I am 90% certain, from my dealings with banks and Bank of America even has a large "Floor Plan" section on their website, that banks would never own the vehicles. I don't mean to insult your intelligence, but that would be like them "owning" the properties that they hold mortgages on. It's just not the way the banking industry operates.

mfullmer

Yes, dealerships don't actually pay for the vehicles themselves but think of it like closing on a house.

The purchaser doesn't write a check out for $500,000 and then get a check from the bank for $300,000 for the mortgage. The bank pays the closing agent directly. It has no bearing on ownership though who pays the money, it's for whom the money is for (The banks pay the manufacturer on behalf of the Dealers.)

zueslewis

one thing I do here, and it's bitten me a couple of times, is break things down for people.

When I testify, especially in front of a jury, I have to speak on a 3rd grade reading level (not to be mean, but it's true) in order to make the points I need to make.

Here on Edmunds, I promote that to an 8th grade reading level - when someone comes along, such as yourself, with experience in retail/real estate/banking, it's way under your radar, understandably.

When a pro comes along and I'm speaking in generalizations, I get called on it. That's fine, but some folks out there percieve it as lying or being misinformed - nothing could be further from the truth.

tboner

For some comedy relief, I have this image of Jack Nicholson playing Zeuslewis and telling us or while answering a defense attorney,

"You want to know the truth, you can't handle the truth."

Or something to that effect.

Ok, back to the topic at hand, LOL.

TB

zueslewis

especially a field grade officer.

It's wild that when in court, I feel like I'm talking to my kid when explaining stuff. I guess I assume, arrogantly, that because I understand something, everyone should.

I totally freaked out when I found out that all men don't know how to change their oil, rotate their tires or change a flat tire. Blew my mind.

I thought it was one of those father/son rites of passage, but somewhere down the line, somebody's Daddy wasn't paying attention.......

rivertown

I'm cool with ya, Zues. No hard feelings on my part.

T-bone - I've had exactly the same image, LOL.

vikd

with most of what you are saying regarding picking the right people and training them fully. This model is good "theory" but not generally "practiced". I do believe that it can and does pertain to succesfull business across the board...every company wants professional people who value and can retain professional training. However, the fact remains that there seems to be too few of these types of folks who choose auto sales as a long term career (present company excluded of course). I believe any employee who has been exposed to the "big picture" is that much better for it. I applaud your mother's methods and insistence on it being so. Again, not sure how practical that is in the current climate but it sure would be nice if that type of training took place a lot more frequently.

Regards... Vikd

tboner

Is that we are talking about what I believe are family owned stores. Maybe a larger area since he began talking about multiple stores.

But I can recall the experiences in my hometown of 7500 in the dealerships. Almost everyone in town KNEW the owners. Don't think for a minute that if they we defrauding folks that they would in business very long.

I think urban areas get fewer "Family Stores" and more people who are transient. Folks who may be in the area for only a short time. These two factors may conspire to encourage the cutting of corners. (To be polite, I wouldn't want to say out and out fraud, since I really believe most problems are just buyers who are more interested in new car smell than making good financial decisions.)

But that's just a theory, I don't have a horse in this race, but I do like to armchair quarterback.

TB
King of the mixed metaphor

vikd

What you have stated is really the obvious. The type and quality of training is at issue here. Though mfullmers mother appears to have been the principal, it does not necessarily mean it was a "family" business. Unless theres was an extraordinarily large family, many many other "professionals" also had to have been employed by her. It simply appears that her hiring/training model was the exception and certainly not the norm regardless of business size.

Regards... Vikd who gets a good laugh out of mixed metaphors!

tboner

Training is key, as are the expectations of the Mgt. If the mgt lets "corner cutting" slide, it will slide, period.

Also, I wasn't clear on the transient people thing. After I re-read my post, I see it could be interpreted in two ways, I meant both, LOL.

Actually, originally I was thinking of the transient nature of a certain number of folks as applying to the customer base. Just enough people new to the area to be unaware of the dealerships history of "cutting corners"

But after reading it, this could just as easily apply to the workforce at that dealership. And as we've read here in the TH, it often does.

FWIW,

TB

shabbycat

Hi there.... I'm confused by options. When are they options, when are they not? Sounds easy right? I'm looking forward to the release of the 04 Siennas and the CE actually has all the features I need. So, basically I want a CE with no options. However, when I look at the Toyota "Build Your Own" feature for the 03 Sienna they have an "option" page, but "No Options" is not an option. If you don't want options, you get the lowest priced "option" package. That is so confusing to me.

So, lets say I want a 04 Sienna with no options. What will I be charged? The base MSRP? Plus destination charge? Are there any hidden fees that I don't know about? I am not in a hurry so I can wait to have a basic CE when one is available.

Thanks.

mfullmer

I guess one of the reasons why my mother was so fastidious about her staff and business reputation was because my grandfathers name was on the sign for most of them. These were stores that had been in business since the 30's and my mother had been involved in them since coming out of college.

A few of the dealerships that she sold have since been purchased by the large companies who own big "centers". I'm not sure what their agreements were but I know my mother flat out refused several offers by them in 2001 when she we selling her last few. She still owns nearly all of the land from the ones she sold so I'll have to ask her what she's heard lately.

About the different people who ran the stores, it was interesting because of the 6 stores she inherited when my grandfather passed, they were all GM and she literally ran them day-to-day. During her working days, she had a few Toyota dealerships, Nissan and Mercedes Benz. The longest she had any of those was the MB store that she owned from '91 to '01 - the last store she sold. I think the atmosphere is different within the BIG manufacturers and she felt "comfortable" with GM.

zueslewis

while many options are listed separately on the order for, most are grouped within "customer preferred groups" that link common options, like air, CD player, power windows, locks, cruise, etc in a standard luxury group, then you may have a secondary group outlining a sunrorof, leather and overhead console.

Most vehicles aren't ordered by the dealer as "optionless" - they are ordered in preferred groups based on what sells in a particular area, with a few options added to certain models in a group.

Clear as mud, right?

mfullmer

Why would you pick the lowest priced option package if you don't want any options? If you don't want any options, DON'T pick an option package.

The list comes up with all of the options/packages NOT marked. If thats the way you want it, don't mark any of them.

As far as what you are "charged". You will be charged any price that you agree to. I don't see the Sienna as being an extremely hot car so I wouldn't even worry about how much MSRP/Dest. is. Go to Edmunds New Cars and see what they say the TMV on it is and start from there.

isellhondas

If you don't want to tell, I understand.

But...I spent the late seventies/early eighties in the Bay Area and my business took me into many dealerships. Which ones were your moms?

ateixeira

The '04 Sienna is adding lots of cool features - split magic disappearing folding 3rd row (industry first IIRC), AWD option, wider interior, rear side windows that go down, torquey engine, etc.

Competitors have one or two of those, but not all. So it might demand MSRP or close to that when it first comes out. I'd wait until demand cools.

By the way, if you're near the DC area try fitzmall.com for a no-haggle price on Toyotas.

-juice

shabbycat

it said if you did not pick an option package, then the lowest price one would be chosen for you. They had only two listed. I'll try not checking one and see if it comes up as an error or not.

It is still up in the air whether or not the Sienna 04 will be "hot" in the market. They have been totally redesigned for 04. Arrive in mid March in limited quantities.

Thanks for the feedback.

isellhondas

Toyota finally figured out how to get rid of that miserable third seat eh?

Well...it had to happen I guess!

shabbycat

though I'm not in the DC area I'll look at the site. Doesn't hurt to know what other's are paying.

IsellHondas! Watchout!

andre1969

Sounds like Toyota's copying the first-gen Odyssey! Actually, doesn't the Mazda MPV have roll-down rear windows too?

tboner

And I still contend Honda copied it's fold down third seat from all of those domestic wagons from the 60's an 70's with the rear facing foldaway third seat.

TB

rroyce10

*** Any Dealer Principals out there - suggestion: Make your Salesmen/GM/F&I learn the back office. Who cares if they see your bottom line? They are your employees and by knowing what it takes to run the business, they are more apt to "own" it in their every day dealings. ***

         I'm sorry Mfullmer, but I have to disagree with you on this on .. and so does about 99% of the automotive dealerships in the country, business is business and that my friend is Not good business.

        Unfortunately, we don't live in a perfect world and allowing the sales staff and Mgr's getting into the "books" is a good way to end up on the outside looking in, instead of, the inside looking out.

        Sounds like your Mom did well, and God bless her .. her style did well for her and she was successful. But without dropping any names here, for all the success your Mom had, I could relate 200+ situations that went sour for just those reasons (as a matter of fact, the first store I bought, was due to a reason like it) .. they don't do it at IBM, they don't do it at Searay and unfortunately they did it at Enron and that speaks for itself .. not to hurt your feelings, but due to bonus's, greed, ego and just plain old "human nature", that dog just won't hunt ...

           Terry.

mfullmer

IBM and Searay are PUBLIC companies. That means, not only can their employees see their financials, ANYONE can. I never said anyone other than the accounting department should "get into the books". We're not talking ledgers and checkbooks here, we're talking printed out Operating Statements/Balance Sheets.

There is a big difference between KNOWING how a company works (It's something we learn in University if we get a business degree) and having access to the accounting systems. I never inferred that she gave them any "role" in the accounting process. She only let them see how the business works and YES she had no problem letting them see the financial statements. These are the same financial statements that were required to be sent to GM every month.

Working, mostly in public companies for the last several years, has made me appreciate the fact that my mother taught me (as well has hundreds of others) early on, that knowing how a company works makes you a better employee.

It's obvious you don't know about big business very well to equate showing salesman how to run a business with the downfall of Enron. Enron's problems had nothing to do with laymen "getting into the books". Enron's Accounting Managers were capitalizing millions of dollars of operating expense so that their Income Statement would not show how much money they were losing.

It's your kind of paranoia about anyone seeing how things are done that makes people wonder.

mfullmer

My mother owned, Walnut Creek Chevrolet, Anderson Buick/Pontiac, Shepherd Pontiac, Concord Toyota, Concord Nissan, Concord Chevrolet, Walnut Creek Cadillac, Walnut Creek Mercedes.

Some of those she owned for just a few years, others she kept the entire time she was in the business.