A national personal finance magazine is looking to interview consumers who have recently used Edmunds.com and its True Market Value pricing guide to successfully negotiate a good deal. Please send an e-mail to ctalati@edmunds.com no later than Friday, June 30, 2006 by 2:00 PM PST/5:00 EST containing your daytime contact information and what car your purchased.
Use what works for you. I don't have any issues with that.
Using the Maybach example...knowing the market is key.......You pay the MSRP, period. You may have your shoes shined, get lunch, or maybe a nice pen set when you order one, but I doubt you're wasting your time trying to get one "$500 above invoice".
It seems some want to haggle back and forth. That's fine. Maybe that's the only way you're comfortable that you're getting a good deal.
I'm confident that my way works as well or better regarding getting a good deal, for me. Doesn't make it right for everyone. I don't need anyone to tell me my way is right or wrong. Matter of fact, I'd bet that very few deals are anything alike....kind of like snowflakes. There's just too many variables....trade-ins of different types and condition...the mood of the SM/GM on any particular day (amy make one deal one day, and reject the same exact deal the next), attitude of the seller and/or buyer.
jmonroe....you make a very good point. Let the deal come to you. In the past, I've used that effectively. I'll put an offer on the table at a couple of dealerships in person that's rejected. Once I leave, the phone calls start...and usually they put prices out there, competing with each other. All I have to do is answer the phone and listen to the offers....until finally, one of them says "I can't beat that deal" the other dealership made.
Although there's quite a debate here about internet sales quotes, I think that's also a similar way of having the deal come to you. Some places won't even make a deal over the internet, but I think slowly, but surely, most are coming around. It's a simple way of making a good deal with little effort.
I had one sales manager tell me at a Toyota dealership that if I walk out their door without them getting the deal, the liklihood of me returning is between slim and none. So, it behooves them to make a deal while I'm there in front of them. That's the power of having the confidence in your numbers, reseach and observations....and being willing to walk.
we didn't grind - we'd match every deal he got from this other dealer who was just trying to undercut us. finally we just got tired of matching, and having him run back to see what else he could undercut by $50 so we said enough is enough. i dont see anything wrong with that. customers take numbers and run to every other dealer, and any dealer in their right mind will scrape up $50 to undercut another dealer. thats why salespeople are so reluctant to give out numbers. we'd match, and he'd go back to the other dealer for more, then come back to us. there comes a point where we just don't want to do business with people like this. just like you wouldnt want to do business with a sketchy dealer. we can walk away from deals too if we choose to.
I agree with you that just because your price is rejected, it doesn't mean it's too low.
From my personal experience buying mainstream brand (Toyota and Honda) cars in a large car market (DC metro), an initial rejected price does not always mean they won't take it.
For the most part, what I do is research a car and test drive it. Then if I'm going to buy, I make an offer.
My target price is aided by my access to a local buying service's pricing, which is most often much lower than Edmunds TMV or what I read in the price paid boards.
If this offer is rejected, I politely thank the person, and usually the manager, who often comes over to explain why the price is just not feasible. I then move on to the next dealer or decide to wait. I am not in a rush, and in DC there are A LOT of Toyota and Honda dealers within a 15 mile radius.
To date, I have always had a dealer who rejected my offer call me at a later date. By "always," I mean 100%.
Most of the time, it has been toward the end of the month or on the last day of the month.
During these calls, the percentage of dealers who then agreed to meet my original price is 80%. If by this time, I have received lower competing offers, about half of the dealers have said they will match or beat the price.
Once a dealership rejects my original offer and I find one who agrees to sell the car to me for that price, I always call back the salespeople to let them know I am buying elsewhere, so they are not in limbo.
At this point, 90% of these dealerships have tried to make a last-minute pitch by agreeing to meet or beat the price.
For me, this is an ideal situation because I don't spend a lot of time myself, don't take up a lot of the dealership's time, and I don't have to do a lot of "full-contact" negotiating.
Our last purchase was a Honda for a price that I'm fairly sure I would have never gotten by sitting down and negotiating for any length or time or employing any strategy.
You've got a price that you've done due dilligence to come up with a good deal, you made your offer....quick & easy.
As you found out, if you float an offer out there, you've set the wheels in motion to have the deal come to you. You get to pick and choose which offer to take based on who you like doing business with, proximity of the dealership to your home, or any other of a number of factors that may be important to you. You don't take a lot of time for the "back and forth", either.
Can't be much easier than that to come up with a good deal.
I make my offer. It's agreed to or not. If it's not I try the same offer somewhere else.
In effect this is just another type of negotiation, that is really not much different than the typical negotiation session. Instead of dealing with just one salesperson and salesmanager...you are hopping from dealership to dealership, offering more and more money each time. This is ineffecient and a waste of time and money in my opinion. You could just as easily raise your offer once or twice and save yourself the aggravation of beginning the search process all over again, driving all over town, searching for a dealership, then one that has the car you want, having the car that has the options and right color.
You may get lucky from time to time and have that first offer accepted, but you're not going to get the "best" deal.
It seems some want to haggle back and forth. That's fine. Maybe that's the only way you're comfortable that you're getting a good deal.
It's not a matter of "want", it's a matter of understanding that negotiation is ultimately an exercise in human behavior, and about understanding the other party's motivations.
The mistake made by the Buyer Makes First Offer school of buying is that they think that the entire deal revolves around money. In fact, from the seller's perspective, the deal is driven not just by money, but by the desire to recoup time, to hit volume targets, and probably some specific motivations that may not be apparent. And the more time that you spend working the dealership, the more that the other motivations come into play.
No amount of internet research will uncover the latter points, because these will be specific to the time and situation in question. Edmunds can't tell you that the guy let a deal go at $500 below invoice because it was the last day of the month, and the sales manager was late for a date so he felt the need to close, or that the salesperson begged his manager to take your deal just to get his name of the "no sales in the last three days" section of the board, or whatnot. You'll have to play the game, and try to figure it out on your own.
Haggling is not a matter of my personal preference (although I happen to enjoy doing it) -- it is a core element of the foundation of the dealership business model. Have a look at this section of Edmund's excellent "Confessions of a Car Salesman", and it becomes evident that the dealership will attempt to use the negotiation process to move prices upward (or more to the point, to focus on other numbers such as monthly payments and trade-in values so that the price of the car increases by default.)
You can choose to accept this and turn it around to work on your side of the table. Or you can pretend that you can tame it by either being exceptionally friendly or else by cutting them off at the pass by interjecting with the first offer. Let me assure you that the dealership is well prepared for the latter approaches, and those buyers won't be paying the lowest price.
I meant lucky in the way the buyer wouldn't have to start the whole searching for another vehicle process all over again. (i.e finding a dealership, finding a car, making an offer, having it rejected, finding another dealership,making an offer, having it rejected ...on and on until the offer is finally accepted.) So, one ends up going to two or three dealerships, which translates to another 5 or 6 hours of research and drive time minimally. Why not give the original dealership 45 minutes to work out a deal, get a better price and save yourself all the aggravation?
But yes, the vast majority of the time the "take it or leave it" first offer will lead to paying more than necessary.
you keep saying that people are failing because the don't negotiate enough, to get the "best" price, or they leave money on the table.
But, how do you know? What makes yo uthink that after 5 hours of griding, long silences, etc. that you got the best price? Or even a better price than Bobst, who made a take it or leave it offer, while tapping his checkbook on the table?
THeoretically, any offer they acept is probably too high, since they would probably take $1 less, or another dealer would beat it by $25.
Of course, you have to figure in the value of someones time (does spending 5 hours negotiating have a cost?), expenses (gas, etc. driving all over the area to different dealers). Many people would be surprised about the real cost of getting that car!
I also don't agree with your statement that getting the car you want when you need it (ok, I paraphrased that!) isn't the point, getting the best deal (lowest price) is. But, if I don't need the car, any price is too much to pay! And not getting exactly what I want is also not winning to me.
Cars are different than most other commodities, since there are differences. It's not like shopping 10 suppliers of nails that all sell identical items.
you keep saying that people are failing because the don't negotiate enough, to get the "best" price, or they leave money on the table.
But, how do you know?
Because they make the classic mistakes of negotiation: -They make the first offer, thereby locking in a higher price
-They avoid the counteroffer dance, which gives the seller time to accept a price that may have been previously rejected
-They do all (or at least most of) the talking, which shuts off the information flow that might allow them to better read the other party and discover the bottom
-They rely too heavily on secondary research, versus gathering primary research What makes yo uthink that after 5 hours of griding, long silences, etc. that you got the best price?
You assume that it takes a long time, when it does not. (Honestly, I don't know where the five hour figure comes from, that's just silly.) That's the first mistake, to assume that a well-managed negotiation takes longer than does a poor one.
For another, it makes sense that if you do the right things, you probably get better results. Just as is true with other things in life, some methods of negotiation are more successful than others, so those who use the better methods will probably get better results (assuming that they execute properly.)
And I've done enough secondary research of my own to know that most people who admit it are paying more than I am.
Cars are different than most other commodities, since there are differences. It's not like shopping 10 suppliers of nails that all sell identical items.
If you choose to see individual cars as highly unique, rather than as a commodity, then you will likely pay more. If the would-be Infiniti G35 buyer decides to communicate with the dealership that all of the other comparable cars made by other manufacturers, i.e. Acura, Lexus, BMW, Audi, MB, Jaguar, etc., etc., etc., are not acceptable, then guess what? The price just went up.
THeoretically, any offer they acept is probably too high, since they would probably take $1 less, or another dealer would beat it by $25.
Theoretically yes however in reality there is a point where the deal cannot go lower and it decreases at a slower rate as it approaches that point. An alert buyer can pick that out pretty quickly.
does spending 5 hours negotiating have a cost
If it takes that long you are doing something wrong. Lets face it your negotiating a car purchase not the Treaty of Ghent.
Cars are different than most other commodities, since there are differences. It's not like shopping 10 suppliers of nails that all sell identical items.
Actually it is like other commodities, a Civic is a Civic regardless of who you buy it from.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
so why can't the first offer be the right one? WHat is the magic number? 5 hours? 15 minutes?
I still say that Socal is assuming that because of errors in style, someone must have paid too much, I guess defined as someone else must have paid less somewhere else? But, even if that is true, TMV isn't stagnant, each deal tends to have slightly different parameters.
Snake, I agree that one Civic is the same as another (assuming color, etc. is the same too). I don't agree however with Socal that seems to be saying that any car is as good as another, so whichever one I can get cheaper is the one I should buy? Or is it OK to really intend to buy a G35, as long as no one can tell that you even like it more than a BMW or Audi?
Leaving the dealer is still the most effective negotiating tool, since not giving the dealer your money to them is the only real leverage a buyer has. It also forces the dealer to cut to the chase (get rid of the stall tactics), since they have to make a quick decision on the bottom line price that will get you back.
TMV isn't stagnant, each deal tends to have slightly different parameters.
In most cases, the supply of cars is often high enough, and the demand correspondingly low enough, so that you should be able to get most cars pretty close to either side of invoice, less incentives.
There are occasions when supplies are so limited compared to demand that there is little or no room for negotiation (the Prius remains a prime example), but these cars are the exception, not the rule.
Again, I recommend that buyers conduct research that will help clue them into whether supplies are plentiful for a given model, which may hint at even greater discounting. Factory-to-buyer and factory-to-dealer incentives, and inventory data reported in Automotive News are a few examples for figuring this out. Your local newspaper's automotive classified section might also give hints of whether some cars are being prioritized for moving.
Leaving the dealer is still the most effective negotiating tool
Depends upon the timing. It's generally more effective after the sales team has gained some sense of investment in your deal, than if you do it very early on. A salesperson is going to be more inclined to chase the fish that got away if he's had it on his hook.
In effect this is just another type of negotiation, that is really not much different than the typical negotiation session. Instead of dealing with just one salesperson and salesmanager...you are hopping from dealership to dealership, offering more and more money each time.
jipster.....I don't raise my offer going to another dealership. I make the same offer at the 2nd dealership. In effect, you set the "wheels in motion" if my offer isn't accepted anywhere. The rest is just fielding phone calls from a couple of salespeople...telling them "A" dealer's counter offer is "X"....your offer is "Y". My offer is "Z". That's where they need to be to get me back into the dealership.
Haggling is not a matter of my personal preference (although I happen to enjoy doing it) -- it is a core element of the foundation of the dealership business model. Have a look at this section of Edmund's excellent "Confessions of a Car Salesman"
socal...I don't doubt that those types of dealerships exist. Just be congnizant of the fact that there are trustworthy dealerships out there, too. That's why I've always held that I won't do business with places or people I don't trust. I do business with the guys who don't practice what the Edmunds story elaborates on.
As far as being "core elements" of how dealerships business models are set up....I won't begin to try to tell any business what their business model should be...or how to run their business. Their ongoing success or failure won't be made by little ole' me.
What we've been discussing are tactics to get a good deal. You're going to do it your way. I'm going to do it my way. No right or wrong (that I can tell) with any of them.
If you really want to take it a step further, how many people call their insurance company to see what the rate will be on that new car they're considering? That's got to be figured into the total outlay for a new car, too. How many people look at the resale values of their cars after 3-5 years? You want the lowest price for a vehicle? Buy a Kia! Probably the lowest price cars in any particular segment they sell to,right now. Does that make them a "good deal" when you've bought one at under invoice? Don't expect it to be worth much at the end.
How many people shop finance rates before walking into the dealership? How many people look at the cost of repair?
Point being, while all the talk of negotiation tactics is a nice debate, that's only one part of the cost of the car.
As far as being "core elements" of how dealerships business models are set up....I won't begin to try to tell any business what their business model should be...or how to run their business.
I'm not commenting on what they should do. As I've noted here, I'm an advocate for accepting reality as it is, and acting in accordance with what works. Whether or not a dealer uses a four-square or plays more softball than hardball, there are a couple of basic business models for car dealerships (emphasis on margins or volume), and they will follow one of these.
I'm commenting about what they actually do, why they are motivated to act as they do, and most importantly, how these impact what a buyer should do. That's why the discussion about dealer ethics is fairly irrelevant to me -- I am focusing on the deal, not crusading for reform.
Point being, while all the talk of negotiation tactics is a nice debate, that's only one part of the cost of the car.
This discussion is to help buyers to get the best deal for whatever it is that they choose to buy. What cars may be best suited to their needs, or whether a car is needed at all, is for another thread.
I don't care if a dealer uses 4-square, a note pad, or any other negotiation tactic. Hell, I've written an offer on a piece of 3M "sticky note" paper and offered it up to the dealer.
Fact is, any business, I don't care what the business is, the one you work for, the one I work for, the ones we all work for, exists to make a profit. Their motivation, from top to bottom, is to make a profit.
It's common knowledge that new car sales are the least profitable part of any new car dealership.
My point all along has been, if you're going to deal with those less ethical dealerships, you're more likely than not to have to spend more time getting to "THE NUMBER". You're also going to have to negotiate the common "etching, pinstriping, mop & glo, extended car/tire warranties, inflated fees", etc....before you even get to negotiating for just the car alone, that these dealerships tend to add. The more time you're at the dealership negotiating, the more likely the deal becomes more complex and less favorable in the long run. Plus, who wants to spend an hour or more negotiating? I don't. That's not a prerequisite to me getting to a good deal. Neither is having several vollies back and forth (again, taking more of my time).
Different dealers do things different ways. I believe I've seen all tactics over time, but nothing really surprises me anymore when I walk into a dealership.
Truth told, I know people that loath to walk into a dealership. They're expectations are they will, in some way, "get taken". I can't tell you how many neighbors or friends tell me that they got $x,xxx off their deal after negotiating for the good part of an afternoon or evening. Only to tell me they also got a "lifetime shine" application for only $xxx. Got to look at the whole deal.
On the other hand, it's not that difficult for me. I'm confident that I don't leave anything of any consequence on the table. And, it's a quick and easy process for me.
That said, I won't begin to tell someone their techniques are wrong and/or their deal is bad. If they're happy with how they did and what they paid, who am I to tell them they really didn't do all that well.
Seems like I may be in the minority by working out my deals over the phone, but it seems to work out well for me. I have seldom bought a car the same day I test drive. Usually, I'll narrow down my choices to 3 cars and try to test drive all in the same day. When I'm at the dealer, I tell the salesperson that I'm only test driving today and will be making an offer to purchase tomorrow on the car that I like the best. I'll try to have them appraise my trade while I'm on the test drive. Naturally, the salesperson will try to get you to talk numbers after the test drive, but I refuse because I'm off to get to another dealership for another test drive.
When the next day rolls around, I call the salesman and make and offer. It usually takes a few return calls and voicemails, but since I work at a desk 50% of my day it doesn't take up much time. The deal is usually worked out the day after the test drive and I show up a day or two later to finish the paperwork and pick up the car.
here is something that will add to this discussion...
Surveys over the last 20 years by industry and non-industry sources have shown that 80% of people who purchased did so because they "liked the salesperson"..."the best price" was ranked 5th.
Surveys over the last 20 years by industry and non-industry sources have shown that 80% of people who purchased did so because they "liked the salesperson"..."the best price" was ranked 5th.
Reminds me of the survey of hospitals - hospitals that served good food and good housekeeping had better ratings of medical staff, nursing, etc. Why? Because people feel more qualified to judge food quality and housekeeping that whether their surgeon is qualified.
What is the BEST PRICE? Personally, I have never seen two IDENTICAL vehicles as someone always has a different option here or there. And it becomes a lot MORE complicated with used cars due to varying conditions. Even on fleet cars.
My point all along has been, if you're going to deal with those less ethical dealerships, you're more likely than not to have to spend more time getting to "THE NUMBER".
Not really. There's a point at which the control begins to gradually shift into my camp (or more specifically, where it becomes more obvious that I, the buyer, have been playing a stronger hand than I originally let on), and that's when the BS starts to get trimmed.
My basic gambit is to let the dealer wear himself out using his usual tricks-of-the-trade, building his dreams of the sale to the point that his "point of no return" has been crossed. After that, I take over the controls more overtly -- perhaps subtlely, or perhaps sharply, depending upon their styles -- and guide things to my camp. (And you can and should do this without turning it into a power struggle or tug of war.)
So getting to the number isn't that hard, and the sales team should have given me enough ammunition to find it.
I can't tell you how many neighbors or friends tell me that they got $x,xxx off their deal after negotiating for the good part of an afternoon or evening.
Which is why the "five hour" references need to get nipped in the bud.
I find that the worst negotiators are those who use time in a fashion dictated entirely by the dealership. In a negotiation, time is your friend, but not if the other guy sets the schedule from start to finish.
Once you've passed the "point of no return", you can stop playing the time game, because the dealer has enough of his invested to want to get something back for it, and that's going to be well before the five-hour mark. If you need five hours of negotiating time for a car, you're doing a bad job of it.
That said, I won't begin to tell someone their techniques are wrong and/or their deal is bad. If they're happy with how they did and what they paid, who am I to tell them they really didn't do all that well.
This forum is here to help people to learn from their mistakes and to learn better ideas for next time. You don't do the "F" students any favors by telling them that grades don't matter, or that they shouldn't aspire to get an "A", particularly when most of them could do very well with just a bit of education.
And it becomes a lot MORE complicated with used cars due to varying conditions
I totally agree. From what I have read on these forums there are a lot of "new car buyers" who have set negotiation tactics. If I were buying a new car I would feel fairly confident of getting a good price. The information is pretty cut and dry.
Unfortuneately Im not, im buying a used car. On used cars there is WAY MORE things that must be taken into consideration. Is this car reliable, is it mechanically acceptable, is the interior condition good or bad, is the exterior condition good or bad, what is the mileage, etc.
Those are all subjective because one person may deem a car with bald tires to still be clean, while another may deem the car to be average. Minor hail damage to one person is catastrophic but to another its acceptable. Who knows...
If I were buying a new car I would feel fairly confident of getting a good price. The information is pretty cut and dry.
Unfortuneately Im not, im buying a used car.
It's largely the same process, so most of this stuff is applicable. But there is more guesswork involved, because you may likely never know what the dealer paid for the car.
I would suggest that you begin below wholesale. Even if your offer is below what is actually achievable even under the best of circumstances, most used cars aren't so hot that the dealer won't continue to negotiate from your low price. Such a haggle may involve a bit more give and take, but still, it shouldn't be terribly different from the new car purchase.
I also would not give too much extra value for a car that is allegedly in "excellent" condition. (And do bear in mind that very, very few used cars are considered to be in "excellent" condition.) One main reason is that it can be difficult to determine whether a car truly is in "excellent condition", so you don't want to pay a premium for something that you may not be getting. It may look great, but could also be concealing problems underneath that aren't easily seen by the untrained, or even the trained, eye, and you don't want to bet too heavily on the unknown. A bit of a premium may truly be warranted, but be verrrrrry careful to avoid presuming too much.
Different dealers do things different ways. I believe I've seen all tactics over time, but nothing really surprises me anymore when I walk into a dealership.
How about this one and, honestly, I’m not making this up, how could I?
This happened about 20 years ago and it’s still my favorite.
After some time negotiating, the dealer was still $200 more than my offer. The sales manager came over and said "Mr. jmonroe we’ve come down 3 times already and you haven’t come up even once" and I said "I’m not going to either" as I pushed my chair back and got up to leave (I was not faking either). The sales manager said "hold it, we can work this out". Then he floored me when he said "let’s flip a coin, "if you win I’ll sell the car at your price, if I win you buy the car at my price". Not liking this tactic, I immediately said "NO" but after the word NO got out of my mouth, I had a thought. "Wait a minute, I take that back, let’s flip but let’s do it this way, If you win I’ll pay your price but if I win you have to agree to take another $200 off my price". His response was, "we’ll write this up at your price, ok" ? Deal was made.
I don’t mean to change the subject but does anybody have a good story like, "The Flip"?
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
Wholesale? I would think a dealership wouldn't take the buyer seriously if starting below what the dealer paid for the car. So, wholesale is what dealer paid at auction correct? Is what dealer paid for a trade-in also considered wholesale???
If a vehicles TMV of dealer retail is 10k. TMV of private seller is 8.5k, and TMV of Dealer trade-in(or wholesale) is say 7k...you think starting out at say 6.9k would be "workable"? From what I've read in the past, from the salespeople on the board, dealerships pay quite a bit for reconditioning a used car. Though the used car I bought 2 years ago looked as if it just had a oil change.
I had always thought getting a vehicle from a dealership around TMV private seller price would be a good deal.I've asked frequently in the past on used car buying tips and what price range is workable. So, any thoughts on the matter is appreciated.
Wholesale? I would think a dealership wouldn't take the buyer seriously if starting below what the dealer paid for the car. So, wholesale is what dealer paid at auction correct?
The salespeople consistently (and accurately) point out here that the wholesale KBB price is generally well above what dealers actually pay for cars. The whole underlying message of the "Real World Trade In Values" thread is very much the same thing, i.e the dealership is not going to buy your trade for anywhere near as high as wholesale KBB.
The true wholesale prices are the auction prices, which are often thousands below wholesale KBB. (I've been to some dealer auctions, and trust me, nobody I saw was paying anything near wholesale book.)
So the wholesale KBB price is most likely well above what the dealer paid for the car, including any minor reconditioning. That price most likely already has a lot of margin built into it, probably more than the equivalent amount of holdback payable on a new car purchased at invoice.
It sure did stop their game playing and it got me my price. Any time you go to a dealer to buy a car you have to be prepared for some game playing and I was but not this one.
All's well that ends well.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
Socal, where in the world do you come up with this stuff?
KBB numbers are simply a guide, a rough idea of what the car in question may be worth. Banks have to use SOMETHING to make sure their loans are protected so they use these too.
Some cars are definatly "book" cars and others are not.
The KBB numbers do not reflect reconditioning costs ether and a lot of people tend to ignore this.
The car does "book" for 15,000, but, alas, it needs tires, a windshield, 1000.00 worth of body work and the interior reeks of German Shepard? Yeah, it won't bring book values!
If it's an especially pristine, low mileage Honda or Toyots, it can easilly break the bank and command more than what the books say.
isellH....the book is worthless in our region right now. The auctions have some of the highest no sell ratios I have ever seen....anything that is ordinary or avg. is below book. High miles and any excuses are way behind book and big trucks are way way way behind wholesale book values. OTOH something really clean without any excuses and low miles will command top dollar, if its gets reasonable MPG or if its unique. There seems to be no middle ground in the market right now.
.....If it's an especially pristine, low mileage Honda or Toyots, it can easilly break the bank and command more than what the books say.....
Then I should expect top dollar on my '95 Camry trade in (not interested in private sale) with only 41,000 miles with only one small six inch (hardly visible) scratch on the hood. Otherwise, perfect.
Book is $3250. My bottom price is $3500. Am I being realistic?
I noticed on an earlier post the author stated that actual car sales make up only a small amount of the profit for a dealer. I've heard that before and It's probably true. Then why are there so many horror stories about dealer service? When I bought my new truck recently a few days later I came back to the dealer to have a bedliner installed and it took them 3 and a half hours. They weren't busy.I finally had to drive my truck out of the service bay myself.No apologies,nothing. They didn't care. My point is that with the general dislike of the whole dealership experience I'm surprised that they make any money at all! Is it just because there are so many suckers out there?
Around the midwest, with the return of low interest, no interest loans, rebates, employee discounts, 30-day money back guarantees, etc on new vehicles, things ain't going to get any rosier for the used prices on trucks/SUVs, either.
Just perusing the usual car ads in the newspaper this a.m., I'm seeing $7k-$10K discounts on the big iron (even the all new Tahoes, which are nice vehicles from all reports). If you're in the market for one of those, deals look good. No one's going to like the trade value when it comes time to dump these beasts, though.
Some cars are definatly "book" cars and others are not.
You are a funny guy. The "Real World Trade-In Values" thread includes thousands of posts from dealers telling us that KBB wholesale is above what they pay and how bogus it is, and now you want us to focus on the exceptions.
Why move the goalposts? If the wholesale number is high most of the time in the "real world", then that applies to the used car shopper as well. I'd choose one story here, and stick to it.
It depends on the car. It is a fickle market, like the stock market. But for example, Audis go for Clean Book at Auction which makes it hard for us to make any big profit after Certification. Our profit margin is about 2000 or less.Because Pre-Owned 4 cylinders are hot market. Also the market changes mid-book. And depending on the market, KBB is not even a source.
...for example, Audis go for Clean Book at Auction which makes it hard for us to make any big profit after Certification. Our profit margin is about 2000 or less.
Didn't you just say two completely different things here ? (a) "Hard to make any big profit" and (b) "profit margin is about 2000 or less".
If you consider anything less than $2000 as not much profit, you'll have to define how much 'less'. However, if $1500/$1200/$1000 profit isn't enough on any type of car sale, you guys are making WAY too much money selling cars; which is alright with me as long as I'm not on the contributing end ! Maybe this is why this Buy Tips thread was created.
I was in the wrong biz.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
Assuming the average certified pre-owned Audi goes for around $30000, then $2000 is only a 6.7% profit margin. Anything I sell for my current business has a minimum profit of 20%.
Assuming the average certified pre-owned Audi goes for around $30000, then $2000 is only a 6.7% profit margin.
But in that scenario, it is not unusual for a dealer to "floor plan" (borrow money) to buy the car. Calculated on an ROE (return on equity) basis, if the dealer pays $200 in floor plan and interest charges, and sells the car at a gross profit of $2,000, then ROE is 900% [($2,000-$200)/ $200 = 9 times, or 900%].
The financial implications of this is that the dealership could use that $30,000 to control dozens of cars that are each sold a profit, and not just one car. The ability to use inventory financing makes the business much more attractive than it may first appear.
That percentage is meaningless. If the dealer incurred an average $1800 in expense per car sold to keep the doors open, then he only netted $200, which is a very small percentage indeed. And most businesses borrow money to support inventory, one way or another, don't they?
Return on Equity is meaningless? Tell that to someone in the finance profession, or to an analyst on Wall Street.
It's not only meaningful, it's the entire basis for how car dealerships make money. That's why in finance, the use of borrowed money to drive profits is called "leverage" -- because the appropriate use of debt magnifies gains (or conversely, losses if you make mistakes.)
And in any case, you got the numbers mixed up. If the dealer in this example earned $2,000 in gross profit, but paid $200 in financing fees, then the net amount of profit is $1,800. ($2,000 - $200 = $1,800.)
No it isn't, but what you described is not return on equity. Since there are other costs involved other than the interest paid on the "floor plan" and there are other parts of equity that the dealership has. Those things are completely ignored by your example but not to any financial analyst.
And in any case, you got the numbers mixed up. If the dealer in this example earned $2,000 in gross profit, but paid $200 in financing fees, then the net amount of profit is $1,800. ($2,000 - $200 = $1,800.)
Don't forget sales commission the allocated portion of the sales managers salary, the sales clerks salary, the owners secretaries salary, insurance, building maintence, landscaping, property taxes, advertising, and all the like.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
Since there are other costs involved other than the interest paid on the "floor plan" and there are other parts of equity that the dealership has. Those things are completely ignored by your example but not to any financial analyst.
You are correct, there are other costs. Still, the point remains that leverage (debt) plays a significant role in the dealership's business model, and helps to explain how they can do what they do. I was using Cluedweasel's numbers to make a direct comparison of how this increases dealership profits, not to specifically calculate the ROE.
If dealerships had to tie up millions of dollars in car inventories, then you would expect sales prices would need to be higher, because the dealership would need to produce a high net return from those huge amounts of cash that are being tied up in assets. That situation is dramatically improved in the dealer's favor with the extensive use of floor plan debt, which allows a dealer to leverage Other People's Money to generate much of his profit.
It also helps to illustrate why dealers are more inclined to move older inventory, all things being equal. By selling a car that is on the lot, or that has been there for awhile, not only do they get to collect your money, but they also get to stop accruing interest on that loan, which increases their net revenues (or reduces their downside). While ordering a car may seem to be better than that -- after all, this would allow the dealer make a sale with minimum financing costs -- he is still incurring interest charges on some other vehicle in his inventory that he would have preferred to pay off.
Since I started this discussion (post #580) about profit, let me clarify the word "PROFIT". To me when the word "PROFIT" is used it means after ALL the expenses are paid, (commissions, salaries, utilities, building maintenance, etc.) EVERYTHING ! If bigdveedubgirl (post# 580) meant GROSS PROFIT she should have said so but then again I don't really care what the dealers expenses are, I'm looking to save myself some money when I buy a car. Let the uninformed buyer pay the dealers expenses. We all know there are plenty of them out there.
Also, when you dealers say "floor plan" (just a cute word for interest. Who started this anyway ?) isn't this paid for by the hold-backs that almost all manufactures provide to dealers so that they can have a good size inventory ? So, as I see it, "floor plan" isn't really an expense after all. Funny how this is always thrown at us buyers so that we may have pity on the poor dealer.
I"m all for the free enterprise system as long as the dealer doesn't have free access to my wallet.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
Also, when you dealers say "floor plan" (just a cute word for interest. Who started this anyway ?) isn't this paid for by the hold-backs that almost all manufactures provide to dealers so that they can have a good size inventory ?
That's the theory behind the holdback, to pay an amount that exceeds the floor plan charges, which should allow the dealer to effectively buy the car for free if he can turn the inventory quickly enough. (Better yet, if it's selling the cars quickly enough, the dealer is effectively being paid to buy the car and resell it.)
That's why inventory turn is important for a dealership -- because their costs increase and profits decline as inventory sits longer. These pressures should increase even more in our current interest rate environment, as interest rates climb more quickly than do the holdback amounts. A dealer needs to sell a car more quickly today than he would have, let's say a year or two ago, to net the same amount from the holdback than he would have otherwise.
Still, the point remains that leverage (debt) plays a significant role in the dealership's business model, and helps to explain how they can do what they do.
True but the "floor plan" is not the only debt that a dealership has. A dealership most likely has debt on the building, equipment and a few other things to boot. The debt they service on the cars is only a part of that.
Plus there are other ways that you use debt to analysis. debt to asset ratio is one of the major ways to look at it, how many dollars of equity you have for every dollar of debt. Also debt turnover is important, or how long at current income levels would it take to pay off the debt.
You used gross profit against debt to compute return on equity which is meaningless since equity wasn't even used to get that figure.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
Comments
Thanks,
Chintan Talati
Corporate Communications
Edmunds.com
Using the Maybach example...knowing the market is key.......You pay the MSRP, period. You may have your shoes shined, get lunch, or maybe a nice pen set when you order one, but I doubt you're wasting your time trying to get one "$500 above invoice".
It seems some want to haggle back and forth. That's fine. Maybe that's the only way you're comfortable that you're getting a good deal.
I'm confident that my way works as well or better regarding getting a good deal, for me. Doesn't make it right for everyone. I don't need anyone to tell me my way is right or wrong. Matter of fact, I'd bet that very few deals are anything alike....kind of like snowflakes. There's just too many variables....trade-ins of different types and condition...the mood of the SM/GM on any particular day (amy make one deal one day, and reject the same exact deal the next), attitude of the seller and/or buyer.
jmonroe....you make a very good point. Let the deal come to you. In the past, I've used that effectively. I'll put an offer on the table at a couple of dealerships in person that's rejected. Once I leave, the phone calls start...and usually they put prices out there, competing with each other. All I have to do is answer the phone and listen to the offers....until finally, one of them says "I can't beat that deal" the other dealership made.
Although there's quite a debate here about internet sales quotes, I think that's also a similar way of having the deal come to you. Some places won't even make a deal over the internet, but I think slowly, but surely, most are coming around. It's a simple way of making a good deal with little effort.
I had one sales manager tell me at a Toyota dealership that if I walk out their door without them getting the deal, the liklihood of me returning is between slim and none. So, it behooves them to make a deal while I'm there in front of them. That's the power of having the confidence in your numbers, reseach and observations....and being willing to walk.
-thene :sick:
I agree with you that just because your price is rejected, it doesn't mean it's too low.
From my personal experience buying mainstream brand (Toyota and Honda) cars in a large car market (DC metro), an initial rejected price does not always mean they won't take it.
For the most part, what I do is research a car and test drive it. Then if I'm going to buy, I make an offer.
My target price is aided by my access to a local buying service's pricing, which is most often much lower than Edmunds TMV or what I read in the price paid boards.
If this offer is rejected, I politely thank the person, and usually the manager, who often comes over to explain why the price is just not feasible. I then move on to the next dealer or decide to wait. I am not in a rush, and in DC there are A LOT of Toyota and Honda dealers within a 15 mile radius.
To date, I have always had a dealer who rejected my offer call me at a later date. By "always," I mean 100%.
Most of the time, it has been toward the end of the month or on the last day of the month.
During these calls, the percentage of dealers who then agreed to meet my original price is 80%. If by this time, I have received lower competing offers, about half of the dealers have said they will match or beat the price.
Once a dealership rejects my original offer and I find one who agrees to sell the car to me for that price, I always call back the salespeople to let them know I am buying elsewhere, so they are not in limbo.
At this point, 90% of these dealerships have tried to make a last-minute pitch by agreeing to meet or beat the price.
For me, this is an ideal situation because I don't spend a lot of time myself, don't take up a lot of the dealership's time, and I don't have to do a lot of "full-contact" negotiating.
Our last purchase was a Honda for a price that I'm fairly sure I would have never gotten by sitting down and negotiating for any length or time or employing any strategy.
You've got a price that you've done due dilligence to come up with a good deal, you made your offer....quick & easy.
As you found out, if you float an offer out there, you've set the wheels in motion to have the deal come to you. You get to pick and choose which offer to take based on who you like doing business with, proximity of the dealership to your home, or any other of a number of factors that may be important to you. You don't take a lot of time for the "back and forth", either.
Can't be much easier than that to come up with a good deal.
In effect this is just another type of negotiation, that is really not much different than the typical negotiation session. Instead of dealing with just one salesperson and salesmanager...you are hopping from dealership to dealership, offering more and more money each time. This is ineffecient and a waste of time and money in my opinion. You could just as easily raise your offer once or twice and save yourself the aggravation of beginning the search process all over again, driving all over town, searching for a dealership, then one that has the car you want, having the car that has the options and right color.
You may get lucky from time to time and have that first offer accepted, but you're not going to get the "best" deal.
It's not a matter of "want", it's a matter of understanding that negotiation is ultimately an exercise in human behavior, and about understanding the other party's motivations.
The mistake made by the Buyer Makes First Offer school of buying is that they think that the entire deal revolves around money. In fact, from the seller's perspective, the deal is driven not just by money, but by the desire to recoup time, to hit volume targets, and probably some specific motivations that may not be apparent. And the more time that you spend working the dealership, the more that the other motivations come into play.
No amount of internet research will uncover the latter points, because these will be specific to the time and situation in question. Edmunds can't tell you that the guy let a deal go at $500 below invoice because it was the last day of the month, and the sales manager was late for a date so he felt the need to close, or that the salesperson begged his manager to take your deal just to get his name of the "no sales in the last three days" section of the board, or whatnot. You'll have to play the game, and try to figure it out on your own.
Haggling is not a matter of my personal preference (although I happen to enjoy doing it) -- it is a core element of the foundation of the dealership business model. Have a look at this section of Edmund's excellent "Confessions of a Car Salesman", and it becomes evident that the dealership will attempt to use the negotiation process to move prices upward (or more to the point, to focus on other numbers such as monthly payments and trade-in values so that the price of the car increases by default.)
You can choose to accept this and turn it around to work on your side of the table. Or you can pretend that you can tame it by either being exceptionally friendly or else by cutting them off at the pass by interjecting with the first offer. Let me assure you that the dealership is well prepared for the latter approaches, and those buyers won't be paying the lowest price.
I don't know if I'd consider that to be lucky. Paying more than necessary is pretty easy to do, and not the luckiest thing that could happen.
But yes, the vast majority of the time the "take it or leave it" first offer will lead to paying more than necessary.
But, how do you know? What makes yo uthink that after 5 hours of griding, long silences, etc. that you got the best price? Or even a better price than Bobst, who made a take it or leave it offer, while tapping his checkbook on the table?
THeoretically, any offer they acept is probably too high, since they would probably take $1 less, or another dealer would beat it by $25.
Of course, you have to figure in the value of someones time (does spending 5 hours negotiating have a cost?), expenses (gas, etc. driving all over the area to different dealers). Many people would be surprised about the real cost of getting that car!
I also don't agree with your statement that getting the car you want when you need it (ok, I paraphrased that!) isn't the point, getting the best deal (lowest price) is. But, if I don't need the car, any price is too much to pay! And not getting exactly what I want is also not winning to me.
Cars are different than most other commodities, since there are differences. It's not like shopping 10 suppliers of nails that all sell identical items.
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
But, how do you know?
Because they make the classic mistakes of negotiation:
-They make the first offer, thereby locking in a higher price
-They avoid the counteroffer dance, which gives the seller time to accept a price that may have been previously rejected
-They do all (or at least most of) the talking, which shuts off the information flow that might allow them to better read the other party and discover the bottom
-They rely too heavily on secondary research, versus gathering primary research
What makes yo uthink that after 5 hours of griding, long silences, etc. that you got the best price?
You assume that it takes a long time, when it does not. (Honestly, I don't know where the five hour figure comes from, that's just silly.) That's the first mistake, to assume that a well-managed negotiation takes longer than does a poor one.
For another, it makes sense that if you do the right things, you probably get better results. Just as is true with other things in life, some methods of negotiation are more successful than others, so those who use the better methods will probably get better results (assuming that they execute properly.)
And I've done enough secondary research of my own to know that most people who admit it are paying more than I am.
Cars are different than most other commodities, since there are differences. It's not like shopping 10 suppliers of nails that all sell identical items.
If you choose to see individual cars as highly unique, rather than as a commodity, then you will likely pay more. If the would-be Infiniti G35 buyer decides to communicate with the dealership that all of the other comparable cars made by other manufacturers, i.e. Acura, Lexus, BMW, Audi, MB, Jaguar, etc., etc., etc., are not acceptable, then guess what? The price just went up.
Theoretically yes however in reality there is a point where the deal cannot go lower and it decreases at a slower rate as it approaches that point. An alert buyer can pick that out pretty quickly.
does spending 5 hours negotiating have a cost
If it takes that long you are doing something wrong. Lets face it your negotiating a car purchase not the Treaty of Ghent.
Cars are different than most other commodities, since there are differences. It's not like shopping 10 suppliers of nails that all sell identical items.
Actually it is like other commodities, a Civic is a Civic regardless of who you buy it from.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
I still say that Socal is assuming that because of errors in style, someone must have paid too much, I guess defined as someone else must have paid less somewhere else? But, even if that is true, TMV isn't stagnant, each deal tends to have slightly different parameters.
Snake, I agree that one Civic is the same as another (assuming color, etc. is the same too). I don't agree however with Socal that seems to be saying that any car is as good as another, so whichever one I can get cheaper is the one I should buy? Or is it OK to really intend to buy a G35, as long as no one can tell that you even like it more than a BMW or Audi?
Leaving the dealer is still the most effective negotiating tool, since not giving the dealer your money to them is the only real leverage a buyer has. It also forces the dealer to cut to the chase (get rid of the stall tactics), since they have to make a quick decision on the bottom line price that will get you back.
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
In most cases, the supply of cars is often high enough, and the demand correspondingly low enough, so that you should be able to get most cars pretty close to either side of invoice, less incentives.
There are occasions when supplies are so limited compared to demand that there is little or no room for negotiation (the Prius remains a prime example), but these cars are the exception, not the rule.
Again, I recommend that buyers conduct research that will help clue them into whether supplies are plentiful for a given model, which may hint at even greater discounting. Factory-to-buyer and factory-to-dealer incentives, and inventory data reported in Automotive News are a few examples for figuring this out. Your local newspaper's automotive classified section might also give hints of whether some cars are being prioritized for moving.
Leaving the dealer is still the most effective negotiating tool
Depends upon the timing. It's generally more effective after the sales team has gained some sense of investment in your deal, than if you do it very early on. A salesperson is going to be more inclined to chase the fish that got away if he's had it on his hook.
jipster.....I don't raise my offer going to another dealership. I make the same offer at the 2nd dealership. In effect, you set the "wheels in motion" if my offer isn't accepted anywhere. The rest is just fielding phone calls from a couple of salespeople...telling them "A" dealer's counter offer is "X"....your offer is "Y". My offer is "Z". That's where they need to be to get me back into the dealership.
Haggling is not a matter of my personal preference (although I happen to enjoy doing it) -- it is a core element of the foundation of the dealership business model. Have a look at this section of Edmund's excellent "Confessions of a Car Salesman"
socal...I don't doubt that those types of dealerships exist. Just be congnizant of the fact that there are trustworthy dealerships out there, too. That's why I've always held that I won't do business with places or people I don't trust. I do business with the guys who don't practice what the Edmunds story elaborates on.
As far as being "core elements" of how dealerships business models are set up....I won't begin to try to tell any business what their business model should be...or how to run their business. Their ongoing success or failure won't be made by little ole' me.
What we've been discussing are tactics to get a good deal. You're going to do it your way. I'm going to do it my way. No right or wrong (that I can tell) with any of them.
If you really want to take it a step further, how many people call their insurance company to see what the rate will be on that new car they're considering? That's got to be figured into the total outlay for a new car, too. How many people look at the resale values of their cars after 3-5 years? You want the lowest price for a vehicle? Buy a Kia! Probably the lowest price cars in any particular segment they sell to,right now. Does that make them a "good deal" when you've bought one at under invoice? Don't expect it to be worth much at the end.
How many people shop finance rates before walking into the dealership? How many people look at the cost of repair?
Point being, while all the talk of negotiation tactics is a nice debate, that's only one part of the cost of the car.
I'm not commenting on what they should do. As I've noted here, I'm an advocate for accepting reality as it is, and acting in accordance with what works. Whether or not a dealer uses a four-square or plays more softball than hardball, there are a couple of basic business models for car dealerships (emphasis on margins or volume), and they will follow one of these.
I'm commenting about what they actually do, why they are motivated to act as they do, and most importantly, how these impact what a buyer should do. That's why the discussion about dealer ethics is fairly irrelevant to me -- I am focusing on the deal, not crusading for reform.
Point being, while all the talk of negotiation tactics is a nice debate, that's only one part of the cost of the car.
This discussion is to help buyers to get the best deal for whatever it is that they choose to buy. What cars may be best suited to their needs, or whether a car is needed at all, is for another thread.
Fact is, any business, I don't care what the business is, the one you work for, the one I work for, the ones we all work for, exists to make a profit. Their motivation, from top to bottom, is to make a profit.
It's common knowledge that new car sales are the least profitable part of any new car dealership.
My point all along has been, if you're going to deal with those less ethical dealerships, you're more likely than not to have to spend more time getting to "THE NUMBER". You're also going to have to negotiate the common "etching, pinstriping, mop & glo, extended car/tire warranties, inflated fees", etc....before you even get to negotiating for just the car alone, that these dealerships tend to add. The more time you're at the dealership negotiating, the more likely the deal becomes more complex and less favorable in the long run. Plus, who wants to spend an hour or more negotiating? I don't. That's not a prerequisite to me getting to a good deal. Neither is having several vollies back and forth (again, taking more of my time).
Different dealers do things different ways. I believe I've seen all tactics over time, but nothing really surprises me anymore when I walk into a dealership.
Truth told, I know people that loath to walk into a dealership. They're expectations are they will, in some way, "get taken". I can't tell you how many neighbors or friends tell me that they got $x,xxx off their deal after negotiating for the good part of an afternoon or evening. Only to tell me they also got a "lifetime shine" application for only $xxx. Got to look at the whole deal.
On the other hand, it's not that difficult for me. I'm confident that I don't leave anything of any consequence on the table. And, it's a quick and easy process for me.
That said, I won't begin to tell someone their techniques are wrong and/or their deal is bad. If they're happy with how they did and what they paid, who am I to tell them they really didn't do all that well.
When the next day rolls around, I call the salesman and make and offer. It usually takes a few return calls and voicemails, but since I work at a desk 50% of my day it doesn't take up much time. The deal is usually worked out the day after the test drive and I show up a day or two later to finish the paperwork and pick up the car.
Surveys over the last 20 years by industry and non-industry sources have shown that 80% of people who purchased did so because they "liked the salesperson"..."the best price" was ranked 5th.
Reminds me of the survey of hospitals - hospitals that served good food and good housekeeping had better ratings of medical staff, nursing, etc. Why? Because people feel more qualified to judge food quality and housekeeping that whether their surgeon is qualified.
What is the BEST PRICE? Personally, I have never seen two IDENTICAL vehicles as someone always has a different option here or there. And it becomes a lot MORE complicated with used cars due to varying conditions. Even on fleet cars.
Not really. There's a point at which the control begins to gradually shift into my camp (or more specifically, where it becomes more obvious that I, the buyer, have been playing a stronger hand than I originally let on), and that's when the BS starts to get trimmed.
My basic gambit is to let the dealer wear himself out using his usual tricks-of-the-trade, building his dreams of the sale to the point that his "point of no return" has been crossed. After that, I take over the controls more overtly -- perhaps subtlely, or perhaps sharply, depending upon their styles -- and guide things to my camp. (And you can and should do this without turning it into a power struggle or tug of war.)
So getting to the number isn't that hard, and the sales team should have given me enough ammunition to find it.
I can't tell you how many neighbors or friends tell me that they got $x,xxx off their deal after negotiating for the good part of an afternoon or evening.
Which is why the "five hour" references need to get nipped in the bud.
I find that the worst negotiators are those who use time in a fashion dictated entirely by the dealership. In a negotiation, time is your friend, but not if the other guy sets the schedule from start to finish.
Once you've passed the "point of no return", you can stop playing the time game, because the dealer has enough of his invested to want to get something back for it, and that's going to be well before the five-hour mark. If you need five hours of negotiating time for a car, you're doing a bad job of it.
That said, I won't begin to tell someone their techniques are wrong and/or their deal is bad. If they're happy with how they did and what they paid, who am I to tell them they really didn't do all that well.
This forum is here to help people to learn from their mistakes and to learn better ideas for next time. You don't do the "F" students any favors by telling them that grades don't matter, or that they shouldn't aspire to get an "A", particularly when most of them could do very well with just a bit of education.
I totally agree. From what I have read on these forums there are a lot of "new car buyers" who have set negotiation tactics. If I were buying a new car I would feel fairly confident of getting a good price. The information is pretty cut and dry.
Unfortuneately Im not, im buying a used car. On used cars there is WAY MORE things that must be taken into consideration. Is this car reliable, is it mechanically acceptable, is the interior condition good or bad, is the exterior condition good or bad, what is the mileage, etc.
Those are all subjective because one person may deem a car with bald tires to still be clean, while another may deem the car to be average. Minor hail damage to one person is catastrophic but to another its acceptable. Who knows...
Unfortuneately Im not, im buying a used car.
It's largely the same process, so most of this stuff is applicable. But there is more guesswork involved, because you may likely never know what the dealer paid for the car.
I would suggest that you begin below wholesale. Even if your offer is below what is actually achievable even under the best of circumstances, most used cars aren't so hot that the dealer won't continue to negotiate from your low price. Such a haggle may involve a bit more give and take, but still, it shouldn't be terribly different from the new car purchase.
I also would not give too much extra value for a car that is allegedly in "excellent" condition. (And do bear in mind that very, very few used cars are considered to be in "excellent" condition.) One main reason is that it can be difficult to determine whether a car truly is in "excellent condition", so you don't want to pay a premium for something that you may not be getting. It may look great, but could also be concealing problems underneath that aren't easily seen by the untrained, or even the trained, eye, and you don't want to bet too heavily on the unknown. A bit of a premium may truly be warranted, but be verrrrrry careful to avoid presuming too much.
How about this one and, honestly, I’m not making this up, how could I?
This happened about 20 years ago and it’s still my favorite.
After some time negotiating, the dealer was still $200 more than my offer. The sales manager came over and said "Mr. jmonroe we’ve come down 3 times already and you haven’t come up even once" and I said "I’m not going to either" as I pushed my chair back and got up to leave (I was not faking either). The sales manager said "hold it, we can work this out". Then he floored me when he said "let’s flip a coin, "if you win I’ll sell the car at your price, if I win you buy the car at my price". Not liking this tactic, I immediately said "NO" but after the word NO got out of my mouth, I had a thought. "Wait a minute, I take that back, let’s flip but let’s do it this way, If you win I’ll pay your price but if I win you have to agree to take another $200 off my price". His response was, "we’ll write this up at your price, ok" ? Deal was made.
I don’t mean to change the subject but does anybody have a good story like, "The Flip"?
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
Wholesale? I would think a dealership wouldn't take the buyer seriously if starting below what the dealer paid for the car. So, wholesale is what dealer paid at auction correct? Is what dealer paid for a trade-in also considered wholesale???
If a vehicles TMV of dealer retail is 10k. TMV of private seller is 8.5k, and TMV of Dealer trade-in(or wholesale) is say 7k...you think starting out at say 6.9k would be "workable"? From what I've read in the past, from the salespeople on the board, dealerships pay quite a bit for reconditioning a used car. Though the used car I bought 2 years ago looked as if it just had a oil change.
I had always thought getting a vehicle from a dealership around TMV private seller price would be a good deal.I've asked frequently in the past on used car buying tips and what price range is workable. So, any thoughts on the matter is appreciated.
I don't think I've ever heard of anyone successfully using the "Heads I win, tails you lose" tactic before!
tidester, host
The salespeople consistently (and accurately) point out here that the wholesale KBB price is generally well above what dealers actually pay for cars. The whole underlying message of the "Real World Trade In Values" thread is very much the same thing, i.e the dealership is not going to buy your trade for anywhere near as high as wholesale KBB.
The true wholesale prices are the auction prices, which are often thousands below wholesale KBB. (I've been to some dealer auctions, and trust me, nobody I saw was paying anything near wholesale book.)
So the wholesale KBB price is most likely well above what the dealer paid for the car, including any minor reconditioning. That price most likely already has a lot of margin built into it, probably more than the equivalent amount of holdback payable on a new car purchased at invoice.
All's well that ends well.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
KBB numbers are simply a guide, a rough idea of what the car in question may be worth. Banks have to use SOMETHING to make sure their loans are protected so they use these too.
Some cars are definatly "book" cars and others are not.
The KBB numbers do not reflect reconditioning costs ether and a lot of people tend to ignore this.
The car does "book" for 15,000, but, alas, it needs tires, a windshield, 1000.00 worth of body work and the interior reeks of German Shepard? Yeah, it won't bring book values!
If it's an especially pristine, low mileage Honda or Toyots, it can easilly break the bank and command more than what the books say.
The auctions have some of the highest no sell ratios I have ever seen....anything that is ordinary or avg. is below book. High miles and any excuses are way behind book and big trucks are way way way behind wholesale book values. OTOH something really clean without any excuses and low miles will command top dollar, if its gets reasonable MPG or if its unique. There seems to be no middle ground in the market right now.
Then I should expect top dollar on my '95 Camry trade in (not interested in private sale) with only 41,000 miles with only one small six inch (hardly visible) scratch on the hood. Otherwise, perfect.
Book is $3250. My bottom price is $3500. Am I being realistic?
Ford Explorers and the like are getting especially hard hit. The wholesalers who used to make decent buy bids are no longer interested at all.
3500.00? Should be no problem at all!
My point is that with the general dislike of the whole dealership experience I'm surprised that they make any money at all! Is it just because there are so many suckers out there?
Just perusing the usual car ads in the newspaper this a.m., I'm seeing $7k-$10K discounts on the big iron (even the all new Tahoes, which are nice vehicles from all reports). If you're in the market for one of those, deals look good. No one's going to like the trade value when it comes time to dump these beasts, though.
You are a funny guy. The "Real World Trade-In Values" thread includes thousands of posts from dealers telling us that KBB wholesale is above what they pay and how bogus it is, and now you want us to focus on the exceptions.
Why move the goalposts? If the wholesale number is high most of the time in the "real world", then that applies to the used car shopper as well. I'd choose one story here, and stick to it.
If I needed a vehicle at the current time. I would take it for $4k cash and think that I got a steal. (And would almost feel guilty.)
Didn't you just say two completely different things here ?
(a) "Hard to make any big profit" and (b) "profit margin is about 2000 or less".
If you consider anything less than $2000 as not much profit, you'll have to define how much 'less'. However, if $1500/$1200/$1000 profit isn't enough on any type of car sale, you guys are making WAY too much money selling cars; which is alright with me as long as I'm not on the contributing end ! Maybe this is why this Buy Tips thread was created.
I was in the wrong biz.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
But in that scenario, it is not unusual for a dealer to "floor plan" (borrow money) to buy the car. Calculated on an ROE (return on equity) basis, if the dealer pays $200 in floor plan and interest charges, and sells the car at a gross profit of $2,000, then ROE is 900% [($2,000-$200)/ $200 = 9 times, or 900%].
The financial implications of this is that the dealership could use that $30,000 to control dozens of cars that are each sold a profit, and not just one car. The ability to use inventory financing makes the business much more attractive than it may first appear.
It's not only meaningful, it's the entire basis for how car dealerships make money. That's why in finance, the use of borrowed money to drive profits is called "leverage" -- because the appropriate use of debt magnifies gains (or conversely, losses if you make mistakes.)
And in any case, you got the numbers mixed up. If the dealer in this example earned $2,000 in gross profit, but paid $200 in financing fees, then the net amount of profit is $1,800. ($2,000 - $200 = $1,800.)
For someone who isn't in the business, you certainly have all of the answers.
No it isn't, but what you described is not return on equity. Since there are other costs involved other than the interest paid on the "floor plan" and there are other parts of equity that the dealership has. Those things are completely ignored by your example but not to any financial analyst.
And in any case, you got the numbers mixed up. If the dealer in this example earned $2,000 in gross profit, but paid $200 in financing fees, then the net amount of profit is $1,800. ($2,000 - $200 = $1,800.)
Don't forget sales commission the allocated portion of the sales managers salary, the sales clerks salary, the owners secretaries salary, insurance, building maintence, landscaping, property taxes, advertising, and all the like.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
You are correct, there are other costs. Still, the point remains that leverage (debt) plays a significant role in the dealership's business model, and helps to explain how they can do what they do. I was using Cluedweasel's numbers to make a direct comparison of how this increases dealership profits, not to specifically calculate the ROE.
If dealerships had to tie up millions of dollars in car inventories, then you would expect sales prices would need to be higher, because the dealership would need to produce a high net return from those huge amounts of cash that are being tied up in assets. That situation is dramatically improved in the dealer's favor with the extensive use of floor plan debt, which allows a dealer to leverage Other People's Money to generate much of his profit.
It also helps to illustrate why dealers are more inclined to move older inventory, all things being equal. By selling a car that is on the lot, or that has been there for awhile, not only do they get to collect your money, but they also get to stop accruing interest on that loan, which increases their net revenues (or reduces their downside). While ordering a car may seem to be better than that -- after all, this would allow the dealer make a sale with minimum financing costs -- he is still incurring interest charges on some other vehicle in his inventory that he would have preferred to pay off.
Also, when you dealers say "floor plan" (just a cute word for interest. Who started this anyway ?) isn't this paid for by the hold-backs that almost all manufactures provide to dealers so that they can have a good size inventory ? So, as I see it, "floor plan" isn't really an expense after all. Funny how this is always thrown at us buyers so that we may have pity on the poor dealer.
I"m all for the free enterprise system as long as the dealer doesn't have free access to my wallet.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
That's the theory behind the holdback, to pay an amount that exceeds the floor plan charges, which should allow the dealer to effectively buy the car for free if he can turn the inventory quickly enough. (Better yet, if it's selling the cars quickly enough, the dealer is effectively being paid to buy the car and resell it.)
That's why inventory turn is important for a dealership -- because their costs increase and profits decline as inventory sits longer. These pressures should increase even more in our current interest rate environment, as interest rates climb more quickly than do the holdback amounts. A dealer needs to sell a car more quickly today than he would have, let's say a year or two ago, to net the same amount from the holdback than he would have otherwise.
True but the "floor plan" is not the only debt that a dealership has. A dealership most likely has debt on the building, equipment and a few other things to boot. The debt they service on the cars is only a part of that.
Plus there are other ways that you use debt to analysis. debt to asset ratio is one of the major ways to look at it, how many dollars of equity you have for every dollar of debt. Also debt turnover is important, or how long at current income levels would it take to pay off the debt.
You used gross profit against debt to compute return on equity which is meaningless since equity wasn't even used to get that figure.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D