I think one of the first hints might be when they tell you that they are not committed to buying a car at this time. So many state the obvious and act like it is a revelation. Why would anyone need to line up more than one source of financing before going to the dealer?
Knowing your credit score and what financing rate you can get is important as a consumer. I always know my credit score and get info from my local credit union(s), USAA, and Bankrate.com.
Dealers can make money on the finance deal. They say you don't qualify for the lower rate and get a kickback or incentive. I have seen this many times (most recently with my wife who has an over 800 credit score). People can leave thousands of dollars on the table by not doing their homework when it comes to financing.
I'm confused. Is the goal here to bankrupt car dealerships? It's great that there are tools like this to help people avoid traps set by dealerships, but since when is it the best policy to sap all profit from the sale? Why shouldn't a consumer pay a percentage higher than the wholesale cost to purchase a single unit? If you're buying a $20000 asset, there's nothing wrong with paying a grand for the priviledge to do so without all the inherent risks undertaken by a dealership in getting that vehicle here for you to own.
With all due respect, you sound like a bunch of vampires, sucking every bit of lifeforce from the dealerships.
All too often, you see people making requests of their salesman to buy them a trinket to add to the sale. The irony is these requests often come from the grinders who take every bit of profit and leave the salesman with a base line flat commission. Most of these guys are barely clearing minimum wage. If you're going to take their income away from them and smile in their face, at least hand them a $100 bill at the time of delivery. They work hard and don't see any of the money that the dealership makes outside of the new car profit. Every time you ask for a discount, you're asking them to personally give you some of the money they should be making on the sale.
Only in this business do people take so much indirect abuse and receive so little reward for their efforts.
The lack of compassion is actually pretty staggering. Some buyers should outright be ashamed of themselves.
Yes, I've done the role. I've been on the inside and seen the practices. And ironically enough, I'll pay damn near list when I buy a new car. Explain that.
Hm... not sure about that one. I can think of at least one salesperson around here who finds that practice crass. Good car salespeople are professionals and don't expect tips, IMO.
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That's fair enough, but in a world where 9 out of 10 buyers go to a car dealership expecting a discount, and half of whom expect invoice or better, you're walking in to a dealerships looking at mostly minimum wage order takers. If this form of selective communism is allowed to continue, then car salesmen and saleswomen effectively become customer service representatives filling orders at base wages with no salary to fall back on.
In my opinion, if you can tip your waiter for excellent service then tipping the salesperson that you liked enough to invest in a xx thousand dollar asset should be perfectly acceptable, assuming you're as willing to bankrupt a sale as so many people are.
I never personally accepted a tip from a customer (nor was I ever offered one) but if I was heading to a dealership ready to battle, I'd be prepared to compensate the person who suffers most in the interaction with a slight gratuity to make sure they know their efforts are appreciated. It's not crass to accept when you're barely making enough to survive... I agree it is crass, however, when the salesman is making a healthy commission on the sale.
Not everyone has worked in the business and many who have didn't experience what salespeople of today are experiencing, so I just wanted to post a reply to an article I found on another website. This article was explaining all the ways that dealerships make money and the main article had some incredibly over-inflated numbers. I'm guessing well over 50% of people who happened by the article missed the reply. Having worked in the business, the reply in question pretty precisely explains the kind of money made at a dealership. It also happens to mirror my own feelings re: business and discounts.
As I believe it is fully appropriate for this particular thread, here is that reply (I've also included a link to the primary article):
10. Mark up? No dealer sells 200 cars a month at a $3000 profit a piece. That’s what is called a home run and if a dealer can get someone to pay that amount their sales person has done their job. A dealer who is moving that volume is more likely to be making on average $800 to $1300 per unit before paying anyone or for anything. Once your overhead costs are taken out then really there is not a lot left hence why dealers are in business for years. Most dealers are lucky and great at what they do to make a million dollars a year: they would be some of the best in the country.
9. Hold back and advertising. Yes there is a small hold back A couple hundred dollars max. You may have seen $1500 on a $90,000 Lexus. It’s all about percentage of cost. Did you know there is only $1500 mark up in a $20000 Toyota Corolla and $2800 in a GM Truck? The only time any extra is given is a manufacturer credit which most advertise and have to give to the customer and the rest comes out of the dealers profit.
As for kickbacks on advertising this is called a ‘Co-Op’ If you spend $10000 a month advertising out of your pocket the manufacturer will kick back a certain percent often times 70%. Dealers have to advertise They still have to put money out each month for that.
8. Undervaluing a trade. More power to them. Dealers often overpay and I guarantee you they overpay more than they under pay. With the help of the internet customers have become intelligent. They know what their car is worth before stepping foot in the showroom. Dealers are in this business to make money and the sooner people realize the difference between retail and wholesale all of our lives will be easier. As for the lean to value part Banks are banks. The list maker has just thrown that in to fill space. That part has no affect on what people pay for trade ins.
7. Lot packs I think you mean. Lot packs aren't put in place to pay the dealer. They are put in place to keep the doors open every month. This is what the salesman doesn't get paid on since most dealers are supplying these people who are working on commission only. They get an office, computer, inventory to sell from, often times a company demo, insurance, ect. Well This stuff needs to be paid for. An average sized dealerships power bill can be an upwards of $15000 or more a month. They have to pay their managers salaries A lot pack is put in place and has no affect on the customer what so ever It’s an internal thing. Are you sure you know what you’re talking about Mister List Maker?
6. Doc/Admin fees. Every dealer charges them. People do have to do the paperwork. Let’s let you handle it all and see how quickly you’re willing to pay $300 for someone to do it. Especially when it costs you like 30 cents a month on your payment. Cash buyers can be difficult when it comes to this fee and it can get waived. Doc/Admin fees are here to stay. You get paid for what you do why shouldn’t the people who work for the dealers?
5. This is bad business.. MSRP is MSRP. If you add extras then yes someone has to pay. It’s building value in their product. Keep in mind dealers sometimes sell for such a small margin they have to upsell to make any money on the deal. They’re providing you with a service don’t forget.
4. Extended Protection Plans: Are worth the money and keeps customers happy. They pay for themselves usually. A GMPP(General Motors Protection Plan) has an 90% payout Meaning. Out of 100% of warranties sold there is 90% paid back out in claims. Some warranties are good and some bad. The manufacturer warranties are the best because they provide wrap around coverage and protects against wear and tear items. Dealers have to make a profit on this stuff to survive. Also about the deductible thing. If you’re to cheap to pay the extra $100-$200 to get a $0 deductible warranty you deserve to pay every time you have a claim.
3. GAP. Yes it’s a good product. Everyone should have it. If you wreck your car you have no worries You’ll just go buy another. Also it’s much easier to have it in the payment. Find me a credit union that sells it for $150. This shouldn’t even be on the list ?
2. Really? This isn’t 1980. Down payments are sometimes required. Most people don’t have it. If a dealer is asking for a down payment it will only benefit the consumer. You have already negotiated your price before you go in the F&I office so the down payment is not profit. It’s lowering YOUR payment.
1. Like I said... Everyone works on commission in a dealership. They need to earn a living. With today’s intelligent buyer they know prime is 3%. They know they can get under 5% for a car loan. Unless they have bad credit. Most A credit customers know what’s going on so it’s hard to bump a rate. Now if you’re a subprime customer then if the dealer wants to make a couple points off of you, fine. There’s a lot of work in a sub prime deal. We’re not the ones who have hurt our credit in some way. Don’t think it’s a lot though. A 2% rate bump on a 17.9% loan making it 19.9% only puts a couple extra hundred in the dealers pocket.
The point of all of this is that I'm not sure when paying the retail price become so thoroughly unacceptable, but anyone propogating continual and never ending discounting in the car business is promoting a concept that truly borders on communism.
When businesses are no longer allowed to make a profit, we all lose. This industry is in a tailspin and being a proponent of this nonsense is pretty remarkably immoral.
In no way should a business be permitted to bilk customers at every turn; but in no way should customers be permitted to set personal, variable pricing.
Discounts used to be used for friends and family. These days, all you have to do is walk into a dealership and be a jerk.
Either the era of discounting comes to an end, bringing in the era of full and complete transparency with respect to where and when profit is being earned by a dealership.
or
The discounting and variable pricing continues, but the era of tipping struggling salespeople begins. It's almost literally the exact same concept as tipping the waitress earning less than $10 per hour (assuming $10 as a baseline for minimum wage). Why? Well, the average car salesman sells between 10-12 cars per month and discounts 9-10 of them. Often, because of the low front end markup, the salesman makes a flat commission of anywhere between 100 and 200 dollars. Even in the best case scenario, a salesman with a flat base commission of $200 selling 12 cars per month and receiving a $500 volume bonus will make less than $3000 total and will serve approximately 45 customers to achieve those numbers (and again that is in the best case scenario. More often than not, the numbers are 20% less). The emotional strain of the consistent, daily rejection and the low, almost non-existent level of compassion from the customer for the salesperson's plight make car sales one of the least attractive professions around. Unfortunately, many of today's salespeople lack any particular passion in other potential fields of employment and are thus trapped in the business as it is better than the alternative.
And just so it's perfectly clear, I made much more than the average salesman, but I saw the struggles and experienced the frustration of this era of discounting. In the days where people were paying 15% + markup, it was reasonable to seek assistance from the dealers. In this era of 6% markup and $100 flat commissions.... well, let's just say that I'll be tipping my car salesman next time I grind the profit down to zero, assuming that's what I choose to do...
Whew.....ncs1, did you get that out of your system? Feel better?
I don't believe anyone is twisting the arms and making someone be a car salesman. It is what it is and if they don't like it then don't hire on. Too much touchie-feelie going on. Too many want a handout. Tough world out there.
? A Handout? Apparently you've never worked as a car saleswoman. They aren't sitting there, waiting for you to deposit money into their wallets. They work hard, take abuse, and are expected to provide a perfect experience to have any chance of getting referrals and strong reviews.
It is a tough world and car salespeople are reminded pretty much every day.
If it's too much to ask of you to have a little compassion for them and treat them the way you would like to be treated if you were in their shoes, then that's your right as a citizen. Don't expect me to agree with you though.
If it's too much to ask of you to have a little compassion for them and treat them the way you would like to be treated if you were in their shoes, then that's your right as a citizen.
Bingo! That's exactly it.
While I completely agree with your statement on the flip side you have salespeople that I wouldn't want talking to my mother.
You brought out some good points that reflect reality but you need to understand that, for the most part, you are "whistling in the dark".
I've been around since these forums began and I have banged my head against the wall enough time that I have (for the most part) given up on trying to educate people on how the car business works.
For many, we are slime out to steal from them.
I was a former high level corporate guy who decided to get off the treadmill.
I never planned to stay for thirteen years but I did. At the same family owned store where I had a lot of repeat and referral customers who appreciated my style. Most years I exceeded six figures and rarely did I sell fewer than 20 cars a month. I worked with great management that remains there today.
I decided to retire early. I had had enough and I was tired of the mooches and strokes that were on the increase every year.
Stick around, we have lost most of the other car people who wandered into these forums only to get beat up.
I do have friends here too that support me and that is why I've stuck around.
If a salesperson isn't being properly compensated for their work, I would blame the owners... not the customers. If we the consumer are cutting too far into profit margins this last decade or two, it's obviously not coming out of the owners pocket, it's the guys at the bottom being squeezed. The sales people.
A $100 flat rate commission? That's $2,000 a month on your 20 cars a month sold isell. Hard to make a living on that.
A salesman is trying to get the most profit for his dealership and himself. A consumer is suppose to help him with that? Doubtful. I do feel for the plight of today's sales people. Probably is a good idea to tip if you get a car way below invoice.
Bottom line is if you don't want to sell me a vehicle, I will go elsewhere. It is not my job to compensate a salesperson, that is between the salesperson and the dealer. My job is simply to buy the vehicle on my terms. After all, it is my money. The dealer can always sell to another customer if and when that customer appears. The buyer can immediately visit another dealer or two to secure the vehicle.
Holdback is clearly more than a couple hundred on most cars. Regardless holdback is designed to hide the dealer's profit. Obviously an informed buyer must consider holdback in the selling price.
Extended service plans, as all third party consumer sites point out, are always a bad bet. Furthermore, those plans are usually overpriced by dealers by $1,000 or more. Obviously an informed buyer must question both the value and selling price of such plans.
GAP is another vastly overpriced product designed to greatly pad the dealer's profit. GAP does not provide the benefit dealers say it does and is actually rarely used. Also, many insurance companies offer GAP for a fraction of the price dealers attempt to get from buyers. Obviously an informed buyer will look elsewhere if GAP is desired. Really paying a dealer $600 for GAP which might return $2,000 or so if a vehicle is totaled is clearly a bad investment.
A down payment does not help a buyer other than a minor interest savings in most cases. Anyone with a decent credit score will gain virtually nothing from a down payment. A lower payment resulting from a large down payment might appear a benefit, but with an OEM supported financing rate that benefit is an illusion. With a low interest rate, buyers are better served to have that money available than to have given it to the dealer.
The one thing we experienced car buyers know is to never, ever rely on anything spoken by a person whose interest rests in selling us a vehicle. That advice holds true on Edmund's forums as well as at the dealership. In the end, the dealer's objective is diametrically the opposite of the buyer's objective.
Well, I wouldn't tip somebody making a 100 grand a year.
Sales manager at a Kia dealership told me their sales people work on a $100 flat rate commission.
I'm sure not going to pay more for the car than I have to, never been an advocate about tipping before, but I wouldn't rule it out now with a struggling newbie... and seeing dealerships compensate their sales staff less and less.
Here's the point that you and car buyers like yourself are missing:
You've already won!
That's it...
With the pricing as it is today, the consumer has won.
$15000 cars have a few hundred dollars in profit??
$25000 cars have around $1500 in profit.
Many places have laws and regulatory bodies to protect against gouging and selling for more than list.
99% of cars are sold with discounts.
The back end money is pretty insignificant.
Financing rates are low around the clock.
Cash rebates are available on EVERYTHING.
Dealerships climb over each other to sell anyone and everyone.
Everything in the business office is on sale and a discounted Extended Warranty with all the free oil changes and inclusions is likely to only cost a few hundred dollars in the end, assuming it goes unused... If it is ever used, you will save money. Pretty simple accounting on that one.
Gap protection for $600? It's $250 everywhere I've been and it's pretty reasonably priced peace of mind for people with uncertain employment status'...especially with the economy being what it is today. You're not forced to take it, but some people should be... others obviously won't need it and shouldn't be bothered by it, I agree. I don't agree however with this notion that it doesn't have importance for the guy making median income for a multinational with a family of 4 and a 25 year mortgage...
Here's the greater context: Everything today is expensive. Most people make just enough to get by. Everyone wants to save money. Car dealers of yesterday created todays reality with overcharging and making ludicrous money on every unit and every add-on. Customers don't want it to happen to them so they bleed profit from the sale at every turn. Tremendous oversight and customer blowback have resulted in appropriately priced assets and accessories being sold at every dealership. Competition among brands and competition within the same brand leave little option for dealers with respect to discounting. Customers use this leverage to gouge dealers in the same way that dealers once used limited supply to gouge customers.
It's balance... but that doesn't imply that there's anything fair about it. Stop hiding behind the idea that it's all about "making sure you get a fair deal." That's the point. MSRP is pretty fair these days. My message is the same as your message to dealers from 20 years ago: Just because you can gouge doesn't mean you should.
To the guy that said "Holdback is clearly more than a couple hundred on most cars. Regardless holdback is designed to hide the dealer's profit. Obviously an informed buyer must consider holdback in the selling price."
If I saw you in person, and we sat together and read everything in this thread, and you still said that, I would honestly think you were mentally challenged. Theres just no explanation for someone thinking they can decide a price based on what they think the profit is. I went over it a few pages back.
The price a dealer will sell a vehicle for are based on MARKET DEMAND AND STATISTICS ON RECENT SALES VERSUS TIME.
If a car is selling well, we will not let you get it for invoice, $500 over invoice, $500 under invoice, WHATEVER. We look back and realize we have 18 cars in stock, selling at 1.25 a day, for $1250 over invoice, and we know the manufacturer can only provide 1.1 vehicles per day over the next 60 days.. so we DO NOT SELL BELOW $1250 over invoice.
You reading about holdback, making your random assumptions, looking at your bank balance, deciding $399 is your max payment, setting a goal of getting XXXX discoutn, WHATEVER, does not make us decide to make a bad decision in terms of inventory management vs profit.
My favorite story is when a real jerk of a customer came in, talked down the nicest salesperson we had, raised his voice, was condescending loud enough for everyone to hear, and then offered $500 under invoice based on his research. We took it. We had been selling them all month long for $2000 under invoice because new models, and a new body style, were coming the start of the new month. Every dealer was afraid of the cars. We lost a lot on those models that month.
It's all relative.
Let me say it again. You only get a price so low as a dealer decides is worth it.
And the only way to decide what price that SHOULD be, is to use the same data a dealer uses. Which is AVERAGE SALE PRICES OVER TIME. Nobody is going to give you a deal in the negative holdback range, if the car is selling over invoice in every statistical example. And paying $100 over holdback is STUPID if the car sucks so bad most people are paying EVEN LOWER than that.
Historical data is the ONLY thing worth looking at.
And then you may wake up and realize that historical data is made up of a mixture of inventory pipeline, customer demand (the only involvement customers have in price as a whole, but not as an individual), and internal dealer/manufacturer incentives.
A great example of this was the Audi Q5 for several years. You could sit here, read about invoice, hold back, dealer bonuses, all that.. and then you would have pay whatever the dealer wanted if you wanted to buy it. The first 2 years, our dealer NEVER sold one for more than $1000 off MSRP (on a $45k vehicle), and we sold every single one Audi ever gave us. There were never more than 4-5 on the lot.
If you want a new Porsche 911 these days, you are paying close to MSRP, or you're just not getting one.
You pay what everyone around you pays. If a dealer let you pay less than most people pay, they made a mistake. With several people involved in the process, few mistakes are made.
I'd love to hear how those shoppers feel about creating a $250 asset at their home business and making a whopping $15 on the sale. Or how about investing $250000 in a new house and 10 years later selling it for $265000. I'm thinking most of them would be pretty unhappy with that ROI.
The problem is perfectly summed up in your last sentence ("they simply don't care") and it is emblamatic of today's world. People pretend to care about fairness and equality, but only when it suits their purposes or has no direct effect on them. Getting a discount used to be a nice wink from the dealer. Today, even the completely inexperienced buyer laughs at paying full list.
Like I said, as long as there are regulatory bodies in place to protect the consumer and confirm the numbers coming from the dealers, I'll have no problem buying that reasonably priced asset at full list price or close to it. (That is to say leasing that asset... buying cars makes absolutely no sense.)
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I was being hyperbolic with the "EVERYTHING" comment. A lot of cars that wouldn't be expected to have a cash rebate, do... that's all.
I personally have no problem with someone saying I want a $200 payment. Thats fine. Because there ARE cars out there for $200 a month, no problem. Long term, low cost car, small down payment, bingo $200 a month.
My problem comes from people picking a $300 a month car at standard terms, and then saying they want $200 a month at the same terms 'because thats their budget'. If they said that before the test drive, we could of saved everyone some time.
And even the fairness thing, or making a profit thing is mute to me. Customers are right, they dont have to worry about what our profit is, even if its near zero. If you consider the fact that dealers make on average $1000 per car sold, or $100,000 gross profit per month at a normal dealer, thats not THAT bad for someone that bought a franchise, took a loan out for a building, hired some highschool grads, was effectively LENT cars from the manufacturer, and then washed them while they were doing paperwork. Car dealers are really just parking lots, paperwork processors, and car washes. Think about it. We dont do much. So the profit is totally fare. I made 2-3x more as a car salesman for a luxury brand than I did as an entry level Mechanical Engineer (Go UC Berkeley) in California. I worked hard and crazy long hours. I tried, and I cared. So the money is fine in reality.
The problem is not the profit that we take from most buyers, because most buyers made me a good living.
The biggest problems are the people that make unrealistic offers that don't lead to a sale, yet waste your time. Or people that test drive for fun and take up your time. People that 'grind' are only a problem if you let them mentally beat you, which I guess eventually I convinced myself wasn't the problem.
Car sales is a bad place for a depressed complaining kind of person, and gold mine for a positive thinking and acting person.
I don't think big profits are bad or immoral. Many industries have large profit margins, much larger than car retail, because their customers see value in the product/service. However, those industries rarely enjoy protections car retailers have in form of franchise laws (Tesla, anyone?) and other considerations.
If a car dealer can get gazilion bucks for a sale, more power to them. However, on the same token, if they can't make any (because of competition, tough market conditions, or what not), I don't care either. It's not in the Constitution that every dealer has to make a profit. It is accepted by the industry that it is OK to sell a car at high markup, upsell fees and then double upsell on those "invaluable" products we all know about. If so, they have to accept reality, when it is a customer who takes them to cleaners and they make hardly any money, or no money at all on a sale. It is dealers who decided to create the Easten bazaars out of their stores, where no price were too high, no add-on product was too crappy and no deal was too shady. It was long time ago of course, one may say today one can say it is next generations of sales people who suffer consequences of that they had not created.
A few weeks ago there was a sales person's rant about MSRP/fees/add-on/GAP and what not, shouting at us it was OK to pay whatever he/she thought or dreamed of us paying. I say wow to that. While in general I agree that MSRP may actually be "fair" price (whatever that means) in many cases, I pretty much disagree with the rest of the rant. If it was just MSRP and I go home, I'd be more than happy. But it NEVER ends there, as it is NEVER enough. What's worse, if you initially agree that that's the good price then it's taken as an invitation for further draining the pocket with marginal added value.
Agree on MSRP - sure, here is $799 dealer prep fee (YES, in Florida plenty charge that much and don't tell me it's for DMV costs, I'm not that dumb), $99 doc fee and $100 voluntary contribution to owner's boat payment (well, I made that one up, but it feels this way at times). Well, let's just say, for the sake of the argument, I still OK it, I just want to go home. Not so fast, Mr. Customer. We have those wonder mop and glo stuff and other protections sell you at prices you won't find anywhere else. BTW, we already put it on the car, so you "have to" pay it. Sometimes it's not even us, it was our distributor that put that great stuff on (like SE Toyota). But that's not the end - when you think it's all, you have to listen to our relentless pitch for "financial products" until Kingdom come. After all that is done, agreeing on all the mandatory charges and voluntary offers can turn a $20K car easily into $25K loan with 3 thousand downpayment, if one is not careful. It's still same car with nothing of substance really added to it, just a few feel good items of some value that is nearly close to what you are paying. So that $20K MSPR car that was worth about the asking price, turned into $28K plus interest AND it is actually worth $18K the moment you drive away.
That's why people feel that they had to adjust their thinking. It's a defense mechanism - since dealer thinks it's OK to basically inflate product's price by whatever number they dream that day and sell items of questionable value, they decided it's OK to strip dealer from any profit, just for the sake of it. The dealer started the game, they made the rules, then they rigged them - in response many customers decided it is to play in kind. Tid for tad psychology.
BTW, just to make it clear - I'm not one of those people, I just understand their thinking. Many people don't have time to research prices, profit, market conditions. All they know is dealers are trying to get as much money from each transaction, as possible and do not have internal stops in pursuit of such profit. If they're shooting the moon, why shouldn't customer?
What trully bothers me me about the car retail industry is not even their profits, or add ons, or pricing schemes, warranties, upsell, etc. Those are kind of normal behaviors, almost everybody tries to upsell product or service to existing customer. It is its singular intent and focus to obscure true price of the product they're selling from the customer. They know that if people realized true cost of their product, many would walk away. So they have to employ redirection, distraction, all the stops in advertising and in sales room to make one believe they're paying less then they really are. Advertise price X, then small print saying this is after three thousand bucks on trade or down (to which I say who pays that three grand, Santa Claus), all the fees added AFTER the price (car manufacturers are equally guilty when they advertise price as starting at $X with small print saying there is $900 delivery - which is basically a blatant lie, as there is no scheme on earth that would allow one to opt out of that charge). The low payment ads with trully funny terms, the list goes on and on. To be fair to them, it is a response to customer's demand, for people come in and they have the caviar taste on hot dog budget and cannot be dissuaded. They want to hear $40K car at $299/moth, so the industry "delivers" it. But it still bothers me to no end. Every time I see such an ad, I feel dumber and violated at the same time. You can see this mindset to ingrained in that every time I walk into a car store, it takes me several minutes to get to a salesman's head, I'm NOT one of those payment people, please lay that off. It is really palpable when one experiences higher end stores (usually much less of that crap) and then walks into a Chevy, Toyota, Kia, or Hyundai store (brand is secondary here, basically all mainstream places). It's hard to shake that off. Smart salespeople can quickly adjust, but sometimes it's almost fun to watch their confused eyes when you say, I don't shop for payment.
I just found this forum...I certainly have opinions here! I generally buy new Hondas or Toyotas. You can't custom build either of them - you just get whatever packages are available in your area. Pick your trim line and color - that's it. Lately I just picked a vehicle, calculated what I'm willing to pay, and make offers one by one at dealerships. I'm usually able to buy well below invoice. The back office folks usually comment about there being no money in the deal, but I don't believe it. Why would you sell a vehicle at a loss? I guess the detail is this deal by itself is a loser, but moving a unit still makes money for the dealer. I have no idea how much, and probably never will.
My most recent purchase was a Toyota. The dealership I purchased from was also where I had purchased my previous Toyota. When I emailed them about what I was looking for, they undercut my offer. The manager told me they wanted to make sure I didn't go somewhere else, because Toyota holds that against them as a lost sale. It sounded like that affects their bonus system. It got me thinking, there are probably all kinds of crazy formulas at play here.
I treat the salespeople with respect and I hope that they will do the same for me. I figure we are all in the same boat here. I'll bet neither of us knows how much profit really is made. I do know I couldn't be a car salesman. It seems like a rough job, and it's hard to make money selling cars these days.
2011 Toyota Camry, 2014 Jeep Wrangler, 2017 Honda Civic Coupe, 2019 Toyota Rav4 Hybrid XSE, 2021 Toyota Tundra, 2022 Toyota 4Runner, 2022 Tesla Model 3
In the past I've visited Honda dealerships with the dealer installed mud guards, pin stripes, MOP n glow etc, but not on recent purchase of 2012 Civic.
I treat salesman with respect as well, on the few occasions I've been disrespected, I let them know about it.
We frequently see these " invoice sales" on new vehicles, so yeah, they're making money.
I am in the market for a new car and have experienced all sorts of sales people during this period. I changed careers about three years ago (I was on the buy side in my industry) and now I am in sales. I am extremely sympathetic to salespeople since I am one now (albeit not in car sales). However, when I, polite as I can be, outline what my needs, buying plans and expectations are via internet or phone and have the sales person tell me how they can't quote unless I come in, that's an immediate red flag and I cross them off my list.
Also... if I am talking to you for the first time (or tenth time) don't call me "buddy" or "bro". :mad:
Everyone is entitled to a profit,but it starts with mutual respect.
The exclamation point is for excitement - I like talking about cars. How much below invoice varies by deal, but most of my recent purchases have been OTD below invoice, including the 3% title tax and other DMV fees (I'm in Virginia). I rarely have a trade, which to me keeps the deal simple.
2011 Toyota Camry, 2014 Jeep Wrangler, 2017 Honda Civic Coupe, 2019 Toyota Rav4 Hybrid XSE, 2021 Toyota Tundra, 2022 Toyota 4Runner, 2022 Tesla Model 3
I'll add one more time that buying under invoice, or at your budget level, or 'if you guys pay for the NAV' are all just random guesses at the true market for a vehicle. Sometimes you'll win and get below average by a bit. Sometimes you'll pay too much because you thought your random logic was king, when in reality historical sale prices, and near future supply allocation, are all that matter.
The famous example is a guy who walks in, does random fuzzy logic, offers $500 below invoice, and buys a car that has been selling for $2000 under invoice all month long because of many manufacturer incentives to get the soon to be old models out of there.
Then, compare that with the times when well meaning people wanted to buy an Audi Q5 and made bids around invoice, only to simply have to drive home and buy something else, OR go to the other dealer and finally give in around MSRP.. atleast there they could save face as if they were people that just happen to be willing to pay MSRP.
My best friend happened to become the #1 producer at a competing dealer (same brand) 30 miles from my dealer where I was the #1 producer. We would call each other on Sunday driving home and discuss all the similar customers we had, ones he met on Saturday and I sold on Sunday, and the opposite of course too. It's amazing how many people put on a show at one dealer to find out the bottom line, and then go into another place with a whole new persona and pitch to the salesman. I promise you, we can smell that, and often leave information out, or spice up the deal for the other salesman just in case. If I can see that you're not buying anyway, but want to take info with you, I promise you you're getting some inflated/fuzzy info on your notes. "Oh man, you sure set Mr. Nelson up for me.. Thank you" are what makes up for Mr. Nelson wasting 2 hours of your time on a Saturday. And as a payback, you got Mr. Smith the next week from your buddy. Same thing happens everywhere.. people get 'walked' by BMW and buy an Audi. Same exact time somoene is buying a BMW because they got walked by Audi. Cant win them all, but you can sure enact some revenge and still make a good living at it.
Actually, some of us buyers know we have the upper hand. We recognize since it is our money which the dealer wants and since there are multiple dealers ready to sell the power rests with us. We can always walk.
The last thing any of us buyers need worry about is how much profit a dealer makes. Our only concern is how much money we pay. There is absolutely no way we can understand a dealer's cost structure and profit margins.
Negotiating hard with a dealer to attain a low price can hardly be considered gouging the dealer. No dealer will sell a vehicle at anything buy a price the dealer can live with.
Some of us buyers recognize MSRP has been adjusted upwards to give the illusion of a price discount. That has allowed the various buying internet sites like True Car to flourish by giving some buyers that illusion. Truly if anyone pays the TC price they really did pay more than they had too.
At $600 or so, GAP is not a good bet. The people who need GAP the most are typically those with the worst credit, those who would be hard pressed to come up with the additional funds to pay off a loan in the event their brand new vehicle was totalled and the pay off was not adequate to cover the loan.
However, those folks are typically required to put a large down payment to secure a loan. This obviously reduces the potential short fall if the car was totalled. Paying $600 for a potential risk of $2,000 or less is not a smart bet.
People should also recognize many insurance companies will provide similar coverage for a fraction of the price dealers charge.
And really, the back end profit for a dealer is hardly insignificant. Most dealer F&I people strive to average at least $1,000 or more on the back end. I believe Auto Nation's latest average is over $1,500 per vehicle.
People should google F&I Scams, How to Survive the Dealer's F&I Office, and other such sites to get a real understanding of the back end profit schemes dealers employ. Edmunds has an informative Confessions article on this very subject
"I would honestly think you were mentally challenged?" Really, are you seriously suggesting hold back does not impact a dealer's profit margin?
Holdback is provided by the OEM to assist the dealer in selling vehicles by hiding a bit of profit over and above the profit suggested by the difference between invoice and MSRP. While this process is a bit deceiving, there is nothing inherently wrong with the process. It is, however, something a savy buyer should consider.
I have been involved with cost and price analysis for more than thirty years. I fully understand profit and cost structure which includes direct selling costs, overhead such a facilities, general and administrative expenses such as management, etc. I suspect I know for more on this general subject than most people, including the dealer's accountant.
I always use this knowledge to win in price negotiations. It is very amusing to witness a car sales person attempt to deceive me on cost type matters. I always let the car sales person believe I know little, mentally challenged perhaps. False arrogance rarely has postive results for the sales person.
I never suggested a buyer develop a price strategy based on the dealer profit. There is simply no way any of us can truly compute a dealer's profit, there are simply too many unknowns. As a buyer it is incombent on us to develop a reasonable estimate of a dealer's cost. Such an estimate is essential in any cost or price negotiation. In fact, the Government spends millions of dollars each year on such analysis.
The most effective method to develop a reasonable estimate is as follows:
Learn the invoice price of the vehicle.
Reduce the invoice price by the dealer holdback which can be found on Edmunds.
Further reduce the amount by any OEM incentives both for the buyer and dealer.
This will not give a person the dealer's actual cost but it does represent the best anyone can do without having knowledge of the unique cost and price considerations for any single dealer. Reality is a dealer's true cost is likely something less than this amount.
Use the result as the starting point for negotiations and work upwards from that amount. As you suggested, any price must reflect current market conditions. As a result it is often advisable for a buyer to postpone a purchase of a new model or hot selling vehicle until such time as the market has swung more to a buyer's market.
Never work down from MSRP or a dealer's offer, both are inflated. This will almost always result in a buyer paying too much for a vehicle.
Clearly a dealer will only sell a vehicle at a price the dealer can accept within its cost structure and profit margins, which does reflect market considerations. Alternatively as a buyer, it is my duty to buy the vehicle at a price I can live with based upon my bank account, income, etc. If those two amounts eventually meet, we have a deal. If not, I will look elsewhere or buy something different.
What I suggested is car sales people have a goal which is to sell the vehicle at the highest possible price. That goal is opposite of the goal of most buyers. Therefore, a savy buyer should never, ever simply accept anything a car sales person says.
To set the record straight, I believe most car sales people do not intentionally lie. They do, however, flavor their comments to increase the dealer's profit. Are you implying they do not?
I do know what hold back is. It usually runs between 2 and 3 percent. On a $30K vehicle that is $600 to $900 for each vehicle sold. Whether it is paid weekly, monthly, or yearly makes no difference. What exactly are you suggesting I do not know about holdback?
When I buy a vehicle, usually every couple of years and usually Honda or Acura, I compute a reasonble price which is reflective of the dealer's cost and market conditions. I really do doubt I have purchased from you. I contact as many dealers as necessary via the internet to gauge current market conditions.
As a side benefit, contacting dealers via the internet eliminates the need to be shown too many doors. It is always wise not to risk damaging the backside by a wayward door.
I identify the dealers most obviously willing to sell. If the dealer meets my price, the dealer will be rewarded with a sale.
And really, dealers do not sell customers vehicles, customers buy vehicles. As it is our money, all power rests with the customer not the dealer. Are you suggesting otherwise?
Wow, thanks for the insight. Just exemplifies why I have posted savy buyers should never, ever accept anything a car sales person says. As I have said, a dealer's offer is always inflated. Buyers should start low and work up.
"Cant win them all, but you can sure enact some revenge and still make a good living at it." Not sure how revenge equates to selling vehicles for the dealer or making a good living for the sales person. Really, I would not have thought revenge is a good business practice.
However, if some feeling of revenge allows the sales person feel good, so it goes.
As you said, I agree there is no way for us to really know the cost structure - it really doesn't matter that much. Market price discovery is still quite a bit easier today than it was 20 years ago and spreads between prices people paid for new cars are surely much more narrow than they used to be.
It is not just MSRP that is part of the discount illusion (same type of illusion that is played all the time at department stores, when clothes, refrigerators, or toasters are marked down by 20,30, 50% off, but they never sell at their "retail" price). So-called invoice is one that is even more illusionary than MSRP, as it creates illusion of a floor for customers and narrows the spread for price discovery negotiations. Information regarding those two parts of the deal plus of course customer rebates and some/many dealer incentives is not well documented public knowledge, available by couple of clicks. Not so long ago, 15-20 years ago, even customer rebates where often not disclosed at dealerships, not to mention dealer's incentives or invoice prices. If anybody can imagine that, even MSRP was almost secret (which precipitated Monroney sticker legislation), but that was even longer time ago, reportedly.
Bottom line, since there is so much sunlight on "official cost" info, the dealers and manufacturers had to adjust their cost structure into more obscure system, where parts of the dealer costs are reimbursed less directly through awards, volume/customer satisfaction bonuses, etc. This allows one to buy some cars $1000 "under invoice", having a good feel of being a "winner", yet dealer don't go out of business any time soon. And it is OK.
I cant believe you posted so many responses, each one with arguments for and against your own points.
On one hand you agree the market dictates the sale prices. But then a few lines later apparently a customer needs to know Invoice - Holdback, as if that constitutes what they can buy it for, or even what they SHOULD buy it for.
On a hot model, that number is worthless and you wont get the car. On a poorly selling model, or a model flooded with units now or in the near future, that can even cost a buyer money. ONLY on a magical combination of exactly the right car will customers fuzzy calculation of the right price work.
So what are you suggesting? You're suggesting an artificial number, at or around cost, and to go up from there. So you're already setting people to lose on cars that sell below cost. (and yes, there are cars that sell below cost. I have personally sold cars for $2000 loses AFTER holdback.. some models just suck and dealers are tired of looking at them).
And if you have to concede, 'go up from there' not 'down from MSRP'.. either way youre at the whims of salespeople. Customers tries to buy at x dollar thats too low, and the salesperson tells him itll take more. At that point, the customer has no information really, except that his plan didnt work, and he has to decide how much above what he thinks baseline is he will go. What does that get him?
The only relevant piece of data is the historical average price paid, and I suppose the standard deviation from there. For some cars the average price paid may be $30,000 but some customers might pay $29k and some pay $31k. TrueCar used to (maybe still does?) tell you that. If you want to offer $28,500 and get to $29000 Id say you did ok, paying less than 2/3s of people if not an even greater percentage. Pretty reasonable I think. Way more reasonable than coming up with a random dollar over 'cost'.
How can your lifetime of cost analysis tell you that you can buy things based on what they cost, instead of what they sell for? Please teach me how to buy a new Iphone for Apples cost, instead of the 100% markup at the Apple Store. I cant find a way, but your industry expertise may enlighten us how you can skip your way around the true market value of something.
There is market average, but there is standard deviation. There are some people who would say that if there is anybody who paid $100 less than they did, they'd feel losers, as they paid $100 more that they "had to" - of course it's a small subset.
Majority of people would like to pay "less than average", but just like with driving, school grades and many other life ventures, it is mathematical impossibility for everybody to be better than average - which doesn't stop most from people believing they are better than average drivers.
I don't think there is one set of rules to achieve that goal of paying less than average market price. It is also matter of effort we want to put into that quest vs. our other life goals.
BTW, you always quote "hot models" as your example for "useless invoice". If we listened to salespeople, Pontiac Aztec would be designated as "hot model". To trully experience a "hot model", one would probably have to be shown a door more than once, which I bet doesn't happen all that often. From my short experience, it is probably no more than 5% of model count and 1% of actual sales volumes that could be designated as trully hot model. PT Cruiser in its first year, Mini Cooper for several years, Pontiac Solstice for short while. You quote Audi Q5 - sure, it might have commanded better markups than other Audis for a short while, I can believe that. I'd never buy a brand new "hot model". Makes no sense whatsoever to me. I like "mature" models, somewhere in the middle or even close to the end of their model lifecycles, so bugs are worked out, prices stabilized and no "hot model" BS. I never felt I need to be first on the block on anything. Not my style - call me "late adopter".
BTW, Chrysler was a master of flash-in-the-pan hot models - usually first three months of good looking new cars, not yet fully in production. Then word gets out it's not so hot when it comes to reliability and everybody moves on.
It is all a legal racket. It is all a numbers game to make the buyer think they got a good deal or the payments is what they can wedge in each month. Keep the price of the new one where it is and play with the trade numbers for a feel good trade. Free enterprise system puts NO limits on margin of profit. More profit, more the economy/investment can grow and more jobs grow.
Clearly I ruffled the car sales person. A cost or price analysis is really not applicable to most products which are generally sold at fixed prices with an occassional discount. New vehicle purchases are the one product which are typically sold at highly negotiated prices for which sufficient information is readily available to assist a buyer in those negotiations.
Comparing the purchase of a new vehicle to the purchase of an Apple product is a strawman argument. They are two completely different products with completley different sellling techniques.
Obviously the market will dictate the ultimate selling price. But what is the selling price. It is not the dealer's initial price nor is it the buyers intial cost estimate. A selling price will only occur when a dealer and buyer arrive at a common amount.
Are you suggesting the best hope a buyer has to achieve a good deal is to show up at the dealership and just let things roll? Of course, most sales people love this type of buyer.
Are you further suggesting the only relevant information buyer need be concened with is the historical selling price of a vehicle? Most published selling price information available is reflective of an average price. How does a buyer use that information to develop a pricing goal other than to recognize the average price, which should be a ceiling and not a pricing goal.
The reality is a buyer cannot hope to negotiate a good deal without some sort of both a cost analysis and a price analysis. Any amount not based on such available information is, as you suggest, purely artificial.
A cost analysis for a new vehicle reflective of the invoice less incentives and holdback is somewhat reflective of reality. Unfortunately, we buyers cannot ever really understand a dealer's actual cost. But using the this invoice analysis at least arms the buyer with information more useful than historical average selling prices.
A price analysis, on the other hand, would be more reflective of the actual selling price of vehicles. Such information can be attained from a variety of sources including Edmunds' forums.
A savy buyer would, of course, perform both. Knowing a reasonable estimate of the dealer's cost along with the average selling price should permit a buyer to achieve a reasonably fair deal and avoid relying soley on a dealer's artifical price offerings.
Interesting both the Government and industry pay millions to employ experienced cost and price analysts. Should not buyers engage in a similar analysis if available?
A savy buyer will perform the analysis and then let the dealer's provide their pricing and then counter with a reasonable price offer.
You seem to be under a bit of a delusion the sales person controls the process. That may be true for the more unsophisticated car buyer. But for those buyers who understand the concept of cost versus price, it is really the buyer who controls the process. It is our money and you want it.
I am most certainly suggesting a savy buyer will develop a reasonble price estimate using all available data to include invoice, incentives, holdback, etc. Only a fool will pay the dealer's initial selling price. Knowledge is power, after all.
Any yes, my lifetime of cost analysis actual does demonstrate a buyer can really buy a vehicle based on what the vehicle most likely costs rather than what a dealer would like to price a vehicle.
I think you are right that buying cars is more similar to bidding system than to purchasing something in a store. However, I don't think you are correct to say that government or institutions are really trying to see costs of their contractors or partners to get proper bids. I do bridge design, where part of our job is to make a cost estimate for a project. To develop it we use published historical bidding prices for similar items (concrete, steel, components, etc.). Nobody is really trying to go to contractor's books and ascertain contractor's costs. Profit margins will vary big time from job to job and nobody is trying to guess whether contractor's made "too much" or "too little" money on the particular job. Competition in bidding process is supposed to keep those prices in check.
It is Wall Street that may be more interested in actual profit margins for publicly traded companies, not government or trading partners. That info is public, so it of course could be used somehow in contract negotiations, but usually indirectly.
Therefore, I suppose it is more appropriate to think of car purchase in terms of bids from dealers rather than guessing their cost structure, at least on the surface. Cost structure plus may be helpful to know our stopping point, but it could also make the process longer than it needs to be. If three or five guys are already quoting you close numbers and letting you walk at price that is way higher than you think it should be, it may be time to adjust expectations, rather than cling to your cost plus approach. Just saying.
The reality is the Federal Government is constantly looking into contractor costs. Google the Defense Contract Audit Agency for an example. Each Federal Agency has a similar audit group.
These auditors number about 5,000 and are involved in reviewing contractor costs from submission of the initial cost proposal to payment of the final voucher. Even after the contract is complete, the contractor is subject to continued Government review for fraud or defective pricing. Defective pricing occurs when the contractor withheld cost information from the Government during negotiations. The Government requires it be on equal footing with the contractor. Google the Truth In Negotation Act, TINA.
In addition to the cost auditors, the Government employs many price analysts to review pricing when a cost analysis is not required under the Federal Acquisition Regulations (FAR). Either a cost analysis or price analysis or both is required for most Government acquisitions.
In addition the Government requires prime contractors to conduct either a cost or price analysis of all its subcontractors. These reviews are also subject to Government review.
I do agree a cost analysis is only one tool available to the car buyer. As with everything, all knowledge is power. At least with such an analysis the buyer has some understanding of the realtionship of the selling price to cost. This can not but help the buyer to make an informed decision on whether to buy or to walk.
Of course, ultimately the selling price must be an agreement betwen the dealer and the buyer as there is always two parties to any negotiation. Sometimes with a spouse there are three parties.
My main client are state and local agencies. They use federal money, but they are not as concerned how much it actually costs the contractor, just the historical averages. The costs come in place only for additional items, like unforseen conditions, claimed extras etc. For those they'll track materials, time and use materials+labor+agreed standard markup. Also, winning bid will be analysed, especially if it is materially lower than the next one - to make sure there were no omissions - in a sense, to find out if it's not too low.
I can see why there is such analysis for defense contractors. Those guys could be all over the place.
It is not just defense contractors. The DCAA, for example, performs cost audits for a number of Federal agencies such as DOT, DOE, and Homeland Security.
In addition to the attention paid to cost, the Federal Government has strict rules regarding the profit a contractor should make on a Government contract.
Contracting with the Federal Government is a very difficult animal these days.
I forgot, analyzing a winning bid is a cost realism analysis in the Federal contracting environment. Designed to assure a bidder is not underbidding to win a contract and then spring cost overruns at a later date. The Feds have many methods to review costs and prices. Wonder how long before the states do the same?
Thankfully for us car buyers and to the chagrin of car dealers there is so much information available regarding costs, dealer tactics, and inventory to allow us to achieve a fair deal. Edmunds was one of the forerunners of this information.
OK, as a real jerk of a customer I would like a car dealer person's reasoning as to why knowing a dealer's cost and therefore the dealer's profit is bad for the buyer. Furthermore, I would appreciate understanding why the only thing which matters is average selling price over time. Both these statements seem to defy logic.
Prices vary greatly over time. When buying a car, which is highly volatile regarding price, the last thing any car buyer should rely on is selling price over a period to time.
A price based on MSRP is the most certain way to lose on a car deal. MSRP is, by self definition, nothing more than a suggestion. How many people would spend thousands on a suggestion?
Do you really think a buyer has to pay a dealer what the dealer wants in order to buy the car? If you do please see me I have something to sell.
Comments
Dealers can make money on the finance deal. They say you don't qualify for the lower rate and get a kickback or incentive. I have seen this many times (most recently with my wife who has an over 800 credit score). People can leave thousands of dollars on the table by not doing their homework when it comes to financing.
With all due respect, you sound like a bunch of vampires, sucking every bit of lifeforce from the dealerships.
Only in this business do people take so much indirect abuse and receive so little reward for their efforts.
The lack of compassion is actually pretty staggering. Some buyers should outright be ashamed of themselves.
Yes, I've done the role. I've been on the inside and seen the practices. And ironically enough, I'll pay damn near list when I buy a new car. Explain that.
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In my opinion, if you can tip your waiter for excellent service then tipping the salesperson that you liked enough to invest in a xx thousand dollar asset should be perfectly acceptable, assuming you're as willing to bankrupt a sale as so many people are.
I never personally accepted a tip from a customer (nor was I ever offered one) but if I was heading to a dealership ready to battle, I'd be prepared to compensate the person who suffers most in the interaction with a slight gratuity to make sure they know their efforts are appreciated. It's not crass to accept when you're barely making enough to survive... I agree it is crass, however, when the salesman is making a healthy commission on the sale.
As I believe it is fully appropriate for this particular thread, here is that reply (I've also included a link to the primary article):
10. Mark up? No dealer sells 200 cars a month at a $3000 profit a piece. That’s what is called a home run and if a dealer can get someone to pay that amount their sales person has done their job. A dealer who is moving that volume is more likely to be making on average $800 to $1300 per unit before paying anyone or for anything. Once your overhead costs are taken out then really there is not a lot left hence why dealers are in business for years. Most dealers are lucky and great at what they do to make a million dollars a year: they would be some of the best in the country.
9. Hold back and advertising. Yes there is a small hold back A couple hundred dollars max. You may have seen $1500 on a $90,000 Lexus. It’s all about percentage of cost. Did you know there is only $1500 mark up in a $20000 Toyota Corolla and $2800 in a GM Truck? The only time any extra is given is a manufacturer credit which most advertise and have to give to the customer and the rest comes out of the dealers profit.
As for kickbacks on advertising this is called a ‘Co-Op’ If you spend $10000 a month advertising out of your pocket the manufacturer will kick back a certain percent often times 70%. Dealers have to advertise They still have to put money out each month for that.
8. Undervaluing a trade. More power to them. Dealers often overpay and I guarantee you they overpay more than they under pay. With the help of the internet customers have become intelligent. They know what their car is worth before stepping foot in the showroom. Dealers are in this business to make money and the sooner people realize the difference between retail and wholesale all of our lives will be easier. As for the lean to value part Banks are banks. The list maker has just thrown that in to fill space. That part has no affect on what people pay for trade ins.
7. Lot packs I think you mean. Lot packs aren't put in place to pay the dealer. They are put in place to keep the doors open every month. This is what the salesman doesn't get paid on since most dealers are supplying these people who are working on commission only. They get an office, computer, inventory to sell from, often times a company demo, insurance, ect. Well This stuff needs to be paid for. An average sized dealerships power bill can be an upwards of $15000 or more a month. They have to pay their managers salaries A lot pack is put in place and has no affect on the customer what so ever It’s an internal thing. Are you sure you know what you’re talking about Mister List Maker?
6. Doc/Admin fees. Every dealer charges them. People do have
to do the paperwork. Let’s let you handle it all and see how quickly you’re
willing to pay $300 for someone to do it. Especially when it costs you like 30
cents a month on your payment. Cash buyers can be difficult when it comes to
this fee and it can get waived. Doc/Admin fees are here to stay. You get paid
for what you do why shouldn’t the people who work for the dealers?
5. This is bad business.. MSRP is MSRP. If you add extras
then yes someone has to pay. It’s building value in their product. Keep in mind
dealers sometimes sell for such a small margin they have to upsell to make any
money on the deal. They’re providing you with a service don’t forget.
4. Extended Protection Plans: Are worth the money and keeps
customers happy. They pay for themselves usually. A GMPP(General Motors
Protection Plan) has an 90% payout Meaning. Out of 100% of warranties sold
there is 90% paid back out in claims. Some warranties are good and some bad.
The manufacturer warranties are the best because they provide wrap around
coverage and protects against wear and tear items. Dealers have to make a
profit on this stuff to survive. Also about the deductible thing. If you’re to
cheap to pay the extra $100-$200 to get a $0 deductible warranty you deserve to
pay every time you have a claim.
3. GAP. Yes it’s a good product. Everyone should have it. If
you wreck your car you have no worries You’ll just go buy another. Also it’s
much easier to have it in the payment. Find me a credit union that sells it for
$150. This shouldn’t even be on the list ?
2. Really? This isn’t 1980. Down payments are sometimes
required. Most people don’t have it. If a dealer is asking for a down payment
it will only benefit the consumer. You have already negotiated your price
before you go in the F&I office so the down payment is not profit. It’s
lowering YOUR payment.
1. Like I said... Everyone works on commission in a dealership. They need to earn a living. With today’s intelligent buyer they know prime is 3%. They know
they can get under 5% for a car loan. Unless they have bad credit. Most A
credit customers know what’s going on so it’s hard to bump a rate. Now if
you’re a subprime customer then if the dealer wants to make a couple
points off of you, fine. There’s a lot of work in a sub prime deal. We’re
not the ones who have hurt our credit in some way. Don’t think it’s a lot
though. A 2% rate bump on a 17.9% loan making it 19.9% only puts a couple
extra hundred in the dealers pocket.
http://listverse.com/2009/03/09/10-ways-car-dealers-make-money-off-you/
When businesses are no longer allowed to make a profit, we all lose. This industry is in a tailspin and being a proponent of this nonsense is pretty remarkably immoral.
In no way should a business be permitted to bilk customers at every turn; but in no way should customers be permitted to set personal, variable pricing.
Discounts used to be used for friends and family. These days, all you have to do is walk into a dealership and be a jerk.
----------------------------------------------------------
In closing, my greater point is as follows:
Either the era of discounting comes to an end, bringing in the era of full and complete transparency with respect to where and when profit is being earned by a dealership.
or
The discounting and variable pricing continues, but the era of tipping struggling salespeople begins. It's almost literally the exact same concept as tipping the waitress earning less than $10 per hour (assuming $10 as a baseline for minimum wage). Why? Well, the average car salesman sells between 10-12 cars per month and discounts 9-10 of them. Often, because of the low front end markup, the salesman makes a flat commission of anywhere between 100 and 200 dollars. Even in the best case scenario, a salesman with a flat base commission of $200 selling 12 cars per month and receiving a $500 volume bonus will make less than $3000 total and will serve approximately 45 customers to achieve those numbers (and again that is in the best case scenario. More often than not, the numbers are 20% less). The emotional strain of the consistent, daily rejection and the low, almost non-existent level of compassion from the customer for the salesperson's plight make car sales one of the least attractive professions around. Unfortunately, many of today's salespeople lack any particular passion in other potential fields of employment and are thus trapped in the business as it is better than the alternative.
And just so it's perfectly clear, I made much more than the average salesman, but I saw the struggles and experienced the frustration of this era of discounting. In the days where people were paying 15% + markup, it was reasonable to seek assistance from the dealers. In this era of 6% markup and $100 flat commissions.... well, let's just say that I'll be tipping my car salesman next time I grind the profit down to zero, assuming that's what I choose to do...
I don't believe anyone is twisting the arms and making someone be a car salesman. It is what it is and if they don't like it then don't hire on.
Too much touchie-feelie going on. Too many want a handout. Tough world out there.
There I feel better too.
It is a tough world and car salespeople are reminded pretty much every day.
If it's too much to ask of you to have a little compassion for them and treat them the way you would like to be treated if you were in their shoes, then that's your right as a citizen. Don't expect me to agree with you though.
Bingo! That's exactly it.
While I completely agree with your statement on the flip side you have salespeople that I wouldn't want talking to my mother.
Good to see you on these forums.
You brought out some good points that reflect reality but you need to understand that, for the most part, you are "whistling in the dark".
I've been around since these forums began and I have banged my head against the wall enough time that I have (for the most part) given up on trying to educate people on how the car business works.
For many, we are slime out to steal from them.
I was a former high level corporate guy who decided to get off the treadmill.
I never planned to stay for thirteen years but I did. At the same family owned store where I had a lot of repeat and referral customers who appreciated my style. Most years I exceeded six figures and rarely did I sell fewer than 20 cars a month. I worked with great management that remains there today.
I decided to retire early. I had had enough and I was tired of the mooches and strokes that were on the increase every year.
Stick around, we have lost most of the other car people who wandered into these forums only to get beat up.
I do have friends here too that support me and that is why I've stuck around.
Some stores can only attract these types and they turn them over constantly.
A lot of quality people have left the business and these people are the replacements.
A $100 flat rate commission? That's $2,000 a month on your 20 cars a month sold isell. Hard to make a living on that.
A salesman is trying to get the most profit for his dealership and himself. A consumer is suppose to help him with that? Doubtful. I do feel for the plight of today's sales people. Probably is a good idea to tip if you get a car way below invoice.
It's a miserable marketplace to be sure but the good stores and the good salespeople can still make a good living.
Holdback is clearly more than a couple hundred on most cars. Regardless holdback is designed to hide the dealer's profit. Obviously an informed buyer must consider holdback in the selling price.
Extended service plans, as all third party consumer sites point out, are always a bad bet. Furthermore, those plans are usually overpriced by dealers by $1,000 or more. Obviously an informed buyer must question both the value and selling price of such plans.
GAP is another vastly overpriced product designed to greatly pad the dealer's profit. GAP does not provide the benefit dealers say it does and is actually rarely used. Also, many insurance companies offer GAP for a fraction of the price dealers attempt to get from buyers. Obviously an informed buyer will look elsewhere if GAP is desired. Really paying a dealer $600 for GAP which might return $2,000 or so if a vehicle is totaled is clearly a bad investment.
A down payment does not help a buyer other than a minor interest savings in most cases. Anyone with a decent credit score will gain virtually nothing from a down payment. A lower payment resulting from a large down payment might appear a benefit, but with an OEM supported financing rate that benefit is an illusion. With a low interest rate, buyers are better served to have that money available than to have given it to the dealer.
The one thing we experienced car buyers know is to never, ever rely on anything spoken by a person whose interest rests in selling us a vehicle. That advice holds true on Edmund's forums as well as at the dealership. In the end, the dealer's objective is diametrically the opposite of the buyer's objective.
So, you are calling all car salespeople liars? Is that correct?
Its clear you know nothing about holdback or how it works so I won't address your comment. It usually amounts to 2% of MSRP and it's paid once a year.
You are right about one thing. It is not your job to compensate a salesperson.
It is your money and if you make an unacceptable offer, you will be shown the door and that car will be sold someone else.
You can visit ten more stores and until you make an acceptable offer, you won't be sold a car.
Sales manager at a Kia dealership told me their sales people work on a $100 flat rate commission.
I'm sure not going to pay more for the car than I have to, never been an advocate about tipping before, but I wouldn't rule it out now with a struggling newbie... and seeing dealerships compensate their sales staff less and less.
You've already won!
That's it...
With the pricing as it is today, the consumer has won.
$15000 cars have a few hundred dollars in profit??
$25000 cars have around $1500 in profit.
Many places have laws and regulatory bodies to protect against gouging and selling for more than list.
99% of cars are sold with discounts.
The back end money is pretty insignificant.
Financing rates are low around the clock.
Cash rebates are available on EVERYTHING.
Dealerships climb over each other to sell anyone and everyone.
Everything in the business office is on sale and a discounted Extended Warranty with all the free oil changes and inclusions is likely to only cost a few hundred dollars in the end, assuming it goes unused... If it is ever used, you will save money. Pretty simple accounting on that one.
Gap protection for $600? It's $250 everywhere I've been and it's pretty reasonably priced peace of mind for people with uncertain employment status'...especially with the economy being what it is today. You're not forced to take it, but some people should be... others obviously won't need it and shouldn't be bothered by it, I agree. I don't agree however with this notion that it doesn't have importance for the guy making median income for a multinational with a family of 4 and a 25 year mortgage...
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Here's the greater context: Everything today is expensive. Most people make just enough to get by. Everyone wants to save money. Car dealers of yesterday created todays reality with overcharging and making ludicrous money on every unit and every add-on. Customers don't want it to happen to them so they bleed profit from the sale at every turn. Tremendous oversight and customer blowback have resulted in appropriately priced assets and accessories being sold at every dealership. Competition among brands and competition within the same brand leave little option for dealers with respect to discounting. Customers use this leverage to gouge dealers in the same way that dealers once used limited supply to gouge customers.
It's balance... but that doesn't imply that there's anything fair about it. Stop hiding behind the idea that it's all about "making sure you get a fair deal." That's the point. MSRP is pretty fair these days. My message is the same as your message to dealers from 20 years ago: Just because you can gouge doesn't mean you should.
Tipping salespeople or fixed pricing: within 10 years, one of these will be the norm.
For a lot of shoppers making 1500.00 on their 25,000 car is WAY too much profit!
I know you mean well here but your words are for the most part, falling on deaf ears. They simply don't care.
If I saw you in person, and we sat together and read everything in this thread, and you still said that, I would honestly think you were mentally challenged. Theres just no explanation for someone thinking they can decide a price based on what they think the profit is. I went over it a few pages back.
The price a dealer will sell a vehicle for are based on MARKET DEMAND AND STATISTICS ON RECENT SALES VERSUS TIME.
If a car is selling well, we will not let you get it for invoice, $500 over invoice, $500 under invoice, WHATEVER. We look back and realize we have 18 cars in stock, selling at 1.25 a day, for $1250 over invoice, and we know the manufacturer can only provide 1.1 vehicles per day over the next 60 days.. so we DO NOT SELL BELOW $1250 over invoice.
You reading about holdback, making your random assumptions, looking at your bank balance, deciding $399 is your max payment, setting a goal of getting XXXX discoutn, WHATEVER, does not make us decide to make a bad decision in terms of inventory management vs profit.
My favorite story is when a real jerk of a customer came in, talked down the nicest salesperson we had, raised his voice, was condescending loud enough for everyone to hear, and then offered $500 under invoice based on his research. We took it. We had been selling them all month long for $2000 under invoice because new models, and a new body style, were coming the start of the new month. Every dealer was afraid of the cars. We lost a lot on those models that month.
It's all relative.
Let me say it again. You only get a price so low as a dealer decides is worth it.
And the only way to decide what price that SHOULD be, is to use the same data a dealer uses. Which is AVERAGE SALE PRICES OVER TIME. Nobody is going to give you a deal in the negative holdback range, if the car is selling over invoice in every statistical example. And paying $100 over holdback is STUPID if the car sucks so bad most people are paying EVEN LOWER than that.
Historical data is the ONLY thing worth looking at.
And then you may wake up and realize that historical data is made up of a mixture of inventory pipeline, customer demand (the only involvement customers have in price as a whole, but not as an individual), and internal dealer/manufacturer incentives.
A great example of this was the Audi Q5 for several years. You could sit here, read about invoice, hold back, dealer bonuses, all that.. and then you would have pay whatever the dealer wanted if you wanted to buy it. The first 2 years, our dealer NEVER sold one for more than $1000 off MSRP (on a $45k vehicle), and we sold every single one Audi ever gave us. There were never more than 4-5 on the lot.
If you want a new Porsche 911 these days, you are paying close to MSRP, or you're just not getting one.
You pay what everyone around you pays. If a dealer let you pay less than most people pay, they made a mistake. With several people involved in the process, few mistakes are made.
One of my favorites I get from the stroker mooch,
"I wanna' be no higher than 150-200/ month"
I basically LMAO and let them know most of the salesman here have cell phone bills higher than that!
The problem is perfectly summed up in your last sentence ("they simply don't care") and it is emblamatic of today's world. People pretend to care about fairness and equality, but only when it suits their purposes or has no direct effect on them. Getting a discount used to be a nice wink from the dealer. Today, even the completely inexperienced buyer laughs at paying full list.
Like I said, as long as there are regulatory bodies in place to protect the consumer and confirm the numbers coming from the dealers, I'll have no problem buying that reasonably priced asset at full list price or close to it. (That is to say leasing that asset... buying cars makes absolutely no sense.)
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I was being hyperbolic with the "EVERYTHING" comment. A lot of cars that wouldn't be expected to have a cash rebate, do... that's all.
My problem comes from people picking a $300 a month car at standard terms, and then saying they want $200 a month at the same terms 'because thats their budget'. If they said that before the test drive, we could of saved everyone some time.
And even the fairness thing, or making a profit thing is mute to me. Customers are right, they dont have to worry about what our profit is, even if its near zero. If you consider the fact that dealers make on average $1000 per car sold, or $100,000 gross profit per month at a normal dealer, thats not THAT bad for someone that bought a franchise, took a loan out for a building, hired some highschool grads, was effectively LENT cars from the manufacturer, and then washed them while they were doing paperwork. Car dealers are really just parking lots, paperwork processors, and car washes. Think about it. We dont do much. So the profit is totally fare. I made 2-3x more as a car salesman for a luxury brand than I did as an entry level Mechanical Engineer (Go UC Berkeley) in California. I worked hard and crazy long hours. I tried, and I cared. So the money is fine in reality.
The problem is not the profit that we take from most buyers, because most buyers made me a good living.
The biggest problems are the people that make unrealistic offers that don't lead to a sale, yet waste your time. Or people that test drive for fun and take up your time. People that 'grind' are only a problem if you let them mentally beat you, which I guess eventually I convinced myself wasn't the problem.
Car sales is a bad place for a depressed complaining kind of person, and gold mine for a positive thinking and acting person.
depressed complaining kind of person= veteran salesman
If a car dealer can get gazilion bucks for a sale, more power to them. However, on the same token, if they can't make any (because of competition, tough market conditions, or what not), I don't care either. It's not in the Constitution that every dealer has to make a profit. It is accepted by the industry that it is OK to sell a car at high markup, upsell fees and then double upsell on those "invaluable" products we all know about. If so, they have to accept reality, when it is a customer who takes them to cleaners and they make hardly any money, or no money at all on a sale. It is dealers who decided to create the Easten bazaars out of their stores, where no price were too high, no add-on product was too crappy and no deal was too shady. It was long time ago of course, one may say today one can say it is next generations of sales people who suffer consequences of that they had not created.
A few weeks ago there was a sales person's rant about MSRP/fees/add-on/GAP and what not, shouting at us it was OK to pay whatever he/she thought or dreamed of us paying. I say wow to that. While in general I agree that MSRP may actually be "fair" price (whatever that means) in many cases, I pretty much disagree with the rest of the rant. If it was just MSRP and I go home, I'd be more than happy. But it NEVER ends there, as it is NEVER enough. What's worse, if you initially agree that that's the good price then it's taken as an invitation for further draining the pocket with marginal added value.
Agree on MSRP - sure, here is $799 dealer prep fee (YES, in Florida plenty charge that much and don't tell me it's for DMV costs, I'm not that dumb), $99 doc fee and $100 voluntary contribution to owner's boat payment (well, I made that one up, but it feels this way at times). Well, let's just say, for the sake of the argument, I still OK it, I just want to go home. Not so fast, Mr. Customer. We have those wonder mop and glo stuff and other protections sell you at prices you won't find anywhere else. BTW, we already put it on the car, so you "have to" pay it. Sometimes it's not even us, it was our distributor that put that great stuff on (like SE Toyota). But that's not the end - when you think it's all, you have to listen to our relentless pitch for "financial products" until Kingdom come. After all that is done, agreeing on all the mandatory charges and voluntary offers can turn a $20K car easily into $25K loan with 3 thousand downpayment, if one is not careful. It's still same car with nothing of substance really added to it, just a few feel good items of some value that is nearly close to what you are paying. So that $20K MSPR car that was worth about the asking price, turned into $28K plus interest AND it is actually worth $18K the moment you drive away.
That's why people feel that they had to adjust their thinking. It's a defense mechanism - since dealer thinks it's OK to basically inflate product's price by whatever number they dream that day and sell items of questionable value, they decided it's OK to strip dealer from any profit, just for the sake of it. The dealer started the game, they made the rules, then they rigged them - in response many customers decided it is to play in kind. Tid for tad psychology.
BTW, just to make it clear - I'm not one of those people, I just understand their thinking. Many people don't have time to research prices, profit, market conditions. All they know is dealers are trying to get as much money from each transaction, as possible and do not have internal stops in pursuit of such profit. If they're shooting the moon, why shouldn't customer?
2018 430i Gran Coupe
2018 430i Gran Coupe
My most recent purchase was a Toyota. The dealership I purchased from was also where I had purchased my previous Toyota. When I emailed them about what I was looking for, they undercut my offer. The manager told me they wanted to make sure I didn't go somewhere else, because Toyota holds that against them as a lost sale. It sounded like that affects their bonus system. It got me thinking, there are probably all kinds of crazy formulas at play here.
I treat the salespeople with respect and I hope that they will do the same for me. I figure we are all in the same boat here. I'll bet neither of us knows how much profit really is made. I do know I couldn't be a car salesman. It seems like a rough job, and it's hard to make money selling cars these days.
First, why the exclamation point?
Second, how much below invoice?
In the past I've visited Honda dealerships with the dealer installed mud guards, pin stripes, MOP n glow etc, but not on recent purchase of 2012 Civic.
I treat salesman with respect as well, on the few occasions I've been disrespected, I let them know about it.
We frequently see these " invoice sales" on new vehicles, so yeah, they're making money.
I changed careers about three years ago (I was on the buy side in my industry) and now I am in sales.
I am extremely sympathetic to salespeople since I am one now (albeit not in car sales).
However, when I, polite as I can be, outline what my needs, buying plans and expectations are via internet or phone and have the sales person tell me how they can't quote unless I come in, that's an immediate red flag and I cross them off my list.
Also... if I am talking to you for the first time (or tenth time) don't call me "buddy" or "bro". :mad:
Everyone is entitled to a profit,but it starts with mutual respect.
The famous example is a guy who walks in, does random fuzzy logic, offers $500 below invoice, and buys a car that has been selling for $2000 under invoice all month long because of many manufacturer incentives to get the soon to be old models out of there.
Then, compare that with the times when well meaning people wanted to buy an Audi Q5 and made bids around invoice, only to simply have to drive home and buy something else, OR go to the other dealer and finally give in around MSRP.. atleast there they could save face as if they were people that just happen to be willing to pay MSRP.
My best friend happened to become the #1 producer at a competing dealer (same brand) 30 miles from my dealer where I was the #1 producer. We would call each other on Sunday driving home and discuss all the similar customers we had, ones he met on Saturday and I sold on Sunday, and the opposite of course too. It's amazing how many people put on a show at one dealer to find out the bottom line, and then go into another place with a whole new persona and pitch to the salesman. I promise you, we can smell that, and often leave information out, or spice up the deal for the other salesman just in case. If I can see that you're not buying anyway, but want to take info with you, I promise you you're getting some inflated/fuzzy info on your notes. "Oh man, you sure set Mr. Nelson up for me.. Thank you" are what makes up for Mr. Nelson wasting 2 hours of your time on a Saturday. And as a payback, you got Mr. Smith the next week from your buddy. Same thing happens everywhere.. people get 'walked' by BMW and buy an Audi. Same exact time somoene is buying a BMW because they got walked by Audi. Cant win them all, but you can sure enact some revenge and still make a good living at it.
The last thing any of us buyers need worry about is how much profit a dealer makes. Our only concern is how much money we pay. There is absolutely no way we can understand a dealer's cost structure and profit margins.
Negotiating hard with a dealer to attain a low price can hardly be considered gouging the dealer. No dealer will sell a vehicle at anything buy a price the dealer can live with.
Some of us buyers recognize MSRP has been adjusted upwards to give the illusion of a price discount. That has allowed the various buying internet sites like True Car to flourish by giving some buyers that illusion. Truly if anyone pays the TC price they really did pay more than they had too.
At $600 or so, GAP is not a good bet. The people who need GAP the most are typically those with the worst credit, those who would be hard pressed to come up with the additional funds to pay off a loan in the event their brand new vehicle was totalled and the pay off was not adequate to cover the loan.
However, those folks are typically required to put a large down payment to secure a loan. This obviously reduces the potential short fall if the car was totalled. Paying $600 for a potential risk of $2,000 or less is not a smart bet.
People should also recognize many insurance companies will provide similar coverage for a fraction of the price dealers charge.
And really, the back end profit for a dealer is hardly insignificant. Most dealer F&I people strive to average at least $1,000 or more on the back end. I believe Auto Nation's latest average is over $1,500 per vehicle.
People should google F&I Scams, How to Survive the Dealer's F&I Office, and other such sites to get a real understanding of the back end profit schemes dealers employ. Edmunds has an informative Confessions article on this very subject
Holdback is provided by the OEM to assist the dealer in selling vehicles by hiding a bit of profit over and above the profit suggested by the difference between invoice and MSRP. While this process is a bit deceiving, there is nothing inherently wrong with the process. It is, however, something a savy buyer should consider.
I have been involved with cost and price analysis for more than thirty years. I fully understand profit and cost structure which includes direct selling costs, overhead such a facilities, general and administrative expenses such as management, etc. I suspect I know for more on this general subject than most people, including the dealer's accountant.
I always use this knowledge to win in price negotiations. It is very amusing to witness a car sales person attempt to deceive me on cost type matters. I always let the car sales person believe I know little, mentally challenged perhaps. False arrogance rarely has postive results for the sales person.
I never suggested a buyer develop a price strategy based on the dealer profit. There is simply no way any of us can truly compute a dealer's profit, there are simply too many unknowns. As a buyer it is incombent on us to develop a reasonable estimate of a dealer's cost. Such an estimate is essential in any cost or price negotiation. In fact, the Government spends millions of dollars each year on such analysis.
The most effective method to develop a reasonable estimate is as follows:
Learn the invoice price of the vehicle.
Reduce the invoice price by the dealer holdback which can be found on Edmunds.
Further reduce the amount by any OEM incentives both for the buyer and dealer.
This will not give a person the dealer's actual cost but it does represent the best anyone can do without having knowledge of the unique cost and price considerations for any single dealer. Reality is a dealer's true cost is likely something less than this amount.
Use the result as the starting point for negotiations and work upwards from that amount. As you suggested, any price must reflect current market conditions. As a result it is often advisable for a buyer to postpone a purchase of a new model or hot selling vehicle until such time as the market has swung more to a buyer's market.
Never work down from MSRP or a dealer's offer, both are inflated. This will almost always result in a buyer paying too much for a vehicle.
Clearly a dealer will only sell a vehicle at a price the dealer can accept within its cost structure and profit margins, which does reflect market considerations. Alternatively as a buyer, it is my duty to buy the vehicle at a price I can live with based upon my bank account, income, etc. If those two amounts eventually meet, we have a deal. If not, I will look elsewhere or buy something different.
I did not imply all car sales people are liars.
What I suggested is car sales people have a goal which is to sell the vehicle at the highest possible price. That goal is opposite of the goal of most buyers. Therefore, a savy buyer should never, ever simply accept anything a car sales person says.
To set the record straight, I believe most car sales people do not intentionally lie. They do, however, flavor their comments to increase the dealer's profit. Are you implying they do not?
I do know what hold back is. It usually runs between 2 and 3 percent. On a $30K vehicle that is $600 to $900 for each vehicle sold. Whether it is paid weekly, monthly, or yearly makes no difference. What exactly are you suggesting I do not know about holdback?
When I buy a vehicle, usually every couple of years and usually Honda or Acura, I compute a reasonble price which is reflective of the dealer's cost and market conditions. I really do doubt I have purchased from you. I contact as many dealers as necessary via the internet to gauge current market conditions.
As a side benefit, contacting dealers via the internet eliminates the need to be shown too many doors. It is always wise not to risk damaging the backside by a wayward door.
I identify the dealers most obviously willing to sell. If the dealer meets my price, the dealer will be rewarded with a sale.
And really, dealers do not sell customers vehicles, customers buy vehicles. As it is our money, all power rests with the customer not the dealer. Are you suggesting otherwise?
"Cant win them all, but you can sure enact some revenge and still make a good living at it." Not sure how revenge equates to selling vehicles for the dealer or making a good living for the sales person. Really, I would not have thought revenge is a good business practice.
However, if some feeling of revenge allows the sales person feel good, so it goes.
It is not just MSRP that is part of the discount illusion (same type of illusion that is played all the time at department stores, when clothes, refrigerators, or toasters are marked down by 20,30, 50% off, but they never sell at their "retail" price). So-called invoice is one that is even more illusionary than MSRP, as it creates illusion of a floor for customers and narrows the spread for price discovery negotiations. Information regarding those two parts of the deal plus of course customer rebates and some/many dealer incentives is not well documented public knowledge, available by couple of clicks. Not so long ago, 15-20 years ago, even customer rebates where often not disclosed at dealerships, not to mention dealer's incentives or invoice prices. If anybody can imagine that, even MSRP was almost secret (which precipitated Monroney sticker legislation), but that was even longer time ago, reportedly.
Bottom line, since there is so much sunlight on "official cost" info, the dealers and manufacturers had to adjust their cost structure into more obscure system, where parts of the dealer costs are reimbursed less directly through awards, volume/customer satisfaction bonuses, etc. This allows one to buy some cars $1000 "under invoice", having a good feel of being a "winner", yet dealer don't go out of business any time soon. And it is OK.
2018 430i Gran Coupe
On one hand you agree the market dictates the sale prices. But then a few lines later apparently a customer needs to know Invoice - Holdback, as if that constitutes what they can buy it for, or even what they SHOULD buy it for.
On a hot model, that number is worthless and you wont get the car.
On a poorly selling model, or a model flooded with units now or in the near future, that can even cost a buyer money.
ONLY on a magical combination of exactly the right car will customers fuzzy calculation of the right price work.
So what are you suggesting? You're suggesting an artificial number, at or around cost, and to go up from there. So you're already setting people to lose on cars that sell below cost. (and yes, there are cars that sell below cost. I have personally sold cars for $2000 loses AFTER holdback.. some models just suck and dealers are tired of looking at them).
And if you have to concede, 'go up from there' not 'down from MSRP'.. either way youre at the whims of salespeople. Customers tries to buy at x dollar thats too low, and the salesperson tells him itll take more. At that point, the customer has no information really, except that his plan didnt work, and he has to decide how much above what he thinks baseline is he will go. What does that get him?
The only relevant piece of data is the historical average price paid, and I suppose the standard deviation from there. For some cars the average price paid may be $30,000 but some customers might pay $29k and some pay $31k. TrueCar used to (maybe still does?) tell you that. If you want to offer $28,500 and get to $29000 Id say you did ok, paying less than 2/3s of people if not an even greater percentage. Pretty reasonable I think. Way more reasonable than coming up with a random dollar over 'cost'.
How can your lifetime of cost analysis tell you that you can buy things based on what they cost, instead of what they sell for? Please teach me how to buy a new Iphone for Apples cost, instead of the 100% markup at the Apple Store. I cant find a way, but your industry expertise may enlighten us how you can skip your way around the true market value of something.
Majority of people would like to pay "less than average", but just like with driving, school grades and many other life ventures, it is mathematical impossibility for everybody to be better than average - which doesn't stop most from people believing they are better than average drivers.
I don't think there is one set of rules to achieve that goal of paying less than average market price. It is also matter of effort we want to put into that quest vs. our other life goals.
BTW, you always quote "hot models" as your example for "useless invoice". If we listened to salespeople, Pontiac Aztec would be designated as "hot model". To trully experience a "hot model", one would probably have to be shown a door more than once, which I bet doesn't happen all that often. From my short experience, it is probably no more than 5% of model count and 1% of actual sales volumes that could be designated as trully hot model. PT Cruiser in its first year, Mini Cooper for several years, Pontiac Solstice for short while. You quote Audi Q5 - sure, it might have commanded better markups than other Audis for a short while, I can believe that. I'd never buy a brand new "hot model". Makes no sense whatsoever to me. I like "mature" models, somewhere in the middle or even close to the end of their model lifecycles, so bugs are worked out, prices stabilized and no "hot model" BS. I never felt I need to be first on the block on anything. Not my style - call me "late adopter".
BTW, Chrysler was a master of flash-in-the-pan hot models - usually first three months of good looking new cars, not yet fully in production. Then word gets out it's not so hot when it comes to reliability and everybody moves on.
2018 430i Gran Coupe
Comparing the purchase of a new vehicle to the purchase of an Apple product is a strawman argument. They are two completely different products with completley different sellling techniques.
Obviously the market will dictate the ultimate selling price. But what is the selling price. It is not the dealer's initial price nor is it the buyers intial cost estimate. A selling price will only occur when a dealer and buyer arrive at a common amount.
Are you suggesting the best hope a buyer has to achieve a good deal is to show up at the dealership and just let things roll? Of course, most sales people love this type of buyer.
Are you further suggesting the only relevant information buyer need be concened with is the historical selling price of a vehicle? Most published selling price information available is reflective of an average price. How does a buyer use that information to develop a pricing goal other than to recognize the average price, which should be a ceiling and not a pricing goal.
The reality is a buyer cannot hope to negotiate a good deal without some sort of both a cost analysis and a price analysis. Any amount not based on such available information is, as you suggest, purely artificial.
A cost analysis for a new vehicle reflective of the invoice less incentives and holdback is somewhat reflective of reality. Unfortunately, we buyers cannot ever really understand a dealer's actual cost. But using the this invoice analysis at least arms the buyer with information more useful than historical average selling prices.
A price analysis, on the other hand, would be more reflective of the actual selling price of vehicles. Such information can be attained from a variety of sources including Edmunds' forums.
A savy buyer would, of course, perform both. Knowing a reasonable estimate of the dealer's cost along with the average selling price should permit a buyer to achieve a reasonably fair deal and avoid relying soley on a dealer's artifical price offerings.
Interesting both the Government and industry pay millions to employ experienced cost and price analysts. Should not buyers engage in a similar analysis if available?
A savy buyer will perform the analysis and then let the dealer's provide their pricing and then counter with a reasonable price offer.
You seem to be under a bit of a delusion the sales person controls the process. That may be true for the more unsophisticated car buyer. But for those buyers who understand the concept of cost versus price, it is really the buyer who controls the process. It is our money and you want it.
I am most certainly suggesting a savy buyer will develop a reasonble price estimate using all available data to include invoice, incentives, holdback, etc. Only a fool will pay the dealer's initial selling price. Knowledge is power, after all.
Any yes, my lifetime of cost analysis actual does demonstrate a buyer can really buy a vehicle based on what the vehicle most likely costs rather than what a dealer would like to price a vehicle.
It is Wall Street that may be more interested in actual profit margins for publicly traded companies, not government or trading partners. That info is public, so it of course could be used somehow in contract negotiations, but usually indirectly.
Therefore, I suppose it is more appropriate to think of car purchase in terms of bids from dealers rather than guessing their cost structure, at least on the surface. Cost structure plus may be helpful to know our stopping point, but it could also make the process longer than it needs to be. If three or five guys are already quoting you close numbers and letting you walk at price that is way higher than you think it should be, it may be time to adjust expectations, rather than cling to your cost plus approach. Just saying.
2018 430i Gran Coupe
These auditors number about 5,000 and are involved in reviewing contractor costs from submission of the initial cost proposal to payment of the final voucher. Even after the contract is complete, the contractor is subject to continued Government review for fraud or defective pricing. Defective pricing occurs when the contractor withheld cost information from the Government during negotiations. The Government requires it be on equal footing with the contractor. Google the Truth In Negotation Act, TINA.
In addition to the cost auditors, the Government employs many price analysts to review pricing when a cost analysis is not required under the Federal Acquisition Regulations (FAR). Either a cost analysis or price analysis or both is required for most Government acquisitions.
In addition the Government requires prime contractors to conduct either a cost or price analysis of all its subcontractors. These reviews are also subject to Government review.
I do agree a cost analysis is only one tool available to the car buyer. As with everything, all knowledge is power. At least with such an analysis the buyer has some understanding of the realtionship of the selling price to cost. This can not but help the buyer to make an informed decision on whether to buy or to walk.
Of course, ultimately the selling price must be an agreement betwen the dealer and the buyer as there is always two parties to any negotiation. Sometimes with a spouse there are three parties.
I can see why there is such analysis for defense contractors. Those guys could be all over the place.
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In addition to the attention paid to cost, the Federal Government has strict rules regarding the profit a contractor should make on a Government contract.
Contracting with the Federal Government is a very difficult animal these days.
2018 430i Gran Coupe
Prices vary greatly over time. When buying a car, which is highly volatile regarding price, the last thing any car buyer should rely on is selling price over a period to time.
A price based on MSRP is the most certain way to lose on a car deal. MSRP is, by self definition, nothing more than a suggestion. How many people would spend thousands on a suggestion?
Do you really think a buyer has to pay a dealer what the dealer wants in order to buy the car? If you do please see me I have something to sell.