How Much Profit Should A Car Dealer Make?

british_rover · January 2007

This must just be a difficult customer month.

I just called my 27,000 dollar XC90 lady and told her that was not dooable.

I told her the price is still 30,000 dollars just like it was last week and the week before.

She doesn't say anything for a few minutes and then says.

"I have somebody coming to look at my volvo tomorrow and if he pays me what I am asking then that should make up some of the differance. So what is your bottom line price then?"

:mad:

ME :30,000 dollars just like I said.

HER: Oh so you won't go below that>

ME: NO

HER: Ok well thanks for your time.

She is going to spend the next two months looking for a 27,000 dollar XC90 and she will find one eventually because in two months you might be able to buy a 27,000 dollar XC90 with the miles and equipment she wants.

isellhondas · January 2007

That guy defines the word "stroke".

isellhondas · January 2007

She will probably end up with one with high miles for her price and the repair bills will stagger her!

lrguy44 · January 2007

I wish you guys would sell it and next time she calls you can tell her you sold it for 34k

british_rover · January 2007

It is probably going to be inter-company sold to our Volvo dealer next week and it will be sold to them for 27,500 or so. They will certify it and ask 35,000 dollars. :surprise:

boomchek · January 2007

It happens once in a while. I don't even notice it or let it bother me. Ignore them and they'll go away.

abraindrainer · January 2007

Subaru is worth more like 17k and that he MIGHT consider it for about 18k

This guy has probably tried to trade in a few vehicles and found out that he was getting far below listed numbers (for whatever reasons). He probably just reasoned that you got this unit far below the listed numbers too and he may have not added all the reconditioning at $100/hour.

Basically, poor guy is responding to envrinomental conditioning... he might be wrong or mis-informed, etc. but I would not classify him as crazy!

Too many dealers lowball the trade-ins and overprice their services :surprise: and this is the direct result of that behavior.

dino001 · January 2007

Ditto. His behavior is no different than unrealisticaly high asking prices that are so commonly seen at dealers lots. That Legacy migh actually be worth the asking price or close, but I can still remember seing a 5-year old Ford Escort with sticker close to $9K (it was probably worth about $5 at retail, 6 at best). Not particularly clean, low mileage or anything like that - all it too was a college town 2 weeks before semester start and low inventory on any used cars at that point of time - perhaps a shipment was due next week. But if a 19-year old boy or girl shows up with dad's hard-earned money, but no dad to protect him or her (or an international student coming off the plane) - we have a Hawaii trip on 5-year old Escort.

grandtotal · January 2007

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

I agree that that scenario would not help, but in this case I believe that the stock shown online seems to reflect what is on the ground.

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

Good question. I have also been keeping tabs on the cars available at a number of other dealers in the area as I drive around, so I think that the conversation would probably progress along the lines of " There are 8 other cars with this package in acceptable colours within 30 minutes of here available. Thanks for your time, I'm going to go and try and buy one of those."

The days in inventory angle of negotiating has never worked with me...unless the car has been in stock for a year or its a used car that I made a big mistake buying or over valuing.

That's fair enough, and it may be what I find. But, in truth, I'm prepared to make a reasonable offer which should be acceptable if we just ignore the notion that the car is hot and unobtainable, which it is not.

qbrozen · January 2007

Is this actually the first time you've had this happen? I'm pretty sure I've overheard this same conversation every time I am visiting a dealership. So get used to it. ;b

grandtotal · January 2007

Customer told me he would do a deal for 20k difference. I do it and he says he wants to research it to make sure he is getting a good deal.

That's really no different from a dealer saying "If I could do it for $20k, would you buy it?" I reply "Yes" and the dealer comes back with "Well I can't do that how does $22k sound?"

qbrozen · January 2007

That's really no different from a dealer saying "If I could do it for $20k, would you buy it?" I reply "Yes" and the dealer comes back with "Well I can't do that how does $22k sound?"

Actually, that's QUITE different. The equivalent tactic on the dealer's side would have to be, "I will do it for $20k," and then coming back and saying, "I changed my mind, I'm going to wait to see if someone will pay more."

british_rover · January 2007

If I ever use the, "If I could do the deal for X would you buy it," line then I always make sure the X is a doable number.

qbrozen · January 2007

Haha. You are making me think of some conversations I've had with greenpea salesfolk who use that line and have NO CLUE what they could really do the deal for.

I don't remember specifics, but I do remember saying something like, "hell yeah I'll buy it for that!" when they ask something silly like, "So if I could get you in that new snazzymobile for $99 per month with nothing down ..."

They always come back with, "well, for $10k down I could do it."

grandtotal · January 2007

You're right, it is quite different. I really meant from the point of view of making (or appearing to make) or accepting an offer with no real intention of carrying through.

lrguy44 · January 2007

That is called a low ball - I would not do that. If I quote a price, it is a quote

mako1a · January 2007

When I offer a SM $22k plus trade on a car it means I am ready to produce a check within a minute or a Cashiers Check within half an hour and I have my trade's title with me. Not check with my credit union to see if they will OK me if the loan amount is good with them. Some dealers here call it lowballing, but I call it a ready, willing buyer that is serious about buying if you're serious about selling. I've been on the selling side a few times and I appreciated people that had their ducks in a row. Cash on the car hood means much more to me than high dollar talkers with no means to complete their end.

lrguy44 · January 2007

I think you misunderstood me - what I was alluding to is when a dealer says he can sell for $x, but when you show up it is $x+$y. That is a low ball. I like the way you work. I would tell you if it worked for me and if so we have a deal - otherwise, Next. The problem I have is that most people who do that either are unrealistic on the amount offered or the trade value or both.

mako1a · February 2007

I'd be cautious using that phrase "next". That does reverberate through the Vietnam Veterans meetings, Master Masons Lodge, Ruritan Club and even my wife's Bridge Club. But what do I know, I'm just a small guy with a few bucks in the bank and the dealer has lots and lots of cars for sale. Actually 1.2 cars for every 1 car buyer in America.

abraindrainer · February 2007

Frankly, this same tactic is utilized by the sellers (almost) all the time.

For example: "My quote to you is $X" then when you show or start crunching the numbers: "I also have to charge for etching, stripes, doc fee, etc". We all know that doc fees are there to add profit back into the deal and almost everyone charging it these days. Some dealerships even quote: Vehicle MSRP (with destination) is $X and your "savings" is $Y and then when you arrive they add the destination back in again and the quote goes to (X-Y)+ destination + junk fees.

In fact, the only honest way to quote things is $X+TTL (gov't fees) but it is hardly ever done.

Furthermore, if you give a (mini-sized) number, it is fequently taken to a back room for the sales persons and manager to "think" about it. What is the difference there?

lrguy44 · February 2007

In fact, the only honest way to quote things is $X+TTL (gov't fees) but it is hardly ever done

Actually, when I do a quote it is OTD ($x+fees+tax). It is the only way to work.

We all know that doc fees are there to add profit back into the deal and almost everyone charging it these days.

Actually, the sales department is not paid on doc fees. They are dealer profit and are not even considered when desking a deal.

Furthermore, if you give a (mini-sized) number, it is frequently taken to a back room for the sales persons and manager to "think" about it. What is the difference there?

The difference is that in most cases the manager makes the ultimate decision if a thin deal makes sense doing. We are very fortunate here as we can make those decisions if need be without management involvement.

dino001 · February 2007

Actually, the sales department is not paid on doc fees. They are dealer profit and are not even considered when desking a deal.

It is not really customer's problem, how the final price is arrived to. It can be $1 price and $19999 fee or the other way around. The real problem is it is almost never voluntarily disclosed to the customer in their "final" number (your place may be a rare exception). Ads, conversations and even vague quotes quoting saying $18999 in big letters, almost always mean $18999+this+that+something else+TTL. Some even have audacity to deduct $3000 trade or cash down and still say "YOU PAY" whatever is left, like that cash and trade was handed by dwarves or a Santa Claus :sick:

abraindrainer · February 2007

This is an intersting article Auto dealer glut hurts U.S. makes! About two-thirds of 15,000 dealers who sell Big Three vehicles need to close, says analyst and ex-GM adviser.

With an average domestic dealer selling anywere between a half to a quarter of the volume of some Asian imports it is no wonder that the profit margins (and games) have to be greater at some domestic automaker dealerships.

nthe · February 2007

"Why not make the salespeople salaried with no commission and offer all new models at the same flat price at every dealership?

How about a finance person that shows the consumer a list of interest rates they have available based on credit score and length of financing. No BS.

This won't happen because the dealers are afraid to lose their fat profit margins. They could no longer take advantage of uninformed consumers. They could no longer underpay a salesperson for having a bad month. I don't need someone to "sell" me a car. I need a customer service agent (salesperson) to answer my questions. Someone who actually knows the product and leaves the BS out of the conversation.

This won't happen because the manufacturers can't bring themselves to stop producing cars that aren't selling. They stick the dealers with these unwanted vehicles and force them to sell them.

This won't happen because the UAW wants the people they represent to keep working regardless of how much the public will buy of the product they produce.

Maybe every new car should be custom ordered! Rant over. "

there are places like this, have you ever heard of carmax? the problem with carmax, is that their prices are higher than most dealerships but they are the "good guys" cause they present themselves like they don't play the "traditional" games even though they do.

nthe · February 2007

edmunds may "tell" you that the vette is worth $X, but is can edmunds sell you the car? This dealer is selling the car at a premium, cause thats what vettes are, premium cars. i have ZERO sympathy for you cause you are trying to buy a luxury item, not a neccessity. This dealer wants his price for the vette, and he feels your offer is too low, plain and simple. its his car and he can sell if for what price he wants. move on to another car already.

dino001 · February 2007

Ditto - there is no law saying "Edmunds price is the one". It's ultimately a transaction, i.e. both parts have to be satisfied. One can question dealers' judgement, whether it's sound or not, but it's their car, they paid for it, they pay interest on it to the bank, so it's up to them when and for how much they want to sell it. Same with the trade: they'll have to do something with it, they'll have to pay for it, so they'll do it only when they think it will benefit them enough to offset possible risk.

Conversely you - you could either get over the price and acknowledge your initial assessment was incorrect (so was Edmund's), or insist your assessment is correct and have no car (not that car anyway). There is no third way here until one party changes their mind.

joel0622 · March 2007

There is no magical formula that is going to say what we should make. There are to many variables from line to line. Making a sales person salaried won't work because this is a business where 30% of the people are selling 60% of the cars and the carrot has to be there to get them to work the hours we do.

In our eyes if a consume pays sticker for a car and gets average wholesale for his trade he did not get ripped off like so many people seem to think. The majority of the people pay "sticker" for every thing they buy with the exception of a car.

If you go to a dealership and pay more profit then the Jones did that is your fault not mine. The Jones came prepared to purchase an automobile and new what the heck they were talking about.

If you are one of those people who went and bought a car and payed sticker for it and then after several days when the eather wears off you hear that your friend bought one $400 cheaper and THEN you decide to do research and come here and read the prices paid forums, don't start screaming that you got ripped off, and all dealers are liars, cheaters, thieves, and drug addicts. It was your actions or lack of them that caused you to pay more then the Jones. We will not look at your address and say "Hey your neighbor bought one yesterday, he payed less so I will knock $400 off for you to". Thats not the way it works.
I wish it was one price and what you see is what you pay, but the way this business has evolved it won't happen, the dealer and the smart consumer both hold there cards to close to vest. We always believe you will pay a little more and you always think we will take a little less.

lrguy44 · March 2007

There was a study done several years ago that one price dealers made higher grosses than dealers who negotiated.

snakeweasel · March 2007

In our eyes if a consume pays sticker for a car and gets average wholesale for his trade he did not get ripped off like so many people seem to think.

That would depend on the car and the market. But truth be told on most cars they are sold at below sticker so on most cars you are ripped off buying at sticker.

If you are one of those people who went and bought a car and payed sticker for it and then after several days .....

Are you saying that its ok to take advantage of the uninformed?

mikefm58 · March 2007

Are you saying that its ok to take advantage of the uninformed?

That's just the way business works. The uninformed or uneducated always pay more than the smart shopper. Buying a car is a business transaction. So to answer your question, Yes. If you can't cut it, go shop at Carmax.

snakeweasel · March 2007

And people wonder why car salesmen(women?) get bad reps.

joel0622 · March 2007

Are you saying that its ok to take advantage of the uninformed?

You don't get it. I am saying is that if you pay the price that is posted on the Window sticker then you were not taken advantage of, you paid the Manufactures Suggested Retail Price. We suggested it and you paid it. This whole "I have been taken advantage of" line is a load of crap and an indication of our society that thinks every one owes them something. Nothing happens to you that you don't allow to happen. But it is always easier to just point the finger at some one else and cry, I didn't know. I am an uninformed consumer and the big bad car dealer made $400 more on me then he did on the guy who spent 8 hours of his personal time researching the sale. Some one tells me that they were "Taken Advantage of" I would tell them to go peddal that crap on a different street corner. This is stuff I feel the need to teach my Teenage daughter.

Want to talk about getting ripped off, forget about the guy who sells you a car, makes a $1500 gross wich he gets 25%-40% of depending on his pay plan. Lets talk about when you sell a house for $225,000. A Realtor comes pounds a sign in your yard and even if the house sells the same day you still pay this cat $13,500 for pounding a sign in your yard, filling out 6 forms and telling you the address of the office to go to closing. (ok that was just a little of topic rant there)

imidazol97 · March 2007

The price of the house already was established and a contract was made between seller and agent--albeit outrageous in some circumstances. For sale by owner has lots of merit.

But many items have outrageous list prices, MSRPs, on them at which they never actually sell to a sane person. The usual selling price is much below that and that's the case of a car. Check out gold jewelry's list price.

joel0622 · March 2007

Heck, check out furniture some time. Mark up there is 300%-400%

I was not talking about the price of houses, I was talking about the commision a realtor get paid to sell them.

Any time you work in a sales job that you only have to sell two of your products and that allows you to live an above average income you know commisions are good.

fezo · March 2007

This is always interesting to me. Since poking in here over the years I have a lot more respect for the sales folks but also see ones who represent all that is wrong with the system.

There is, of course, no right answer to the topic title, but I found the recent exchange about people getting ripped off paying MSRP vs. Edmunds, or someone else's dollar figure of a good deal and how I figure this relates to teh one price concept.

OK, so I am the local Acme dealer and you are buying a new Acme. Under the normal system you will either come on in and pay our MSRP or you will have studied enough to know there's likely room to negotiate and do so. Maybe you save $2k. The next guy comes in and pays full list and I make $2K more from him than from you.

OK, so I now I am in this world where paying MSRP is unethical so Mr. MSRP comes in and I cut him $1,000 break because it is "the right thing to do." At some point I have to make up that $1,000 somewhere. That's when you walk in. Well, now I can't cut you a $2K deal anymore because I gave away half of your money. Sorry.

I think one price dealerships have more or less done this - just cutting the pie a little more in their favor in exchange for not haggling. For some people that's worth it.

I just bought a new(er) Ody two weeks ago. When I balked at the $189 doc fee they just knocked it off the price of the van. Their quoted theory was they don't want someone coming back later saying "hey, you charged me $x for doc fees and waived them for that guy," all the while with a lawyer by his side. Hey, whatever works.

I agree with the folks that say don't take an Edmunds (or anyone else's) price a gospel. You'll find out what a dealer can do. Sooner or later one of you will blink. One thing I have found over the years is that you can negotiate all day if that's what you have a mind to do. The salesman is there anyway so you won't wear him out that way. I don't recommend it. It's no fun for either of you. Like teaching a pig to sing.

snakeweasel · March 2007

You don't get it.

Oh I get it you will take advantage of an uneducated buyer and not say something like "the market price on this car is actually $X". Now of course you will say that if you had one of those rare cars that actually sold for more than MSRP.

Want to talk about getting ripped off,

But we are not talking about them are we?

snakeweasel · March 2007

Any time you work in a sales job that you only have to sell two of your products and that allows you to live an above average income you know commisions are good.

Unfortunatly real estate sales is not one of them (unless you sell only multi million dollar homes). When you sell a home you split the commission with the buyers agent, then you have to give some of what you keep to the office you work out of, franchise fees and stuff like that. Then there is the considerable expense of marketing and showing homes as well as paying the assistant you have to do all your paperwork. Tell me do you have all those expenses doing car sales.

But then we are not talking real estate sales here are we?

lrguy44 · March 2007

Snake, Just for argument. If someone is uninformed about buying a house, car, or hiring a CPA, whose fault is that? I suppose the guy at Sears should tell the uninformed buyer that the $2000 washing machine is cheaper at Home Depot. I should tell someone to go buy a Hyundai because it costs a lot less than a LR? Give us a break.

snakeweasel · March 2007

OK, so I now I am in this world where paying MSRP is unethical so Mr. MSRP comes in and I cut him $1,000 break because it is "the right thing to do." At some point I have to make up that $1,000 somewhere. That's when you walk in. Well, now I can't cut you a $2K deal anymore because I gave away half of your money. Sorry.

Why? If the market value of the car is $2K under MSRP and you "gave someone a break" by selling that car for $1K under MSRP that means you actually sold it for $1K more than you could have. Does that mean that you can now cut me a deal at $3K off of MSRP because you made an additional $1K on someone else?

One thing I have found over the years is that you can negotiate all day if that's what you have a mind to do. The salesman is there anyway so you won't wear him out that way.

While the salesman would be there all day anyway I will bet you that all those missed sales because they sent that time with you will start to take their toll.

snakeweasel · March 2007

Its not "who is at fault" for someone being uninformed, but what is your attitude towards that "uninformed person". The original post seemed to say "so you got ripped off tough luck". there is a big difference.

joel0622 · March 2007

Weasle, you are funny.

Oh I get it you will take advantage of an uneducated buyer and not say something like "the market price on this car is actually $X". Now of course you will say that if you had one of those rare cars that actually sold for more than MSRP.

So let me get this straight, with your logic if some one comes in to buy a Ford Truck I should tell them that hey you can get a Chevy a little cheaper?

I guess you didn't read my thoughts on the wimps of the world who play the "I got taken advantage of" card. Give me a break.

joel0622 · March 2007

The original post seemed to say "so you got ripped off tough luck". there is a big difference.

What I said was is that if you paid sticker you did not get ripped off. You paid the suggested retail price. if you fail to negotiate that is soley your fault. It is your money you are spending. Handle it how you like.

snakeweasel · March 2007

So let me get this straight, with your logic if some one comes in to buy a Ford Truck I should tell them that hey you can get a Chevy a little cheaper?

Ok in order for you to get it straight if someone came in to buy a Ford truck that everyone else buys for $22K maybe you shouldn't try to sell it to them for $25K.

snakeweasel · March 2007

What I said

Its the tone of your entire post and yes with most cars you got ripped off at MSRP.

joel0622 · March 2007

Ok in order for you to get it straight if someone came in to buy a Ford truck that everyone else buys for $22K maybe you shouldn't try to sell it to them for $25K.

This is crazy, why should car dealers be held to a different standard? If Best Buy is selling TV's for $1800 and I am a sales person at TV World and we are selling the exact same TV for $2200 and I sell it. Is it my fault for not pointing out to the lazy consumer he cuold get the TV elsewhere. Or just because my competition is so weak that the only way they know how to sell is on price and not product do I need to lay down to?

Your theory goes against every thing that makes the retail world turn

mikefm58 · March 2007

And people wonder why car salesmen(women?) get bad reps

Neither, I'm not in the biz at all. I just get a kick out of bleeding heart liberals who look to blame someone else for their own mistake.

Using your logic and I believe you're in the tax biz, if my son comes in to your office with his W-2, rather than charge him to file his 1040-EZ, you'd tell him to read the simple instructions, file it himself and save your fee. Right? Ha, yeah right.

dino001 · March 2007

There is no harm to a willing. Until trial lawyers run over this country, it had been the basic legal principal for all parties entering any lawful transaction. If there is no coersion or misrepresentation, a party is in no obligation to protect other party interests. We have to assume that an adult who signs a dotted line is capable of a determination whether or not they have full capacity of making this decision - including agreeing on pricing, purchase of warranties, mop&glo, etc. I repeat - as long as there are no lies or coersion, asking price may be whatever law permits.

The only place I could think of where dealer should act in customer's interests, is financing. F&I acts as a loan broker, facilitator, which brings higher standards than sales - and unfortunately I do not see dealerships being very aware of that. They see is as another part of maximizing profit machine, which may be questionable at least. I'm not sure what are exact regulations, but some laws and ethics can potentially be broken, if F&I steers clients to one bank knowing that another would offer them better terms.

blckislandguy · March 2007

There is a nice article in today's Financial Times. You know, the daily paper that comes out in pink colored paper that is slowly overtaking the WSJ. Your dealer principal's sons already read it at Wharton. Their Dad will pick it up a year of two from now.

You have to know two and only two things to be a sucessful investor. The price of something and the worth of something. This investment principle could be extended to all business transactions.

As a side note, look at Lexus vs. BMW or Caddy. There are very few Lexus stores and each one is strong and sells far more cars for far more GP than the BMW or Caddy store that are on each corner. Yet, which brand has the highest consumer acceptance? The K Mart sells far more suits for less money than Brooks Bros. Which store has more loyal customers?

fezo · March 2007

Don't go blaming liberals. I'm one and I'm taking the other side.

I'd also put a caveat on the trial lawyers. What are they going to do? Sue you because you sold a car at list? Don't think there's a court in the land where that one would stand up.

I agree with the Financing folks. I would also put the aftermarket crap they put on cars at additional cost in that same category. If they won't sell me a car without all the sealant, undercoating, fabric protectant etc then they won't sell me a car at all.

I've seen both straight shooters and snakes in car sales. I would think that reflects most fields of work. YMMV.

snakeweasel · March 2007

This is crazy, why should car dealers be held to a different standard? If Best Buy is selling TV's for $1800 and I am a sales person at TV World and we are selling the exact same TV for $2200 and I sell it.

Very poor analogy as we are talking about the same dealership selling the cars not different ones. So a proper analogy would be if Best Buy is selling TV's at $1800 and someone comes in and says "I will give you $2,000 for it" what do you think best buys reaction be? Will they sell it for $2,000 or $1,800?

How Much Profit Should A Car Dealer Make?

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