Whaler27
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- First Name
- Alex
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- 2019 JL, 2016 Jeep Grand Cherokee Altitude Ecodiesel, 2005 Mustang GT, 2018 Ford Raptor, 2018 BMW R1200GSA, 2020 Honda Monkeybikes (2), 1972 Honda CT-70, 1980 Honda CT-70,
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I posted most of this in another thread, but I’m posting here, because I believe it can help people who are less experienced with the processes in play at many large car dealerships, and I want it to be easily searchable.
First, I have never worked at a car dealership. Instead, I am a motorhead who has been buying and selling motorcycles, boats, and four-wheel vehicles for more than forty years, often at the rate of four or five vehicles per year. Years ago I also worked for a manufacturer of high-end welded aluminum boats, many of which are in commercial and military service. I’ve learned that the boat business, like the RV business, is quite similar to the car business, except the profit margins typically have to be higher on boats and RVs. The flooring/ financing, and sales processes are quite similar. During the course of these transactions I developed friendships with a couple car dealers who gave me the inside scoop. What follows is a summary of what I’ve learned. I also share a process that will produce a decent sales price as long as there is good supply/inventory. I hope it’s helpful.
First, you are unlikely to ever know exactly what a vehicle dealer's actual net cost is for a particular vehicle, because they are not going to disclose all the details to you -- and why would they? Even if they did, the information wouldn't be very useful, because you still wouldn’t know what their minimum net profit is, so you wouldn’t know what the minimum successful offer would be.
I start my purchase process by clearly defining the vehicle I want (trim, options, etc). I take that profile and get the Monroni number (the factory sticker price without the BS color-matched dealer addendum that‘s occasionally matched and stuck by the Monroni to creat the appearance of validity. Knowing the Monroni number is important, as it’s the only way I can be sure I’m really comparing apples to apples later on.) I then get the "Costco price" for an equivalent vehicle. I may also shop the Dave Smith Dodge price, as they are the largest Dodge dealership in the world, by a lot, and their Jeep prices are usually quite good.
If I'm not satisfied with the above pricing, or there is a large variance between the two, or I think I can do significantly better for some other reason, I'll lower my mental price, go to a large local dealer, and offer the price with no trade involved*.
*A trade complicates a car purchase and it's never financially sound, as the dealer has to make a profit on both the new and used vehicles. Most larger dealers treat the used side of the business as a completely separate entity that has to be independently profitable. Larger dealers typically add a "pack" to the used vehicle purchase price that is intended to represent their average cost of preparing a trade for sale, including a complete mechanical check, minor repairs, detailing, flooring, etc. It's also the equivalent of their own in-house used vehicle "hold back". This "pack", typically between $1,500 and $2,500, is considered part of the dealer's cost on the used vehicle so, in their view, their "profit" doesn't start until the first dollar after the pack is recovered. This means their appraisal of your trade must allow for enough margin to sell your trade for at least $3,000 to $4000 more than they pay you for it. (Remember, the trade value they show on a new purchase order proposal usually isn't what they are actually paying for it; it's always contingent on THAT purchase order, which includes lots of profit from the new side to slide around the deal.) Of course, we don't have the advertising, exposure, finance tools, warranty availability, or other sales advantages a dealer has, so it will be hard for us to sell a vehicle for the price a dealer might get, but I can always do better in net dollars selling on my own than I can selling to a dealer, particularly a big dealer. Also, never assume the new side of the dealership is twisting the arm of the used side to put your deal together. They work with each other every day, usually many times per day, and your purchase is just one more deal. When your salesperson "goes to bat for you" he’s really just having a cup of coffee with the manager while you sit in his cubicle looking at the brochure and telling yourself how bad you want that new jeep.) I underscored the word "financially" above because I realize that some people don't have the wherewithal to buy a new vehicle without trading. That was my situation for years, so I developed a relationship with the owner of a small, reputable, independent used truck dealership that has lasted more than 20 years. He's sold many of my vehicles on consignment and, on three or four occasions, he's purchased my used vehicles outright for a mutually agreeable price that was always at least $2,000 above the "ACV" (actual cash value) offer made by the new car dealership. (Want to know what a dealer is really willing to pay for your trade? Take the in to the used side of the big dealer a few weeks before shopping on the new side. If KBB trade on your rig is $10,000 tell them you want $14,000 or their best offer -- that you're going to sell it over the next couple weeks, you’re not buying another vehicle, and you don't want to hassle with a private sale. Tell them you just want to give them the vehicle, title, and keys in exchange for a check. Most used dealers are shopping for inventory and buying vehicles at auction every month. They’re also making offers over the phone many times per day, as dealers call each other for bids on potential trades they’re not sure about taking in trade. This process will usually produce a real assessment and offer in ten or fifteen minutes — and the guy coming up with that number will be the same one providing the same number to the dealership’s new side when the manager calls in three weeks to get an appraisal for your trade.)
Next, dealers will almost never spontaneously agree to a narrow margin deal that's well below the Costco price, because they trust their process, and almost every buyer will move up substantially from their initial offer. They'll want you to drive the new vehicle, for obvious reasons, and they'll try to engage you in a lengthy information exchange process designed to inform them and gradually wear down your resistance to paying more. This process moves according to a scripted formula, and it works on millions of people every year. It's often referred to as "the system", and it includes introducing you to other salespeople and, eventually, a friendly "manager" (Closer). Most dealerships also have big white boards in back that track "turns" (introductions to other salespeople) and sales... In many dealerships younger salespeople are required to turn customers. (The salesman will usually say something like, "This is my friend, John. We work together a lot. I have to deliver a jeep I sold earlier today, but John has agreed to help me by working with you while I finish this up...) I bypass this whole dance by making an offer. I make eye contact with my twenty or thirty year old salesman and tell him, "I like you. You're my salesman. I've only got about fifteen minutes. If we can agree on a price for that particular jeep right now, I'll leave a deposit with you and come back this afternoon or tomorrow morning to the complete F & I process. It will be your easiest sale ever.” I also tell him that I don't have time to meet others and I will leave if he "turns" me to another salesman. This will invariably produce a manager and, usually, an answer on price very quickly. The manager usually asks if I work in car sales. I just smile and renew my offer and my timeline. I'm always friendly, but I underscore my time constraints, and I know what I want -- because I've already researched and driven the vehicle. Really, car buying shouldn't be any different from buying a lawn mower or a chainsaw. The seller knows what they need to sell it for, and our life stories don’t have anything to do with the process. Here's the critical part: I never say that I will never pay more than I have offered -- because it's always possible that I'm offering less than the minimum sales price and I'll eventually have to come back and step up. Instead, I tell them I'm going to be in the neighboring town later that afternoon, and I plan on making the same offer at their Jeep dealer if I can't make a deal here. I tell them I'll be back to talk to them if the other dealer won't accept the offer I just made them (which is true). The last thing a dealership wants is to give another sales team a shot at an idiot like me -- because they believe we're all idiot... goats that will fall prey to the next brilliant predator-sales-team. If the dealer lets me walk after fifteen minutes, I know he’s not willing to sell at the price I offered. This process often produces a real bottom line too -- a best offer they'll honor for the next few days. If it doesn't produce a purchase or a bottom line offer I've learned that I'm not offering enough money to buy the vehicle, particularly if the dealer has fifty or seventy similar jeeps in stock, as many of our dealers do. At this point in the process, I either have a deal, or I have the information I need to make a deal the following day -- because I know the hard money number within $1,000 or so. At that point I don't mind bartering back a forth a bit over the little nickels and dimes, like including higher profit margin accessories in the purchase, or extending a new purchaser discount on oil changes, or whatever.
At some point my time and grief are worth something. I'm not going to spend 40 more hours to save another $500. When I find a fair balance between my time and the purchase price, I pull the trigger and let go of it.
On the last couple sales I've asked the dealer to have the F&I guy do the paperwork ahead of time, so I can duck in the following day and sign everything on my lunch break. I ask them to email me the total, so I know how to make out the check. This saves me the endless sales pitch in F&I, as I never want to buy glass etching, undercoating, pin striping, extended warranty, blah, blah, blah. (They double their cost on most of that stuff, or worse. Just make sure to double check that none of that crap was added into the paperwork when you get to the dealer to sign and drop the check.)
One last note: When I worked for the boat manufacturer I would occasionally have buyers who made a point of telling me up front that they would be paying "cash" for their new boat. It was obvious these folks thought I'd be impressed and it would somehow sweeten the sale for me. Neither was true. We made a lot of money on financing, so a cash customer meant less profit on the deal. We'd actually be more likely to accept a smaller profit on the boat if we knew a guy would be financing. (The financing rules have tightened considerably over the last twenty-five years, but in those days the finance company/bank would write the boat manufacturer/dealer a check for 1% of the total amount financed for every quarter-point between our "buy rate" and the rate the customer was financed at. For example, when our buy rate was 6%, and we financed the customer's $100,000 loan at 9.9%, we'd get a check from the bank for about $15,000 just for writing the loan. I suspect there’s less money in financing today, but I’m sure there’s still profit in it.)
You can never know where all a particular dealer's profit centers are, so I just pay attention to my side of the process. I go to the dealer knowing what others are paying and share very little information about myself. It's a little like ground fighting… Don’t give them anything to work with. When they ask what I do for a living I jokingly tell them I'm a deadbeat. When they ask if I'm trading the truck I drove up in I say "no" -- because I don't want them inflating the purchase price to avoid hurting my feelings on the trade they assume I've over-financed and over-valued. When they ask how I'll finance, I tell them I'd like to focus on the purchase price first, etc, etc. When the salesman gets to the manager with my offer all he knows is that I'm a friendly guy, driving a nice truck I don't want to trade, who is willing to pay $XX,XXX for a jeep if we can agree upon a price in the next 15 minutes. Oh, and he knows I'll be swinging by the other dealer after work if we don't have a deal before I leave.
A car dealer once told me, “Anybody can sell a vehicle and make a profit. The trick is in selling a vehicle for a profit in a way that leaves the buyer convinced he’s gotten the better of you. —- because that guy will tell his friends and keep coming back for more.”
First, I have never worked at a car dealership. Instead, I am a motorhead who has been buying and selling motorcycles, boats, and four-wheel vehicles for more than forty years, often at the rate of four or five vehicles per year. Years ago I also worked for a manufacturer of high-end welded aluminum boats, many of which are in commercial and military service. I’ve learned that the boat business, like the RV business, is quite similar to the car business, except the profit margins typically have to be higher on boats and RVs. The flooring/ financing, and sales processes are quite similar. During the course of these transactions I developed friendships with a couple car dealers who gave me the inside scoop. What follows is a summary of what I’ve learned. I also share a process that will produce a decent sales price as long as there is good supply/inventory. I hope it’s helpful.
First, you are unlikely to ever know exactly what a vehicle dealer's actual net cost is for a particular vehicle, because they are not going to disclose all the details to you -- and why would they? Even if they did, the information wouldn't be very useful, because you still wouldn’t know what their minimum net profit is, so you wouldn’t know what the minimum successful offer would be.
I start my purchase process by clearly defining the vehicle I want (trim, options, etc). I take that profile and get the Monroni number (the factory sticker price without the BS color-matched dealer addendum that‘s occasionally matched and stuck by the Monroni to creat the appearance of validity. Knowing the Monroni number is important, as it’s the only way I can be sure I’m really comparing apples to apples later on.) I then get the "Costco price" for an equivalent vehicle. I may also shop the Dave Smith Dodge price, as they are the largest Dodge dealership in the world, by a lot, and their Jeep prices are usually quite good.
If I'm not satisfied with the above pricing, or there is a large variance between the two, or I think I can do significantly better for some other reason, I'll lower my mental price, go to a large local dealer, and offer the price with no trade involved*.
*A trade complicates a car purchase and it's never financially sound, as the dealer has to make a profit on both the new and used vehicles. Most larger dealers treat the used side of the business as a completely separate entity that has to be independently profitable. Larger dealers typically add a "pack" to the used vehicle purchase price that is intended to represent their average cost of preparing a trade for sale, including a complete mechanical check, minor repairs, detailing, flooring, etc. It's also the equivalent of their own in-house used vehicle "hold back". This "pack", typically between $1,500 and $2,500, is considered part of the dealer's cost on the used vehicle so, in their view, their "profit" doesn't start until the first dollar after the pack is recovered. This means their appraisal of your trade must allow for enough margin to sell your trade for at least $3,000 to $4000 more than they pay you for it. (Remember, the trade value they show on a new purchase order proposal usually isn't what they are actually paying for it; it's always contingent on THAT purchase order, which includes lots of profit from the new side to slide around the deal.) Of course, we don't have the advertising, exposure, finance tools, warranty availability, or other sales advantages a dealer has, so it will be hard for us to sell a vehicle for the price a dealer might get, but I can always do better in net dollars selling on my own than I can selling to a dealer, particularly a big dealer. Also, never assume the new side of the dealership is twisting the arm of the used side to put your deal together. They work with each other every day, usually many times per day, and your purchase is just one more deal. When your salesperson "goes to bat for you" he’s really just having a cup of coffee with the manager while you sit in his cubicle looking at the brochure and telling yourself how bad you want that new jeep.) I underscored the word "financially" above because I realize that some people don't have the wherewithal to buy a new vehicle without trading. That was my situation for years, so I developed a relationship with the owner of a small, reputable, independent used truck dealership that has lasted more than 20 years. He's sold many of my vehicles on consignment and, on three or four occasions, he's purchased my used vehicles outright for a mutually agreeable price that was always at least $2,000 above the "ACV" (actual cash value) offer made by the new car dealership. (Want to know what a dealer is really willing to pay for your trade? Take the in to the used side of the big dealer a few weeks before shopping on the new side. If KBB trade on your rig is $10,000 tell them you want $14,000 or their best offer -- that you're going to sell it over the next couple weeks, you’re not buying another vehicle, and you don't want to hassle with a private sale. Tell them you just want to give them the vehicle, title, and keys in exchange for a check. Most used dealers are shopping for inventory and buying vehicles at auction every month. They’re also making offers over the phone many times per day, as dealers call each other for bids on potential trades they’re not sure about taking in trade. This process will usually produce a real assessment and offer in ten or fifteen minutes — and the guy coming up with that number will be the same one providing the same number to the dealership’s new side when the manager calls in three weeks to get an appraisal for your trade.)
Next, dealers will almost never spontaneously agree to a narrow margin deal that's well below the Costco price, because they trust their process, and almost every buyer will move up substantially from their initial offer. They'll want you to drive the new vehicle, for obvious reasons, and they'll try to engage you in a lengthy information exchange process designed to inform them and gradually wear down your resistance to paying more. This process moves according to a scripted formula, and it works on millions of people every year. It's often referred to as "the system", and it includes introducing you to other salespeople and, eventually, a friendly "manager" (Closer). Most dealerships also have big white boards in back that track "turns" (introductions to other salespeople) and sales... In many dealerships younger salespeople are required to turn customers. (The salesman will usually say something like, "This is my friend, John. We work together a lot. I have to deliver a jeep I sold earlier today, but John has agreed to help me by working with you while I finish this up...) I bypass this whole dance by making an offer. I make eye contact with my twenty or thirty year old salesman and tell him, "I like you. You're my salesman. I've only got about fifteen minutes. If we can agree on a price for that particular jeep right now, I'll leave a deposit with you and come back this afternoon or tomorrow morning to the complete F & I process. It will be your easiest sale ever.” I also tell him that I don't have time to meet others and I will leave if he "turns" me to another salesman. This will invariably produce a manager and, usually, an answer on price very quickly. The manager usually asks if I work in car sales. I just smile and renew my offer and my timeline. I'm always friendly, but I underscore my time constraints, and I know what I want -- because I've already researched and driven the vehicle. Really, car buying shouldn't be any different from buying a lawn mower or a chainsaw. The seller knows what they need to sell it for, and our life stories don’t have anything to do with the process. Here's the critical part: I never say that I will never pay more than I have offered -- because it's always possible that I'm offering less than the minimum sales price and I'll eventually have to come back and step up. Instead, I tell them I'm going to be in the neighboring town later that afternoon, and I plan on making the same offer at their Jeep dealer if I can't make a deal here. I tell them I'll be back to talk to them if the other dealer won't accept the offer I just made them (which is true). The last thing a dealership wants is to give another sales team a shot at an idiot like me -- because they believe we're all idiot... goats that will fall prey to the next brilliant predator-sales-team. If the dealer lets me walk after fifteen minutes, I know he’s not willing to sell at the price I offered. This process often produces a real bottom line too -- a best offer they'll honor for the next few days. If it doesn't produce a purchase or a bottom line offer I've learned that I'm not offering enough money to buy the vehicle, particularly if the dealer has fifty or seventy similar jeeps in stock, as many of our dealers do. At this point in the process, I either have a deal, or I have the information I need to make a deal the following day -- because I know the hard money number within $1,000 or so. At that point I don't mind bartering back a forth a bit over the little nickels and dimes, like including higher profit margin accessories in the purchase, or extending a new purchaser discount on oil changes, or whatever.
At some point my time and grief are worth something. I'm not going to spend 40 more hours to save another $500. When I find a fair balance between my time and the purchase price, I pull the trigger and let go of it.
On the last couple sales I've asked the dealer to have the F&I guy do the paperwork ahead of time, so I can duck in the following day and sign everything on my lunch break. I ask them to email me the total, so I know how to make out the check. This saves me the endless sales pitch in F&I, as I never want to buy glass etching, undercoating, pin striping, extended warranty, blah, blah, blah. (They double their cost on most of that stuff, or worse. Just make sure to double check that none of that crap was added into the paperwork when you get to the dealer to sign and drop the check.)
One last note: When I worked for the boat manufacturer I would occasionally have buyers who made a point of telling me up front that they would be paying "cash" for their new boat. It was obvious these folks thought I'd be impressed and it would somehow sweeten the sale for me. Neither was true. We made a lot of money on financing, so a cash customer meant less profit on the deal. We'd actually be more likely to accept a smaller profit on the boat if we knew a guy would be financing. (The financing rules have tightened considerably over the last twenty-five years, but in those days the finance company/bank would write the boat manufacturer/dealer a check for 1% of the total amount financed for every quarter-point between our "buy rate" and the rate the customer was financed at. For example, when our buy rate was 6%, and we financed the customer's $100,000 loan at 9.9%, we'd get a check from the bank for about $15,000 just for writing the loan. I suspect there’s less money in financing today, but I’m sure there’s still profit in it.)
You can never know where all a particular dealer's profit centers are, so I just pay attention to my side of the process. I go to the dealer knowing what others are paying and share very little information about myself. It's a little like ground fighting… Don’t give them anything to work with. When they ask what I do for a living I jokingly tell them I'm a deadbeat. When they ask if I'm trading the truck I drove up in I say "no" -- because I don't want them inflating the purchase price to avoid hurting my feelings on the trade they assume I've over-financed and over-valued. When they ask how I'll finance, I tell them I'd like to focus on the purchase price first, etc, etc. When the salesman gets to the manager with my offer all he knows is that I'm a friendly guy, driving a nice truck I don't want to trade, who is willing to pay $XX,XXX for a jeep if we can agree upon a price in the next 15 minutes. Oh, and he knows I'll be swinging by the other dealer after work if we don't have a deal before I leave.
A car dealer once told me, “Anybody can sell a vehicle and make a profit. The trick is in selling a vehicle for a profit in a way that leaves the buyer convinced he’s gotten the better of you. —- because that guy will tell his friends and keep coming back for more.”
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