Let me do my best to teach you how to get a decent deal on a vehicle...

kingpinJL

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Foreword:
I started making this post in response to another post, but i've decided to make this a thread instead. I'll be coming back and editing this/replying regularly. I'm sorry if this seems scatterbrained now, but i'm using this as a mental dumping zone


and now on to the meat and potatoes:

There's a ton of different ways that dealerships make money. I've done my best to outline them here, and try to make it as clear as possible where you can look to see if you're getting a great deal or not.

I used to work for an automotive dealership conglomorate. It's been about 9 years since i was employed by them(as an IT analyst), but what i've learned i've been able to use to my advantage when buying a vehicle and negotiating the sale, as well as just day-to-day experiences. Some of this information may be wrong, and that's ok. I'm by no means an expert, nor am i personally in auto sales.

So let's outline how a dealership makes money:

New car sales:

1. Price above what they paid, pure Profit Margin. Each dealership has a negotiated deal with FCA as to what they pay for a vehicle, mostly based on volume. The more the dealership sells, the better deal they get from FCA on the vehicles.

2. Holdback. This is guaranteed money that the dealership gets from FCA from selling a vehicle. This is printed on your priced order sheet.

3. Tread lightly/affiliate programs. This is a negotiated deal between FCA and tread lightly(or your employer, credit union, etc) that FCA will give the dealership 2% of invoice price to the dealership. it's SUPPOSED to be applied as 1% for you, 1% for the dealership.

4. Volume bonuses. The dealership CAN get a volume bonus from FCA for selling x number of vehicles in a given amount of time.

5. Dealer add ons. I personally think this is absolute horseshit and I don't respect dealerships who do this. This is the Tint/etching/nitrogen/GPS thing. Dealerships that do this add this stuff and "force" you to buy it(hint: you don't actually have to). You'll see this a lot when vehicles are advertised WAY under what they should be.

F&I:

6. Extended warranty. Just like any other tangible good, extended warranties are purchased by the dealership at a pre-negotiated rate and sold to the customer as a profilt margin item

7. other protection packages. GAP, tire warranty, paint protection, blah blah blah. same deal. Profit margin items.

8. Financing. There's a thing called "buy rate" where the dealership is given a certain APR from a bank, and they tack on a percentage or 2 above it as a profit item, then they get paid by the bank for that. If you're getting a sweet deal on your jeep(7-8.5% below invoice) and they're not forcing dealer add ons or ridiculous fees, this is where they're likely making their money. The right thing to do would be to pay the slightly higher interest rate for 3-6 months, then refinance, but YOU DONT HAVE TO. Almost no auto loans these days have a prepayment penalty and refinancing with your credit union is an absolute breeze.

Shop:

9. When you bring in your Jeep for warranty work, the dealership will charge that directly to FCA. there's a set hourly rate, and parts rate that they use. Dealerships make a HUGE chunk of their profits from this

10. Maintenence Items. The dealership will depend on your loyalty to bring in your jeep for whatever warranty items you need. They can push this harder with "free" lifetime powertrain warranties that are becoming more popular because they force you to have your maintence done in the dealership to maintain that warranty.

Used Cars:

11. CPO cars are another massive moneymaker for dealerships. Some brands will give dealerships additional bonuses for selling certified pre owned cars, and the consumer will benifiet from having a newer vehicle with a factory backed warranty. mostly. this is in addition to...

12. Trade ins. There is an interesting tactic that dealerships use in states that allow for a sales tax break on trade in. They, of course, want to pay as little as possible for your vehicle. They encourage this by saying "Well, you'll pay $xxxx less in taxes if you trade in". The tax break is almost never worth it if they're lowballing the hell out of you on your trade and you WILL be better off shopping. The advent of vroom/texas direct auto/carvana/carmax has made things increasingly easier for the consumer to shop around on trade in/sales values.

Things to watch out for:

1. Sneaky fees. some dealerships will cram in "fees" in order to make a profit.
2. Forced dealer add ons. This is absolute garbage, and if you insist on working with a dealership that forces this, either don't pay for it, or pay cost for it. This is, in my opinion, an absolutely unscrupulous practice that goes along with...
3. Flushes. When you take your rig in for maintence remember this quote, from the CEO of the automotive conglomorate i worked for: "Flushes are bullshit".

don't be afraid to email every dealership in an area you're comfortable with. you're not going to hurt anyone's feelings by cross shopping.

Don't deal with dealerships or sales people who treat you like an inconvience. you're the customer, and it's your $35-$60000 that's being spent. You know how they keep the lights on, and now you can use it to your advantage.

edit:
Keep in mind that you, as an informed consumer, are now the least desireable customer for a dealership. you will get resistance.

Also remember that the dealership(s) have to keep their lights on too. they might take a loser sale here and there and make up for it elsewhere, but they're going to be looking to absoutely maximize profit in any way

NOTES FOR NEGOTIATING

Negotiate a PRE-TAX price. tax isn't going to change. Fees and other bullshit will.

Don't tell them about tread lightly until AFTER you've negotiated your pre-tax price. If the dealership balks, they're stupid and missing out on "free" money. remember, this is a total of 2%, 1% for you, and 1% for the dealership.

Negotiate the price of the vehicle, your trade in, and your F&I items seperately. Do not let the dealership try to swing the "tax savings" bullshit on you to lowball your trade(applicable to certain states). In reality, you're performing 3 total transactions with the dealership, not just one. Don't let them use the "four square" against you. It's absolutely crap and does nothing but cause confusion.



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Wranglernator

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Not to be too obvious, but I think the first step in getting a good deal has already been taken by those reading this site; find a forum dedicated to the car you want and ask for dealer recommendations. In some cases good dealers are forum sponsors, or at least have a presence on the forum.

Also gleaned from my forum experience, never do business in person or over the phone (never give out your number). Get the fleet manager's e-mail address. Might be hard to get because they love getting your number to stalk you, or your body trapped on the lot to try to hard and upsell.

And IMO, never deal with anyone who utters the acronym "MSRP." I know some here have gotten good deals negotiating percentage off of MSRP, but I think the informed buyer starts at invoice price instead of inflated manufacturer price.

Your point about the dealer add-ons reminds me of when I was looking at Wranglers at Champion Jeep in Downey, CA. Every single Wrangler on the lot had Lojack on it. That's what I pay comprehensive insurance coverage for. They were bozos for various reasons, so they were crossed off my list. But the arrogance of adding Lojack to every Jeep.

Oh, and the "lift kits will void your warranty unless you buy it from us (which will cost like $15,000)" canard. Go read Magnuson-Moss before you believe the void your warranty bullshit. It's hard to imagine you'll get the best bang for your buck on lift kits by having them installed at dealerships (at least not at Puente Hills Jeep in California!).
 

L1011

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Good stuff for sure, but be careful about refinancing your loan with another institution. At that point the vehicle is "used" and the rates for used are typically higher than new. Just a thought. Otherwise great post!
 
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kingpinJL

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Good stuff for sure, but be careful about refinancing your loan with another institution. At that point the vehicle is "used" and the rates for used are typically higher than new. Just a thought. Otherwise great post!
Correct. My credit union has the same rates for New/Used/Refi so this would be applicable in my situation.
 
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kingpinJL

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Not to be too obvious, but I think the first step in getting a good deal has already been taken by those reading this site; find a forum dedicated to the car you want and ask for dealer recommendations. In some cases good dealers are forum sponsors, or at least have a presence on the forum.
i've had nothing but issues with people/dealers that have been reccomended on this forum. I sought out my own deal and ended up with a better experience than i anticipated.

There's something to this though, you, as an informed consumer, are a giant pain in the ass to these sales folks. KEep in mind, you're in the vast minority of who they deal with. They're used to getting as much money as they can in any possible way, and if you come in with a little knowledge and experience, you're going to get resistance.
 
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kingpinJL

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added some notes for negotiating
 

richardya

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The area with the most mystery is #1 what the dealer paid. Leftover model years go for 20% below MSRP. Is that breaking even or taking losses?

i assume the volume dealers (recommended here) who take factory orders at a set % below invoice are using those sales to hit volume milestones.
 
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kingpinJL

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The area with the most mystery is #1 what the dealer paid. Leftover model years go for 20% below MSRP. Is that breaking even or taking losses?

i assume the volume dealers (recommended here) who take factory orders at a set % below invoice are using those sales to hit volume milestones.
if a car has been sitting on the lot longer than 90 days the dealership should be more motivated to move it, because they're paying interest(dealerships have to take out a loan to purchase inventory, AKA floor plan. $5-$10 per day) and taxes(i could be wrong on this, but i believe there's a state-dependant tax that each dealer has to pay per vehicle on their lot) on that vehicle.

most dealerships use the holdback to pay for this, but if your vehicle is eating up interest from your floorplan, the less money they can keep from the holdback....
 

ALEX-4LO

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LOL. This is pretty standard info and a random Randy should know. Great info for the ones that do not know....
 

Jelllo

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"Be prepared to walk" if you don't get what you want. Maybe you want some Jeep slush mats, but the dealership wants you to pay extra for them and won't budge. Just walk away. Most sales people would rather not lose a sale and may give you what you want. If not there are other dealers that will.
 
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kingpinJL

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LOL. This is pretty standard info and a random Randy should know. Great info for the ones that do not know....
You'd be surprised how much of this would be news to most folks
 











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