kingpinJL
Well-Known Member
- First Name
- Charlie
- Joined
- May 19, 2020
- Threads
- 10
- Messages
- 227
- Reaction score
- 478
- Location
- Houston, Tx
- Vehicle(s)
- 2020 Ram 1500 Limited, 2021 JLUR
- Thread starter
- #1
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. dealerships can/will sometimes cut into this to get you a better deal.
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.
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. dealerships can/will sometimes cut into this to get you a better deal.
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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Last edited: