Dealers Don't Make As Much Profit As You Think
Just as you are getting ready to sign on the dotted line, agreeing to purchase that vehicle for the price that is indicated, you will most likely be thinking, "could I have done better?" Thanks to decades of "wheeling and dealing" and playing "fast and furious" with the numbers, car dealers have garnered a reputation of being less than forthcoming when it comes to their "best price." While things are certainly changing, with information from Edmunds and the near ubiquity of the internet, old habits die hard, for both dealers and consumer alike. As a result, there is a bit of a disconnect between how much money consumers think dealers are making, verses how profitable a dealership really is, especially in this depressed economy.
According to the National Automobile Dealer Association (NADA), average dealership pretax profit for 2007 was 1.5% of sales, while over 20% of dealers lost money. Dealerships selling domestic branded vehicles generally did worse than those selling imported branded ones...
Not surprising since sales of the former have suffered at the hand of the latter. Automotive News, an automotive industry weekly trade publication, recently conducted a survey of dealership profitability. According to the result of the survey, most dealers are cutting back on everything including the hiring new employees, donating to charity, spending on building improvements and reducing customer perks like loaner cars.
there gross numbers are still nice though. maybe they need to cut overhead.
opfreak has made it clear in the past that he's not a fan of dealers. Sometimes, he's right. It's too bad that a significant number of dealers operate in a manner that causes opfreak to react the way he does. It's bad for the customer and it's bad for the dealers that are trying to treat people right.
opfreak, they are cutting overhead. Dealers, especially domestic ones, are streamlining like never before. Often times too much. You may not believe it but there are a lot of good people (and a lot of bad ones) that kill themselves to keep some of the dealerships alive. I don't think it's right to criticize those people.
It's a difficult game. The good dealership groups are weeding out the turds. The bad dealership groups are making the money. The bad groups target the naive. They target people who can't afford it. Stay away from them. Give a little consideration to the others.
How can one be a fan of dealers at all? Much like real estate agents, they are obsolete middlemen that cling to life by lobbying for franchise laws. Who would ever want to visit a dealership if it was not a neccesary evil when buying a new car? Look at how many people are using rental or borrowed vehicles for extended test drives, and independent repair shops and internet parts stores to avoid insane part and service markups. If dealers went away in favour of fixed price ordering of a car by internet from a manufacturer, how many customers would miss the deceit and emotional manipulation?
bn, no i'm not a fan of most dealers. i've had terrible experances, and wasted more time then was required. One thing i'm semi glad about is the dealer I bought my sunfire has been sold and no longer exsits. The places was full of crooks
One thing that may surprise you, even if it would cost me a few hundred more. If they all went to flat pricing I would be happy.
The more I think about it, my fiances scion, no haggle deal,was the easiest and overall quickest car buying experence we had. Which is saying alot, because if it was a hassale, I would not only be pissed off at the dealer, i'd have to deal with here.
But theres alot of money to be made with the current system: each dealer can pretend to give you the best price.
And how would dealers be able to trade in all those 7k upside cars, if they could play with the sale & msrp prices?
I also know alot of sales guy's are young, poor college kids, that hardle make any money. And turn over is very high.. I think thats part of the problem.
IMHO, car sales should be a moderate income employement where you dont need alot of schooling.
The one thing i'm surprised hasn't happen, is a massive dealer, that works on massive volume.
Has dirt cheap prices, is upfront about them. Offers them to everyone. And has a streamline operation, where he would rather sale 10000 cars making lets say 500 a car, vs 5000 cars making 1000 a car.
opfreak, Carmax sort of does what you're talking about at its new car locations. I don't know that they have quite the scale you're thinking about, but they do have no-haggle prices that seem pretty competitive to me.
chaff, sometimes dealerships do seem obsolete. Then again, someone's gotta let me kick the tires and take her for a spin. And someone needs to handle my warranty claims as well. Perhaps the current dealer system needs a major overhaul, but I have trouble envisioning how they could simply disappear.
"there is other money the dealer gets that is not indicated in the invoice price, but also understand that this money often covers expenses other than the actual cost of the vehicle."
right, the $350+ some dealerships charge for doc fees goes to paying for all that paper and ink toner!!
opfreak: I have been reading these posts for quite a while and finally your stupidity has convinced me to post myself. In your first post on this thread, you say dealers should decrease their overhead because their grosses are high enough. Then you go on to say that dealers should be volume oriented instead of gross oriented and "sale 10000 cars making lets say 500 a car, vs 5000 cars making 1000 a car." Now, this article was all about Dealers' razor thin net margins. How in the f___ do you propose a dealer decreases overhead expense while increasing (by 100%!!!) the number of vehicles sold??? It can't happen!!! There are costs associated with retailing vehicles: gas, detailing, tag work, title work, processing loan documents, etc. So you think all dealers should make the same amount of gross profit, as indicated by your genius formula (gee, I wonder why these millionaire business-people never thought of that???), but increase the amount of expense associated with operating their business. Were you a fine-arts major in school??? Because you certainly didn't study business.
My advice: leave the thinking to the people in the room who have better than average brainpower. Thanks for your time.
Its great to all of you for sharing the information.But according to me they do have no-haggle prices that seem pretty competitive to for all.
synjones
Used Cars
I don't understand what is going on in the car world. Everybody wants to be able to come into the dealership to: Test drive, get a top notch delivery, a full tank of gas, free oil changes, and a discount on parts and service work and they want good service from their salesman after the sale," But no one thinks that the dealer should make any money. "Sell it to me for invoice and I dont want to pay any processing fee, and I want top dollar for my trade". Thats the general opinion of the car buyer anymore.
I believe that a customer should be able to buy a car at a fair price but, what is fair for the dealer. I personaly say that $500.00 over invoice is a fair price for the seller and the buyer.
You know, so that the salesman can make a living to. Everyone seems to think that the car salesman job comes with a lot of money to be made quick and easy. That could'nt be further from the truth, may'be years ago but the internet has put a complete stop to all of that. Did you know that a car salesman makes 20 to 30% commission on only a profit margin. So if the dealer sales you the car at invoice, the dealer made no upfront profit so the salesman makes a flat rate that is pre-set by the owner. Usually $75.00 or $100.00 per deal.
I know that at are local dealerships, each salesman has to meet a minimum of 10 cars per/month. That's $1000.00 dollars per month if you only sale the required amount of cars. More often than not in this type of economy when sales are down, the dealer has to meet their states min-wage requirements and pay the salesman by the hour. Figuring that the average salesman works 50 to 60 hours a week @ less than $7.00/hour, "It dosent seem to be that great of money. "Would you work for that kind of money and be happy about it.
Its all about service after the sale isnt it. Do you believe that your salesman worked hard enough for you, to make 100.00. Remember, depending on where you are located, it sometimes can be hard to sale 10 cars/month as a salesman.
If your salesman is a good one and you would like to buy your next car from him/her, they may not be there the next time if they cant make more than a minimum wage salary.
It really depends on the make of the car. While this article is true about salesmen in some makes, it is not true about the salesmen trying to pitch a sale for other makes. http://excarsalesman.typepad.com/