Wednesday, August 20, 2008

Where Car Dealers Make their Money Now

Before the Internet came and ruined everything, it was possible for car dealers to average over $2500 in adjusted gross profit on the sale of a vehicle just in the "front end". "Adjusted" gross profit does not take into account dealer pack, another form of profit that the car dealer institutes to give a base profit for dealer costs. In other words, even in a "break even" deal, the dealership itself still made hundreds or even thousands that was used towards base expenses. The profit over that was truly profit.

In today's world, many car dealers do not average in the thousands on their "front end" profits. Some average less than $1000 profit on vehicles that cost $25,000 or more. One may ask how they can stay in business if they are making pennies on the dollar compared to the early 90s.

The answer lies in the "back end". First, the definitions: Front end is gross profit on the sale of the vehicle itself, regardless of the payment method. Back end gross refers to money made in the Finance and Insurance department through the sales of various products and through percentages made on the financing of the vehicle.

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Quality car dealers that treat their customers right include Toledo used cars

Another great one to consider when looking at Fords would be OC Ford

Those who buy imports can visit Houston Hyundai Dealers

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These products, which include warranties, gap insurance, credit life, and other various elements, are often high profit items. A dealer may sell an extended warranty for $1,999 but might only pay $600 for the contract itself. The rest is profit.

In financing, dealers have a "buy rate" and then they have the rate that they sign the customer with. The buy rate is how much the finance company charges. Anything over that is profit, and it can be very large.

For example, if a dealer has a buy rate of 4.3% and they sign a buyer up at 5.9%, the money earned through the extra 1.6% is given to the dealer. This is a very simplistic way of looking at it, but it gives you an idea of how the system works.

While front end grosses continue to go down, especially in the ultra-competitive new car market, back end grosses are getting higher. While I am not suggesting that this is a bad thing, it is the place where average consumers are still in the dark.

Dealers have to make money to survive. Despite common irrational feelings that people have towards dealers, they are still a service to us and they deserve the right to turn a profit. That doesn't mean that they have to make their profit off of YOU.

Shop around before you go to the dealer. It isn't just finding the best deal on a vehicle. It is important for people to have an idea of their best interest rate as well as the best prices on warranties or other services they may want to consider. Most of the times, these things can be negotiated in the F&I office.

Check with your bank or credit union to find out what rates they are offering. Check various online auto finance places. Know where you stand in regards to your credit so you can get the best rate you deserve. This does NOT mean applying for a bunch of car loans. Try to get an idea without having your credit pulled more than once or twice. If you can prepare ahead of time, order a credit report and take it with you to the bank or credit union. Ask for an honest assessment of what you can get and what to expect. The car dealer will normally be able to meet or beat any number you get from other sources, so knowing what they offer will give you a bargaining chip.

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There are a lot of dealers that treat their customer right, such as Los Angeles Nissan Dealers.

In Pennsylvania, Ford Dealers Carlisle sells standard cars, plus Roush Vehicles.

With the growing popularity of the economical SUV, being one of the Houston Jeep Patriot Dealers has advangates.
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The same holds true for warranties and other products. It is a little tougher, but can be done. When comparing online, it is important to make sure you are shopping "apples to apples" and not "apples to oranges". Look at it like choosing a health insurance plan. There are cheap plans, but they are just that: cheap. Find a good plan at a good price and be ready with the details when you go to the dealer. Again, they can usually beat anything that you bring in, but if you don't have the information, they won't volunteer a discount.

Smart shoppers know to compare everything, not just the cars they are buying. Knowledge is power, but more importantly, knowledge can save you a lot of money.

Car Buying Tips

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Saturday, August 16, 2008

Car Buying Tips: Test the Dealer Before You Visit

The customer experience is important to some dealerships. Some. Most consider it a positive if it happens, but not a necessity. Good news for the consumers is that more dealers are becoming aware of the importance of good customer service.

Even better news for the consumer: you can usually determine if the dealership you are considering will give you an easy transaction, which in the end is what the consumer really wants.

It costs the average business 7 to 9 times more money to acquire a customer than to keep a current one. This holds true in the car business. Until recent years and the advent of the Internet, many car dealers did not practice this philosophy. The ones that do can be easily found through their automotive website and their Internet Sales Department.

The key to finding out is asking questions. In the old days (3 years ago) dealership’s employees, including the Internet department, were taught that less information is better. The goal was to get the customer to come to the dealership while giving out as little information as possible.

The thinking was that cars weren’t sold on the phone or over the Internet. Gross profit, on the other hand, was lost on the phone and over the Internet.

Flash forward to today and the facts have changed. People do buy cars on the phone and over the Internet. It just isn’t hard. Car dealerships who are willing to do this are also the ones that are willing to make the overall transaction easier.

Ask questions. It’s easy. Find automobile dealership websites that you are considering,search their inventory for vehicles, request information, and see what happens. Be honest (believe it or not, many dealerships are promoting honesty in their sales team). If you are wanting to buy a car within the next 3 days, tell them. It it’s something you are just starting, tell them. How they handle your needs is an important sign of their quality.

Once you have identified a vehicle of interest, go after the hard questions. How much, bottom dollar? What does the vehicle history report say? Dealers like Portland Honda Dealers and their fellow auto group stores Portland Toyota Dealers and Portland Lincoln Mercury Dealers are willing to get their customers vehicle history reports upon request.

Was it a trade-in, a local auction vehicle, or a program auction vehicle? These answers should come out easily and within an hour of asking (time enough to talk to the sales manager about pricing).

Trade-ins and interest rates are the only “cloudy” areas that the vast majority of dealers, even honest ones like Used Cars Shreveport, must try to avoid whenever possible. It is a trap, and too many people dishonestly catch dealers in it to the point that they must be defensive about it.

Consumers call regularly asking for a ballpark figure on their excellent condition vehicle and an average rate for their excellent credit. When they come to the dealership in their good (but not excellent) credit and in their nice (but not excellent trade-in), they make demands and threats, creating a bad experience for everyone involved. Within a week, 10 people that the customer knows will never shop at the crooked dealership again.

The best thing a consumer can do for trade-ins and interest rates is to check independently. Banks, credit unions, and online lenders can give a rate, while there are several trade evaluation sites on the web.


Ask the tough questions. Get answers or move on to another dealership. Buying a car can be easy in today’s market for anyone willing to make it so.

Several automobile dealer websites like New Jersey Chevrolet Dealers will use honorable methods to sell you a car. To find dealers like this in your area, you just have be willing to ask the questions.