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

Car Buying Tip: The Best Time to LIE is Now

Almost all of the manufacturers and their dealers say the same thing during many of their commercials.

"Now is the best time to buy."
"Don't wait. This offer will pass you by!"
"Hurry, before the best deals are gone."



As buyers, it's in our best interests to wait for the absolute best deals. That's a no brainer. The tough part is sifting through the good deals to get to the great deals. If every deal is the best according to the advertising, how can we recognize the real gems?

First, a bit of history about how it works. The car business is impatient. All of them, from the CEO down to the salesperson, wants action immediately. They are compelled to "whip the horse" at all times. It's a constant sprint despite the fact that they are in it for the long haul. Thus, all advertising, all inquiries, and all contacts are treated in a way that will generate revenue in the shortest time possible.

The way that consumers can get the very best deal is to lie. No, I don't mean the lies propogated by other car buying advice websites, such as hiding the trade until the last minute, getting financing ahead of time and not telling the dealer, or making up numbers that you were "quoted." I'm referring to lying about the urgency of your purchase.

Set up an email account specifically for your inquiries. Once you've identified the make and/or model that you want, start contacting everyone and their dog from the dealers to the manufacturers to the third party websites such as Edmunds and Automotive. When prompted about time-frame on making a purchase, check the box for "Now."

Why? The simple fact is that people who are in the market today are the ones that get the most attention. They are the ones that can put money in everyone's pocket. They are forces to be reckoned with and demand attention.

After this is established, it's time to switch gears and wait. You should receive a ton of responses. Stress the fact that you are looking for the absolute best deal. Be polite in your responses, keep in contact regularly, and let them know that you can pull the trigger at any moment.

The deals will roll in. Compare them with each other. Research them on the Internet. Then, you wait again. What are you waiting for? You want the best deal, right? When the best deal arrives, EVERYONE you've contacted will let you know in unison.

In 2006, Ford was really pushing their low interest rates. It wasn't making a dent because almost everyone had low interest rates available at the time. So, they announced very abruptly that they were offering 0% for 72 months on most makes and models. This sent a ripple effect through the industry. In a week, I received contacts from everyone I'd been in contact with: several dealers, Ford, Lincoln, and Mercury, three 3rd party websites, and even a classified website. This resounding proclamation told me what I needed to know: this was the real deal.

In conclusion, don't lie to car dealers just because you think they are lying to you. BUT, it's acceptable to feign your interest to get on the lists that will let you know that the real "best time to buy is now!"

Car Buying Tips

Before the Dealer, Try the Automotive Classifieds

In this competitive market, car dealers are starting to rely more and more on third party websites to generate leads. They need to be in front of the customers in any way they can, so having their inventories available on automotive websites is important.

The consumer can take advantage of this. There is, of course, the obvious benefit of being able to search through multiple inventories simultaneously, but there is one thing that people don't often know. Because internet departments are often fighting to justify their budgets, leads that come to them from automotive classified websites are often "worked harder" so they can have stronger statistics.

In other words, you may be able to work a slightly better deal going through these automotive portals than you would have had you gone straight to the dealer. Sound crazy? It absolutely isn't.

Try it. You'll probably be surprised.

Car Buying Guide

Automotive Classified Profile: Cars.com

In 1998, Cars.com was born.

With over 8 million monthly visitors, 13,000 car dealers, and the addition of private party sales, Cars.com is a resource that every shopper should browse when looking for a car.

The interface is strong, offering a quick portal to the inventory. Unlike some of its competitors, you can get to the inventory by selecting make, model, and zip code, then one click takes you to the vehicles. Direct links to the dealers are present, so visiting dealers coast to coast from Portland Honda to Boston Toyota is just a switch of cities or zip codes from reality.

The advanced search options are very crisp, allowing you to search multiple makes, models, and years simultaneously. You can search by zip or city and you can narrow your search by how long the vehicle has been listed.

The listings themselves are okay. They offer several calls to action, but someone who isn't familiar with it may not be able to quickly find the right buttons.

Overall, I recommend Cars.com as a place to search for cars, especially if you don't mind working with dealers and you are willing to buy in a major metropolitan area.





Vehicle Buying Tips