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On the topic of the car and it's price, it can vary a lot more then people think, especially on CPO cars. The dealer may buy the vehicle at auction or trade for around, say $16k, but the vehicle may then require work beyond that to get it sellable like tires, brakes, detailing, etc.
This particular vehicle had the original tires on it, which was plain to see since they were the OEM size, type, and brand, and were obviously about halfway through their treadlife with 24K on the vehicle. Also, this vehicle was a trade that had been sold new by the same dealer (confirmed by the Carfax), so it likely went something like this: the customer came in hungry for something new of the same brand to which the dealer said SURE!!! Then they proceeded to nickle and dime the value of the trade while simultaneously jacking the price of the new vehicle. Wa'la, massive profits on both ends. Then they "sent it to the shop" which basically consists of a minimum wage employee washing and waxing the car, changing the oil, and doing a brief inspection. At 24K miles, barring blatant abuse or accident damage what could possibly need replacing? Your average brake pads/rotors last 35K miles these days! If the car was abused or damaged in an accident the employee who authorized the trade should have been fired.
Quote:
Originally Posted by NJGOAT
If the vehicle is CPO, then there is the added cost of the CPO warranty as well, which is baked into the price.
I don't pretend to know how much the warranties cost, but I'd be shocked if it was $1000 or more. Even if it was that still left a big fat margin of $3000 at the price they were looking for. And again, that's not counting the profit on the financing. Another poster attempted to shoot that theory down but its a well known fact that dealers make more money on the financing than the cars themselves.
Quote:
Originally Posted by NJGOAT
You said, the car you were looking at fetches around $16k at trade and was retailing for $20,500, that might not be as much "profit" as you are assuming depending on the particulars of that car. It's perfectly reasonable that the same car at Dealer A has a similar profit margin as the same car at Dealer B, despite a difference in sticker price.
Let's be really generous and say they paid $16K for the car (which I doubt), needed to do $1K worth of work on it (highly doubt), and attached a $1000 warranty to it (snowballs chance in hell odds of that-it had a $50 deductible), that still figures out to nearly a 20% profit at the price they were looking for. And we're still not figuring in the $3K on the financing.
And we're still not figuring in the $3K on the financing.
Where are you getting this number from? Dealers typically do not pocket the interest and are merely middle-men for the financiers. Not to mention, 2-3% on a $20,000 vehicle is $400-$600 depending on exact interest rate. 2-3% seems pretty easily obtainable these days though.
This particular vehicle had the original tires on it, which was plain to see since they were the OEM size, type, and brand, and were obviously about halfway through their treadlife with 24K on the vehicle. Also, this vehicle was a trade that had been sold new by the same dealer (confirmed by the Carfax), so it likely went something like this: the customer came in hungry for something new of the same brand to which the dealer said SURE!!! Then they proceeded to nickle and dime the value of the trade while simultaneously jacking the price of the new vehicle. Wa'la, massive profits on both ends. Then they "sent it to the shop" which basically consists of a minimum wage employee washing and waxing the car, changing the oil, and doing a brief inspection. At 24K miles, barring blatant abuse or accident damage what could possibly need replacing? Your average brake pads/rotors last 35K miles these days! If the car was abused or damaged in an accident the employee who authorized the trade should have been fired.
Given the details, OK it was a different situation. I was only trying to point out that every deal and every car is different depending on what it needed. Used cars are one the main profit centers for car dealers, second only to service. This is where they generally make all their money, so yes, they often try to pump the margins. In general most dealers shoot for about $4k on the average markup/profit on a used car. Average transaction profit is less, generally around $2k-$3k, but sometimes it can be much more, sometimes even $8k-$10k. The only point again being, it's all relative to the individual car in question.
Quote:
I don't pretend to know how much the warranties cost, but I'd be shocked if it was $1000 or more. Even if it was that still left a big fat margin of $3000 at the price they were looking for. And again, that's not counting the profit on the financing. Another poster attempted to shoot that theory down but its a well known fact that dealers make more money on the financing than the cars themselves.
It depends on the warranty. A third party powertrain warranty could be as little as $500. A manufacturers CPO warranty could run in the $2k-$3k range to certify the car. In fact, that's really the whole game in "CPO land", to sell warranties.
I'll address financing below, since there is some general confusion over how that works.
Quote:
Let's be really generous and say they paid $16K for the car (which I doubt), needed to do $1K worth of work on it (highly doubt), and attached a $1000 warranty to it (snowballs chance in hell odds of that-it had a $50 deductible), that still figures out to nearly a 20% profit at the price they were looking for. And we're still not figuring in the $3K on the financing.
First off, do you really think a 20% profit margin is really all that unreasonable? A supermarket makes a higher margin than that on a box of corn flakes. I'm all for everyone getting a fair deal, but "fair" takes on a different meaning if you aren't going to allow them to earn a profit. If the deal isn't right to you, then you get up and walk away like you did. If corn flakes cost less at the supermarket down the road, I wouldn't be complaining that the first one was trying to rip me off, I'd just go to the other one and give them my business.
For all those who are curious this is how dealer profit on financing works...
There are two kinds, manufacturer financing and bank financing.
Manufacturer - The dealer gets a kickback either as a percentage of the transaction or a flat dollar amount for each customer they refer to the manufacturer finance arm. The general profit on this is in the $500-$1,000 range, but can be highly variable.
Bank - This is where it gets complicated. The dealer "buys" money for a certain rate from the bank, let's say 5% on a 60 month loan. How much the dealer "pays" for the money is determined by their volume with the bank.
The dealer then "sells" this money to you, but they sell it to you at a higher rate in order to generate profit. How much profit is generally commenserate with your credit rating, the overall soundness of the package (loan to value ratio) and how difficult it is for the dealer to "sell" your financing back to a lender. See, when the dealer is "calling the bank", they are not trying to "get you approved" they are trying to find a bank to buy your loan off of them at the highest profit for them.
It is rather common that dealers make almost nothing on tier one, prime loans, generally around $500. The reason is that it is very easy to find a buyer for low risk loans. Dealers make the most money on people with poor credit, where the markups can be insanely high. The dealer is paying the same rate for the money regardless, so a subprime customer taking out a loan at say 12% interest, is big profit to the dealer, upwards of $3k+ on an average $20k deal.
What will often happen on people with poor credit is that the dealer will forego some of their "profit points" back to the bank to get the loan sold, reducing their profits, but that isn't always the case and is somewhat dependent on the volume of subprime loans the dealer is sending through.
Overall, this is why car dealerships HATE when people have their own financing, especially those with shaky credit, it's a big profit loss to them. Of course, you can avoid all of that by securing your own financing ahead of time. In practice you end up just paying the dealers profit to the bank instead of the dealer, so it's not like that deal is really any better overall for the customer, unless the dealer is really raping you on the markup. If you have great credit, sometimes the dealer can get you a better deal from one of their high volume banks then you ever could get on your own.
So, just like everything else the "profit" on financing is very variable from a few hundred dollars up to thousands.
...It begs the question, why do dealerships still exist, especially since, as you clearly stated, buying a car from one is a long, drawn out, annoying, and needless waste of time
I suspect more tongue in cheek, but if the biz model was 'buying' a car only via the net, (which we have done, ordering-wise), there remains the requirement for that brick building, if for no other reason than to actually look at/sit in similar cars, and to get warranty work done, at some kind of physical service center.
The BB/electronics model is fragile these days, but they do have a position, albeit shrinking; I would think that replacing the dishwasher, refrig, et al, via pics on the net at Amazon, would be less informative than a store with some 'stuff' in it.
The lowest price on the planet for any given good(s), is worth a page of threads in itself, imo.
Back at the CarDlr Ranch, any biz has to make some decent ROI and profit, via some avenues of sales, service, etc. In buying cars, (mostly new), for nearly 5 decades, I have never felt that I got gypped, and never felt that a car dlr should only make a couple hundred bucks, esp on a $20-$60G purchase...
GL, mD
And we're still not figuring in the $3K on the financing.
You ignored my previous post about this, so I'll say it again. Unless the dealer is a "buy here-pay here," and I'm sure it's not in this case, all the dealership gets off the financing is a commission of no more than 1% of the total loan amount. Assuming you were planning on financing $18,500, that comes to $185 at the high end.
I'm guessing everyone at that dealership has been laughing at you ever since you left.
You ignored my previous post about this, so I'll say it again. Unless the dealer is a "buy here-pay here," and I'm sure it's not in this case, all the dealership gets off the financing is a commission of no more than 1% of the total loan amount. Assuming you were planning on financing $18,500, that comes to $185 at the high end.
Actually NJGOAT debunked that one so I let his comment stand on its own. He apparently works a dealership-you appear to be some kind of car dealer fanboy. I suppose everyone needs a hobby
Quote:
Originally Posted by duster1979
I'm guessing everyone at that dealership has been laughing at you ever since you left.
From: xxxxxxxxxxxxx
To: xxxxxxxxxxxxx
Date: Tue, Jan 31, 2012 at 10:05 PM
Subject: From the desk of xxxxxxxxxxx
Hello xxxxxxx,
Thank you for your recent visit to our Dealership. I would like to take
the opportunity to introduce myself, my name is xxxxxxxxxxxx and I am the
General Manager of xxxxxxxxxxx. I would like to make sure all of your
question have been answered. If there is a particular reason we were
unable to put a deal together, please let me know so I can see if there is
anything further I can do. Feel free to reply directly to this email or
call me at the number listed below.
Sincerely,
xxxxxxxxxxxxxx
General Manager
xxxxxxxxxxxxxx
555-555-5555 www.xxxxxxxxxxx.com
Yep-they're so glad to be rid of me they can't wait to get me back in the door
And you think they typed that out just for you? It's an automatic email.
Wow...you're quick! The point is that in the weird world of the dealership they think that if you'll just come back you'll be hypnotized into buying a car. I could walk in, pinch a loaf on the floor, and walk out and they'd still be sending those stupid e-mails.
Actually NJGOAT debunked that one so I let his comment stand on its own. He apparently works a dealership-you appear to be some kind of car dealer fanboy. I suppose everyone needs a hobby
From: xxxxxxxxxxxxx
To: xxxxxxxxxxxxx
Date: Tue, Jan 31, 2012 at 10:05 PM
Subject: From the desk of xxxxxxxxxxx
Hello xxxxxxx,
Thank you for your recent visit to our Dealership. I would like to take
the opportunity to introduce myself, my name is xxxxxxxxxxxx and I am the
General Manager of xxxxxxxxxxx. I would like to make sure all of your
question have been answered. If there is a particular reason we were
unable to put a deal together, please let me know so I can see if there is
anything further I can do. Feel free to reply directly to this email or
call me at the number listed below.
Sincerely,
xxxxxxxxxxxxxx
General Manager
xxxxxxxxxxxxxx
555-555-5555 www.xxxxxxxxxxx.com
Yep-they're so glad to be rid of me they can't wait to get me back in the door
It is rather common that dealers make almost nothing on tier one, prime loans, generally around $500. The reason is that it is very easy to find a buyer for low risk loans. Dealers make the most money on people with poor credit, where the markups can be insanely high. The dealer is paying the same rate for the money regardless, so a subprime customer taking out a loan at say 12% interest, is big profit to the dealer, upwards of $3k+ on an average $20k deal.
I agree with most of what you say, but this is not true. The buy rate is most certainly *not* the same for subprime customers. And most dealers do *NOT* make 3000+ on an average 20K deal. There are limits in place to protect the consumer against dealers marking up rates excessively on unwary customers.
However, like you said - even if you are bringing your own money you are just paying that profit to the bank as opposed to splitting some of it with the dealer. The banks don't let the dealer take all that profit, most offer some sort of split, like 70/30.
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The point is that in the weird world of the dealership they think that if you'll just come back you'll be hypnotized into buying a car. I could walk in, pinch a loaf on the floor, and walk out and they'd still be sending those stupid e-mails.
