Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
So you're telling me that they cannot profit from a holdback?
They absolutely do profit from holdbacks if they can turn the vehicle quickly. Hence the "deals" that pop up towards the end of the month. They want to move the cars before being charged another month on the floorplan. Use some logic.
I understand there are other costs involved but remember we are only using 1 example. Multiply that across the tens of cars sold each month and the numbers grow exponentially and easily outweigh the costs. Otherwise explain how the dealers stay in business.
Holdbacks are not a factor in any of this, I don't know why this is even a discussion. What matters is DEALER COST. Turning a vehicle quickly or not has nothing to do with holdbacks - I don't know where you are coming up with this stuff.
Selling a car before month end has nothing to do with "being charged another month on the floorplan" as floorplan costs are DAILY. If you sell a car on 4/3 then you only pay 3 days of floorplan on that car in that month. Your floorplan statement shows every car by VIN and the # of days charged on each one.
The rush of moving cars before month end is usually due to internal quotas/bonuses and/or incentive programs like stairsteps, etc. Holdback and floorplan have nothing to do with that.
If the finance source is outside of the dealership, maybe. But if the dealership has in house financing that's a different ballgame. Either that or I need to go tell the Ford GM and the service manager at Toyota that they lied to me.
They did lie to you or there was something lost in translation. Making near $4K in finance reserve with factory low-APR programs on anything less that a 6-digit vehicle is just darn near impossible.
You can make that on a car if you mark up the rate a lot - that's about the only way you can get there - but dealers are capped at what they can make when using the factory low APR programs.
From two very reliable sources. 1 is a close friend of mine (the service manager at a very large Toyota dealership here in town) and the 2nd is another friend who happens to be a GM for a Ford dealership. We've had discussions at length on how their process works. My wife's grandfather owned a car dealership before he passed and he has gone over these models with me through the years. He eventually went to used cars only to cut out all of the paperwork and such that was required to make these deals with the manufacturers and in turn it required him to carry much less inventory to make more profit. But the profit is there if you know how to do the paperwork and run the numbers. I also sold cars for him on my off days for extra money.
I didn't say they made thousands on EVERY sale, but there are times where they do in the right circumstances. The invoice price is NOT the final price the dealer pays for the vehicle. Rest assured they do make a decent profit on every sale, otherwise they wouldn't be in business. If you really break down everything and go through ALL of the numbers you quickly realize that the dealer makes a nice profit.
Let's say the floorplan from the manufacturer costs $350/month and the dealers make a holdback profit of $540 (3% of invoice) off the top by selling to you at invoice of $18k. They sell you the car within 30 days of financing it. Then they sell you an extended warranty for $2,500 (and you end up having less than $300 worth of warranty work done inside the warranty), do in house financing at 1.9% for 72 months ($3,420), get a manufacturer-to-dealer incentive of $1k on that model for the quarter, and then charge you a doc fee of $450. The total OTD price of the vehicle to you is ($18k + $2500 warranty + $450 doc fee) = $20,950.
Invoice price - $18,000
Floor plan (finance charge from manufacturer to dealer) - $350/month
3% Dealer holdback - $540
Ext warranty - $2,500 - $300 in work = $2,200
1.9% financing profit - $3,980
MTD incentive - $1,000
Doc fee - $450
Here's the REAL long term cost of the vehicle broken down:
Cost of the vehicle to the dealer - ($18,000 - $540) $17,460
Manufacturer to Dealer incentive - ($17,460 - $1000) $16,460
Floorplan charge - ($16,460+$350) $16,810
Extended Warranty - ($16,810-$2,200) $14,610
Finance interest - ($14,610-$3,980) $10,630
Doc prep fee - ($10,630 - $450) = $10,180
Invoice price - TRUE dealer cost ($18,000 - $10,180) = $7,820. Even if they sold $1k below invoice their gross profit could still be over $5k on the car. Sales commission is a few hundred dollars of the profit. Go ahead and take all of the other costs out of the vehicle and the net profit is probably closer to $2k on the car. And we haven't even discussed trade in yet. Remember, a lot of people trade with negative equity. The dealer absorbs ZERO of that. It gets rolled into the cost of the new car. The higher the sales price, the higher return on the interest charge = more profit.
If things can be bought online (as many people now do) the need for a "insert your brand here" dealership every 30 miles would go away. One or two brick and mortar stores in the state would be enough to allow people an opportunity to test drive, etc... Then all of the paperwork and such can be completed online, which eliminates the need for doc fees, etc... many of those are dealer profit.
As it stands now, there is a regional manufacturing supply house that provides the vehicles to all dealerships in a specific region. For Toyota, the manufacturing distributor for all Southeast Toyota dealerships is in Florida. All dealerships "buy" their vehicles from that distributor. The direct to consumer model could potentially be similar to this and it would work fine. You need MANUFACTURERS competing for profit, not dealerships.
I am well aware of how all this works as I live & breath it every day, and have done so for 20+ years now. Car dealers would do darn well for themselves if they made $2K profit on each car, that would be a super-high average compared to most dealers. (I'm not counting F&I income here, that's another story and isn't on every deal.) That's one reason DOC Fees keep spiraling out of control because the dealers are tying to crawl back every dollar they can get from the hypercompetition that has been eroding new car margins for decades.
Gulf States Toyota, which is yet another middleman by the way, does not have service centers, take used trades, doesn't sell parts, etc. You still need brick and mortar stores scattered all over to do these things.
Most of the cost in building a dealerships is the parts and service departments. Adding some office space to the front is small change in the grand scheme of things.
No one is asking you to give up old school dealers. We're just saying let folks sell direct too, e.g. Tesla or anyone else - without lobbyists protecting dealers. We pay for the lobbyists in higher car prices, what a racket. You buy at Main St Ford and I'll buy online, we're both happy and we quit paying some lobbyists.
Quote:
Originally Posted by iamweasel
You don't know what you're talking about. Manufacturers pay more into the "lobbyist" organizations than dealers do. They don't want to sell cars.
But I agree each manufacturer should be able to sell direct if they want. I've got no problem with that but it has to be a nationwide rule. Let the market dictate which way is best but those with these "dealer middleman" conspiracies just don't know what they're talking about. Having manufacturers sell cars will more than likely lead to higher prices compared to having an independent dealer network with thousands of dealers competing against each other.
Do you seriously want only 8-10 different players selling cars across the whole country? Unofficial collusion will happen big-time....now with thousands of dealers going after the same business that keeps prices in-check.
Please show me where I said anything about either?
The point is lobbyists have funded self-serving legislation to protect dealerships and thwart direct sales. Let direct sales and dealerships compete without protectionist legislation for either, that's all I'm saying, and you seem to be in agreement.
Please show me where I said anything about either?
The point is lobbyists have funded self-serving legislation to protect dealerships and thwart direct sales. Let direct sales and dealerships compete, that's all I'm saying, and you seem to be in agreement.
I agree on that part - let each manufacturer decide whether or not to sell direct. (Whatever the manufacturer decides it has to apply to the whole country, though. You can't cherry pick and direct sell in some states and not others.) The market will decide which way works.
If I misunderstood you then that's my fault, but so many people think the dealers are the only ones fighting to keep state franchise laws in place. The manufacturers actually contribute more to the cause than people realize because the current group of manufacturers do not want to retail cars or manage dealerships.
That is of course aside from Tesla right now, and they should have the right to set up their distribution & service model as they choose in my opinion.
There is always a cost to money, and the dealership would not have access to free money. In house financing is always financed ultimately by a bank.
That's something I can't seem to get people to understand. A 0% financing offer is being subsidized by somebody; usually the manufacturer. Which is why you likely have the option of either a rebate, or below market or no interest financing, but not both.
A recent furniture shopping expedition revealed multiple furniture chains offering no-interest financing for purchases, or a percentage off the dollar amount of the sale, but not both. Why do you think that is?
Quote:
Originally Posted by iamweasel
Gulf States Toyota, which is yet another middleman by the way, does not have service centers, take used trades, doesn't sell parts, etc. You still need brick and mortar stores scattered all over to do these things.
Gulf States doesn't take trades, and doesn't sell retail parts. But they do have parts distribution, if I'm not mistaken, and although they don't have service centers, they do have a processing center that all Toyota vehicles destined for dealers in their territory go through. GST often packs the vehicles they process with add-ons: like floor mats, window tinting, VIN etching, pinstriping, paint sealant and fabric protection, alarms, etc. They add their own window sticker next to the factory sticker, and the GST add-ons look like they carry hefty mark-ups.
Of course, it appears non-Toyota dealers (in my region at least), do pretty much the same things to their vehicles that GST does to Toyotas, and their add-on stickers carry those hefty mark-ups as well.
That's something I can't seem to get people to understand. A 0% financing offer is being subsidized by somebody; usually the manufacturer. Which is why you likely have the option of either a rebate, or below market or no interest financing, but not both.
A recent furniture shopping expedition revealed multiple furniture chains offering no-interest financing for purchases, or a percentage off the dollar amount of the sale, but not both. Why do you think that is?
Gulf States doesn't take trades, and doesn't sell retail parts. But they do have parts distribution, if I'm not mistaken, and although they don't have service centers, they do have a processing center that all Toyota vehicles destined for dealers in their territory go through. GST often packs the vehicles they process with add-ons: like floor mats, window tinting, VIN etching, pinstriping, paint sealant and fabric protection, alarms, etc. They add their own window sticker next to the factory sticker, and the GST add-ons look like they carry hefty mark-ups.
Of course, it appears non-Toyota dealers (in my region at least), do pretty much the same things to their vehicles that GST does to Toyotas, and their add-on stickers carry those hefty mark-ups as well.
Yes, Gulf States Toyota does distribute parts to dealers, too. (But not to retail customers.) It is also my understanding that the "add-ons" they do are at the request of the dealer who ordered the car, they just don't randomly pick things to add on.
Even so that operation is a big time scam/middleman. I have personal experience with several OEM's and dealers but not Toyota, but my wife's best friend's family owns a Toyota dealer in the southeast. Talked to her Dad about Southeast Toyota Distributors a couple times and lets just say he has less than flattering things to say about that whole setup. (Southeast Toyota is the other distributor in the US. Toyota bought all the others a long time ago but could not get control of Gulf States or Southeast Toyota for whatever reason.)
From two very reliable sources. 1 is a close friend of mine (the service manager at a very large Toyota dealership here in town) and the 2nd is another friend who happens to be a GM for a Ford dealership. We've had discussions at length on how their process works. My wife's grandfather owned a car dealership before he passed and he has gone over these models with me through the years. He eventually went to used cars only to cut out all of the paperwork and such that was required to make these deals with the manufacturers and in turn it required him to carry much less inventory to make more profit. But the profit is there if you know how to do the paperwork and run the numbers. I also sold cars for him on my off days for extra money.
That's not just bad information, it's bad math. An $18,000 loan at simple interest for six years would require a 3 percent rate to earn $3420. At an actual amortized rate it will earn a lot less. In general, a franchised dealer who gives up a franchise to sell only used cars is an unsuccessful business person. People fail at all businesses because some are just no good at it. They are not the ones from whom to take advice. Perhaps his overpaying you and not considering his overhead costs is what did him in.
While you may have a little bit of "inside" information about the automobile business, you have just enough to make yourself dangerous to anyone heeding your advice. The rest of your "information" is just as invalid. All your misfiguring, misinformation and misunderstandings invalidate your viewpoint.
I simply did a search for vehicle model I wanted, and they were able to find the model I wanted at the price I wanted.
And the vehicle was delivered right to my door step.
Zero involvement with dealership, just the way I like it. No haggling, no stress, no ridiculous games and psychological manipulations.
Will be using this feature again in the future if I need a car. it is true I can't test drive a car, but if it's a brand new car I really don't care about it.
I simply did a search for vehicle model I wanted, and they were able to find the model I wanted at the price I wanted.
And the vehicle was delivered right to my door step.
Zero involvement with dealership, just the way I like it. No haggling, no stress, no ridiculous games and psychological manipulations.
Will be using this feature again in the future if I need a car. it is true I can't test drive a car, but if it's a brand new car I really don't care about it.
No need for anyone to go to a dealer.
You may be easy to please or you may have just been lucky. I used to travel a lot for business and needed to rent cars 60-70 times a year. Most rental cars are new and I rented quite a variety, some better than others. In all that time I drove whatever they gave me except for once. I got in the car and before I made it out of the lot I realized it was the most uncomfortable car I ever drove. I made a complete loop and put it right back in the stall I came from and went inside to get a different car; I wouldn't even drive it for three days, much less the term of a lease or a few years.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
