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Are there any car salespersons here?

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UVaWahoo

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Over the years, after multiple purchases, I've never understood how the automobile sales business actually works. In short, what does a dealer actually pay for the vehicles they sell. Based on claims that they can sell a vehicle for little over the invoice, considering the overhead and the floor plan, how the heck can they make any money. I must assume that the invoice, is not really an invoice, it can't be if they are making any profits at all. I know that there is a dealer hold back and some bonus arrangements, but they must be outside the invoice. I just don't understand how the dealer can pay the sales commission, cover overheads and make a profit based on what they claim to be their cost.
 
Paging Bullfrog
 
Dealerships made 80% of their money off the service department for the company I used to work for. Other manufacturers might have different numbers, but car sales accounted for a very small portion of what our dealerships actually made. I know this first hand because as a perk of working for them, I could actually buy a car at basically wholesale price directly from our plant. They typically didn't make much at all between the difference it cost them to buy the car and what they sold it for.
 
From what my buddy who sells cars told me, the invoice is their cost, but then they get a rebate from the manufacturer based on number of units sold, so when the dealership meets their quota their cost is less than the invoice. Don't know if that is true or not, but that is what he told me.
 
sposey013168 said:
From what my buddy who sells cars told me, the invoice is their cost, but then they get a rebate from the manufacturer based on number of units sold, so when the dealership meets their quota their cost is less than the invoice. Don't know if that is true or not, but that is what he told me.
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This is effectively what my friend who sold cars told me too. Its why the end of the month matters and why sales people can be found to push certain models - the manufacturer's rebates and bonus/offers to the dealership drive that behavior.
 
sposey013168 said:
From what my buddy who sells cars told me, the invoice is their cost, but then they get a rebate from the manufacturer based on number of units sold, so when the dealership meets their quota their cost is less than the invoice. Don't know if that is true or not, but that is what he told me.
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This is correct. Plus the profit center in the dealership, as stated above, is in the service department and parts. On average if a dealer sells a vehicle at invoice they will still make 3% of MSRP price. So on a $30,000 vehicle the dealer will get roughly $900 in hold back no matter what the selling price is. If you multiply that amount by say 100 cars a month it starts to add up. If the dealer is selling a specialty car (example Z06 Vette, SS, ZL1 Camaro) those vehicles are typically sold at MSRP with no discount unless they are an Employee of the manufacturer. Those looking for them know this when shopping. There is no hold back from manufacturer on used vehicles. Used vehicles have the most mark up. Not as much as it use to be but it is more than new is.

Hope this answers the OP's question.
 
Bullfrog said:
This is correct. Plus the profit center in the dealership, as stated above, is in the service department and parts. On average if a dealer sells a vehicle at invoice they will still make 3% of MSRP price. So on a $30,000 vehicle the dealer will get roughly $900 in hold back no matter what the selling price is. If the dealer is selling a specialty car (example Z06 Vette, SS, ZL1 Camaro) those vehicles are typically sold at MSRP with no discount unless they are an Employee of the manufacturer. Those looking for them know this when shopping. Used vehicles have the most mark up. Not as much as it use to be but it is more than new is.

Hope this answers the OP's question.
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That is what I've been always told. A 15K service visit will run $500 to $700 bucks if you don't have a prepaid plan.
 
Bullfrog said:
This is correct. Plus the profit center in the dealership, as stated above, is in the service department and parts. On average if a dealer sells a vehicle at invoice they will still make 3% of MSRP price. So on a $30,000 vehicle the dealer will get roughly $900 in hold back no matter what the selling price is. If you multiply that amount by say 100 cars a month it starts to add up. If the dealer is selling a specialty car (example Z06 Vette, SS, ZL1 Camaro) those vehicles are typically sold at MSRP with no discount unless they are an Employee of the manufacturer. Those looking for them know this when shopping. There is no hold back from manufacturer on used vehicles. Used vehicles have the most mark up. Not as much as it use to be but it is more than new is.

Hope this answers the OP's question.
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Thank you for your explanation. A follow-up if I may. How do manufacturer's rebates work. Do they reduce the invoice cost or are they applied singularly to the MSRP. Let's assume the MSRP on a vehicle is $40,000 with an invoice of $35,000. The dealer states that they will sell the car for $300 over invoice. The rebate is $2,000. Does that mean that the dealer will now sell the car for $35,300 or $33,300.
 
UVaWahoo said:
Thank you for your explanation. A follow-up if I may. How do manufacturer's rebates work. Do they reduce the invoice cost or are they applied singularly to the MSRP. Let's assume the MSRP on a vehicle is $40,000 with an invoice of $35,000. The dealer states that they will sell the car for $300 over invoice. The rebate is $2,000. Does that mean that the dealer will now sell the car for $35,300 or $33,300.
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If my memory serves correctly (it's been 11 years now...) the rebate is off whatever agreed price you reached with the dealer. The rebate is coming directly from the manufacturer so it won't (shouldn't) affect the dealer's margin.
 
Are there any car salespersons here?

UVaWahoo said:
Thank you for your explanation. A follow-up if I may. How do manufacturer's rebates work. Do they reduce the invoice cost or are they applied singularly to the MSRP. Let's assume the MSRP on a vehicle is $40,000 with an invoice of $35,000. The dealer states that they will sell the car for $300 over invoice. The rebate is $2,000. Does that mean that the dealer will now sell the car for $35,300 or $33,300.
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The rebate comes off the agreed selling price. If you get supplier or Employee then rebates come off of that price. Rebates are essentially a coupon. You will pay tax on $35,300 but actually buy it for $33,300. Rebates aren't tax free. If tax on $35,300 at 7% is $2488.50 then you buy it for $33,300 plus $2488.50 tax. Not including what the dealer doc fee and title fee. So it should look like this...

Selling Price: $35,300.00
plus Doc fee: $ 250.00
Equals: $35,550.00
Plus 7% tax: $ 2,488.50
Plus Title & Tag: $ 33.50 (Ohio's cost)
Equals: $37,772.00
Minus Rebate: $ 2,000.00
Means out the door of: $35,772.

I hope this helps you understand. Rebates don't affect dealer. Just a customer discount/coupon.
 
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Doc fees...don't get me started on doc fees (and don't pay them, either). The money back to the dealer is commonly referred to as a holdback. The manufacturer is basically paying the dealer for selling it, similar to a refund or rebate. Dealers use the hold back to make a deal on the last day of the month, at 8:30 pm, when they need the sale.
 
ChetSteadman said:
Doc fees...don't get me started on doc fees (and don't pay them, either). The money back to the dealer is commonly referred to as a holdback. The manufacturer is basically paying the dealer for selling it, similar to a refund or rebate. Dealers use the hold back to make a deal on the last day of the month, at 8:30 pm, when they need the sale.
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Why should a dealer lose money to sell you a car? Do you work for free? Or offer a service for free? My dealership won't touch the hold back. On a $30,000 car that we are selling at invoice, we make $900. If you sold something for $30,000 you would want more than $900 profit. Take out the salesperson's commission plus the cost of clean up and gas, in the end the dealer makes even less total. The Doc fee is mandated by the state not the dealer. It's not profit, it's the cost of doing the paperwork. Those people in the office doing all the paperwork and title work have to get paid as well.
 
Are there any car salespersons here?

My family owns several new car dealerships. I've seen them get into the holdback before to hit a number. Doc fees are mandated (at least not in NC). In many states the state will impose a limit on them, however.

Re: doc fees - build the price of paying the F/I people into selling the car. When I negotiate a car, I negotiate the final price then write a check. If the price is different when I go to sign the paperwork, I'm out.
 
ChetSteadman said:
My family owns several new car dealerships. I've seen them get into the holdback before to hit a number. Doc fees are mandated (at least not in NC). In many states the state will impose a limit on them, however.
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This is correct. The state does limit the amount of it from $250 or 10% of the selling price. So, on a new car $250 is a lot less than 10% but on a $2000 car the 10% is a less than the $250. Each state is different I believe. This is how it works in Ohio. I guess the size of the dealership and amount of units sold depends on if they touch holdback.
 
Are there any car salespersons here?

Bullfrog said:
This is correct. The state does limit the amount of it from $250 or 10% of the selling price. So, on a new car $250 is a lot less than 10% but on a $2000 car the 10% is a less than the $250. Each state is different I believe. This is how it works in Ohio. I guess the size of the dealership and amount of units sold depends on if they touch holdback.
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I actually meant to say the fees are not mandated, nor are they capped in NC. My family's dealerships do not charge them. They deal bottom line only. Due to a falling out, I haven't bought my last 3 vehicles there so I have had to deal with other dealers here in NC. The toyota I bought a few years back tried to add fees when we got to F/I. I walked out, but they called back and convinced me to come back. I didn't end up paying the fee.

Edit: typing on a phone sucks
 
So my boss used to sell high end cars. Her response:
The sales department only pays for the sales department. All dealership expenses are paid for by parts and service. There is no money in new cars...
 
Bullfrog said:
The rebate comes off the agreed selling price. If you get supplier or Employee then rebates come off of that price. Rebates are essentially a coupon. You will pay tax on $35,300 but actually buy it for $33,300. Rebates aren't tax free. If tax on $35,300 at 7% is $2488.50 then you buy it for $33,300 plus $2488.50 tax. Not including what the dealer doc fee and title fee. So it should look like this...

Selling Price: $35,300.00
plus Doc fee: $ 250.00
Equals: $35,250.00
Plus 7% tax: $ 2,488.50
Plus Title & Tag: $ 33.50 (Ohio's cost)
Equals: $37,772.00
Minus Rebate: $ 2,000.00
Means out the door of: $35,772.

I hope this helps you understand. Rebates don't affect dealer. Just a customer discount/coupon.
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Got it, thanks for the explanation.
 
Ok so I see I had a typo in my numbers. But you get the gist.
 
I own a small used car dealership (only 50 cars on the lot). Just wanted to comment on the doc fees. In Missouri they are regulated by the state. Ours are set at $119.00. The state says if we charge one person we have to charge them all. We can't waive it for certain customers. Worst case scenario we will discount the vehicle $119.00 and charge the doc fee so it all evens out.
 
LSMO said:
I own a small used car dealership (only 50 cars on the lot). Just wanted to comment on the doc fees. In Missouri they are regulated by the state. Ours are set at $119.00. The state says if we charge one person we have to charge them all. We can't waive it for certain customers. Worst case scenario we will discount the vehicle $119.00 and charge the doc fee so it all evens out.
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Utah is the same way after a major lawsuit. If you charge one, you MUST charge all. Most here are $399 and up. It's a joke so I make them discount the car. Now they've started adding other random fees that don't even make sense. My last purchase had some really odd fee I'd never heard of. I immediately called their bluff and they took it off without question. Makes you wonder how many people don't catch it...
 
I spent 30 yrs in the retail auto business. Salesmen generally make 25% of the profit, not including the holdback. So, if we sold a $30K car and made $1000 (considered a good profit) by the dealer, the salesman made $250 for his/her efforts. Most deals were far less than $1000. So, doing that math, how many sales are needed for a reasonable income? Without getting used cars in on trade or purchasing them from auction, salesmen generally make less than the service technicians. The parts/service and finance departments are the lifeblood of a dealership. That is why the salesperson that you bought your last new car from is no longer at the dealership when you go back. The turnover in sales is tremendous. A salesperson needs referrals and repeat business to last.
 
A Service Department should be able to fully pay for the whole dealership expenses. 100% fixed absorption is every service departments' goal. Their lifeblood is the service and parts department.

New cars don't really generate much profit, unless it is a specialized model in limited supply that they can charge over sticker on and get it. This is why most dealerships push the used cars like crazy. There is more profit in the used cars, which = more profit for the salesperson and the dealership.

They also work hard to get money on the back end through F&I, Extended warranties, Road hazard, Maintenance Packages, Gap Protection, Ding shield, Perma plate. etc.

Thats why you find people seeing that things are added. F&I tries to package in all the extras, which is where they make extra on their commissions.

The way I see it is this, If I am leasing a car, I could care less about the total price, as long as the monthly payment is what I wanted to pay.

If I am buying a car and financing, every bit makes a difference. a payment can jump up huge over a thousand or two in extras added on.

Sales departments are definitely revolving doors for sales people. They come and go so quickly. There one day, gone the next.
 
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