Let's talk about car dealership profit margins.

[CrackerMessiah]

I'm just starting to get familiar with car leases (purchased only used cars prior), and had a recent dealership experience that makes me think. In the span of less than 30 seconds - the amount of time it took me to walk away from an unduly smarmy salesman - the first quote on a monthly lease dropped 25 percent. That value just evaporated like it was disposable.

That got me wondering just how much of a quoted price is just pure profit. I have nothing against making sure associates get paid and making sure the lights are kept on, but there's a line between "Thank you for your business" and "you've been taken for a ride." And, because of the antiquated dealership model with its vestigial haggling requirement, the breakdown for costs, overhead and profit are further blurred.

So, when it comes to car leases (or new car purchases, for that matter), how much of a given quote is usually excessive profit?

 

[smokehouse]

Unless you personally know people that work at every dealership...good luck finding that out. I've bought a ton of cars and every time, I swear to god they are just fucking with me to see how long it will take for me to try to walk out on them.

I will say this, by what I understand, they typically make far more $$ selling a used car than a new one.

On a related note, I despise car dealerships, car salesman, and buying a car. The entire process is total slimy shit. Figuring it involves the single most expensive item I'll buy (save my home), it shouldn't be this way. I get better treatment buying a fucking television, and that's sad.

 

[TonK]

It's all about volume.

I was looking for a car about a month ago - stopped by dealerships just to look - pulled all the way in the back and those slime fucks still had time to walk their fat asses out to hand me a card.

 

[Lastblade]

There are too many undisclosed bonus/incentives that it is virtually impossible to know *exactly* what each car's margin is. All the listed price, such as MSRP/Invoice, bonus cash, etc etc etc don't tell you the true cost because manufacturers will give different incentives based on volume, model, remaining inventory, etc etc etc.

 

[mr_b]

Its all about the kick back from the manufacturer on new cars. Thats why the end of the month is the only time to make a deal. This can be a double edged sword though as well. If the dealer is 5 cars away on the next incentive bracket on the last day they will be taking no profit on the car itself to get that kickback. Now once they sell those 5 you might as well walk away and try next month. They wont budge an inch.

All new car negoiations you start at 20% off the sticker. And then sign at the 15-13% off mark. Ive only had one deal at 20%. But that again was a i will do anything for you to buy today at the 11th hour.

Also dealers dont have to pay the bank on the vechicles until they have been on the lot for 30 days. Eyeball your purchases in advance. All good deals start with stalking your prey.

 

[smokehouse]

There are too many undisclosed bonus/incentives that it is virtually impossible to know *exactly* what each car's margin is. All the listed price, such as MSRP/Invoice, bonus cash, etc etc etc don't tell you the true cost because manufacturers will give different incentives based on volume, model, remaining inventory, etc etc etc.

Yup.

I bought my '14 RAM 1500 Feb of 2014 (in other words, it was brand new, not new-old stock)...sticker on it was $38K and some change. After "discounts", it was just over $30K...so 8 freaking thousand off. I know like I know my name that there's no way a dealer makes anywhere close to $8K on a vehicle that is less than $40K...so yeah, some funny money was involved for sure.

 

[norton9478]

Find the invoice price and try to pay no more than that. Don't let the salesman fool you, he is making money at invoice.
And if you walk, he loses money.

You should always be able to get a car at invoice unless that model is selling rather well or has low stock (usually sports cars and new models).

 

[StevenK]

No idea what a dealership makes, but when I sell a car, as a sole trader working from home, I aim to pocket £500 profit off a £4k car. I very, very often don't. I very, very often lose money in fact, especially if I get a phone call about a problem from a prior sale.

 

[madman]

I've found a lot of it comes down to the dealership itself in terms of getting a good deal. Things have changed now that invoice prices are readily available on the Internet, you can ask what other people paid, sites like truecar, etc. When I was buying an Audi one dealership said that they couldn't go below sticker price. I just laughed and walked out, that's not where negotiations begin. There was another guy in the dealership w/another salesman and the guy was literally yelling at him and walked out. I found another dealership and yeah I had to play the game, but I ended up getting a fair deal. The dealership I deal w/now is very straight forward, no games. Both times I've traded in cars they've been right in the middle of the range I was looking for. Negotiations are straight forward and no pretending to walk away games are needed. There's plenty of info out there now where anyone should be able to get a deal that's fair on any car they're looking for, it's just a matter of finding a good dealer after you're armed.

 

[GohanX]

By the way, leasing is almost always a bad idea unless you're a business with a contract. I usually see it with people wanting to drive luxury cars that can't actually afford them.

 

[famicommander]

I've never bought a car at a dealership. I just save money and buy one from random people, then drive them until they don't drive anymore.

Paid $800 for my current car, has been running fine for the last five years. It tends to eat tires and I've had to do a lot of front end work, but I think I still have less than $3000 into it total. I need new struts badly but it would cost me more than I paid for the car. Probably a big reason I keep having to do front end work (CVs, tie rods, bearings, etc) and replace tires, but fuck it.

I'll be in the market for a small 4WD around the end of the summer, just for driving to work in the heavy snow. My little 99 Escort is a surprisngly decent car in the snow, but it does have pretty low ground clearance so it can get stuck at times.

 

[madman]

By the way, leasing is almost always a bad idea unless you're a business with a contract. I usually see it with people wanting to drive luxury cars that can't actually afford them.

+1.

 

[norton9478]

Leasing is a good deal if it works for you.
If you can get 1% financing and an over-market residual, it is as good as or better than buying.

It can work out better than buying if you take the right deal. Especially when you look at sales tax and other implications.

Leasing is essentially a contract to buy the car, with the leasor promising to buy it back in 36 months at an agreed upon price (if you should choose to turn it in).

 

[joecommando]

Good thread, I was actually in the market to buy a new 2016 Dodge Challenger srt8. after going to multiple dealerships and being treated like shit everywhere I went I said fuck it, all these assholes are not getting a cent of my money. This was the first and the last time I will ever try to buy a vehicle from a dealership I have always bought used from a private party.

 

[Fuzzytaco]

Good thread, I was actually in the market to buy a new 2016 Dodge Challenger srt8. after going to multiple dealerships and being treated like shit everywhere I went I said fuck it, all these assholes are not getting a cent of my money. This was the first and the last time I will ever try to buy a vehicle from a dealership I have always bought used from a private party.

You may have to travel several hours south to find a decent deal.

 

[CrackerMessiah]

By the way, leasing is almost always a bad idea unless you're a business with a contract. I usually see it with people wanting to drive luxury cars that can't actually afford them.

Normally I'd agree, having taken the Famicommander approach since I've been driving. But it's got to the point where maintenance costs on the current car now approach what could be spent, per year, leasing a new car. A lease would provide a way of biding my time, albeit one that would be costly. I could just as easily try my luck on another used car in the interim, however, and hope that it won't need more attention than my current one does.

Find the invoice price and try to pay no more than that. Don't let the salesman fool you, he is making money at invoice.
And if you walk, he loses money.

You should always be able to get a car at invoice unless that model is selling rather well or has low stock (usually sports cars and new models).

I'd wager there's a way to derive a good lease quote based on that invoice price, as opposed to the MSRP.

Yup.

I bought my '14 RAM 1500 Feb of 2014 (in other words, it was brand new, not new-old stock)...sticker on it was $38K and some change. After "discounts", it was just over $30K...so 8 freaking thousand off. I know like I know my name that there's no way a dealer makes anywhere close to $8K on a vehicle that is less than $40K...so yeah, some funny money was involved for sure.

And here's another thing: this type of pricing and obfuscation comes from the idea that cars are still considered something unique and special that you deal over. That might have been the case last century, where you could insist on various options and add-ons that left what felt like valid wiggle room. There were also less of them produced, so that combination of rarity (prestige!) and customization allowed for enough of an illusion that haggling over the purchase was necessary, much less a valid use of breath and time. You could at least base your quoted price on observable parts.

Fast forward to today, and cars come from factories pre-configured and packaged like any other consumer good. They're commodities, and should follow the economics of such, yet the entrenched dealership system still markets them like something genuinely rare and objectively unique. The majority of them are not, and thus should have - to some extent - objectively discernible margins, just like any other commodity.

Whoo.

 

[joecommando]

You may have to travel several hours south to find a decent deal.

Oh I did and it wasnt about money it was about how they jerked me around. I went to a dealer and drove 1 and a half hours to look at an Srt8 they had in stock which I called on in advance telling them I would be there the next day and scheduled a test drive and everything. When I got there the sales manager informed me that they sold that car last week and they didnt have anymore Srt8's but they had some R/T models. So they lied to me about having the car in stock just to get me down there and tried to sell me something I did not want, so I politely told them to go fuck themselves. Another time I went to a dealership and they had a couple SRT8's in stock but they informed me that they do NOT let people drive the cars unless they agree to buy them first because people will "joy ride them" lol how the fuck am I supposed to know if I like a car or not if I cant even drive it first? These were just a couple of my bad experiences at these car dealerships, there are a lot more stories I could tell. I went to a dozen Dodge dealers in WA state and not a single one of them was honest. Its really sad because the Challenger has been a dream car of mine ever since I was a little kid and I wanted one badly but not anymore now its a matter of principle and these scumbags will never see any of my money.

 

[GohanX]

Also, stop buying new cars. It's the worst financial decision you can make. Aside from leasing.

 

[lithy]

Also, stop buying new cars. It's the worst financial decision you can make. Aside from leasing.

Just buy several old project cars instead. It is a way more fun and only slightly better financial decision than buying new.

 

[GohanX]

Lol. Ideally, you buy a newer used car, it's still reliable but has taken the largest hit in depreciation already. Buying old sports cars is just a hobby

 

[evil wasabi]

You should ask to see the price that the dealership paid for the car. If they don't want to show that to you, tell them they don't want your money.

 

[mr_b]

CPO are sound if your want a current model car. Better warranty and have taken a decent chunk of the initial depreciation.

New cars are not sound financial decisions but thats not always a concern for everyone. If you can buy new and pay cash or at 0% financing. When buying a car its more about determining how long before you expend more of your finances on transportation. If you buy a vehicle and treat it as an asset like a business would and factor out what that expense incurs in your operation.

When I buy vehicles, I have an idea in my head of how long i plan to use that car based on the mileage I incur a year. I plan to buy a truck my next go around. I expect that truck to go 250k in miles and last 12 years. Buying new I expect to spend about 36-40k. That brings the operating expense in the asset to around 3k a year. I could buy a 20k truck and expect 6 years out of it. The cost is the same. But Id have a warranty for the first few years of ownership unlike a used truck. Therfore I will likely buy new.

 

[norton9478]

Lol. Ideally, you buy a newer used car, it's still reliable but has taken the largest hit in depreciation already. Buying old sports cars is just a hobby

I find that the total cost of ownersip on a "Newer Used" can be rather high.

 

[roker]

I'll probably never lease or buy a new car again. I don't think it's worth it. After all is said and done, even the "good deal" I got on my car is going to end up costing me a ton in interest and maintenance. Buying used for now on.

 

[The_Chosen_One]

GohanX is on point here, leasing is terrible and so is buying new. Many (most?) cars lose 50+% of their value in the first 4 years. 50-150k miles on a used car is not typically the range you see any major repair cost. I buy most of my vehicles around 70k miles. With something like a truck that has a better resale value later your cost per year on purchase price can be $500 a year. Compared to losing many thousands in the first few years alone on a new car, even if you have some big repairs at a couple grand you still come out way ahead.


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