Confessions of a Car Salesman
An insider's look at the car buying process, and tips on how to tip the negotiating scales in your favor.
Buying a new car can be a confusing, frustrating and downright unpleasant experience. But behind the haggling and the anxiety and the dramatic theater of the salesman going to talk to the manager, how does this process really work? One anonymous car salesman lifted the veil and gave us a taste of what it's like on the showroom floor. And most importantly, our informant lets us know how we can get the best deals the next time we're shopping for a new car.
Q: How much money do you make on a car deal?
A: Everyone thinks the salesman is always pulling a fast one on them. People in other sales jobs are especially suspicious. When real estate brokers come in to buy cars, they assume we make the same 5 percent they do on every deal. But it's not true. I've had deals in which I earned $100 on a car after negotiating with a customer for 4 hours. Buyers just won't accept that on many deals, margins are slim for the salespeople. Honestly, used cars are really where the money is made. I earned more on a used car with 95,000 miles than I did on many brand-new ones.
Q: Do you really have to "talk to the manager"?
A: We call it "desking it" — we're taking the customer's offer to the manager's desk. I would say 90 percent of the sales force at every dealership has to do this. It's the manager's job to help structure the deals to earn the most profit for the dealership, or to move stagnant inventory quickly.
There's a psychology behind the dealer's desking practice. You see, sales people are very hungry. If they knew the bare-bones, bottom-line price that the manager could sell a car for and still make a commission, they would expedite the sale and say to the customer, "Okay, I know your budget is $35,000. Well, my bottom line is $32,000, so I'll just sell it to you for that and everyone will be happy." That situation would be incredibly bad for the profitability of the dealership.
Often times, we'd get enticed by bonuses tied to the number of cars sold. My boss could say, "After you sell 20 cars, you'll get a $4000 bonus." Well if I'm at car 19, and I'm within $500 of closing my 20th deal — I'd be willing to eat that $500 myself, sell the customer his car and get that juicy bonus. So that's why we have to talk to the manager every time.
Q: How much profit is in each car?
A: On certain cars there's a vast gap between dealer invoice and MSRP. A $100,000 car could have $7000 of profit. On many lower-priced cars, that gap is very small — like $400. Buyers can look up all this information on the Internet these days, so we never hesitate to show the dealer invoice to the customer.
You have a much different buyer than you did 20 years ago. The Internet has really made buyers experts on the cars they want to buy. They can investigate every detail about their cars, the dealership, the buying experience — everything. And there's a larger portion of the buyers today than ever before that actually know more about the car than the salesman does.
Still, many times it doesn't seem to be about the actual sale price of the car — it's about the buyer's perception of the deal. If they feel like they are catching a break, they leave happy.
Q: What's the best way to get a good deal?
A: Don't bother dangling that "all cash" offer to a salesman. He doesn't care. We make less money on cash deals. We make more money on the financing and get the money from the bank within the same time-frame.
But no matter what the deal looks like, it's the hardcore hagglers that get the best prices. There are definitely those "grinders" that come into the store -- people who will keep you in the process, chiseling the price of the car down and asking you to throw in some perks on top of it. These buyers are successful. But I've seen some customers win by being the nice guy. They let you know how much they can afford, and you actually want to work with them.
The best deals are really situational. Perhaps a great negotiator is working to buy a car that the dealership can afford to let go at a substantially reduced price. And that's up to the manager looking over his inventory and seeing which cars have been sitting. If I'm him, I'd much rather turn that car's spot three times in one month than to have one car sitting. The larger dealers move a ton of inventory each month, so they can afford to sell a few cars at "Back of Book," or $100 to $200 under invoice. Outrageous deals, like thousands under invoice, are very rare but can happen. Sometimes the manufacturer will have bonuses tied to sales. If the dealer earns a bonus for selling 200 cars, and you happen to be the 199th customer, you might get a really good deal.
The salesman won't necessarily know which cars on the lot are those golden deals. However, the less picky a consumer is, the better. Let's say there's a sedan in a particularly unpopular color combination. It could have been sitting on the lot for a very long time and the dealer might be very willing to sell it to you at a lower price than the same car painted in a desirable silver or black.
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Read this book it's eye opening.
Confessions of a Car Saleman - Michael Ackerman
and of course I want the auto industry to make money, hell I even want to give the full comission to the sale person if they are helpful and pleasent to work with. Having said that, you still got to look out for numero uno.
Runchap, many times "I need to think about it" and "I need to talk to my wife" are completely legitimate statements, and if you always use them legitimately, then thank you for your honesty. The sad truth, however, is that most people most often use those statements because they don't want to tell the "salesperson" the true issue. This applies to everything that is sold retail. People buy a phone and say they need to talk to their wife or need to think about it. Please, it's a phone. Or it's a shirt, or whatever the product is. It would make life better for more consumers if they simply said, "hey, you know what, that's a nice (whatever product), but I just don't see the value in it." That then lets the professional know what you're really thinking and gives them a shot to show you something you do have value in.
As for all this CARMAX talk, here's a tip for most consumers. Trust the guy who puts his name on the building and lives in your community when you are buying a used car. Think about it, who is more likely to keep the good cars and send the bad ones to auction? Probably the local dealer. Not always, but in most cases, the local dealer is going to have good cars. I would always go to a franchise dealer for a used car (franchise as in someone that sells new Fords, Chevy, etc). If you want to know about their cars, open the hood, check the cleanliness, look at multiple used cars, see if they're trying to pass off junk. Drive more than one used car, even if the other isn't something you want, try to find something wrong, see what the salesperson says about it. Used car lots serve a purpose, but typically they buy their cars at auction, which is where your local dealer sends the stuff he doesn't feel comfortable with or doesn't want to spend the money on to keep on his lot.
I hate car dealers, they are crooks. My advise is to check with the Better Business Bureau before going to a dealer. I recently had a add on a new Toyota Tundra with the VIN number. Went to Grapevine Toyota in Texas, found the truck. Then the dealer said they made a mistake on the pricing. After filing a complaint with the BBB which they did not reply to. I found out they have a F rating with the BBB.
i have always known that there are 2 kinds of people that spent time in the car biz.
one that couldn't make it or someone that made so much money they could retire.
I wonder which one is he.
A person mentioned CARMAX and that you might pay a little more but it's worth not haggling.
THANK YOU. Hear that? It's worth paying more without the HAGGLING. Why are customer so angry when it takes 4 hours to buy a car? They in most cases do it to themselves grinding away till midnight if they have to. Tell your salesman you'll pay $400 over the printed invoice along with taking any rebate money. See how much faster and happier everyone is. For the love of all the flowers that grow in the swiss alps let the frapping dealership have the holdback to pay their operation expenses.
By the way, people go to CARMAX and don't play the games? Well, not really. I have a friend that works at Carmax. People walk out all day long because they are offended that they won't take off hundreds or thousands of dollars because KELLY BB or EDMUNDS said it should be cheaper. When was the last time Kelly or Mr. Edmunds took personal ownership of a trade? Can you call Kelly and have him fly in to the store for the actual appraisal?
It's just the free mentality we're moving towards. Pehaps we should all have expensive luxury vehicles provided to us by our government which happens to be the people.. oh wait.. that's YOU and ME!
What the "Confessions" left out was a discussion of the dealerships "Administration Fees". They can be anywhere from $299 to $599 per car. Sure they will sell you a car at invoice because between dealer rebates, factory dealer incentives, volume bonuses, holdbacks, and their Admin fee they can score pretty well. I would strongly suggest you negotiate an out the door figure so you aren't blindsided by those admin fees.
The administration fees are pure profit. Ask them what the admin fees are for. Many times they will tell you they are for processing the transaction, taking care of getting the car registered, etc. Tell them you'll be happy to take the Certificate of Origin to the DMV to obtain your own title and registration rather than pay such a a high fee.
The bottom-line...consider everything when determining what you are willing to pay but also recognize that the dealership and salesman are entitled to make "some" profit.
As a professional in the business for 17 years, I often find myself reading ridiculous stories like this.
The guy who decided to give this report was oblivious a failure at it and because of this he choose to speak about things he know nothing of.
If you are in the market to purchase a new vehicle all you have to do is go to the internet and see exactly what the dealer pays for a car. This is not a secret, however unfortunately for the consumer until you go out and buy a dealership you cannot use these guides to buy cars. A dealership is not a not for profit entity, they have to maintain the vehicle in many ways until the vehicle is sold (i.e., interest on the vehicle as it sits on the lot, damage done to cars from storms or vandals, plus dealership expenses) yes an invoice is a source that states what a dealership pays for a vehicle but it has zero bearing on what you can buy a car for. The miss conception of the general public is that all "Car Salesmen" are out the get them is crap. If you have ever bought furniture, a home, jewelry, clothing then rest assured that you were ripped off more then you ever have been ripped off by a Car Salesmen.
We believe that with good ethics and morals every consumer should get a fair deal and great customer service. However consumers come in dealerships with a chip on their shoulder and end up not knowing a good deal when it hits them in the face. Then those same people leave the dealership and go elsewhere only to pay more because their pride gets in the way.
To the consumer that is reading this just know that if you come in a dealership and treat a salesman like you would like to be treated then know that you will leave the dealership in the vehicle that works best for you and your family and you will be extremely happy with your purchase.
The sales industry was ruined many years ago by gauging consumers for products and it left people with a bad taste in their mouths, however business today is not about selling a consumer one vehicle today, it is about selling them vehicles for a lifetime.