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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Dear Get Better MPG, that act of running your credit without your knowledge is HIGHLY illegal. You might want to consider finding council and seek remedy for this felony. Once they pay punitive damages to the government and to you that would make them think twice before they do to other unsuspecting customers.
SuzeRay, most dealerships have an F&I manager who does the paperwork and contacts the banks. This is the person that will pull any favors from them based on what kind of relationship he/she has with the different loan officers. If you or someone you know needs help, tell the salesperson first that you need help and then find a car based on the credit situation. Having money down ALWAYS helps with no credit or poor credit. The banks knows that you have a monetary interest already established in the car before they give the loan, and they will also reciprocate with a better rate if they can. 25% is a magic number because the bank knows that is the amount of depreciation over the 1st year usually.
Believe or don't. Used cars are where dealerships make the most money in terms of profit on the car and financing. $400 average profit on a used car sale? $7,000 profit on a $100K car? What a joke. Ever hear salesmen talk to each other and say it was a 3 pounder or a 5 pounder (and these are used cars that typically sell for less than $15K) and what they mean is the profit was $3K or 5K. I even had a 9 pounder once. And trade-ins? You may as well torch your used car for the $ you will get (they will raise the trade-in value if they are breaking it off in you on the sale side and if you are trying to negotiate hard).
Lessons? Bring your own financing with you. If they ask your rate don't tell them. If they ask how much you are or can spend don't tell them. Don't bring a trade - you always get more if you sell your own vehicle privately - they can and will make as much on a trade in as they do in a used car sale. For the most part when you find something you might want (we're talking used cars) - offer them $5K less to start and be willing to walk away if you don't get at least $3-3,500 off the sticker. They'll still profit. Go on the last day of the month to make a potential buy, because that is the best day to make a great deal. Ask to see the buyer's invoice and how much they put into the vehicle after they got it - most will not do this. And newer models can be had at both year end - where you will still pay too much or when new models come out typically in the summer or fall and they want to make deals on the older models. Dealerships rotate the garbage they can't sell at dealer auctions which also includes those commercial rental fleets that they buy and turn a nice profit on Lesson there - if you have a friend with a dealer auction pass get preapproved by your bank and you'll get your best deal on a car. Otherwise fight tooth-and-nail for the lowest price - even if that price seems unreasonable to yourself, lol. Who else is going to watch out for you if you don't watch out for yourself? Finally, if you're flipped on a trade that you owe too much and you have lousy credit and will be taking what you can get - I feel sorry for you - and can only suggest that you reach out to family and friends who might have a vehicle to help you get through your hard times.
This is a great article. I sold cars for 11 years and I experienced just what this guy talks about. the Salesmen making the most money are selling used cars. It is not uncommon to mark up a used car $3000 to $4000. We could discount these cars $1000 and still make good money. Many a time I made more than $1000 on a used car sale. And they tended to be easier and quicker sales and no customer survey to worry about.
New car sales on the other hand were A pain in the behind. Many of these went on for days with many calls being made to the customer trying to get them back in and in the end making a mini deal ($100) fo many hours of work. And then we had to educate the customer about how the survey should be filled out and hoped we did a good job, (our rating with the manufacturer was on the line and thus our jobs)
An earlier post complained about the value of his trade. He claimed to know the value . Well here is a news flash for you. The only way to get what your car is really worth is to sell it yourself. In the car business a vehicle really has 3 values.
1 wholesale. This is what the car is worth to the dealer if he can't retail it. The dealer has to find a buyer who will sell it to the buy here pay here lots. Usually this is what you are offered for your trade.
2 Private party retail. This is what you may expect to get for it if you sell it yourself. Remember you may have expenses like a full detail maybe new tires etc and advertising.
3 Retail. This is what you pay at a dealership. It will be the highest but remember the dealer has reconditioned the car, run it thru the shop and fixed any problems and put a warranty on it.