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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Today most dealers, esp new car ones, are honest. Customer's always want a discount. Macy's etc will not discount any of their items unless it's a sale that they control. Many dealers tried one price selling, including saturn, and it failed because the customer still wanted to dicker. Why is it impossible to find cost on anything other than cars?????? Here's some great ones-
men's tie retail 30 cost 4
woman's dress retail 59 cost 5
1000 sofa cost 225-275
5000 one carat vs1 diamond ring cost 1100-1400
2011 HyundaI Sonata retail 23000 cost 20860
We as consumers are putting the wrong items under the microscope
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.
So with that, I'll tell you why dealers make more money on used cars then new cars. It's because when then take in trades, they don't care what it looks like. All they look at is the make, model, mileage and is the paint shiny and does it drive ok. They will give you bottom dollar for it and come up with some ridiculous excuses to reduce your trade in value.
The main key here people is to EDUCATE yourself. Here are some tips everyone needs to take before even leaving your house.
*Check the value of your car before leaving the house.(most important)
*Check the new price of a used car you're looking at.(also very important)
*Check to see if the dealer has a car like yours on the lot and how much they are listing it for.
Checking the value of your car is very important because the dealer will always try to go lower then the lowest value of your car for trade-in allowance. I have an example. I went to trade in a 2010 Ranger earlier this year. I looked up the value and it was between $20,000 and $25,000. The salesman only wanted to give me just over $17,000. I asked him why so little. He said there was a percentage deduction for depreciation, a percentage deduction for miles and this is where i stopped him. I told him the value i found for my truck was $20k to $25k and i wasn't going to take less then $20k. He said ok and made the deal. If you go in with a number in the beginning, you will get the deal you want 99% of the time.
Checking the new price of a car that your looking at used is also important so you don't over pay for the used car. The same dealer i talked about above had a 2008 Ford Ranger on the lot and the list price was just over $26,000. I thought to myself, this is ridiculous. A brand new 2011 fully equipped extended cab Ranger lists for just over $28,000.
Check to see what the dealer is listing cars like yours on their lot. Compare the car to your car as much as you can without the salesman around. This is not as important because the dealer might not have your car on the used lot but its a good starting point along with knowing the value of your car to making a deal.
So, if you want to get the absolute best deal, educate yourself first before leaving the house. Dealers thrive on uneducated buyers.
Being educated could save you thousands on your next car deal. It's your choice.
I spent 39 years in the Southern California automobile business mostly as a Sales Manager and Closer. I also performed as a Finance Manager and Trainer as well as a Salesperson in my early years. I'm now out of this business because of the fact that you cannot make money as before in the new car business. You can make money in the used car end but overall the automobile business is a difficult one for licensed professionals to earn the money that was reminiscent of years gone by. That being said, as a professional Closer, I know things and how to make profit on deals that only experience and many closes have taught me, believe me, an adept professional Closer will make the deal. In times of larger profits the Closer working with an adept professional Desk Manager could make a good profit and still leave money on the table for the Finance Manager as well. I know how to make more money on a cash deal generally than on a finance deal, that's because of what I know. Let me close with this, a dealer will not and cannot sell his automobile unless he can profit from it. I worked for many, many dealers in this career and the ones whom didn't operate ethically and cherish their customers and take care of them are NOT among us today. Those dealers that took care of their customers and gave them reasons to come back and use their service departments and parts departments and buy other vehicles from them are still here, albeit struggling in this economy but performing and surviving. My philosophy was to "Sell cars for fun and profit", it worked for many, many years. When I wasn't having any more fun, I wasn't making any money either, so I bailed, glad I did.