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.
