How Car Dealers Make Money

Ten Ways Car Dealers Make Money Off You Sources: carbuyingtips.com, listverse YOU YOUR CAR So. You've bought a car. Congratulations. At some point in our lives, we all do. And chances are you ended up going through a car dealer. This list is designed to help you understand the little tricks that dealers use to maximize their profit and your loss. 1. THE MARK-UP This is the most obvious way a dealer makes a profit. The difference between the dealer cost (invoice) and MSRP is typically 5-10%. When you consider you're dealing with thousands of dollars, the mark-úp becomes sígnificant: THE DEALER A car sells for $30,000. The dealer A dealer can sell a few hundred cars a makes $3,000. month. You see where we're going here. 2. HOLD BACK & ADVERTISING When a dealer sells a new car (not a pre-owned), the sale is RDR'd to the manufacturer, informing them that one of their units has been sold. The gives the dealer a cut. manufacturer pays the dealer a set amount for "hold-back" & advertising. The manufacturer 3. UNDERVALUING TRADE-INS When a person trades in a car, the dealer will surely attempt to undervalue the trade to make an immediate profit. If a car's actual cash value (ACV) is really worth $11,500 and the dealer only shows the customer $10, 500, Your trade-in basically then there is an immediate thousand-dollar profit from the start. gives the dealer a cut, 4. THE 4-PACK New and used cars are "packed." This is a number that is immediately added to the car (in addition to the already existing mark-up). This is typically money that goes to pay the owner of the dealership. too. The owner is this guy. It goes to this guy. 5. THE CUSTOMER SERVICE FEE This is the biggest farce of them all. This is a dollar amount the dealer says goes to pay for the process of handling your paperwork, tag work, title work, tax work, loaner car, etc. Most of the paperwork can be done in a few minutes and over the phone, internet, fax, etc. The Overage naturally goes into management's pockets. ANOTHER DEALER 6. THE BUMP-STICKER It's a legitimate-looking sticker the dealer places next to the manufacturer's window sticker with a higher priced MSRP than the actual. The dealer will try and justify this added cost. The theory is once the "bump sticker" is negotiated away, then the customer will feel that he got a great deal. A bump sticker could look like this. 7. THE SERVICE CONTRACT One of the big money makers in the car business comes from the sale of Extended Service Contracts Nine out of ten of these extended warranties will cover things that are never likely to break. Oh, and you'll pay that deductible each time you try to claim. Bad news. 8. GAP INSURANCE Gap insurance could turn out to be worth its weight in gold. It satisfies the car loan in the event of theft or total loss. It costs to pay $599 for it at the dealership but you can get it at your local credit union for $150. An example of a bank working for you. 9. DOWN PAYMENT "You're going to have to pay your taxes in cash." When a dealer or sales manager say these things, they are lying, especially if you can secure your own financing (personal bank, credit union, etc) before you buy. Down payments usually result in sheer profit for the dealership. "The lender is requiring 20% down." 10. HOLDING POINTS OF RATE The "buy rate" is the interest rate the lender has approved for the loan- let's use 7.9%. Well, here's where the finance manager can steal from you. Typically, the lender will allow the dealership to make 2 points of rate if you're still ok with the payment. That means the rate you've earned is 7.9%, but the dealer can contract you at 9.9% and the bank will pay the dealer the overage from the rate. This puts LOTS of cash in their pockets. The bank working for you? Not so much. A DEALER COMPARISON THE COW THE 1998 MITSUBUSHI ECLIPSE FARMER'S SUGGESTED PRICE: $2,840 SUGGESTED LIST PRICE: $21,636 Shipping and handling Extra Stomach Two tone exterior Produce storage compartment Heavy duty straw chopper 4 spigot/high output drain system Automatic fly swatter Genuine cowhide upholstery Deluxe dual horns Automatic fertilizer attachment 4x 4 traction drive assembly Pre-delivery wash and comb (Farmer Prep) 35.75 79.25 142.10 126.50 189.60 149.20 88.50 179.90 59.25 339.40 884.16 69.80 Destination Charge Floor Mats Preferred Value Package 435.00 50.00 2,571.00 ADDITIONAL DEALER MARK-UP Sales Promotion Fund Dealer Advertising Association Holdback Dealer Flooring Assistance 100.00 484.00 371.00 185.00 TOTAL LIST PRICE $2,776.00 ADDITIONAL FARMER MARK-UP 300.00 (Including options) (Delivery and Hay Fees) Here's your dealer, making you pay an extra $1140 in fees. Nice tie. TOTAL LIST PRICE $3,140.00 (Including options)