5 ms·

never buy from dealership at retail prices period. go to a smaller dealer and ask them to buy a car from wholesale auction for you and you cover their costs. t

never buy from dealership at retail prices period. go to a smaller dealer and ask them to buy a car from wholesale auction for you and you cover their costs. that way their margin js transparent and is negotiated upfront. You will be lucky to get 5-10% discount from retail prices, but wholesale prices at Manheim can be 15-30% less than retail, even more if you are willing to buy less than perfect condition car

JackFr 6y ago
There was a fascinating EconTalk episode about the economics of a car dealers. https://www.econtalk.org/cole-on-the-market-for-new-cars/ https://www.econtalk.org/cole-on-the-market-for-new-cars/ One interesting point was letting the buyer successfully negotiate to an absolute rock bottom price, but then making back the margin on financing.
- rdtwo 6y ago
  I’ve tried that and they wouldn’t budge. I got rock bottom and I offered to do financing if they would go lower but the incentive structure of the individual sales person didn’t match that of the dealership so no go
  - conductr 6y ago
    You showed too much commitment. In either situation they knew your were going to buy. The trick is to keep one foot out the door until you're locked in on price.
    - maccard 6y ago
      I had the same experience. The dealer knew I was ready to walk, but it was as simple as "computer says no lower". I sold them a car, and saw it listed the following day. My napkin math said that the margin was close to 0 on the car in the first place,once they had paid £30 to tax it and a salesperson an hour to talk to someone and take their details.
      - vb6sp6 6y ago
        > and saw it listed the following day. The car business is a giant recursive function where cost can be added at every step. The sales price may have been low but the dealer has lots of ways to add pure profit: * sub-prime loans with high interest * gap insurance * alarm systems * extended warranties * window tints, undercoats, towing hitches, etc. The buyer might also have a trade in which conveniently starts the whole process over again. The "Forbes list of Billionaires" has several car dealers in it.
        maccard 6y ago
        Right, that's exactly the point. There was almost 0 money in the pure sale. All of the money is in high interest loans (via kickback from the financing), waterproofing treatments, "extra" insurance, service plans managed in house. The profit on a car night be negligible, but a cheap car sold with gap insuranxe is likely a days salary!
- parliament32 6y ago
  I keep hearing "they make money on financing" but I don't see how that's possible. I've bought three new cars financed, and every time the finance person puts my info in and gets finance "offers" from 4-5 big banks plus their in-house financing, and just lets me pick the one with the best rate -- usually most of the finance offers are under 5%, with the best one being under 1%. One time I went to one of the offering banks directly and got a worse rate than they offered me through the dealer! Maybe they're making commission on the sale but it can't be much.
  - kube-system 6y ago
    Getting a higher rate directly from the bank does not necessarily mean that the dealer is not making any money on your loan. It is likely that the bank just offers better rates through their dealer partners because: 1. it's less hassle than dealing with retail customers, and 2. the dealer market for loans is more competitive.
    - parliament32 6y ago
      I mean yes, I'm sure they're getting something, but the margins are so thin I don't think it's even worth considering. Consider a $50k car, dealer offers you 1% via bank. At best the bank is only taking half of that (0.5% is already ridiculous for a not-really-secured loan, considering new car depreciation), so over a 5yr loan the dealership makes... $1250. That's, what, one week of salary for one of their salesmen? I just don't think it's as much of a factor as we think it is. People talk about the dealerships handing out $10k discounts because "they make their money on financing" but the math just doesn't support that unless you're doing credit-card-interest-level loans.
      - kube-system 6y ago
        Usually people cite the financing incentives when people mistakenly use the "cash is king" strategy when trying to negotiate on a car, but it isn't the only way they're making money. Dealers make significant money from manufacturer kick-backs and service too. Also 1% sounds too low for an independent bank loan, even with the now-cratered loan rates. I am guessing that is probably a subsidized loan through a manufacturer's bank. Manufacturers have long offered artificially low rates through their own banks to help move product.
- kls 6y ago
  That is why you never say cash or commit to financing until the deal is close. Also a dark hack, all car lot have a disclaimer that there is surveillance video and audio equipment on premise. This means you have been notified of surveillance, they can and do bug the cubicle. When they go back to talk it over with their manager many times they are reading you by your conversations going on in the cube and your body language. I worked in counterintel for a while, so I have had a lot of fun with car dealers over the years. I won't buy a new car (still drive an 87 Suburban Diesel) but from time to time my wife let's me know it's time for her to get a new car. Anyways knowing that they can and do run surveillance can actually be used to your advantage. Try it one time, when they go back to the manager, say to the person with you, let's leave, I am not going to get what I want here and restate what you know the car is worth based on research. Leave enough meat on the bone for a decent commision and profit, but cut it close to a good deal. Get up and watch them be on the other side of the cube before you can even fully stand up. Manager will have miraculously come back 10-15% over the amount you stated. If you are not willing to walk from the deal, you are not getting a deal.
issa 6y ago
100%. There are lots of small dealers that will be super happy to go pick up a car at auction for you. I highly recommend this if you want the best price. If you don't really care, it is significantly faster and easier to just go to a dealership.

JackFr 6y ago

There was a fascinating EconTalk episode about the economics of a car dealers. https://www.econtalk.org/cole-on-the-market-for-new-cars/ https://www.econtalk.org/cole-on-the-market-for-new-cars/ One interesting point was letting the buyer successfully negotiate to an absolute rock bottom price, but then making back the margin on financing.

rdtwo 6y ago
I’ve tried that and they wouldn’t budge. I got rock bottom and I offered to do financing if they would go lower but the incentive structure of the individual sales person didn’t match that of the dealership so no go
- conductr 6y ago
  You showed too much commitment. In either situation they knew your were going to buy. The trick is to keep one foot out the door until you're locked in on price.
  - maccard 6y ago
    I had the same experience. The dealer knew I was ready to walk, but it was as simple as "computer says no lower". I sold them a car, and saw it listed the following day. My napkin math said that the margin was close to 0 on the car in the first place,once they had paid £30 to tax it and a salesperson an hour to talk to someone and take their details.
    - vb6sp6 6y ago
      > and saw it listed the following day. The car business is a giant recursive function where cost can be added at every step. The sales price may have been low but the dealer has lots of ways to add pure profit: * sub-prime loans with high interest * gap insurance * alarm systems * extended warranties * window tints, undercoats, towing hitches, etc. The buyer might also have a trade in which conveniently starts the whole process over again. The "Forbes list of Billionaires" has several car dealers in it.
      - maccard 6y ago
        Right, that's exactly the point. There was almost 0 money in the pure sale. All of the money is in high interest loans (via kickback from the financing), waterproofing treatments, "extra" insurance, service plans managed in house. The profit on a car night be negligible, but a cheap car sold with gap insuranxe is likely a days salary!
parliament32 6y ago
I keep hearing "they make money on financing" but I don't see how that's possible. I've bought three new cars financed, and every time the finance person puts my info in and gets finance "offers" from 4-5 big banks plus their in-house financing, and just lets me pick the one with the best rate -- usually most of the finance offers are under 5%, with the best one being under 1%. One time I went to one of the offering banks directly and got a worse rate than they offered me through the dealer! Maybe they're making commission on the sale but it can't be much.
- kube-system 6y ago
  Getting a higher rate directly from the bank does not necessarily mean that the dealer is not making any money on your loan. It is likely that the bank just offers better rates through their dealer partners because: 1. it's less hassle than dealing with retail customers, and 2. the dealer market for loans is more competitive.
  - parliament32 6y ago
    I mean yes, I'm sure they're getting something, but the margins are so thin I don't think it's even worth considering. Consider a $50k car, dealer offers you 1% via bank. At best the bank is only taking half of that (0.5% is already ridiculous for a not-really-secured loan, considering new car depreciation), so over a 5yr loan the dealership makes... $1250. That's, what, one week of salary for one of their salesmen? I just don't think it's as much of a factor as we think it is. People talk about the dealerships handing out $10k discounts because "they make their money on financing" but the math just doesn't support that unless you're doing credit-card-interest-level loans.
    - kube-system 6y ago
      Usually people cite the financing incentives when people mistakenly use the "cash is king" strategy when trying to negotiate on a car, but it isn't the only way they're making money. Dealers make significant money from manufacturer kick-backs and service too. Also 1% sounds too low for an independent bank loan, even with the now-cratered loan rates. I am guessing that is probably a subsidized loan through a manufacturer's bank. Manufacturers have long offered artificially low rates through their own banks to help move product.
kls 6y ago
That is why you never say cash or commit to financing until the deal is close. Also a dark hack, all car lot have a disclaimer that there is surveillance video and audio equipment on premise. This means you have been notified of surveillance, they can and do bug the cubicle. When they go back to talk it over with their manager many times they are reading you by your conversations going on in the cube and your body language. I worked in counterintel for a while, so I have had a lot of fun with car dealers over the years. I won't buy a new car (still drive an 87 Suburban Diesel) but from time to time my wife let's me know it's time for her to get a new car. Anyways knowing that they can and do run surveillance can actually be used to your advantage. Try it one time, when they go back to the manager, say to the person with you, let's leave, I am not going to get what I want here and restate what you know the car is worth based on research. Leave enough meat on the bone for a decent commision and profit, but cut it close to a good deal. Get up and watch them be on the other side of the cube before you can even fully stand up. Manager will have miraculously come back 10-15% over the amount you stated. If you are not willing to walk from the deal, you are not getting a deal.

issa 6y ago

100%. There are lots of small dealers that will be super happy to go pick up a car at auction for you. I highly recommend this if you want the best price. If you don't really care, it is significantly faster and easier to just go to a dealership.