back to articles | December 31, 2018 | Dale Peterson

Categories: The myAutoloan Difference

Auto Dealers

Tips for working with auto dealers

It seems like auto dealers are everywhere! Often several dealerships of the same make and model of vehicles in a geographical area are owned as an auto dealership "group" by a single dealer or company. Bidding prices between "dealerships" owned by a single entity obviously come with a bit of dismay. Time was when independent auto dealers kept manufacturers from retailing their products directly to the public. Auto dealers become the middlemen (persons) ostensibly as a means of preventing price-brand monopolization by a manufacturer. The more recent "dealership or automotive groups" make it more likely that consumers will pay more for a vehicle than if there were auto dealers competing for the sale of the same makes and models of vehicles in a region or area.

Auto Dealers: Middlemen

The auto dealer has always been the inflationary middle person in the delivery of vehicles to the consumer, increasing the cost to consumers. The dealership groups are simply a method of controlling prices and minimizing competition in the marketplace. Consumers need to know who they're dealing with and be prepared to shop, compare and negotiate accordingly. There are many good auto dealers in the country. There are also a few dealers that could stand to improve. However, make no mistake about it, dealerships play an important role in the distribution and management of the sale of millions of autos each year.

Typically in low bid situations, the dealer has not worked for the consumer in negotiating a better deal by negotiating a lower and fairer manufacturer's profit. Better to make the dealer negotiate a lower manufacturer profit for you as part of the dealer's commitment to customer service and satisfaction.

Although it may be difficult to get and or trust, request that the auto dealer disclose all known defects, damage or repairs in writing before negotiating price or new or used cars. If there are none, have the dealer put this in writing, too.

Auto Brokers Vs. Auto Dealers

A consumer may purchase a car with the assistance of an independent car sales broker, or auto broker. Know that this is another middle person fee. A fair or good negotiator should be able to do as well or better dealing directly with the dealer and pocket the broker's fee. A broker helps you avoid the hassle of dealing with dealers, but at a cost that could be saved by dealing direct with the auto dealer on the price and a direct lender on the financing of your car. If you use a broker, consider deducting the broker's fees from the final price. Brokered deals generally don't include negotiated dealer or manufacturer's profits which means consumers pay more for this deal type than necessary. The broker is another middleman which passes additional costs on to the consumer.

Auto Dealers: Negotiated Dealer Profit

The Negotiated Dealer Profit Deal strategy assumes that consumers cannot negotiate below the price set by the manufacturer's invoice price (so-called dealer's cost). If you do not know about this kind of deal, do some reading before buying your next new car. There are articles written about this and on average, consumers are able to negotiate a dealer profit of between 2% and 4% above the "dealer's cost" as represented by the manufacturer's invoice price to the auto dealer.

You may be able to do better than this by negotiating not only the dealer's take on the deal, but by also negotiating the manufacturer's profit as well. The manufacturer's invoice price (sometimes referred to as the dealer's cost) includes in many cases a hold back fee of 3% to 5% or more which is paid to the auto dealer by the manufacturer in addition to the consumer negotiated dealer profit upon sale of the vehicle.

Not bad for five minutes of often sloppy dealer paperwork. Keep in mind that the manufacturer pads its invoice price to the auto dealer with huge profits and hidden value subtracted costs such as anti-consumer litigation fees, industry serving anti-consumer advertising and other hidden costs not directly related to production of automobiles. Go after the manufacturers' profit too - it's the economical thing for consumers to do. When enough consumers ding the dealer and manufacturer on profits, the price of vehicle will fall to a fairer consumer-valued market price.

Auto Dealers: Manufacturer's Profit Deal

The manufacturer's profit deal is the "All New and Improved" car dealer negotiating strategy! Expect this strategy to catch on and become popularized as the negotiated dealer profit deal strategy has over the past ten to fifteen years.

The manufacturer's Profit Deal is similar to the dealer profit negotiated deal. This assumes consumers can do better than merely negotiating the dealer's profit above the manufacturer's invoice. Consumer negotiates the manufacturer's profit on all new car deals, even so-called "value priced' and "no-haggle" deals, similar to negotiating the auto dealer's profit.

Instead of negotiating the auto dealers profit up from the manufacturer's invoice, negotiate the manufacturer's profit down from the manufacturer's invoice or what is often referred to as dealer cost. Its just that simple. Most manufacturer's invoices include a 3% to 5% or larger dealer "holdback", which is reimbursed or paid to the auto dealer upon sale of the vehicle. This can be as much as five hundred to a thousand dollars or more depending on manufacturer's invoice price.

So do you really want to give the auto dealer an additional 2% to 4% or more on top of the 3% to 5% holdback the dealer is going to get from the manufacturer anyway, especially knowing that the manufacturer has additional profits and other consumer value-subtracted costs built into its invoice price to the dealer?

And, how do you suppose manufacturers are able to offer rebates to consumers (there are many examples of $4000 to $8,000 in rebates offered in some TV ads and "sales incentives" to auto dealers on top of the hidden manufacturer's holdback"? Precisely, by inflating sticker price. Overly eager consumers pay a high price by buying new models too soon after they are shipped to the dealers early in their model release year, instead of being patient and consumer savvy by waiting until later in the model year just before the new models are released or after the new models are released. The longer the models linger on the lot, the better the bet that the "market price" will come down to a reasonable consumer value price.

Auto Dealers: Supply and Demand

Consider that the manufacturer may be inefficient and its production costs may be way out of line with what it would be if it had to go head to head with another manufacturer in direct competition in producing the same model of vehicle. Unfortunately this cannot be done due to patent protection and trademark laws which prevent intra-brand competition. And consider whether the manufacturer is making enough vehicles or limiting the number of vehicles to affect demand and pricing. Consider also whether auto dealer representations about availability may also be designed or tailored (edited) to effect demand and pricing. Hinting that a product is in limited supply tends to have a peaking effect on consumer interest, and is an auto dealers subtle sales manipulation trick to increase demand.

Be patient. Even experienced business professionals fall for this sales ruse. If the auto dealer or manufacturer is not able to sufficiently supply the market, perhaps it would be better to deal with dealers and manufacturers who plan and manage their product lines and supplies better in the interest of lower consumer oriented pricing.

Also, be careful with the dealers invoice. Sometimes dealers conveniently confuse invoices and may produce the dealer's invoice, not the requested manufacturer's invoice, or may pad the manufacturer's invoice by adding so called "regional advertising" which the manufacturer has already factored into its invoice price to the auto dealer. This is known as double-dipping, and is a clever price inflating trick used frequently by car dealers to milk consumers, er., deals. It is best to obtain the manufacturer's invoice from library references or from Consumer Reports, AAA or other car pricing service for a very worthwhile nominal fee. Then milk the auto dealer and the manufacturer.

Auto Dealers: Final Thoughts

When negotiating with an auto dealer, know that the manufacturer has built all of its overhead (20% of the cost of an average automobile is estimated by industry experts to go the existing cumbersome distribution system -- some manufacturers are reported to be negotiating to buy up some auto dealerships and distributors in order to control prices and sales quality more closely -- but don't hold your breath for any savings to be passed along to consumers), including excessive executive salaries, golden parachutes and pensions, industry-serving, consumer beguiling advertising, litigation costs for shoddy product design or negligence, and costs for lobbying congress to delay, kill or water-down consumer and environmental protection and safety laws into its invoice prices, and a hefty ding-dong profit factor to boot. We all are paying for all of this and the bank is whistling all the way to the bank too. Obtain a certified itemized accounting of these costs and deduct them from your final offer. If the auto dealer or manufacturer is unwilling or unable to provide you with a certified itemized accounting of its per car production, overhead, and profit costs, estimate them and deduct them from your final offer and walk until the dealer talks. Practice your walking skills on a few auto dealers before settling in for a deal.