Dealer Has More Than Just Tires for Sale
If you know where the money comes from and where it goes to when it comes to the car dealer you will be much better prepared to negotiate. As you follow that trail you will find some hot buttons you can use to your advantage. If we were standing in front of any given car lot you may assume that all the nice shiny cars in a row are where the most money is, you are wrong. You will be surprised when you learn where the most money is made in the dealership, and knowing makes you a better shopper.
I’m sure you have heard on the radio offers where you can get thousands of dollars towards the purchase of the new car. The reason is because the used car is purchased at such a depreciated value they can mask the ‘cash back’ with the incoming price of the used car. Take this on top of the things like gap insurance, extra warranties and maintained schedules that all add to the total cost of your car.
If you were ever told by s dealer that by him selling you the car at invoice price he himself was losing money or just moving inventory without making a profit – you’d be lied to. There is a dealer holdback that the manufacture builds into the invoice price to ensure the dealer still makes a percentage even if the car is sold at invoice. Don’t try to negotiate this amount as it is considered sacred, but knowing its there will put an ace in your pocket.
Next in the hidden bag of tricks is the dealer cash. You have probably heard this term used in the advertising, something like, ‘now get x amount back in dealer cash.’ Ever wonder what that means? This is where the manufacture has further incentivized the dealer by offering the dealer an additional $2 or $3k if they can move the car. So all this means is there is additional incentive for the dealer and Ford to Toyota corporate is willing to lose a little money – what it means for you is when the dealer says he is losing money on the car as a sales pitch you know he’s lying.
What about extras like maintenance on the car, or if you need new ones does the dealer have factory tires for sale, and if so is that where the money is made? In reality the used car lot of a dealership is where all the money is made because the mark-up is so ridiculous. Typically the dealer makes $700 to $1,500 on a new car while used cars can be sold at over $5,000 their actual value.
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