What’s with these car ads that state you can buy a new car “at or below invoice”? Do they seriously want you to think you will be paying less for the car than they did?
My understanding is that technically, they did pay that invoice price for the car. The rest of the story is that dealers get various discounts/rebates based on volume and other factors, so that their de facto cost is less than the invoice amount.
Two other factors:
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Interest. The dealer doesn’t have to pay the invoice immediately. If he sells the car before the invoice is due, he can break even, and there may even be a discount for a fast payment.
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Service penetration. The service department can be structured to pay the fixed costs of the dealer (or more). So if the car is sold for invoice, you end up going to the service department and having him make the profit that way.
The OP doesn’t ask how can a dealer make money if he sells the car below invoice. He asks, does the dealer advertising prices below invoice really expect us to believe that he’s selling the car for less than he paid?
Answer: Yes. That’s exactly what they want you to believe. “We lose a little on each one but we make it up in volume.” The psychology of making you think you’re getting a good deal. Doubling the prices and marking them back down to 50% off. The great tradition of American commerce.
The answers above explain why the dealer can make money if he sells below invoice. His net cost is below invoice. Check out a site like Edmund’s or Kelley to see what deals the dealer is getting on specific cars (i.e., holdback, incentives).
Sorry, I should have asked how do they make money selling for invoice or less. Thanks for the replies.
I’d always thought that they made money (in those transactions) on the customer’s trade-in (in addition to the incentives and bonuses that the dealers get). That is, if they sell the new car for $300 under invoice, but give you $500 less than your trade in is worth, they’re still $200 ahead (additionally, it seems that if they charge $500 more than your trade-in is worth when/if they sell it to someone else, they’ve made even more). I don’t recall ever seeing “$3,000 for your trade” and “below invoice” at the same time.
That said, I’ve never worked in car sales and could be way off base.
There are three basic areas in which the dealer can make money: the sale of the car, your trade-in, and the F&I - finance and credit insurance.
A dealer may well sell you the new car $50 below his actual cost – if you’ve just accepted his $500 lowball offer on your trade-in and agreed to finance the car through his source.
As a former car salesman of my aquaintence was fond of saying, “It doesn’t matter which one of their pockets I get the money out of, as long as I get the money.”
Dealers also receive a bonus for certain cars each time one is sold. When I bought my car at way less than invoice, I found out through Edmunds that the sale of this particular model was getting a $1,500 bonus paid to the dealer. I told the salesman (after much negotiation) that I knew the dealership was getting that and therefore I was going to figure it in my offer. They could take it or leave it.
By the time I was done - having armed myself with all the available consumer tools - they couldn’t wait to get me the hell out of there. Other buyers were starting to listen in and I’m sure the salesman agreed to what I wanted just to shut me up.
Other than that, there are all kinds of ways they can manipulate the financing. 60 Minutes just did a story on this. They tell you you are approved at 7.5% when really you were approved at 5.5% and they are adding on another 2% that goes straight to the dealer. Always arrange your financing ahead of time! Or at least know for a fact what you qualify for.
The last time I bought a new car I paid $12 for the Consumer Reports price sheet and computed the dealer cost for the car we wanted.
I went to the dealer and offered the salesman about $400 above what CRT said was dealer cost. He said, “That’s way below our cost.” I asked to see his invoice, and he showed it to me. There was a number printed on the page and the same number handwritten larger and circled, which he said was their cost. I examined the page and found a lower number also printed on the page that came very close to the Consumer Reports dealer cost number. I asked about the lower number, and he said something about a floor plan and, “We can’t go by that.”
So ask to see the invoice and loo0k at it closely. If you can get them to even admit the real cost is not the one they’re claiming as their cost, you might be getting a deal.
This is my favorite trick. I research the car and decide what I want to pay for it and let the sales guy rape me with the loan (combination of not fighting the “What do you want your monthly payment to be” angle and digging my heels in on the sale price). I usually end up getting what I think is a pretty good sale price and a pretty horrible loan. Then I drive to the bank and refinance the car right away for the sale price–effectively stiffing the original loan.
You are so right. That is the WORST, MOST STUPID WAY POSSIBLE to get a loan. Never, ever tell the salesman what you want your payment to be. They will find a way to “make” it that payment - even if it’s a 7-year loan at 12%. If a salesman asks that question, the answer should be, “That’s not relevant to the price of the car.”
Okay, so how does this work with 0% financing?
When you get 0% financing, you must give up any manufacturer’s rebate.
It can actually be more beneficial to you to take the rebate and apply it to the car than to lose the rebate and have “0%”. In other words, the amont of the rebate exceeds the present value of the interest you’d pay on a real, non-zero-percent loan.
Obviously they cannot charge you an excess percentage if you are paying no percentage. But there are all kinds of “fees” they can add that people don’t question and so they pay 0% on those “fees.”
Also, not every car is offered at 0% financing. If it is and you choose to take advantage of it, many times you cannot take the rebate. Therefore, you are paying a higher price for the car. According to Edmunds and Consumer Reports, it’s usually a better deal to take the rebate and find your own financing.
I have been told that some dealers or cars offer both 0% AND the rebate. When I bought my car 3 years ago, it was one or the other. And you had to have stellar credit to get financing at 0%. If you can take both and don’t do your homework, the dealer is going to do everything possible to make the price as high as possible so that even with the rebate he’s making a hefty profit. They aren’t giving rebates, 0%, or anything else out of the kindness of their hearts.
That can’t be right. The 0% financing deals were presented in the aftermath of September 11 specifically to help the auto industry help the economy. To imply any other motive, especially one that amounts to sleight of hand, would be unAmerican!!
Why do you…never mind.
Are you sure about that? I bought my car in July 2001 and I think plenty of manufacturers were offering 0%.
Maybe it was just really low - 1.9% and not zero. But certainly very low interest. However, no rebate then.
The trick with 0% financing is that it’s OAC, only few people get it (usually those with teh best credit), and if (I like ford has an offer like this now) some kid (ie everyone) is getting the 0% financing, you aren’t really getting out of paying the interest, the interest becomes part of the price of the car. So you get a more expensive car, but you are not paying interest on that price (you’re paying interest on the price you should have got teh car for).
In one of the Lemonaide books, I think it said taht ford or some other company made more money from it’s financing than from it’s car sales.
It may also be true for Ford, but it’s definitely true for General Motors. The financing arm of the corporation is called GMAC Financial Services, and it’s vast. Aside from financing auto purchases, it sells insurance, commercial credit, banking services, mortgages (among other things, under the annoying ditech.com brand) and probably a bunch of other stuff.
Another ploy to be aware of is the “standard fee” (for lack of what the dealers really might call it).
It works like this. You negotiate like hell to get your best price, make sure that it includes the “dealer prep” and everything, write it down on one of their forms and sign it. The sales guy takes it to the sales manager, who also signs it.
Then he fills out the real sales form with all of your information and the information about the car and the negotiated price and hands it over to you to sign. But the bottom line is not the price you agreed to. Printed right on the form just above the bottom line is the “standard fee” item (I forget what they really call it) - $75 or $95, which is added to everything else to get the final bottom line. When you ask about it and say that it was never mentioned before, they say, “That’s on all our deals.” By that time you’re usually so happy that you got a deal that you just sign it. It’s really a way for them to get an extra 75 bucks out of you.
This is one of those “next time I’ll know better” things. But now you know in advance, and you can be prepared to scratch that item out and say, “That’s never on any of my deals.”
Wow I checked the Edmund site out and apparently I got my new vehicle for $2,000 under invioce. How is that possible?