I work as an auto salesperson and I pride myself on transparency and honesty. The internet has introduced so much of that into the car buying process anyway, so why not embrace it, eh?
I’ve been doing this for about two and a half years and I have learned a lot about both sides of the table.
Per a poster above regarding owing 10k on a 5k car: it’s negative equity and must be accounted for in any new loan and is generally only an issue if someone has poor credit as lenders will only loan so much money against the vehicle of interest’s (the car the customer wants) ACV (actual cash value). Usually it’s around 125%. So if the negative equity plus the price of the car and all taxes and fees exceed that amount, we won’t get an approval in that scenario without money down to mitigate the negative equity to get at or under that 125% ACV.
Lenders also attach increasingly higher interest rates as a used car gets older and racks up miles, and for people with poor credit they won’t float a loan on a 10 year old car with over 100k miles on it at all without a significant down payment. It’s just the higher risk of default on the loan when a car that old develops a major mechanical issue (which is more likely due to age/wear) and then the customer walks away from the loan and the banks repos a heap that doesn’t run and isn’t immediately saleable to recoup the loss.
As far as the negotiating goes, nobody likes that part of the process but it’s somewhat unavoidable, at least to a degree.
I encourage my customers to lay all the cards on the table from the outset. Unfortunately there are still dealers out there hurting the rest of us by engaging in behaviors that give all of us a bad name and hence why everyone’s guard is up because customers are convinced that dealers are actively trying to screw them, which isn’t the case as often as they believe.
Knowing a payoff is important for me because I need to know how much equity you do or do not have because it absolutely influences any numbers we may work on together in an effort to sell you a car.
The car business is about the here and now. The best deal you are going to get will be once you find the car you want that suits your needs, then sit down with a salesperson you like and trust and be ready to buy right then. The dealer will not want to let you go without selling you something and may make you a ludicrous offer good for that day only, right now. Hint: this happens more frequently on new cars at the end of a month as sales managers are scrambling to make bonus tiers based around unit counts.
There are times of the year when certain incentive programs will often get pretty generous so look for those, especially when you are looking at a new car. I sell GMC and Buick vehicles, for instance right now we have 15% off MSRP on selected SLT and Denali trucks. This is in addition to the national rebate, so it’s stackable and it’s a really good deal for both customer and the dealer. You get 8-9k off the vehicle, and we get all that money back from GM. Not all programs give us ALL the money back, most are only SOME of the money. The dealers are permitted like four VIN’s to attach that savings to and then they get a “reload” from GM after a certain date in the month of May after one of them is sold so they can tag another truck with the same discount.
People think we have some insane amount of markup on new cars. It’s simply not true. I only get paid on front end gross so it’s incumbent upon me not to “give away the house”. This is why I like the 15% programs so much because it essentially removes negotiation and everyone saves and makes money on the deal. Of course there are always customers that ask for way, WAY too much money off, or way more than their trade is worth (often, it’s BOTH). I ask people how they come up with such numbers and they usually say that that’s what they think it’s worth. Which is NOT what it’s worth.
If you want the most money for your trade, sell it yourself. This is what we would try to sell it for, it’s called retail. Dealers cannot give you retail because then they can’t make money reselling the car. At the end of the day it’s a business just like any other and survives on profit. Only in this business does the word “profit” get portrayed as dirty. You don’t begrudge the grocery store chains, banks, utility coimpanies, etc, etc their profits, so why us? Well, maybe you do begrudge them that but you pay for those things anyway, same with a car.
Dealers are also compelled by law to do safety inspections on used cars they intend to resell. Pieces of shit cars are sent straight to the auctions as they are worth less money than it would cost to make them saleable. Everyone in the building except the office girls works on some form of commission folks, including the service department.
Here’s an example: I take in a car in trade for $5000, and that’s an average trade value on NADA based on what cars like it in similar condition/mileage are going for at the auctions. Auctions drive trade values and NADA’s website is your best resource for ascertaining your trade’s value as they are based around auction/true book values and not direct consumer input like KBB. Don’t use KBB, it can be wildly inaccurate and people ALWAYS think their car is in better condition than it really is.
Back to the scenario: our 5k car. Average markup on this car is usually around 4k, so let’s just use that and say we’re putting the car on the lot for $9000, which is NADA average retail for this vehicle. Service charges us $500 just to look at the car and tell us what it neeeds. So we own the car now for $5500. It needs tires ($600), brake pads ($300) an alignment ($100), oil change ($50), a new windshield as it’s cracked ($200) and the check engine light is on (diagnostic fee for that is $80).
Anything safety related we are legally bound to repair before the vehicle can be sold or we can be sued. So let’s add that up: that’s now $6830 we own the car for. Turns out the check engine light is for an O2 sensor which doesn’t necessarily impact the safe operation of the vehicle so the used car manager opts not to fix it. Hey, it’s an under 10k car, right? It’s going to have some years and miles on it. Expecting perfection in this price range is a fool’s errand for the most part.
So as you can see, the gap between retail and trade values aren’t solely profit motivated. If we discover our car needs a new engine, then we cut our losses and send it to the auction as is.
And chances are we won’t sell the car for $9000 anyway. Even if we do, we’ve made $2270 selling the car, and I get paid 25% of that front end profit. So I made just over $500 selling you the car. Sounds like a lot until you factor in my side of things. If I could actually make $500 per car I’d probably take it if I could guarantee my units would be 20 a month, but that’s pretty rarified air at a Buick store. That’s 10k a month, sounds like a fortune! But hold on there, sparky. I have to live throughout the month and get paid my commission check only once a month, the tenth of the following month. So I get paid a “draw” which I have to pay back every month. This amount is often negotiable (natch), mine is $600/week.
So my draw is $2400, so now my check is $7600. But Mrs Wilson had brought back her car and loudly complained something was wrong with the front tires, turned out they were bad and we replaced them. This gets charged back to the deal (a chargeback) that I have already been paid on so I have to pay back 25% of that replacement. Chargebacks really suck for us and they happen a lot.
Anyway, lets’ stick with $7600. The government in it’s infinite wisdom taxes my commission checks like they are supplemental income or a bonus. It’s about 46%. Usury!
So then what really hits my account is like $3900. Not bad, right? That with my draw means I made $6400 that month. Sounds like a lot until you realize that sadly, I don’t make $500/car (many car deals are “minis” where I make just $100, and invariably I have to spend 8 hours grinding it out with customers on those deals) and I have only sold 20 or more cars in a month three times in two years. I average about 12-15 cars a month at about $350/car. 15x350= $5250-$2400 draw=$2850 commission check, less 46% taxes= $1539 deposited into my account, or $3939 total earnings for the month.
So as you can see, there’s a reason we don’t want to waste time. Car buying takes a lot of time anyway, so adding to this just makes everyone involved cranky and hungry. If I spend six hours with you and you are being unrealistic (at the end of the day there are so many people out there that can’t understand simple math) and I don’t sell you a car, that’s one more day I don’t earn anything. If I have a bad month my draw rolls over into the next month if I can’t cover it.
I’ll stop here, it’s time to cook dinner for my children. You know car salespeople are people too, right?
Any questions feel free. I’ll be fully transparent if you will.
