new car pricing: sorting through the bullshit

I bought a new car yesterday. It’s a done deal, so at this point , the discussion is purely academic for me, though it might benefit someone else.

As I declared in this thread just a couple of days ago, I really don’t enjoy the car-buying process. Once the deal is done, I feel like a woman who wakes up at a frat house on Sunday morning with no memory of the previous night’s events: “this guy is being really nice to me, but I feel like I must have have gotten screwed somehow.”

This being the information age, I tried hard to find useful data that would help me strike a fair deal. One strategy I’ve seen a few times is to determine the dealer’s real price for the car you want, then tack on 4-5% as a fair profit for them. The challenge then becomes finding out what the dealer’s real cost is. Many sites describe the invoice price, and also the holdback - an amount the manufacturer pays back to the dealer after the car gets sold. This is typically 1.5-3% of MSRP. so the dealer’s cost is understood to be slightly less than invoice price.

If I try this math on the deal I made yesterday, it would seem I made out like a bandit - which leads me to believe I’m missing something.

My car - an Infiniti G37 6MT - has an invoice price of $38,852, an MSRP of $41,950, and a reported holdback of 1.5% of MSRP (so $629). So the dealer’s cost should have been $38,298, according to this algorithm. Add in 5% for dealer profit, and a fair deal should have been $40,212.

The deal I got was $38,727. This does not include a $200 documentation fee.

But wait, there’s more.

As I mentioned in the car-shipping thread, the dealer initially wanted $1000 to get the car from the east coast to here. He ultimately agreed to pay 3/4 of the shipping cost. From that thread I gather $1000 is perhaps a tad high, but not outrageous. So if we assume that’s simply a passed-through cost (he had said he would show me the shipping invoice when we close the deal), then basically he’s taking $750 out of his pocket.

So it looks like he has sold me the car itself for a hair under $37,977. That’s quite a bit less than the $40,212 suggested by the “5% profit” method I described. In fact, it’s a few hundred bucks less than the dealer’s cost. Which suggests I’m missing something in my calculation of the dealer’s cost.

Reference #1 says that on average, people paid $38,824 including the $905 destination fee. If you add in the destination fee to my deal, then I paid $38,882 for my car – so according to this site, I merely got an “average” deal. There’s no way an “average” deal involves buying a car at less than the dealer’s cost. So WTF?

Another reference suggests a “fair” price of $39,169 (not including destination fee), substantially less than the “5% profit” method. So according to this site, I got a really good deal, slicing nearly $1200 off of their “fair” price. This site offers similar data, at least in terms of “national average price paid.”

So what’s going on? The dealer is certainly not selling me a car for less than cost, and I didn’t have to fight like a tiger to get this deal, so he must have made a pretty good profit. What am I missing when it comes to calculating the dealer’s cost?

I think you’re thinking too much about it. It’s a free market, willing buyer, willing seller, etc. Clearly the car is worth what you paid to you, why worry about it?

You’re spending a lot of time trying to unravel the cost structure of the dealer, with the needless assumption that they " certainly not selling me a car for less than cost". Why wouldn’t they? It costs a dealer money to keep an unsold car on the lot, if they ended up with a manual transmission unicorn that no one wants, well maybe they eat it this time and try not to do it again next time? Car dealers are just people, even the best people sometimes fuck up. Hell, there were even a few years when General Motors and Chrysler lost money, and those were multi-billion dollar companies with the best people in the country at the helm!

Here’s an article saying that the average dealer made $23 per new car in 2011 and lost $180 per car in 2010.

So there’s a pretty good chance that they did in fact sell you a car for less than cost.

I’m betting the holdback was higher than 1.5% on this car. It’s a higher profit margin luxury car and (unfortunately) these days manual transmissions tend to languish on the lots. If the holdback were closer to 3%, that would… letsseehere… put their cost at 37,600ish. So they would have made $120 plus the documentation fee is probably mostly profit. It seems funny making so little on such an expensive car, but new car sales aren’t the big money makers for dealers.

Also, didn’t you say this was the last one of this particular car available in the country? Does that mean this is a 2012? That might mean their just trying to liquidate inventory and willing to sell at a small loss.

It’s a 2013, but with specific exterior color (one of four possibilities) and specific interior color (one of two possibilities) and none of the factory-added accessories. There was another one out there in my color scheme, but it included the rear deck spoiler and some other feature, neither of which I wanted and which together would have added about $1200 to the price.

And there were others out there in different color schemes.

The $23 per-car profit figure at Throatwarbler Mangrove’s link raises an eyebrow. Does that mean $23 is the difference between what the dealer paid the manufacturer and what the customer paid the dealer? or is $23 what’s left over after the salesman gets his comission, and the receptionist/groundskeeper/janitor/plumber/electrician gets paid, and the city gets its property tax bill paid? If it’s the former, that seems to fly in the face of the suggestion to pay a dealer 3-5% above his cost. If it’s the latter, well that’s probably not too shocking.

There is a bit more when it comes to determining the cost of the car to the dealer, which includes itemized costs for each individual option, as well as what you’ve listed. Also, while you’re focusing on kickbacks, there may also be other incentives involved, so it’s only ever a good estimate, at best.

There is also the fact that the car costs the dealership money, the longer it sits on the lot occupying space-- remember, quick turnaround among their inventory is ideal, especially on a car like the G, which is their best seller. I believe you said your car had a standard gearbox, which is likely a slower mover in general, so there is greater incentive to get one out of the door, should an interested buyer come along.

There is then the fact that Inifiniti is about to launch their new Q branded vehicles, as the company is attempting to change directions-- naturally, the dealerships will want to follow. On top of this, is the fact that dealerships recognize the importance of moving cars in volume (which is also a good thing in the eyes of the manufacturer), as opposed to always focusing on specific profit on each and every sale. Combine these, and you have what may be the reason for your deal.

I suspect (and this is just a WAG) that there are more variables in the equation. It seems to me that you used a “seat of your pants” strategy in dickering and that you did not pay for information from some service (e.g. Consumer Reports). There were very likely promotions and incentives that you were unaware of. I suspect that the selling of cars has adapted to the flood of information available to car buyers by adding more variables. It takes a lot of concentration and homework to determine which cup the ball is under. You seem to have done OK. I don’t think you got screwed, I think they just copped an extra feel or two.

If you look at Edmund’s Incentives and Rebates page you’ll see that there’s $4500 dealer cash available on your model, $5500 if you were already an Infinity owner.
Link. You probably left money on the table, but I still think you got a good deal, and more importantly, you feel like you got a good deal.

Did you pay cash or bring your own financing? If you financed through the dealership’s banks, they make a lot of money on the back end. For example, if their bank told the dealership they’d approve you for a 3% loan, and the dealership is able to get you to agree to terms on a 3.5% loan - they get to keep that extra half a percent.

There are always other issue involved. A dealer has to pay the manufacturer to keep the car on his lot after a certain period; if the car was reaching the end of that time limit, they’d have to make that payment and it would be worth their while to avoid it. Also, the income made by their service department goes to the general costs of the dealership; if the service department is doing well, they can afford to ask for less.

Thanks for the link; dealer cash looks like the largest puzzle piece I was missing.

It’s things like this that lead me to not trust car salesmen (or press releases that claim car dealers only make a profit of $23 per car). If there really was $4500 in dealer cash that would move from the manufacturer to the dealer when they sell me a car, then it’s disingenuous for the salesman to tell me that they are only making a couple hundred dollars in profit when they sell me the car. Quite the opposite: when all the mini-transactions have taken place, and the dust settles, it appears the dealer will have sold the car to me at something like 112% of his cost, reaping a tidy 12% profit. Good for them.

Yesterday afternoon after putting down a deposit, I didn’t feel good, and that all explains why. But I’ll get over it. I am very much looking forward to the car - my first new one in over ten years - and I will probably feel a whole lot better in a couple of weeks when I actually take delivery.

I bet you will, too. Most important thing is you got a car that you really like. Enjoy it.

I went through a similar process last year when I bought a car. I think I even started a similar thread. I did calculations similar to yours and scouted a lot of websites for the car I was interested in. My conclusion is that there is an industry wide fudge factor built into the MSRP of cars, but that’s true of all products. The difference with cars is that they are very expensive so the fudge factor is very large and they use a lot more tactics to hide what seems to us to be a large profit.

In the end I managed to get my car for less than I’ve heard of anyone else spending, with some additional options thrown in, yet I still can’t shake the feeling that I could have done better. Mainly because the dealer was smiling so broadly when we were done. Logically I know that they always smile broadly, they have quotas they try to meet and sometimes they just want to move expensive inventory to make room. Still can’t shake the feeling. That’s why I’m reading this thread, to see if I missed anything.

With my dealer, I think part of the real profit is inducing me to return there for service. They spent a lot of time offering service plans and free stuff to get me to return there, like free inspections and car washes.

I don’t think we are ever going to know what a car is really “worth” or how much it costs to make, anymore than we will know those things about a peach or a pair of pants.

They must make up for it in volume. :smiley: