Last week my wife bought a new car. And as we were haggling over countless minutiae, I wondered exactly who stood to benefit how much from whether or not they knocked the price down a hundred bucks, or tossed in some floor mats and oil changes.
So let’s say it is a $25,000 car. We dealt with a salesman, the finance guy, and the manager. How much do each of them make from the transaction? And what cut goes to the owner of the dealership, and how much goes to the manufacturer?
Yeah, I’ll do some googling, but I thought some of you might be have some knowledge/experience to share.
As a former new car salesman, I can tell you this: You get 25 percent of the profit to the dealership, at least where I worked.
What does this mean? I have no idea. I can also tell you that list price, inventory price or any other price really does not fit into the equation. I think that voodoo may be involved.
Usually, to me, it meant $100 or less. I once sold a $30,000 Nissan 350-Z list price for about $23,000 and my commission was around $100.
So, if you do the math, you can see my confusion.
But I do know this: The F&I (finance and insurance) guys loved me, because I always set them up for a great commission.
So, from my experience, the makers, dealers and F&I guys did pretty well, but us (me) lousy salesmen got what we deserved.
I can say this though, there is a indeed a profit-making machine in the car business, but I was not able to crack the code in my short time in the business.
I would like to hear from a dealer, sales manager or F&I guy to tell me what I missed.
Oops, one other thing: For a car salesman, the money is in used cars. That much I did learn.
That 25 percent of the dealership profit was really, really applied to used cars. I worked for a relatively new dealership so I worked both sides and I can tell you that when I sold a used car, my commission was usually quadruple of what I got selling a new car.
I once sold a 2003 Nissan Altima and made more than $600 on the deal back in 2005. And the F&I guys still loved me.
My only advice to anyone who thinks that selling cars is a way to make money is: Sell used cars. Especially now.
I have heard something similar to what oliver was intimating. Because of the amount of information available regarding car prices and how easy it is to access, dealer margins are very thin. If Kelly Blue Book is telling everyone on the planet that the going price for a car is $30k, you’ll have to be one slick dude to sell it for thousands more.
I’ve always suspected that the whole invoice/MSRP kaka was just that. Thank you for confirming. If it’s not voodoo, then I’m going with Jedi mind control. ‘These are not the options you were looking for.’
I think that’s why when I bought my last car, we spent more time talking about dealer add-ons like fog lamps than we ever did discussing the price. Yeah, that stuff is small potatoes by comparison, but the mark up is huge.
I’m sure the dealer gets a slice of the finance pie in return for funneling buyers to a single lender and that’s where the money is - or so I’ve heard. I think what happens is that as soon as they close on the loan/lease, they can take that note and resell it to people like Morgan Stanley who in turn bundle them up and sell them into the commercial paper market. So they can take the same $50k for example and keep turning it over and over and . . . . If you can’t make money doing that, especially with the fees they charge, then you’re just not trying.
So very much of your questions depends on the brand of car being sold, sales running at the time, etc. But I’ll do my best to answer your questions.
How much do each of them make from the transaction? It depends a lot on the make/model of car. But, I’ll break into pay plans later.
And what cut goes to the owner of the dealership, and how much goes to the manufacturer? Most goes to the Manufacturer, some then comes back (I’ll explain later, factor-to-dealer incentives).
That’s about what NADA/Dealergroups/20 groups typically say, 13% overall payout (25% front theoretically works out to 12.5% overall).
You’re right, actually – voodoo is a key part of almost every car dealers pay plans (namely the “fuckyouitsmymoney” incantation).
I think you just said that you sold a 30,000 car for 23,000? I’ll tell you why you made no money – you gave away the farm.
Markup in Nissans is good, two to four thousand above dealercost, then between five hundred and five thousand in rebates, you gave up every cent of it in the front end – which is perfectly okay, sometimes you take a tiny front for a giant back end deal, but from the sound of your pay plan you didn’t get payed on F&I, so it didn’t actually help you much.
Sounds to me like you made a mini (the minimum a store will pay out on a car) because you didn’t hold the gross.
Salesmen don’t get payed on total sales volume, they get payed on profit, and profit is usually figured by;
Dealer cost for car, plus advertising expenses, plus “fixed” expenses (lights, showroom, etc), plus paperwork (Tax, Title, Doc Fee), subtracted from total sale price of car equals payable profits.
Payable profits are then put into your “Account” with the dealership, which is emptied every washout check. Often, dealers will have hidden “packs” on cars to increase their profit (and fuck salesmen), that range from 100-500 dollars (sometimes more, if it’s rarer like a Shelby Mustang), which I didn’t include earlier.
13% on the front, 13% on the back.
So, from my experience, the makers, dealers and F&I guys did pretty well, but us (me) lousy salesmen got what we deserved.
I can say this though, there is a indeed a profit-making machine in the car business, but I was not able to crack the code in my short time in the business.
I would like to hear from a dealer, sales manager or F&I guy to tell me what I missed.
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You didn’t miss much, although I don’t fall into Dealer/Manager/F&I.
The funny thing is, the profit making machine really doesn’t exist in the car business the way people say/think it does. It’s not a license to print money – McDonald’s, now there’s a license to print money, but car dealerships are mostly struggling mom and pop operations, albeit less “mom and pop” and more “drunken uncle,” but still locally operated and family owned most of the time (yes, there are exceptions, Autonation, Carmax, Sonic Automotive, etc).
My advice to anyone wanting to make money: Don’t sell cars. You may make more money than you would otherwise, if you work your ass off chasing ups and pounding the phone, with very little training or education, but you’ll work long hours (12 hour shifts aren’t uncommon), a lot (5.5-6 days a week aren’t uncommon) and have more expenses than you’d expect (everything from clothing to cleaning to eating – you can’t pack lunch at a dealership easily).
Selling cars is a pain in the ass, it’s tiring, and it makes you sad. Overworked, tired and sad.
You’re close on the f&i thing, banks allow dealers to mark up their loan so many “points” or percent, but I don’t know of any state that allows you to sell a note or sign a note without the banks name on the form. Usually on the banks form.
MSRP isn’t set in stone, but it’s tighter on some brands than others.
The car in question was a 2011 Subaru Outback. I don’t recall the exact figure out the door including tax and all, but I think the agreed price was not too terribly far from the ~$27k sticker. We got them to knock a couple hundred off and toss in a couple of extras. Not aware of any sale at the time.
So based on this - figuring this dealer gets close to their $27k sticker price, who makes what? How much did it cost Subaru to construct the car, and how much profit do they get from the sale? What is the “profit” of which 25% goes to the dealer and salesmen are paid from? The F&I guy makes more if we finance than if we pay cash? Another reason for me to pay cash!
I didn’t dream the salesman was working for only a $100 commission. Maybe that explains why he was such a dick!
first forum post ever, please excuse any mistakes in formatting
“The finance guy makes more if we finance? Another reason for me to pay cash!”
Could you please explain why you would not like someone who provides a service necessary to your purchasing a new vehicle everywhere in the country (can’t avoid final paperwork) to not make any money?
I’m a finance guy…most of my time not spent with customers is spent focusing on how to better help customers and smooth out the process. I have a family, a wife, 2 little girls and a third coming soon. I get paid STRICTLY commission.
Ps-I can personally guarantee everyone on this forum that we love our Guests. This goes for everyone in the car business that makes it past 90 days. We truly, just want to help. I also understand that in today’s digital age, with so much information a few seconds away on the internet that you may be inclined to refuse any offer of help in your vehicle purchase. If I may, however, think about this; 1.) not everything you read online is true 2.) give us a little credit-something that you do less than 25 times in your entire life, we do multiple times a day, everyday 3.) there is a TON that you don’t have access to online, like manufacturer incentives specific to a region or even specific to a certain dealer-or the advantages of one bank over another 4.) look at how long you keep your cars and how you use them, and think hard about the benefits of paying cold hard cash for a depreciating liability when you can take advantage of (mostly) low interest financing.
If you have a mortgage, and you pay cash for a vehicle that costs more than your monthly mortgage payment, revisit personal finances 101-it’s a very bad move money-wise. important to note of course personal finances are “none of our business” and people tend to get kind of weird about money although there is absolutely no shortage of it and ways to obtain it, but facts are facts.
Things are different over here I know, but probably not *that *different.
I have bought new cars as a fleet buyer and privately. As a fleet buyer I expected to get 25-30% off list. Dealers here are mostly manufacturer’s franchises and they have monthly targets. The salesman, knowing what I usually bought, would phone me near the month end with some bargain offers, just so that they could ‘shift some metal’. Naturally I would plan purchases to allow for this. I sold all our ex fleet cars at auction. There were two reasons for this: One, to demonstrate to the auditors that the car was sold at the full market value (no back handers), and two, because it was almost instant. The cash would be in the bank within seven days of collecting the car.
As a private buyer, and knowing the system a little, I was able to screw the dealer for all the dealer goodies like an upgraded ICE, mats, boot liner etc. And a full tank. Naturally I was paying cash with no trade-in. I know full well that dealers make good money, possibly most of their profits on reselling trade-ins, selling finance, and selling insurance based products like cover for minor scuffs and scrapes and a new replacement if the car is written off. Back in the olden days, the big “racket” was waxoyl underbody treatment. If you want any of these things, they are readily and more cheaply available separately.
I don’t know if it is different in the USA, but over here I can get finance from a bank a lot more cheaply than any dealer would offer. Of course that might depend on credit ratings. On the trade-in, a dealer has to offer less than market value to turn a profit. If the old car is in good nick, I can sell the car privately and get a better price.
I don’t believe that anyone working on commission just wants what’s best for me.
Every time I have bought a new car (and I have bought 8 of them) it’s the finance person who also tries to sell me the special paint coating, interior treatments, extended warranties, and all the other junk items with huge dealer markups.
That’s why I don’t trust you*. You use that information to gain an advantage over me.
What in the world does “depreciating liability” mean? Assets depreciate. It’s true that you are better off taking a low-interest loan and using that money instead to invest, but most people don’t actually do that.
You need to justify this. To me the finance guy’s job is to structure a deal so that you are luring the customer into a loan on the basis of monthly payment alone, without letting them think about the total price of the car or interest. This causes people to think they can afford more than they really can.
*Of course, I don’t literally mean you, because I don’t even know you. I mean the people in your industry whom you represent in your post.