Dealer Profit And How To Minimize It

Dealer profit comes from several sources. Most obvious is the gross profit built into the sale price of the car new or used. But this actually may be one of their smaller profit centers. Some come from the service and parts departments if the dealer has them. Profit can also be made on any trade-in. Other ways of making money include the sale of products such as service contracts and interest rate markup that happens in the finance office. I’ll go into detail about each of these in the appropriate section, with tips on how you can dramatically reduce the amount the dealer makes. First, let’s cover some general dealer background information.

It is important to understand that you and the dealer have fundamentally opposed goals. Yours is to get the best vehicle to meet your needs at the lowest price possible. If you’re financing, you want the best interest rate in order to obtain the lowest payment possible, and if you have a trade-in, you want to get the most you can for it. A dealership, being a profit-driven enterprise, seeks to make the grossest profit possible on the sale or lease of a new or used car, take any trade-in for the lowest price possible (so they can maximize gross on it when they sell it), and mark up any interest rates.

Dealership Salespeople And Managers

It’s a cliché that the dealership experience is riddled with innuendo, misrepresentations, and outright falsehoods. To help understand why the game is played that way, put yourself into the shoes of the typical salesman (or woman, but for the sake of this example, let’s assume a male) at a dealership for a moment.

He’s on the floor five or six days a week, for eight hours or more. If he’s working on a deal, he’ll often go home at nine or 10 at night, and then show up the next morning to complete paperwork or follow up with other leads. Working “bell to bell” is incredibly fatiguing; the frustration level is compounded when times are slow and all he has to do most of the day is pace the lot.

Car Buying Tips Guide

bonuses based on sales volume, which from the perspective of sales pressure to complete the deal means basically the same thing. When a prospect does show up, the salesman knows the chance of them buying something from him is only about 20 percent to 30 percent on that day. If he lets them walk out the door, his close ratio can slip into the single digits. He also doesn’t like Internet leads, as he closes only six out of 100 of them and makes less money in so doing, as the profit margins are usually smaller.

Sales Tactics And Tools

The sales process at a dealer for both new and used cars is designed, in almost all cases, to both keep you off balance, and give you as little information as possible until the sales close begins in earnest. Once you know all the factors of a deal, it is easy for you to shop at competitors. There are two basic sales structures used at dealers to enable this: the Four Square and Menu-Based Pricing.

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