So, you want to get the best car deals, but want more info on how dealerships work? Here’s the real story from someone who knows. As a former car salesman and manager, I can tell you that there are multiple profit centers at the dealership. I want to give you a “back-end” look at how most dealerships make their money.
After reading this post, you’ll better understand how the dealer funnel works. Then, you’ll be able to make wiser decisions when it comes to the second-largest purchase most families make in the U.S. today…
You have to be careful when you’re ready to buy a car, new or used in today’s market. That’s no secret. But when and where are you being taken for a ride? The dealership operates off of 3 primary sources for profit: Service, Financing & Insurance (F&I), and Front-end sales. Keep reading to become aware to make sure to get yourself the best car deals!
Service Center’s are where you go to get maintenance and repairs done to your vehicle. Lots of dealerships will provide to you at least 2 or 3 free oil changes with the purchase of your new car along with the standard bumper-to-bumper and powertrain warranty. This gets you comfortable with coming to them for all your vehicle needs, but can be a costly error. Most dealerships make most of their money in service so the markup is quite high. After your free services expire, make smart money decisions and research where you can go to get the most bang for your buck! Consider these car buying tips.
Financing and Insurance, sometimes called the back-office or F&I, is where you go to firm up and complete your vehicle purchase. Here, you’re sold service contracts, warranties, and sometimes even aftermarket products. The excitement of finally having that sexy car you just drove is so intense that you’d do anything to get out of the finance office. You’re stuck in that tight little office when all you want is to put the pedal to the metal in your brand new ride!
Often, this is where some sketchy dealers add certain unnecessary warranties and contracts in without you knowing, or they’ve added it into the front end so you’re negotiating against yourself. That’s typically what happens to most folks before they overpay. Read the contract and make sure your payments haven’t changed. And ALWAYS ask questions if you are uncertain of anything. I can’t tell you how many times I’ve seen people coming back to the dealership days later after finding a “mistake” in their contracts for which nothing can be done. Talk about upsetting! That’s precisely where buyer’s remorse comes from.
Last, but certainly not least, the Salesman. Oh, that wonderful, sweet-talking angel that’s here to take me to car heaven! The salesman gets paid on 15%-30% of the amount over the invoice (cost) of the vehicle that you pay and 5% of what’s made on the back-end in F&I. This is what we call the front-end of the sale. It’s where the intensity of emotion is built up for your brand new car.
You drive it, you touch it, you smell it, you LOVE it! Your imagination faculties are working overtime and you can just see yourself pulling up to work in your hot new ride. Then you are presented with the numbers and now your best friend, the salesman isn’t as nice to you anymore. The negotiation process is probably one of the most uncomfortable and dragging experiences you face at the dealership, but even more, it can be a costly one. A majority of the time, the great deal you think you’ve gotten is really one that’s great for the dealership.
So, when shopping for a new vehicle take the smartest approach you can. Don’t fall into the funnel that dealerships have set up and practically perfected. Independent Auto Consulting is a car buying service that is able to find, negotiate and close on the very best car deals in your area FOR YOU! We have developed a proven system that doesn’t involve you interacting with the dealership other than going to pick up your new car! We can save you thousands and more importantly, your time. Contact us to see how easy we make the process!
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