So, you’re on the hunt for the best car deals, but have you ever wondered how dealerships operate behind the scenes to make their profits? As a former car salesman and manager, I’ve got the inside scoop on the multiple profit centers within a dealership. In this revealing post, I’ll pull back the curtain and provide you with an exclusive look at how most dealerships generate their income.
After reading this article, you’ll gain valuable insights into the dealer’s game plan. Armed with this knowledge, you’ll be better equipped to make informed decisions when making the second-largest purchase most families undertake in the U.S. today.
Navigating the Dealer’s Profit Landscape:
When you’re ready to buy a car, whether it’s new or used, you need to tread carefully in today’s market. The dealership operates on three primary sources of profit: Service, Financing & Insurance (F&I), and Front-end sales. Let’s delve into each of these to ensure you get the best car deals possible.
1. Service Center Profits:
Service centers are where you turn to for maintenance and repairs. Many dealerships offer a few free perks like 2 or 3 complimentary oil changes with your new car purchase, alongside the standard bumper-to-bumper and powertrain warranty. While this may make you comfortable with returning to them for all your vehicle needs, it can turn into a costly mistake. Most dealerships rake in a significant portion of their revenue through service, so the markup can be substantial. Once your free services expire, make savvy financial decisions and research where you can get the best value for your money. Consider these car-buying tips to save more.
2. Financing & Insurance (F&I) Tactics:
The financing and insurance department, often referred to as the back-office or F&I, is where you finalize your vehicle purchase. Here, you might be offered service contracts, warranties, and sometimes even aftermarket products. The excitement of finally getting behind the wheel of your new car can be overwhelming, and you’re eager to escape the finance office. It’s during this stage that some unscrupulous dealers may slip unnecessary warranties and contracts into your deal without your knowledge, or they may have already included them in the front-end negotiation. This often leads to overpayment. To safeguard your interests, read the contract meticulously and ensure your payments haven’t changed. Always ask questions if you’re uncertain about anything. I’ve witnessed countless instances of buyers returning to the dealership days later, realizing a “mistake” in their contracts that couldn’t be rectified. This is precisely where buyer’s remorse sets in.
3. The Front-End Sales Game:
The salesperson, that charming and persuasive figure, plays a pivotal role in your car-buying experience. Salespeople earn a commission, typically ranging from 15% to 30% of the amount over the invoice (cost) of the vehicle that you pay. They also receive 5% of what’s made on the back-end in F&I. This is what we refer to as the front-end of the sale, where emotions run high as you envision yourself driving your new car. You touch it, smell it, and fall in love with it. Your imagination is in overdrive as you picture arriving at work in your stylish new ride. Then, the moment of truth arrives when you’re presented with the numbers, and your once-friendly salesperson isn’t as accommodating. The negotiation process, although uncomfortable and time-consuming, can also be an expensive one. More often than not, the fantastic deal you believe you’ve secured is, in reality, a deal that favors the dealership.
Choose the Smart Approach: Independent Auto Consulting (IAC)
Shopping for a new vehicle demands a strategic approach. Don’t fall into the dealership’s well-crafted funnel. Independent Auto Consulting is your car buying service that excels at finding, negotiating, and sealing the very best car deals in your area FOR YOU! We’ve developed a proven system that eliminates the need for you to interact directly with the dealership, except when picking up your new car. We can save you thousands, and more importantly, save you valuable time. Contact us to discover just how effortless and efficient we can make the car buying process for you! Say goodbye to dealer games and hello to the best car deals.
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