Buying a new car can be a confusing, frustrating and downright unpleasant experience. But behind the haggling and the anxiety and the dramatic theater of the salesman going to talk to the manager, how does this process really work? One anonymous car salesman lifted the veil and gave us a taste of what it's like on the showroom floor. And most importantly, our informant lets us know how we can get the best deals the next time we're shopping for a new car.
Q: How much money do you make on a car deal?
A: Everyone thinks the salesmen is always pulling a fast one on them. People in other sales jobs are especially suspicious. When real estate brokers come in to buy cars, they assume we make the same 5 percent they do on every deal. But it's not true. I've had deals in which I earned $100 on a car after negotiating with a customer for 4 hours. Buyers just won't accept that on many deals, margins are slim for the salespeople. Honestly, used cars are really where the money is made. I earned more on a used car with 95,000 miles than I did on many brand-new ones.
Q: Do you really have to "talk to the manager"?
A: We call it "desking it"—we're taking the customer's offer to the manager's desk. I would say 90 percent of the sales force at every dealership has to do this. It's the manager's job to help structure the deals to earn the most profit for the dealership, or to move stagnant inventory quickly.
There's a psychology behind the dealer's desking practice. You see, sales people are very hungry. If they knew the bare-bones, bottom-line price that the manager could sell a car for and still make a commission, they would expedite the sale and say to the customer, "Okay, I know your budget is $35,000. Well, my bottom line is $32,000, so I'll just sell it to you for that and everyone will be happy." That situation would be incredibly bad for the profitability of the dealership.
Often times, we'd get enticed by bonuses tied to number of cars sold. My boss could say, "After you sell 20 cars, you'll get a $4000 bonus." Well if I'm at car 19, and I'm within $500 of closing my 20th deal—I'd be willing to eat that $500 myself, sell the customer his car and get that juicy bonus. So that's why we have to talk to the manager every time.
Q: How much profit is in each car?
A: On certain cars there's a vast gap between dealer invoice and MSRP. A $100,000 car could have $7000 of profit. On many lower-priced cars, that gap is very small—like $400. Buyers can look up all this information on the Internet these days, so we never hesitate to show the dealer invoice to the customer.
You have a much different buyer than you did 20 years ago. The Internet has really made buyers experts on the cars they want to buy. They can investigate every detail about their cars, the dealership, the buying experience—everything. And there's a larger portion of the buyers today than ever before that actually know more about the car than the salesman does.
Still, many times it doesn't seem to be about the actual sale price of the car—it's about the buyer's perception of the deal. If they feel like they are catching a break, they leave happy.
Q: What's the best way to get a good deal?
A: Don't bother dangling that "all cash" offer to a salesman. He doesn't care. We make less money on cash deals. We make more money on the financing and get the money from the bank within the same time-frame.
But no matter what the deal looks like, it's the hardcore hagglers that get the best prices. There are definitely those "grinders" that come into the store—people who will keep you in the process, chiseling the price of the car down and asking you to throw in some perks on top of it. These buyers are successful. But I've seen some customers win by being the nice guy. They let you know how much they can afford, and you actually want to work with them.
The best deals are really situational. Perhaps a great negotiator is working to buy a car that the dealership can afford to let go at a substantially reduced price. And that's up to the manager looking over his inventory and seeing which cars have been sitting. If I'm him, I'd much rather turn that car's spot three times in one month than to have one car sitting. The larger dealers move a ton of inventory each month, so they can afford to sell a few cars at "Back of Book," or $100 to $200 under invoice. Outrageous deals, like thousands under invoice, are very rare but can happen. Sometimes the manufacturer will have bonuses tied to sales. If the dealer earns a bonus for selling 200 cars, and you happen to be the 199th customer, you might get a really good deal.
The salesman won't necessarily know which cars on the lot are those golden deals. However, the less picky a consumer is, the better. Let's say there's a sedan in a particularly unpopular color combination. It could have been sitting on the lot for a very long time and the dealer might be very willing to sell it to you at a lower price than the same car painted in a desirable silver or black.
Q: When is the best time to buy a car?
A: I'd say toward the end of every month you might be able to get a better deal. That's because a salesmen could be closer to hitting a particular sales threshold and might be more motivated to work for your deal. You see, sales people earn their commission based on the percentage of the profit of a car sale. But your commission increases when you sell more cars.
At my dealership, you started at 22 percent for the first eight cars you sold. Then cars nine and 10 were 24 percent. And it went all the way up to a peak of 30 percent plus an additional $300 per car if you sold a total of 17 cars in that month. So if your salesman is on car 16, he's really going to nudge the manager to accept your deal. I can tell you that no salesman will take a day off at the end of the month. They are trying to close deals and hit those numbers. (Editor's note: We've also heard that the end of the year can be a smart time to buy as well because the dealers need to get rid of leftover cars before the new models arrive.)
Q: What's the craziest sales situation you ever experienced?
A: Right before I left the dealership, another salesman sold a car to a guy who was using a false identity. It was a Friday evening. We sold the luxury car in question, and the guy actually got the car off the lot because no finance offices were open. We couldn't verify him 100 percent. And that's common. Typically we'll close up deals like that on a Monday morning. That Monday we found out he was using someone else's identity and that we'd given a $50,000 car to a thief. Even with all the documentation and information you need to buy a car these days, he still pulled it off. It was incredible.
Q: Have you ever seriously gouged a customer?
A: I'm sure it happens. But I can't say I actually saw anyone at my dealership do anything unscrupulous. The good news for the consumer is that it's become a lot more difficult for any dealer or individual salesperson to pull a fast one on you. These days, with the JD Power customer reviews, the salesperson could be in very hot water [for not treating] customers well. On those surveys, any answer but a perfect "10" is considered a fail. So if the salesperson gets a bad review it means less money for the dealership, and less money in his own pocket. One dealership I know employed a salesman earning something like $400,000 a year. He was a very successful guy. They let him go because his survey scores were bad. So these surveys and websites like Yelp will quickly expose anyone with shady business practices.
Q: Are those add-ons pure profit for the dealer?
A: At our store, the finance manager was supposed to make an additional $1000 per deal above and beyond what you negotiate the car for. Now, that could include selling the customer LoJack, an extended warranty or even window tint. As a customer, you just have to say "No" to a lot of those extras.
Or that extra cash could come through financing. Let's say the customer's credit is questionable, and the bank agrees to do the salesman a favor and finance the customer for 5 percent. The finance guy could tell the customer the best rate he can get is 6 percent. And so the dealership earns that extra 1 percent on the loan. So yeah, there's definitely money made in the finance office.
Q: Do you treat customers differently based on appearance?
A: Don't judge a book by its cover. I've heard so many stories from salespeople about potential customers they ignored because they were dressed extremely raggedy—and another salesperson eventually talked to the client and got the sale.
I know one salesman in Arizona who said he once saw a guy stroll into his store in shredded jean shorts and straggly hair and sunglasses, looking like a punk. My buddy ignored him. Well, it ended up that punk was rocker Alice Cooper and he bought six cars. These days, you can't tell who has money and who doesn't.
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