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Show Me The Money – Where The Profit Is In New Cars
by: Gregg Hall
How many tomes have you heard a car salesman or manager tell you, “I would love to give you that deal but we only have a few hundred dollars profit to play with”? Don’t buy it, especially now when most entry level cars are over 20,000. The profit on a $20,000 car can be from $1500 to $2,000 and that is before any dealer hold back, carry over money, dealer incentives or rebates!
So what are these other terms that give the dealer profit. On a Ford or GM vehicle, for example, the carry over money can be $1,000 on a $20,000 car. Add in another 3% for holdback plus another $1,000 in factory to dealer incentives along with a $1,500 built in profit and you have $4,100 to work with!
It pays to do your homework. Don’t take the dealer’s word for what they have in a car. There are so many places you can go to research prices on new and used vehicles that there is no excuse for being taken from a dealer. Go to online sites like Kelly Blue Book or Edmunds to get dealer cost on new cars and get guidelines for used cars. You can also find the latest rebates online. Just type in the car you are looking at along with the term “rebate” and you will find the most up to date information. You want to be sure you know if a vehicle has a rebate because this is another way that dealers make profit. They will keep the rebate and while you are signing the stack of paper in the finance office they will slip a piece of paper in there on you assigning the rebate back to the dealer and you won’t even know it.
Another way dealers make money is in their finance office. The people that work in a dealer’s finance office have to be licensed by the state they are doing business in to do financing and offer insurance. This does not stop them from ripping people off. They will make as much money on you as they possibly can. For example, they may have a “buy rate” from a lender of 6% for someone with excellent credit yet they will charge you 9%. This additional 3% is pure profit to the dealer. They will justify it by trying to point out the least little hiccup on your credit report. Another thing they will do is try to sell you extended warranties and credit life insurance. Never buy either one. If you are buying a new car, the new car warranty is sufficient and you can get term life insurance way cheaper if you are concerned about that.
The best thing to do is to obtain your own financing at your bank or credit union before you go to a dealer. If the dealer can beat the deal that you have fine, but don’t buy any of their add on garbage.
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