Dealership Markups?

[dentist90]

My wife is currently in the market for a new Jeep Wrangler Unlimited (don't ask me why... it's a Jeep thing, I wouldn't understand!)

So we're going thru that typical, painful 'what's it gonna take to put you in this Jeep today' bovine scatology. We've actually heard 'we can't go any lower, this is our cost'. Jeesh! Why do car salespeople figure they can lie and insult our intelligence and expect us to be straight with them.

Anyway, the full retail price on this thing is $32,500 (Cdn). I have a mechanic friend who has worked at several domestic dealerships in his 20yr career and he maintains that the dealer margin on any new vehicle is at least $5000.

Has anyone on this board worked in new vehicle sales or have some insider info that they can reveal without being tracked down and killed? What is an average dealer markup?


All comments and outbursts welcomed!

[javadog]

The markups vary by brand and are not as high as they used to be, particularly on some of the high end German cars, like Mercedes. Anyway, you can find dealer invoice pricing on just about every car on the internet. I know it's available for US models, anyway. Just do a Google search.

Note that the markup may be different in Canada than the US, as prices worldwide are not the same for all cars and the US prices are lower than many other countries. I don't know what data is out there for the Canadian market but perhaps you can find it if you look.

One last thing. The markup on the base car and that for options may be different.

Happy hunting,
JR

[fireant911]

dentist90,
I would go to edmunds.com and arrive at a price. This site allows you to pick the make, model, color, and options and shows what others are paying for the same automobile in your area. I used this strategy when buying my last new vehicle. Upon going to the dealership I simply handed them the 'out the door' price that I was willing to pay. They laughed and then argued but upon my leaving they accepted the deal.

To answer your original question... from what I have read the dealers actual profit is around 4% to 5%; however, I find this low margin extremely hard to believe.

http://www.edmunds.com/

[epbrown]

Originally posted by fireant911
To answer your original question... from what I have read the dealers actual profit is around 4% to 5%; however, I find this low margin extremely hard to believe.

That's pretty accurate - the big money in the car business comes from servicing them, not selling them.

[Seahawk]

The website is not well organized, but the information is terrific. Excellent advice on how to prepare BEFORE you go to a deal.
Best of luck.

http://www.carbuyingtips.com/

[hytem]

You should be able to get a 6-cylinder Jeep at a discount--they aren't in high demand right now because of fears about gas prices.
Wranglers are great if you don't have to spend much time on the highway. Like tooting around your ranch on dirt roads. They are breezy and not safe in terms of side protection in collisons. Libertys are safer and are higher off the road--giving a better view.
Funny, women tend to buy SUVs because they feel safer in them--especially with all the big trucks on the road. You can't blame them. But that wouldn't be the reason to buy a Wrangler.

[on-ramp]

jsut buy from a private seller. no Dealer hassles.

[nota]

older days the price markup was 8 to 12 % on the base price
and up to 40% on factory options [not dealer added stuff]
my older brother was a salesmanager at many dealers

invoice is a joke as thats NOT what the dealer really pays
incentives and volume discounts, rebates and other wierd stuff
all make the invoice moot

financing is also a major income producer

[dentist90]

5% markup hard to believe. On this vehicle that would be ~$1600. Most dealers seem ready to knock $1000 off the MSRP at the drop of a hat. That would only leave $600 profit, off of which comes the sales commission, interest charges on the vehicle while it sits, rent and heat, accounting staff. If a salesman made 25% of this profit he would have to sell 300 cars to earn $40000. That's more than 1 car per day. Hmmm...

Edmunds suggests that the markup is about 8.5%, but I have a feeling the 'dealer invoice' the salespeople show you is bogus.

The thing is I bought my Talon new also. The MSRP was $35,600. The dealer sold it for $31,700 and I also got a $1200 factory rebate. My price before trade: $30,500. If these 'dealer invoices' are to be believed this dealership must have LOST close to $2000. Rebate is from the factory so doesn't come out of their pockets.

Anybody ever heard those $1 over dealer invoice ads? Anyone believe they are actually giving cars away like this?? I have never been shown a piece of paper that actually looks like it came from Chrysler factory. I'm sure the actual amount is a very closely guarded secret.

[pwd72s]

Do you shop at Costco? They offer a buying service for customers. Cindy & I are thinking of using it the next time we need a grocery hauler. I hate going to car dealerships...

[dentist90]

Originally posted by pwd72s
Do you shop at Costco? They offer a buying service for customers...I hate going to car dealerships...

I don't think our Costco does that, but there other brokerage services for pricing and locating new cars. I believe this is more of a service for convenience, to save you going from lot to lot. I'm sure our local dealer will give me as good a deal as a broker... they do have a bottom line. The deals I've seen arranged by auto brokers were mediocre, in the range of $300-400 below MSRP. The brokerage has to make money too!

Besides, you have to go to a lot to test drive anyway.

Keep the advice coming!

[dentist90]

Originally posted by hytem
You should be able to get a 6-cylinder Jeep at a discount--they aren't in high demand right now because of fears about gas prices.
Wranglers are great if you don't have to spend much time on the highway. Like tooting around your ranch on dirt roads. They are breezy and not safe in terms of side protection in collisons. Libertys are safer and are higher off the road--giving a better view.
Funny, women tend to buy SUVs because they feel safer in them--especially with all the big trucks on the road. You can't blame them. But that wouldn't be the reason to buy a Wrangler.

We're looking at a 2007 Unlimited 4dr... first year for this new model (another thing I used to say I'd never do).
This will be her 3rd Wrangler. Her 1st was a CJ-7, then a TJ, now this "family sized" Wrangler. She is presently driving a Grand Cherokee Ltd, so this will be a step down as far as comfort and amenities go. Like I said, It's a Jeep thing...

What can I say to her, I bought a Porsche that's only good for 6 months of our year. It's a Porsche thing... she wouldn't understand.

just buy from a private seller. no Dealer hassles.

Absolutely, and in Canada we save 7% Federal Tax (GST)

[JSDSKI]

"Dealer invoice" is just what it says - an invoice that the manufacturer sends to the dealer to confirm the VIN, make, model, build date, equipment and options. It also includes other items the manufacturer charges a dealer - like advertising, shipping, gasoline, along with warranty and after sale follow up programs. It represents the actual cash outlay the dealer (actually their bank) sends to a manufacturer to obtain title and the right to sell the vehicle.

Gross profit varies between makes, models, country of origin, and demand - it's usually 2% (econobox) to 20% (import sport sedan). I've never seen a "fake" manufacturer invoice.

The reason dealer's can sell cars "below invoice" is because of manufacturer incentive or compensation programs for specific vehicles or markets where sales are slow. That's why the pricing varies so much - not because of duplicity (altho clearly that exists as it does in every marketplace) but because it is an extremely volatile commodity market. It's really like the Chicago commodity exchange - with prices changing from day to day.

On Monday - you might buy an econobox at MSRP and the dealer might gross $400. On Friday - the manufacturer might decide that they really need to move the econoboxes and offer the dealers $500 rebate for every econobox sold until the end of the month - as long as they sell 50 econoboxes.

Now, different dealers will handle that $500 differently. Some will try to keep it on each car - some will sell 30 cars ASAP at $850 under invoice (400 gp + 500 rebate - less $50 gross profit for sales person flat commission = $850) and then sell the next 20 at whatever they can. Just to get the whole $25,000 at the end of the month. So, sometimes a dealer is just making $400 (monday's sale) - sometimes he's making $50 (weekend sale) and sometimes he's losing money (the last twenty units to make the $25K).

You tell me when they're lying.

[JSDSKI]

Originally posted by dentist90
We're looking at a 2007 Unlimited 4dr... first year for this new model (another thing I used to say I'd never do).

Well, I don't know about the BC market. But, in LA, the new Wrangler - especially the four door and MOST especially the Unlimited is in short supply and high demand. In this case the commodity is more like truffles than like mushrooms.

I'll check on pricing and let you know in an hour or so.

[azasadny]

My father has a 2006 Jeep Rubicon. I'll ask him what he paid for it and what the sticker price was...

[hatpix]

FYI, AAA also has a similar buying service.

Also as far as dealer invoice goes, that is NEVER what the dealer pays to the manufacturer, do not be fooled. As Nota said, incentives and volume discounts, rebates and other wierd stuff. Dealer buys 10 cars, maybe he pays invoice, but he buys 100 cars and the factory kicks back 3-4%, buys 1000 cars, maybe its 7%. Do you really think they are going to then lower the invoice price to reflect that?

Also, don't get ganked on the Destination fees. THe dealer has play there, and you can always get that knocked down once you've gotten the best price you can on the car.

Keep this in mind, unless you've spoken with the salesman, sales manager, finance manager and the general manager, you haven't gotten the best deal. If you're at the dealership for less than 2 hours, you haven't gotten the best deal. It is only when you've spoken with all four employees, spent countless hours at the dealership, and have actually had them refuse to sell you the car that you know that's the bottom line.

[dentist90]

Another little markup technique I have come across is the so-called 'documentation fee'. This is never disclosed until you are at the business manager's desk pulling out the checkbook (unless you know to ask ahead). This fee is supposedly to do a history and lien check on the vehicle in question. How much is a Carfax again? I have been asked to pay between $125 and $399 for this documentation fee on previous purchases. To me this is like the undercoating of the finance side. I asked the sales guy right out "what am I getting for this $399? The full history is known from the Ohio assembly line to the truck to our dealer. "
Felt a bit bad for him, he's a nice guy and he wasn't ready for the question. We'll work out a deal on that I'm sure.

As many of you may have guessed I'm a dentist when I'm not pretending to be a Porsche wrench. I couldn't imagine what my patients would say if they went out to the reception to pay for their $750 crown and the receptionist added a $99 insurance processing fee that wasn't on their estimate!!

[JSDSKI]

I don't know about Canada. In California, doc fees are regulated by Dept of Motor Vehicles and are at $55 right now. It is for preparing the contracts and registering the vehicle and is non-negotiable.

Ken, I understand your viewpoint, but as I explained above, invoices are what manufacturers charge dealers for each car, one by one, and are paid - to the penny - by the dealer's bank. Then the dealer starts paying interest on the unit day by day. There just isn't any magic, secret, slush fund hidden out there that dealers get to dip into every time someone wants to buy a car. There are just different incentive programs that manufacturer's control - based upon market activity - and compensation for interest paid on the car while it was in stock.

[David McLaughlin]

Man I wish I could have had $5k to play with when I was selling cars. The highest profit I made at the Honda/VW dealer was about $2600 and I took home 15% of that. This was an Accord with more dealer add ons than you could shake a stick at. Used cars always had the higher prifit margins at my dealer. When the New Beetle came out, there was only $900 between MSRP and Invoice.

[pwd72s]

I read an article on this dealership once. The largest Chrysler-Jeep dealer in the world. They sell out of Kellog, Idaho...Why are they the largest? They sell for the least...will pay your airfare, so you can pick the car up & drive it home if you wish.

www.usaautosales.com