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Originally Posted by DARISC
All a dealer will pay you for your trade-in is wholesale bluebook. But you won't be told that. You'll be misled to believe you're being paid much more. If you want to know how it works, read my post #44.
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No, they'll pay you what they think it is worth to them. There is no right or wrong. The books are 'guides'.....they don't write checks (try it). The actual market fluctuates. It's exactly like looking at last month's Wall Street Journal stock prices and wanting to pay that amount for stock today. And just because someone paid that for stock today, doesn't mean YOU would buy stock for that. You may pay more, or less, depending on your feelings about the market. Cars are no different.
When I trained dealer groups that owned multiple dealerships, I had a meeting with all of the used car managers and buyers, about 30 of them. I had a used car outside, exactly as it was traded in. Everyone got a chance to appraise the car and use an appraisal form I had designed (point of the meeting). These were 'professionals' that typically had several years experience and were paid low six figures. Not lackeys. The spread was over 20% from low to high.
In ND's specific example, the $10,000 figure was a low-ball designed to test his expectations and lower his sights. Typically, in a four-square method of 'pencilling the deal' they will write down a really high figure for the car you're buying, a really low figure for the car you're trading, a really high down payment, and a really high payment. Whatever the customer responds to is his hot button. Usually, the response is, "I can't afford that payment!!" So that becomes the focus, not the price or trade. If it was the trade value, they'd keep the price of the car really high and over-allow on the trade as negotiation. You get my point.
But that doesn't mean that the used car manager didn't appraise the trade for $16,000. It just means that the desk manager held back on the allowance on the "first pencil" to test the waters and know how to move forward with negotiations. It's a game, and ND played it. Not all dealers play those games. I don't.
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Regarding the profit that the dealer makes on a car, it's the same no matter how much the buyer pays to buy it. The salesman absolutely knows the lowest price that the dealership will accept and the salesman has to sell the car for a higher price than that - because that is the salesman's 'take'.
So, when you're bargaining with the salesman, you're not bargaining with the dealership, you're bargaining over what the salesman is willing to 'take'. The dealership will always get theirs and theirs is always more than what they paid the car manufacturer for the car, which is their profit.
Considering that, if I owned a dealership, had 10 salesmen and 9 of them sold my cars at a high price and the 10th salesman sold my cars for very little more than the lowest price he was allowed to, and that salesman sold more cars per month than the other 9 salesmen combined, he would be my best salesman by far, because I make the same amount of money on every car sold.
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False on so many levels.
First, salespeople don't know the financial details on every car, sometimes hundreds or thousands on the lot. They rely on their manager to look everything up. They are usually not empowered to finalize a deal, or pricing -- some are, but the vast majority are not.
Second, salespeople are NOT paid this way. I've written pay plans for thousands of salespeople. The most common way a salesperson is paid is a certain percentage of commission above dealer invoice, typically 30%. Sometimes (less commonly) it's a smaller percentage of the net (less holdback or other factory-to-dealer incentives). The North American Dealer Association (NADA) targets 17% paid in salesperson commissions measured from net. The typical new car is $25,000. The typical mark-up from net to MSRP is about 13% (10% +3% holdback), or $3250. So if a salesperson sold the average car for MSRP the average commission paid would be $553. If they sold it for invoice, they'd make 17% of the 3% holdback, or $128. Some dealers pay a minimum commission (aka 'mini') of $100-200 even if there is a loss or some other deal where their calculated commission would be less. The average salesperson at a franchised dealer sells 11 cars a month and makes $3500 for their efforts. Using the 17% target, the average profit margin (sales price to net) is $1872. Statistically, the actual average profit is less than that as 'minis' mess up the calculation. If the dealer loses money on a deal, salespeople don't pay 17% of the loss to sell the car, of course....they still make their $100-200.