Quote from Error 404:A dealer will virtually never "under-allow" on your trade, and then lower the price of the new car accordingly. It is of major importance for the dealers to show a "top line" high price on the new car. If, for example, a new car lists for $40k. Your trade is worth $20k. The dealer gives you only $5k for your trade. And then knocks $15k off the price of the new car. Now the deal is written up showing you paid $15k less than (the going rate..whatever that is...that is what is really negotiated). Now, you go and show your friends you paid $15k LESS than the "going rate".
The numbers you use, even though as an example, are ridiculous. Your argument is specious, but you are factually correct âA dealer will virtually never "under-allow" on your trade, and then lower the price of the new car accordingly.â
The dealer generally has a minimum heâll let the car go for. Using a 5 series BMW, the profit margin is about 9%+ the hold back of around 3%. (Not so long ago, it used to be about 17-20% + the hold back. The factories are now taking a bigger cut to stop price whoring and now reward the dealers in other ways for volume).
The 5 series, forgetting options, is about 37,500 sticker and 34,400 invoice, a $3,100 margin to play with. Do you think a dealer really cares who knows what he sold a car for? For one thing, a dealer will never even get in a negotiation to that low level. He doesnât sell cars below his minimum. If anyone who bought at the lower threshold of that $3,100 range, caused a potential customer to walk in the showroom, ya think the dealer is upset bout that? Of course not. Similarly, with an under-allowance on a trade, there is not going to be the $15,000 as in your âexample.â But it could be anywhere from a $100 on up to several thousand,
generally. Now, if this trade can really be robbed, why does the dealer have to knock it off the new car? You are focused too much on âyou take from here, ya gotta give there.â Ainât necessarily so. In the case of the excessive under-allowance the salesman/NC Mgr simply takes that extra money for that deal. Hereâs a scenario that does happen.
Customer has a trade. The salesman takes the trade to the Used Car Manager for appraisal. The UC Mgr gives the salesman an ACV figure, Actual Cash Value. This is the figure that the car is worth to the dealership and will be put on the books as the cost of that inventory unit. BTW, how the UC Mgr arrives at the value of the trade is one of the key components of the entire retail automobile business.
Now, salesman has the ACV for the trade. Do you think he simply just shows that to the customer? Generally, absolutely not. That figure is for the salesman and the manager to do with as they please. They can show the car to be worth more or less, on paper, depending on the situation.
Letâs say the customer says his car is worth 25K. The UC Mgr, who obviously is not made privy to that information, has ACVâd the car at 26K. If they can arrive at a new car price that flies, that extra 1K goes into the deal as pure profit. Sometimes the salesman/NC Mgr just take a shot, if it doesnât work, itâs âLet me talk to the UC Mgr and get more money for your trade.â
Now, occasionally, a sharp customer on the new car pricing will grind the salesman/NC Mgr down, but not be so savvy on his trade in price (a number of reasons why this can occur). The salesman will try to make it up on an under-allowance on the trade. Of course this possibility is to be determined at an early stage in the process.
More frequently, but not so much these days with the short profit margins, the customer has to be over-allowed for the trade. Many times because of payoff figures or simply because he argues the point that âI saw Kelly Blue Book on the Web and it said my car was worth X.â Some of this is defeated as the customer shops around. In a big metro area with several BMW dealers, heâll soon find out what real numbers are. A mistake in the ACV figure by the one of these dealers can be a headache or a boon to the next dealer shopped, one of the many variables in arriving at the all important ACV figure.
However, even assuming such a deal could be made...a deal is not a deal until all aspects are agreed to in writing. So pulling a trade negates the agreement as written anyway.
Really? Remember, the customer is simply substituting cash for the trade. So what reason does the dealer give the customer? âIâm sorry sir, no deal, I let you work the new car price down too far because I was stealing your trade.â
While there is definitely a stereotypical used car salesman type; generally found on "slug lots" where you can buy a car for $899 that has been sold, repossessed, resold, repossessed and resold numerous times , ("easy credit...everyone qualifies"), did you find the people at the BMW dealership to be at all slippery or dishonest? They are just business people trying to make the best deal they can. If you are reasonable, they will be also. They just want to sell cars. New cars are pretty easy to figure out. As a customer, you just need to acknowledge that they need to make some profit. They already know you want to pay as little as possible.
First, the second chance financing market is a huge factor in used car sales. But the truth is certain games have to be played simply to pin down the ever wavering customer. Read Chapter 7 of Steinbeckâs
Grapes of Wrath to find out how this negativeness about dealers got into the public psyche.
Used cars are a whole different ball game. Max is right about that. You really never can know what a dealer has in the car. But you can bet that any late model car you see on a dealer's lot has a lot more profit in it for the dealer than a new car. If not, the car would have been wholesaled out.
Not in every case. And there is another factor, the âshortâ side of the used car lot. The potential losses are a lot greater, not every car is a seller. Dealers can and do make mistakes in that all important ACV and can be buried in a trade. Unseen repairs, inspection costs, etc can eat away at what was once a unit that was âon the money.â The old used car proverb, "There is an ass for every seat." is simply an excuse for a bad trade. The more correct version would be: "There's a price that will create an ass for every seat and sell this car that I have had in inventory for over 90 days." A General Manager will run a daily list of the used car inventory; always sorted, "days old, highest to lowest."
RS
