Buying a Car in the U.S.A

Discussion in 'Automotive' started by Green Tabasco, Mar 24, 2007.

  1. Green Tabasco

    Green Tabasco New Member

    May 3, 2003
    Just a couple of things you need to know.

    A. Dealerships make money several ways on "New" Cars. There is the obvious MSRP. That's the selling price. Depending on the model it's usually and average of about 1,500. Then there is "Holdback" money that's hidden from you, Usually about 800. Then there is the "Dealer Fee", the average is about 500. Then there is objective bonusses from the factory, for the amount of units sold. usually about 700 per unit.

    So if you buy a NEW CAR at MSRP, the delership makes about 3500. That's just the front end. The back end is finance. The finance managers will try and sell you all kinds of things, extended warranties, gap insurance, pre paid maintenance etc. They make more money on that. But get this....The Finance Manager is also gonna try and bump you on the interest rate. If you qualify legitimally for a 5% interest rate the finance manager is gonna tell you 7%. Thats two points he/she picks up for the life of the loan. So if you fiance a 20,000 dollar car for 60 months(5 years) and the finance guy picks up two points, that's an average of about 2,000, plus whatever he "sold" you.

    So if you are a sucker, and paid MSRP, the dealership is gonna make 6 grand off you. Multiply that by let's say 100 cars a month, that's 600,000 thousand in profit per month.

    B. Used cars are where Dealerships make their "Real" money. The average markup is 4,000 dollars per car. Plus Finance, plus whatever. Dealerships really clean up. If you' re a sucker you'll end up paying about 8,000 grand in total for a used vehicle, just in pure profit for the dealership. Multiply that by 50 cars a month, that's 400,000 grand.

    600,000 plus 400,000 makes the total 1.2 million in profit a month. And that's just a little tiny dealership that sells 150 cars a month.

    The moral of the story? Negotiate. Negotiate, Negotiate. Fvk em. If you don't negotiate, the dealership is gonna fvk you. Believe it.

    Any thoughts?
  2. Neo¹

    Neo¹ Member

    Sep 17, 2004
    When buying a used car get a loan from the bank, ******** the dealership. Also, stepping into a dealership with cash (or check) in hand will give you a lot of buying power. If I pay 500 under below the asking price, I consider that a win.
  3. Captain Splarg

    Captain Splarg Moderator
    Staff Member

    Apr 25, 1999
    Pacific Grove, CA
    Columbus Crew
    Nat'l Team:
    United States

    I wish we took in that much money (I work in a place that gets at least 100 a month.) If the front end was that high, I'd be making a lot more money, that's for sure!

    Used cars ARE where the money is, no doubt.
  4. Green Tabasco

    Green Tabasco New Member

    May 3, 2003
    It's all theoretical, and based solely on MSRP. The truth is most dealers will blow out their new cars for a couple hundred over invoice list. A new car salesperson will probably earn a "Flat" of about a 100 bucks. But you better beleive that the Sales Managers are earning a percentage of the holdback, dealer fee and VPA money, minus the dealership "Pack" of course.

    And yes, Pre-Owned vehicles is where the dealers and the sales staff clean up

    A mediocre sales person that sells 12 cars a month, will earn something like this:

    8 new cars= 800 bucks.
    4 used= 2000 bucks.
    Bonus money + weekend spifs= 400 bucks.

    Total= $3,200. Not bad. But not good either.

    a Salesperson that delivers 20-22 cars a month is in the 10,000 dollar month range. And that's only by delivering 8 more cars than the average JoeBlow-car-guy.

    Ironic, aint it?

    Now these figures are based in Miami. I don't know the pay plan at your particular dealership, or how it works in the sate of California.
  5. HoBo30

    HoBo30 New Member

    Jun 22, 2007
    Detroit, MI
    The service and maintainance department is where dealerships make their money.
  6. encierroNYC

    encierroNYC New Member

    Aug 9, 2005
    So, how does this inexperienced buyer negotiate exactly?

    I thought I was going to get a pre-owned car because I thought it would be cheaper than a new one. After reading the above, I'm not so sure?

    Should I look into buying a 2007 model because dealerships are now having end-of-summer clearance sales?

    How do you know what the holdback is? How do you get them to come down for either a new car or used car?

    I have more questions, surely, but don't even know what to ask. Hopefully, answers to the ones I just asked will be a start.

  7. DoctorD

    DoctorD Member+

    Sep 29, 2002
    Philadelphia Union
    Nat'l Team:
    United States
    For any recent immigrants reading this, the value of your car will drop dramatically as soon as you drive off the lot. I knew a German exchange student who bought a new car, being used to high resale values in Germany (it was a Mercedes). She was shocked when, at the end of the school year, she tried to resell it and lost a lot of money on the deal.
  8. Alex_1

    Alex_1 Moderator
    Staff Member

    Mar 29, 2002
    Grasshopper Club Zürich
    Nat'l Team:
    Hmm. Between using you and my buddy that works for GM, hopefully i'll avoid some of the sharks when I get a new car in a year or two. :D encierroNYC - you just have to research and ask questoins to everyone you know, and don't be nervous about having a little company with you when you go to look at cars. My buddy's a GM certified tech, and I want the new Camaro down the line, and already he warned me (it's a Chevy...) about reliability, since he knows the cars inside out, and what goes into the pricing, let alone fixing it. Also he warned about getting the first model year of the car since (again) it's a Chevy. :D So just ask questions and don't be afraid of not being an 'expert' in it. Personally, I don't like buying cars. I like them, but not dealing with them so while I know what I want, I know it's not what I need, which is also important. So I want a car that I can at least enjoy if I have to pay for it, and I don't want to get jobbed so I'm not too proud to get help. :)

    The finance bit really is something. If you go to any dealership that's barely built on establishing a relationship, then they'll try to nail you. So my advice there is to make sure your credit's stellar, then get your loan through a credit union if you can. It's amazing how pissed off the dealership cretins are... a guy I know said he was negotiating for his car, and the guy was trying ot get him with a higher interest rate but he had a credit union backing him. He told the dealership "No way you beat my credit union", and they didn't. Some of their loans are anywhere between 2-7%.
  9. act smiley

    act smiley Member

    Feb 8, 2005
    Leicester City FC
    Or, don't get credit, cause no matter who its from they'll be trying to shaft you.
  10. art

    art Member

    Jul 2, 2000
    Portland OR
    Nat'l Team:
    United States
    I always buy nice used cars, no shitboxes for me, and most of the time get pretty good deals, it's very difficult to figure out how much the dealership paid for the car so I prefer to go by market value. The trick is to know how much the car is actually worth and don't go above that amount. Kelly's Blue Book is a good source, it's easy to research online. Dealerships always try to rape you on used cars, so do your research. Find the car you want, most used dealership parking lots are accessible after hours, BEFORE you go to the dealer, or just spend a day looking first before you narrow your list. GET A PRE-APPROVED LOAN FROM YOUR BANK. Do NOT go through the dealership for financing. When you sit down with the salesman, don't budge from your price, you can always say no and go to another dealer. If you have a trade in dont tell them until after you negotiate the price for the car, likewise with your down payment.

    I also think it's really important not to buy a car you can't afford, sounds simple but everyone does it. Get a loan you can afford to pay off early, you'll save money that way too, and it helps your credit.
  11. Green Tabasco

    Green Tabasco New Member

    May 3, 2003
    The smartest investment a Buyer can make is to buy a Pre-Owned vehicle of the year. That means buy a used car that is the same year you are buying it or only one year old.

    I'll tell you why. Let's use some figures. Let's say a new 2007 car costs $20,000. The moment it rolls an INCH off the lot, it depreciates 30% (on average), that means the vehicle all of a sudden dropped to $14,000.

    Dealerships buy most of their used cars at dealer auctions. They know the depreciation values. So let's say the dealer bought that same car at $12,000, once it get's to the dealership and gets cleaned up the sale price will be $18,000. They mark them up because they know there WILL be some negociating involved.

    So let's say you negociated and bought that same 2007 model for $15,000. The dealership is happy with that, they made 3,000 plus whatever they sold you in the back in finance. But you made out good. Because you bought a car that is practically brand new and saved $5,000. See? You saved the depreciation on the vehicle. Depreciation is something most used car buys never factor in.

    On that note...THE WORST INVESTEMENT YOU CAN EVER MAKE IS TO BUY A CAR CASH. Because of the depreciation. Can you imaine how pissed off I would be if I paid $20,000 for something, rolled it an inch, and found out it's now worth $14,000? Fvk that.

    Always finance a vehicle. ALWAYS. Keep your money in the bank earning interest. So what if your payng interest on your car loan? Your earning inerest on the money in your savings account. So if your car loan is 5% and your savings on the same amount of money if 5%, you break even. No? ;)
  12. Reycd

    Reycd Member

    May 6, 2003
    HONK!! HONK!!
    Real Maryland
    Nat'l Team:
    Never pay your car loan on the due date, always pay before and pay more than the monthly installment. Since 99% of the loans are Simple Interest loans, the sooner you pay each month the more will go to your principal.

    Quick example. Lets say you are paying 100 a month, on your due date lets say 60 would go to the principal and 40 to interest.

    If you pay sooner, lets say 10 days before the due date, 80 would go to your principal and 20 would go to interest.

    The same thing happens if you pay late, but the other way around, if you go 10 days late 40 would go to principal and 60 would go to interest, plus God forbid late charges.

    Of course these numbers are fictional but you get the idea.

    So always pay on time, and overpay atleast 20$, on the life of the loan you will save 1 or 2 payments.

    The better you can get your per diem down the better off you will be.
  13. royalstilton

    royalstilton New Member

    Aug 2, 2004
    Liverpool FC
    Nat'l Team:
    United States
    this is only true if you turn over cars quickly. if you keep a car 7 + years, cash is a good deal, unless you can get financing that is lower than the interest rate at which you are investing the cash.

    in order to save the same amount of money that you would have to pay for a $20K car at 5% interest for 5 years ( $22645, with a monthly payment of $377 ) you only have to save $340 per month at 4% interest to end up with $22645.
  14. Green Tabasco

    Green Tabasco New Member

    May 3, 2003
    True if you are gonna keep your vehicle 7 years buy it cash. But what percentage of people in the US, keep their cars for 7 years? A low percentage. On average, I would say people start looking on their third year and purchase on the 4th, but still owe 1 or 2 years on their loan. Most are "upside down" meaning that they owe more than what the car is worth. So most end up plunking down a couple grand as a "down payment" when what it's really doing is covering some of the gap on what they owe.

    Good explanation on the amount to "Save" but I was refering to Interest earned, compared to the same amount of the loan. But it's all subjective and variable, everybody's situation is different. It IS possible to get a car loan at 0% interest. For most it's still a smarter investment to finace a vehicle over buying Cash.
  15. Brian2008

    Brian2008 New Member

    Oct 27, 2008
    In the US a car is not a luxury, but a real necessity. This is why probably one of the first investments you will ever have is buying a car.Most states in the USA have adopted emissions laws. If the car can't pass the emissions test, it cannot be licensed, and you cannot use it for transportation. In the US a car is not a luxury, but a real necessity. The United States is not as simple as buying a car, driving to the border and paying some duty. The recent rise in value of the Canadian Dollar, it is currently cheaper to buy many vehicles in the USA and then import the car.
    Used cars

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