By Jerry Reynolds
January 20, 2014
Three years ago, I wrote a much read article titled Why You Don’t Like Your Car Dealer. The car dealers I know all over the country loved it, but the manufacturers hated it. I pointed out the fact that the automakers have continually squeezed dealers’ profit margins. For laymen, dealer margins are the amount a dealer pays for a car versus the Manufacturer’s Suggested Retail Price.
We pay a lot of attention to what the manufacturers are doing, how many cars are sold, how many are in inventory, what the rebates are doing, etc., but the truth is, the only true customer a manufacturer has is its dealers. A car company makes a car today, it rolls off the assembly line, the dealer is billed for it, and then it is the dealer who must figure out how to sell it, and hope he or she can sell it for more than they paid for it. Once a car is ordered, there is no sending it back.
You see, the automakers set the retail price of the car AND they set the price the dealer pays. I am hypersensitive to telling the truth when on the radio shows, and go to great lengths to make sure I do not leave anything out, or say anything that could be misunderstood. I take this very seriously, but recently on the nationally syndicated show, I made a statement that did not even sound true to ME, and I was saying it.
The topic that moment was regarding markup of cars. By that, markup is how much room a dealer has from MSRP to dealer invoice. Savvy buyers know that on all cars, there is MSRP (window sticker price), there is the dealer’s invoice price, and built into the invoice price in most cases is what is called dealer’s holdback. It’s been around forever and it is a kickback of sorts the dealer gets from the factory quarterly or yearly. Dealers use this money to help them offset their commissions, rent factor, staffing, loan cars, etc. For most vehicles, this amount ranges from 2-3% of the MSRP.
Thanks to the Internet and information found online, the benchmark to start negotiating is from dealer invoice, and you go up from there. For the consumer, this is a much smarter way than trying to go from MSRP down.
Follow me here….the trend for the past decade or so is for manufacturers to raise the dealer’s net cost more than the MSRP. The spread-or markup between dealer cost and sticker price-continues to dwindle, making it harder and harder for dealers to offer discounts.
Three years ago, I cited an example of the then-new 2011 Ford Fiesta. I looked at an actual dealer invoice on a stripped down model with an MSRP of $13995 including freight. Dealer invoice on the car is $13842. Yes, $153 spread. I have to admit, that shocked even me at the time.
I checked an identical new 2014 today and was pleased that the spread on this car had risen to a whopping $274. For the consumer who doesn’t know this, asking a dealer to come off $1000 from MSRP on this new 2014 Fiesta would seem to be a more than fair deal. Even with the dealer’s holdback, he would lose a net $306 before he paid the salesperson or prepped the car.
So who does the consumer get angry with because the “greedy” dealer would not come off a measly $1000 from sticker? His neighborhood dealer. The customer walks away, vowing never to go into that dealership again, yet it was the maker of the car that set the MSRP AND the amount the dealer paid.
Don’t think this is exclusive to Ford either. A down-the-line 2014 Chevy Spark has $365 between MSRP and dealer invoice. A new Toyota Yaris has $577 from invoice to MSRP. A new 2014 Nissan Versa has $413 mark-up.
Bottom line, the next time you want to get a fuel-efficient car and want your dealer to discount it and they cannot, don’t blame them. Blame the manufacturer.