Sure, everybody wants the best price he or she can get on a car, right? I think often people assume that if they got the best possible price, they also got the best possible deal, but that is not always the case. As the man who trained me to sell cars many years ago always said: “there is no way a part-time customer can outsmart a full-time car salesman.”
Some people love the idea of beating up a car dealership on price, getting them down to the lowest price, squeezing every dime of profit out of a deal. After getting out of the car business over a decade ago, I have found myself a half dozen times or so purchasing a car, and I actually wanted the dealer to make a profit. I understand the extremely high cost of operating a quality dealership.
If you are that guy or gal who beats a dealer up for that last penny, before you feel proud of yourself, just know a dealer has a lot of ways to make that money back. The problem with getting hyper-focused on the price of the car is you let your guard down on everything else.
For instance, it is really simple to add a few hundred bucks to the price of an extended warranty and it is easy to do since unlike cars, the cost of extended warranties is not published on the Internet.
If you are adding any accessories to your new vehicle, this is also another place that profit can be made to help defray that low price you got. In states where allowed, a dealer can up the documentary fee by a couple of hundred bucks.
A dealer can also add up to two percentage points to the interest rate you are paying. For instance, if the cost of money is 2.75% a dealer can charge 4.75% and pocket that difference. Some lenders do not allow this practice, but most do.
Dealers also make money on all insurance policies like credit life, disability insurance, gap insurance, etc.
Perhaps the easiest way to get a car deal from losing money to making money is if you have a trade-in. It’s called an under allowance. Let’s say your trade-in has an ACV (actual cash value) of $10,000. If the dealership can get you to accept $9500 for it, it still goes into their used car inventory at $10,000 and that extra $500 is credited to the price of the new car.
Bottom line: the best price is not always the best overall deal. Profit is not a dirty word. People who grind the dealer to death over price are often told there are no loaner cars available, and are denied extra help after the sale.
Trust me on this one, if you are one of these people, the dealer will remember you and not in a good way. In my day owning car dealerships, I have actually asked people not to come back, it just wasn’t worth it and almost always, the customer who beat you down over price also gave you bad marks on the factory survey.
Somewhere between a dealership’s net cost and the sticker price of the car is a fair deal for the consumer and the dealership. Every dealership pays the same price for the cars on the lot. You can spend hours driving from dealer to dealer, and in most cases, the difference in the “best price” you’ll find will be no more than a few hundred dollars and it is worth it to pay a little more to a dealer that will take care of you.
Editor's Note: This article has been republished since its original post date.