Why Dealership Used Cars Cost More | Hacker News Reader

Why Dealership Used Cars Cost More

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23 pointsValG39 comments

I was in a tight spot after college (recession 2010-11) and hustled hondas and vw's for a year and while this guy makes some good points, the 'average' car salesman was not making 60k. The guys on the floor were busting their asses 10-16 hours a day, 6-7 days a week (Saturdays mandatory, no paid vacation) for 30 - 50k at most places.

It wasn't uncommon to come in at 7 AM and close up at 11 PM after dealing with idiots that demanded to drive 5 cars and then get kicked out because they had 350 FICOs and wanted a new SUV with 0 down. The majority of people had no idea what kind of car they needed or what they could afford.

The things this guy doesn't point out is that dealerships will work with banks to get deals financed that otherwise might not be, they provide loaner cars, make sure people have insurance, and they deal with title/registration paperwork that is a huge hassle. They'll also take just about any trade-in if it runs (and some that barely run) and dispose of them (something that could cost you).

Vehicles are the highest value or 2nd highest value purchase for most people. You definitely need to know your stuff when purchasing a car, and I'm totally against predatory dealership tactics, but after working in the industry I don't have faith that the average american can navigate the myriad of vehicles, processes, paperwork, and other tasks that go into buying/selling cars directly. I also have a hard time trusting an individual seller after seeing the completely wasted cars we took in on trades.

Like was brought up, part of it has to do with the averaging. If I remember correctly, base for a sales person was 30k-45k annually, and the rest was commission. The average sales person sells 10 cars a month, average commission was... I can't remember. But, you had 1 or 2 ppl in the dealership that had been there forever and/or were responsible for all the internet leads and sold 20+ cars a month. They were clearing 120k easily to bring up those averages. Maybe median would be a better # to look at here.

I currently work at a Dealership and i can second this, well except for the Sales guys "busting their asses".

The majority probably make around 50 K, but they definitely have to stay here late.

Although Saturdays are mandatory, every dealership ive ever heard of still offers two days off a week. A lot of guy's i know come in for deliveries or whatever, but they do have two days off a week.

Sorry for the rambling.

Averages are weighted by the top end. Some salesman making 100k bring up the average wage even if the median might be ~45k.

I do understand statistics but 60k is way off. The lower end of the scale would be weighted more heavily due to turnover in the profession.

http://www.payscale.com/research/US/Job=Sales_Consultant,_Au...

That brings up an interesting question if a dealership has 10 people working there on average, but 2 of those positions have really high turnover at the end of the year you might have 8 people that worked the full year, and another 8 that only did 3 months.

The day to day average would then be a lot higher than the per person average.

I think the actual commission distribution as well as the number of people in the position would be fairly consistent and most would assume these numbers are annualized. I'm assuming Payscale does something to that effect.

Here is my recipe for purchasing cars. At first I really tried to purchase a car through car-max because I hated the negotiating process with the normal dealers.

What I discovered was that car max typically priced their cars 2-3K above what I could negotiate with another dealer. I also discovered if you want a used honda don't go to a honda dealer all the time, try going to a porche dealer or other high end dealers that don't want those hondas in their inventory at the end of the month. Also be willing to walk away

Summary:

1. Goto car-max to get the max price of the vehicle and deduct 2-3k from it and try to find another dealer that will negotiate that price.

2. Goto to high end dealers for non high end cars.

3. Try to go towards the end of the month so I have been told by people in the business but I'm not sure on this.

4. Most importantly don't be afraid to walk away . Last car I purchased I walked away then the dealer called me back a couple of weeks later and I got them for what I wanted to pay. This really shouldn't be an issue as most cars are not one of a kind and can be found at anytime for purchase.

5. If the car is a hot model than all the above will likely be negated and they will be willing to not put to much time into selling you the car (negotiate)

6. Buy at the end of the year nov-dec timeframe. This is because once January hits the car will be officially a year older.

Hence the dealer will work harder to sell you that 2014 or 2015 model before it becomes 2016 and it gets tainted officially as last years or 2 years ago model.

7. Try to go by yourself and not with with your spouse or significant other , so you are the final word.

#4 and #5 are especially important.

Cars are built on an assembly line. Yes, there may be one on the lot that is exactly what you want, but that dealer is probably getting 6 identical models over the next few months. Being able to walk away is a must.

All this haggling and negotiating is great when it means 4% or 5% off MSRP for a car, free oil changes, etc. It sucks when you want a hot, very in-demand car that is trending 8-10% above MSRP and still has an 8-month wait.

Yep, Hot vehicles means there are 10 suckers behind you that are begging to overpay to get what they want or 5 others that don't care about money. Hence the dealer are willing to tell you to go F-off (not literally but negotiation type).

I actually had a dealer act like I was crazy when I laughed at the price of their stock Jeep wrangler in the 35K range. I had a couple jeeps before and I love jeeps but I'm also aware that they are not good vehicles for everyday usage and they are not very reliable . They are fun to drive and and off road with, but there is no way that I would justifying a 35K jeep for off-roading or weekend getaway vehicle.

Apparently others do and are willing to pay that 35K for it, so I'm out of luck in purchasing a Jeep as they don't need to negotiate.

So dealing with a dealer will be pointless for a 1-3 year old jeep.The only hope is to buy from an individual in need of getting rid of it, but even then that will be tricky because they likely owe more than its worth or what you would be willing to pay.

So my options are to buy an much older paid off jeep from an individual or possibly look at other alternative jeep like vehicles.

Also luckily for me I have a friend with a dealers license that allows me to buy at auction. So that will likely be my method of purchase when I'm ready again next time around.

I've got to disagree with you on the word "overpay." You can't have one side of the equation constant negotiation below MSRP or below invoice and then call it overpaying when the market will bear an above-MSRP purchase price. The alternative is a CarMax-type scenario where you have a sticker price that cannot be negotiated.

That being said, $35k does seem like a lot for a Jeep :)

True, Overpay is relative as you state and its based on the what the market bears. Like Popcorn in a movie theatre.

In my view and in my post I used overpay for what I considered what I'm not willing to pay for a product. Hindsight I could have used a better word or could have used a better description.

Like you I thought 35K was insane for a jeep wrangler but apparently many are willing to get loans for 7 or 10 year to pay for that 35K jeep. Those peeps are ruining it for the rest of us ;-)

> 7. Try to go by yourself and not with with your spouse or significant other , so you are the final word.

Although, if you have a willing partner, you can play good cop/bad cop with them.

One partner wants the car, but you don't. The salesperson has to be the intermediary, and make concessions to get you on board.

It makes it very easy not to be interested in whatever the salesperson offers. "$1000 off? I don't care: I don't want the care."

We originally thought of the good cop bad cop scenario as well, but in reality it didn't pan out like that .

Once the salesperson saw that one of us wanted the car they were more hesitant to negotiate because in the end they knew one of us wanted the vehicle. Since we were in a relationship they new that carried some weight.

In addition we also discovered that many dealers were less willing to negotiate with a female than a male as they assumed the female would be a more impulsive buyer.

No matter how wrong they were to assume that they still believed and negotiated with that mentality.

Hence what we concluded our best method to purchase a car was:

1. Select the car ahead that we BOTH wanted or my WIFE wanted: via online methods or car shopping late night when nobody is at the dealer.

2. Goto to the dealer by myself and negotiate directly with them without my wife being present. Hence they knew if I walked away there was nobody else there to talk me back into buying the car. Hence they took me more serious.

Nice tips, I will try to use these. End of the month is when they are trying to fill their quotas. You can similarly get decent deals on new cars when the model year is finishing and the new model year is coming into stock so they want to get rid of their old stock.

You are absolutely right about the model year coming to an end.

I typically also buy 1 or 2 year old low mileage models at the end of the year around nov-dec timeframe. This is because once January hits the car will be officially a year older.

Hence the dealer will work harder to sell you that 2014 or 2015 model before it becomes 2016 and it gets tainted officially as last years or 2 years ago model.

I currently work in this industry and the only thing I see that's drastically out of line with the real world is this:

>All the cars you see on the lot? They are owned by the dealership itself.

This, at least for the dealerships I work with, is almost never the case. For independent dealerships the only cars on the lot that they actually own are previous trade-ins. The majority are bought at auctions on credit (called "floor planning" in the industry). These are short term lines of credit that usually mature in 90 or 180 days. If the lot is productive, the unit will be long sold by then and the line of credit paid off, only to be used again. Depending on the number of sales made in the past year, the credit line with the floor plan company fluctuates.

Often, the same company (like Manheim in the US) owns the auction AND the floor plan financier. Cox Enterprises (Manheim's parent company) and KAR Auction Services in particular seem to be buying up smaller businesses in the industry left and right not unlike your big players in Silicon Valley. My company has fielded offers from both in the past, but our owner won't budge.

But I digress...the only other thing in the article that seems off to me is the emphasis on Certified Pre-Owned vehicles. Almost every dealer I work with will budge on that price. Making the sale is more important than a few extra dollars, in most cases. Plus, independent dealerships have a harder time with even getting vehicles certified, as opposed to the franchise stores that already have certified mechanics on site.

>For independent dealerships the only cars on the lot that they actually own are previous trade-ins.

Unless you are saying the dealer can return cars they bought at auction, I don't see what difference the floor-planning makes to the ownership of the car. When purchased off the dealer's lot, I presume the dealer's name will appear on the title as the seller.

The article seemed to imply that the dealer owns the inventory, where as I was just saying that the lines aren't always so cut and dried.

It's not uncommon for a dealer to buy a vehicle at auction without getting the title at the time of the auction purchase, floor it, then sell it with outside financing before the title is even in hand.

So the title essentially jumps from the auction seller to the outside finance company of the end buyer at some point after the time of the sale. The dealer never actually spends any money out of pocket for the vehicle, since it was floor planned.

Having a car last on your lot longer than the floor plan term usually means that it was a bad fit for your customer base (like stocking luxury cars in farm country) or you don't have good salesmen. Almost all sales are finalized before the floor plan term is up, so there is no out of pocket cost to the dealer up front.

Dealers can return vehicles to the auction in some cases (for a fee), but usually that's only in the case of the auction itself being misleading (not disclosing prior major repair, salvage title status, or things like that).

Floorplanning a car is still ownership, the only thing is that you're doing short term financing at very low interest rates. But once that financing is up, you still have to account for the $$ of the car. IF you don't sell it, you'll likely take it back to auction and sell it there (usually for a loss), so inventory risk is still present. Franchise dealers have floorplanning for sure, independents not so much. Plus, for USED cars, you usually don't floorplan those (from what I remember). There used to be a saying, if you want to find a Franchsie Dealer that was on it's death bed, look for the one that is floorplanning it's used inventory.

Without getting too specific, my company works almost exclusively with independent used car dealers (on the order of thousands across the country), and a majority of them absolutely floor plan their used inventory. Just look at the sites for NextGear[0] and AFC[1], targeting floor planning of used inventory:

"Our credit lines are accepted at over 1,000 auctions and accessible with other inventory sources throughout the U.S." and "Use your AFC line of credit to finance customer trades, dealer-to-dealer transactions and purchases made from auctions, leasing companies and other sources." This is how these services are being used.

And I'm not saying they won't eventually have to account for that inventory financially, but the process moves so quickly (at least at successful dealerships) that the dealer's bank statement will probably never even take the hit for the vehicle, because it's acquired and sold within weeks or days if they're buying the right inventory for their customers. The ones who aren't go out of business.

You're conflating independent used dealerships with franchise new dealerships who also happen to sell used cars.

[0] http://www.nextgearcapital.com/inventory-finance/

[1] https://www.afcdealer.com/wps/portal/afcd/products/

The article and comments (so far) miss the second dealer purchase negotiation phase. So you got a car for MSRP, or whatever, that's very nice. Well for $5/month over the lifetime of the loan we can throw in dealer provided product like this custom set of floor mats, they're really nice floor mats and you want a clean car and they're only going to cost you $5/month, right? (note that's $200 for those floor mats...). Or how about rust protection underbody spray, our dealership sells that for only 100% markup over just hiring a local to do it. Or how bout that service plan, we can roll your manufacturer scheduled $80 oil changes right into your loan, why, during your loan you wouldn't have to pay for anything but the loan and gas (and insurance, and garage, and parking permits, and that $80 oil change costs $40 anywhere else or $20 if you do it at home). You just spent $25K, how bout getting years of extra worry free driving with out extended warranty program, years of worry free driving for just another $3K?

This seems like a "thin article"...of course a dealer is going to be more expensive, why do people hate some businesses for making money? Did you know Uber charges you more than it costs to drive?

I've recently bought 2 cars (first time through dealers), in all my calculations, over the life of the car, new or CPO came out significantly cheaper not even factoring in the nicer experience than trying to buy a Craigslist car or going to gravel lot dealers. I can't believe I just defended car dealers either, but, man, this article came across as terrible.

A lot of the dealership hate stems from the fact that negotiation is expected, so their first offer is always high, even above MSRP, and if you're meek and mild you're very likely to pay more than you need to. Even still, with the amount of information out there, margin are being squeezed and you're almost never going to find thousands in markup on any vehicle, especially brand new models, so a dealer offers MSRP (e.g. $30k), you counter with $25k, but since the dealer breaks even at $29,400 they stop answering your emails.

Transparency has helped but not as much as it could.

It's the same with private sellers, everyone wants the best price for them. Private sellers/buyers are terrible most of the time and act just like the stereotypical dealer, misrepresenting, not being communicative or transparent, dodging questions, etc. The main reason (I think) private party sales are lower is because very few people are comfortable doing a >$15k transaction without some sort of licensing and business reputation so there has to be a really good incentive to get a car from a non-dealer/franchise.

And this is hardly unique to cars. Yes, I'm going to pay more buying a used camera lens from B&H photo rather than off ebay. It's essentially a risk premium. (With autos, a dealer also provides some services related to paperwork and, potentially, financing/trade-in.)

Yeah. I can't say I typically love the dealer experience but, with a new car especially if you can keep the financing and trade-in transactions independent, you pretty much know dealer cost and what the car is typically going for in your area, so negotiations are pretty straightforward. They can still be a bit of a hassle because the typical dealer wants you come in so they can try to upsell you and obfuscate the transaction. Just keep bringing the conversation back to the out-the-door selling price.

With used, it's more complicated although transparency with things like Carfax help there as well. (As of course does certified preowned even though, of course, you'll pay something for that.)

I might be biases (OP) but I would argue that this is a thin article; I tried to be balanced in providing the benefits and the drawbacks of buying at a dealer. I also made sure to provide sources where I could to keep the data accurate.

In my experience, NEW will never (or almost never) come out cheaper than used, there is too much depreciation in the first 2 years. CPOs are generally good values if you negotiate for it. Best value is a 2-4 year car with moderate miles in a model that has high reliability scores, private party of course.

How'd you do your calculations + assumptions?

The important part here is that the dealership's profit is $700-1k on a good CPO, not the $7,000 in total markup, which itself is a questionable figure.

I've never worked in car sales but a classmate from my undergrad sold at a new and used Lexus dealership for about a year and a half immediately after graduation. Even back in the 2007-2010 time period, there was so much information going around that the vast majority of his deals were "minis," or sales where he got the minimum commission of $150 (I've heard it as low as $75 depending on dealership and make).

Car sales is sort of like a startup where if you grind for a while and build up a base you can make a pretty good upper-middle lifestyle. $150-200k a year is uncommon but not unattainable if you're naturally charismatic and can put a lot of volume through your pipeline, especially if you can move into the high-end aspirational market (e.g. Porsche, Aston-Martin, etc). It's also totally possible (likely even) to do $125k one year and $30k the next, and a lot of people can't handle that high level of volatility.

I really enjoy cars from a design perspective and I really enjoy business, if I had any sales ability at all it'd probably be a good part-time job.

Greater than $100k as a floor sales guy is extremely uncommon in a modern new car dealership, and really only possible in your major car meccas like houston/atlanta/LA. Most deals are "minis" (varies between $75 - 150). I worked in sales for a while and the average income is closer to 40k.

It's also pretty much impossible 'part-time'. Most people don't buy during their first visit. We worked 80 hour weeks because if you missed your client when they came back to buy it was somebody else's deal (or a halfsie).

Agreed on all counts (I figured it was an untenable PT gig but wasn't sure). I just meant that while the average is comparatively low to tech (if still slightly above the US average personal income), it's possible but uncommon to get into the range of upper-middle, with a considerable amount of skill/work/luck.

So at each dealership there is one sales guy that is going to be making good money. This is the guy that is given all deals that come through management in order to keep the rest of the floor guys drooling. I believe in the prostitution world this is the 'bottom bitch'.

From what I understood from the older guys, it used to a be a solid middle class gig with a free car, good hours, benefits, other perks, etc..but most new car dealerships are now consolidated countrywide conglomerates and the sales jobs are typical shitty retail with no time off and constant turnover.

Management and the finance guys still make good money but they work even more hours and you have to sit on a damn car lot 24/7.

To tell the truth, I lost all interest in cars after working on a lot. I drove high end bmw's, a ferrari (older), hummers, etc and now I give 0 shits about what I drive as long as it gets me around.

I come from a lower-middle/working class family and have always wanted a BMW. Everyone has said it's a waste of money, and intellectually I agree 100%. And I know with 90% certainty that when I eventually buy one at some point I'll think "Oh, that's it?" and get rid of it for another Toyota or VW.

But until then I will probably continue building BMWs, Benzes and Porsches online every few months :)

Don't get me wrong - driving a powerful car is a hell a lot of fun. But to me it was a novelty, and IMO you can get your fill and save a pile of cash by going to a track and renting a supercar for a day.

totally agree on renting the supercar and using the money saved to purchase nth home.

It may be a bit on the high end, but not by much. A quick way to sanity check is to use KBB. I just did this; kbb a 2013 Honda Accord EX with 40,000 miles. Dealership CPO suggested price: $20,388. Now do the opposite, trade in a 2013 Honda Accord Ex with 40,000 miles. KBB suggested Trade-In: 14,200. The spread? Over $6k. That doesn't mean that's what the dealership makes of course, but it is a heck of a mark-up.

Car salesmen don't make great livings, and their income is very volatile. However, dealership owners always have the largest house in town. They also like to take advantage of unsuspecting customers. I have no sympathy for car dealers.

Sorry, won't be reading this article or any other on your site until you disable smooth scrolling (or at least move the smooth scrolling logic into a separate smooth-scroll.js file so uBlock catches it and disables it).

Also:

E.g. In Germany, dealerships have to provide 1 year of warranty for the car.

In some cases they also need to add 19% VAT (if it is a commercial re-sale?)

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