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Comment by djb_hackernews | Hacker News Reader

Indeed. Auto manufacturers don't sell vehicles, they sell debt. I've heard this is a good reason to withhold that you are paying cash at a dealer until the last moment and work the best deal you can as if you are going to use their financing. They are much more interested in making a loan than making a sale.

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I just bought two new cars, a Chevy Volt and a Mazda CX-9. The dealers couldn't care less how I was going to pay, nor whether I purchased or leased. They barely even tried to sell me extended warranties.

In fact, Mazda gave me a $500 incentive to borrow at 0% for 5 years. My GM loan was also 0% (but no incentive). So obviously they aren't making anything loaning me money.

Further, I find it hard to believe there's no or slim profits in the sales. I think I did a pretty good job negotiating. I don't even mind disclosing the numbers.

The Volt had an MSRP of $40,325. I managed a $38,258.25 sales price + $1147.75 tax + $94 tag less $1000 rebate for $38,500 out the door. The invoice on this car is supposedly $38,651.

The CX-9 was a similar situation, with an out the door price below invoice.

Both dealers I purchased from were in fact a bit out of town and had to secure the vehicles from other area dealerships. They knew I wasn't likely to use their service departments (each is almost an hour away), so I doubt they cared about any more than making the sale. The sale alone has to have been profit motivated.

Now, maybe individually they didn't make a lot of money on these sales. But it has to be the case that they are making money on their total sales volume. Maybe they'll take a loss on a sale or two if it puts them above a quota which gets them a huge bonus.

These dealers are obviously costly to operate. They have a lot of real estate and the show rooms are beautiful. They hold a ton of inventory for months at a time. I just can't believe they could exist on the slim margins they claim they make on each sale. I would be shocked if they aren't easily clearing 20% or more on average on sales alone, even on deals like mine.

What'd you use to buy the vehicles? Did you use an internet purchase tool or a blast fax [1]?

[1] http://credit.typepad.com/credit/2006/04/buying_a_car_wi.htm...

I started with Edmunds and True Car. This turned out to be a waste of time as in the deals I got through those sites were just okay.

I also did some research on gm-volt.com and mazdas247.com to see what other folks claimed to be getting in terms of pricing.

Eventually I contacted a bunch of dealers that I knew had the car I wanted (Mazda and GM's web sites will show you all the inventory in an area) via email and asked them what their best price was. The dealers near me which had the cars on their lot didn't offer me the best prices though.

In the end, I got the best prices (and the most pleasant sales experience) from two dealers each about an hour from home. They were happy to negotiate via email. Even though they didn't have the specific car I wanted, both claimed they could secure it from other dealers, which they did. Both of those dealers had the most aggressive price up front and I was able to get them each to come down a bit from there.

Franchise stores net 2-5% before taxes on "big" numbers. $20mm yearly rev for a smaller, rural, domestic franchise to multi-billions in yearly rev for a nationwide autogroup.

As mentioned, most profit is generated from service and finance.

Both of these cars you purchased are from high volume mfgs. The dealers made holdback money plus the sales count towards yearly tier incentives.

Electric vehicles in particular pose a challenge to the service-derived revenue stream due to lower maintenance costs, so much that Audi's US President urged their dealers to focus on selling value-added services like home EV charging station installations to make up for the lower service requirements of their upcoming EVs:

https://electrek.co/2017/01/31/audi-dealerships-behind-elect...

Mostly true..if you have to support a network of dealerships and can't get 30% gross on each car you sell (TSLA).

EV sales are currently less than 1% of total sales volume. But the fastest growing segment.

As far as I understand, for every sale dealers will get a "rebate" from the car company. This obscures even more the relationship between the MSRP and the dealer's cost. I think it also works as something of a tax dodge for the dealer by shifting profits late into the fiscal year.

This is called a "holdback".

not just holdback, some manufacturers offer hidden stair-step incentives that once hit, are retroactive to all vehicles sold that month. That's why you can usually get the best deal towards the end of the month, when the dealer is willing to sell below cost to get that hidden incentive, sometimes worth over $100,000 depending on volume.

This American Life made a whole episode in a dealership which had that exact problem: they had to sell 129 in a month to get a bonus from the manufacturer.

"The last day of the month continues and the truism is accurate: some people get great deals because it’s the end of the month and they have to hit their goal. When you look at the numbers, the average car they sell in the last two days actually loses money."

https://www.thisamericanlife.org/radio-archives/episode/513/...

I haven't experienced this, I've actually had good luck doing basically the opposite. Go in with quotes already from my bank/credit union(s), tell the dealer "if you can beat 2.2% [or whatever] I'd be interested in your financing", let them decide if that's worth it to them, but still negotiate bottom-line total dollar amount, not monthly payment, as if paying cash (since outside loan = cash, to them).

I can see how auto dealers sell debt (by offering loans), but how do auto manufacturers do so?

Often the loans are though the manufacturer.

Example: https://www.toyotafinancial.com/

The US big three all have financial services companies centered on auto loans.

https://en.m.wikipedia.org/wiki/Ford_Motor_Credit_Company

https://en.m.wikipedia.org/wiki/GM_Financial

https://en.m.wikipedia.org/wiki/TD_Auto_Finance

Its interesting to note that GM Financial is a rather new addition to GM. They sold their original vehicle financing arm (GMAC) during their bankruptcy as did Fiat Chrysler.

Now Ally:

https://en.wikipedia.org/wiki/Ally_Financial

They're also working in concert with Uber to offer subprime financing to drivers who don't currently own a vehicle of their own.

http://www.businessinsider.com/uber-encourages-drivers-sign-...

They sell the cars to the dealers and lend money to them to do so.

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