
Why Dealership Used Cars Cost More - ValG
http://blog.instamotor.com/why-dealership-used-cars-cost-more/
======
totalrobe
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.

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

~~~
totalrobe
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...](http://www.payscale.com/research/US/Job=Sales_Consultant,_Automobile%2FCars/Salary)

~~~
Retric
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.

~~~
totalrobe
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.

------
fluxquanta
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.

~~~
tacon
>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.

~~~
fluxquanta
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).

~~~
ValG
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.

~~~
fluxquanta
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/](http://www.nextgearcapital.com/inventory-finance/)

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

------
crapolasplatter
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.

~~~
pc86
#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.

~~~
crapolasplatter
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.

~~~
pc86
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 :)

~~~
crapolasplatter
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 ;-)

------
VLM
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?

------
atwebb
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.

~~~
pc86
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.

~~~
atwebb
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.

~~~
ghaff
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.)

------
pc86
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.

~~~
totalrobe
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).

~~~
pc86
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.

~~~
totalrobe
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.

~~~
pc86
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 :)

~~~
totalrobe
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.

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

------
rplst8
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.

------
oxguy3
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).

------
guruz
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?)

