1.03.2010

NEW CAR BUYING

Here's the way to look at buying a NEW car and leaving the dealer with only 1-2% profit. And believe me, they WILL sell you the car, they will just bitch and moan until you start walking out the door. Then they will run after you begging for your business! Remember, dealerships make most of their money selling used cars and maintenance on vehicles! Why do you think they bend over backwards to keep your maintenance business when they sell you a car??!!

Ok, this post will be longer than I would like, but this info is worth sharing!

First thing you want to do is go to edmunds.com and find your car's pricing with all the options you want. MSRP is the sticker price you find on the window. Most think if you walk into a dealership and get a "deal" off the sticker price that you are good to go. Wrong! You want to negotiate from the INVOICE price, not the MSRP! Next, you want to find the profit margin the DEALER is making. MSRP vs. Invoice. This margin is found by dividing INVOICE by MSRP. (Inv/MSRP). That is the DEALERS profit. Next you want to find the "dealer holdback"..I wont get into what dealer holdback is, but all I know is that you want to take that from the dealer as well! Click on "dealer holdback" above and you can educate yourself on it. To find the dealer holdback, just go to yahoo.autos and type "dealer holdback" in the search box. This figure is usually a few percent. Lastly, you want to find the incentives that are offered by the auto manufacturer to the dealer. Again, go to edmunds.com and click incentives...you want to claim all these!

So, after these 3 steps, you will know exactly how to figure out the EXACT profit margin the dealership is going to make off your sale. YOUR cost vs. THEIR invoice price. What you want to do is put these profit figures into % terms vs. INVOICE so if the salesman gives you a price, you can divide that number by INVOICE and get the percent profit margin. Try and leave the dealership with 1-2%

Here's an example how to look at it.

Lets say after pricing my car with options and computing (INV/MSRP), I get .945. Lets assume Invoice is $30,000 and MSRP is $31,746. That means if I buy the car for sticker price (MSRP), the dealer will make 5.5% PROFIT. I would be dumb if I did this! So, now I want to find out the dealer holdback and make sure I don't pay that! I go to yahoo autos and search dealer holdback and find that the holdback is 3%. I want to subtract the holdback from the profit margin. So, 5.5-3= 2.5%. Lastly, we want to find incentives, after getting it from edmunds.com, I find that there are $2,000 in dealer incentives that are being offered right now. That is subtracted right from the MSRP price. So, 31,746-2k= $29,746. So, when you go to the dealer and negotiate price, you base all his offers off of the $29,746 price. WHOOA, wait, I am below invoice, I thought the smart thing to do was negotiate off of invoice! Yes, if there are no dealer incentives being offered! If there are, subtract that out and BOOOM, you are now below invoice...who would have thought??!!

So, any price the salesman gives you, divide THAT by $29,746 and you know the exact profit margin he is making! PM = $$$$$/ $29,746. Or, you can multiply the PM you are willing to pay and offer that price..ROCK BOTTOM!

If you want to make sure that the dealer makes only 1%-2% PROFIT, take your calculator with you and just multiply 1.01 to get 1% profit (29,746 * 1.01 = $30,043) and for 2% profit multiply 1.02 * $29,746 (29,746 * 1.02 = $30,341). Now you know exactly what profit margins the dealerships are getting and what "deal" YOU are getting.

$30,341 still gives the dealership 2% profit AND you ONLY pay $341 above invoice. An uneducated new car buyer might do their homework and know MSRP is $31,746 and offer $31,000 ($746 below sticker) and think they are in Phat City, but even at this price, you are leaving the dealership with 4% profit..Waay too much! The salesmen is going to look at you like you are crazy for offering $30,341, but we all know he's still making money on it! Remember, the dealership doesn't lose any money on the incentives...the incentives come from the automobile manufacturer! Good Luck..Bring your calculators, it will show the salesman that you mean BUSINESS!!