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Car Dealer
How The Auto Dealer Makes a Profit By Isaac Bouchard, DriverSide Contributor
It’s cliché that the dealership experience is fraught with innuendo, misrepresentations and outright falsehood. To help understand why the game is played that way, put yourself into the white patent leather shoes of the typical salesman (or woman, but for the sake of this example, let’s assume a male) at a dealership for a moment.
He’s ‘on the floor’ five or six days a week for eight hours. If he’s working on a deal, he’ll often go home at 10:00 or 11:00 at night, and then show up the next morning to complete paperwork or take care of a trade-in. Working ‘bell to bell’ is incredibly fatiguing; the frustration level is compounded when times are slow and all he has to do most of the day is pace the lot.
His compensation is commission-based at almost any dealer. Even if he has a salary, it’s minimal, and certainly not enough to sustain any sort of lifestyle. For him, it’s sell or die.
When a prospect does show up, he knows the chance of them buying something from him that day is only 15-20 percent. And, if he lets them walk, his close ratio slips into the single digits. He also doesn’t like Internet leads, as he sells only around 6 percent and makes less money in so doing.
He knows they’re almost certainly shopping his deal against others at dealers both locally and - thanks to the Internet - perhaps a thousand miles away.
Now that you’ve come back to your own existence, wash your hands and give thanks. Second, recognize why that person is so aggressive, and so likely to play fast and loose with the facts. Let us take a look at the rest of the typical retail experience and sales process.
The Ad
When people come in based on an advertisement, they purchase the vehicle that was advertised less than 20 percent of the time. That’s the reason behind the old industry practice ‘the loss leader.' Whether it’s a low, low, low price or an unbelievable lease, it’s all about getting customers in the door. If the salespeople can’t get face time, the chances of moving the metal are slim to none.
Besides, people don’t usually read or remember the fine print. Things like ‘Price good only on stock #3256’ or ‘Tax title and license fees, acquisition and cap cost reduction of $4387.90 not included’ don’t stick in the brain when you see your dream car or truck at a ‘too good to be true’ price. Remember, advertisements serve only one purpose - to get you in the front door.
If you’ve wondered why the salesperson or manager is so reluctant to give complete information until it’s ‘time to sign’, it is because once the consumer knows all the parameters of your new car 's deal structure, it is very easy to get another dealer to beat it.
The Deal
There are basically three moving parts...