Being exposed to the inner workings, I feel I can share some things I've learned.
- The markup on new cars is slim. I don't work at a luxury dealership so I can't speak for BMW or Mercedes, but our markup, the difference between MSRP (or 'sticker') and what we pay for the car is usually less than $500. In fact, we lose money on about 20% of the new car deals. However, the higher you go in price, the higher the markup. For example, our econogas cheapo model is marked up about $375, and our luxury SUV is marked up around $1000.
- We make most of our money on used cars. Take, for instance, my old 1997 Nissan Altima. If I'd have traded it in at the dealership, I would have been given $800-$1000, depending on the condition. They will then turn around and sell it for $2900-$3100. It's a pretty good rule of thumb to assume that there is at least a $1000 markup on a used car, if not more.
- Assumptions are made about you. Before you open your mouth, the salesman can predict if you're buying new or used, if you're an actual buyer, and if they're good, what model car. I'm not saying this is negative or positive, it just happens and you'd be surprised at how often they are right. A young white girl will almost always want the sport coupe but she is 'just looking', as she has to have her dad/mom with her to actually buy the car (she usually doesn't come back). A middle-aged lady in sweatpants and a loony-tunes t-shirt wants a used car, probably a sedan, and will come back at least 3 times before she buys. And contrary to popular belief, a salesman's favorite customer is Mexican. 9 times out of 10 when they say they will buy, they come back and then later send in referrals. They are pleasant, not demanding, and realistic about what they can get with whatever budget they have. As much as it seems these are stereotypes, they often turn out to be true.
- There is no such thing as a $3,000 car, '00 or newer with less than 90,000 miles. Get over it. We always say to call when they find this imaginary car, because we'd sure love to buy one as well. Do some research online, look in the paper or in AutoTrader for prices, and get a feel of what your budget can get. We get at least a customer a day who walks in and wants a $3000 car, only to walk right back out the door when shown a 1999 Grand Marquis with 120,000 miles.
- If you feel like you're being hassled and pushed into a deal or the salesman is rude or overbearing, leave immediately. These are indicators that a dealership doesn't treat its employees well or certainly doesn't treat their customers well. Most people are afraid of the car-buying experience (women in particular) for this reason. A dealership that is disrespectful of you will not be honest and will more than likely take advantage of you. Finding a salesman you trust is as important as finding a good hairstylist or accountant. A good salesman will help you even after you've closed the car deal and will remember you the next time you buy a car (and probably discount the price). Always keep in mind that the dealership is serving you, and you do not have to buy a car. Up until the point you sign a contract, if you feel uncomfortable, you can just walk away. Which also brings me to my next point:
- Don't waste the salesman's time. If you are not really considering the car, or have a good feeling you won't buy anytime soon, say so. Be upfront and honest with the salesman and he will be upfront and honest with you. We don't mind letting people drive the cars (after all, they could fall in love with it) when they say they may not buy, but we do mind people who come back two or three times or stay for two hours without being clear on what they want. It's not fair to the salesman and just plain inconsiderate. Never, ever try to bluff your way into a better deal by saying such-and-such dealership offered you X price (unless, of course, they have, then by all means use that to your advantage). It will be obvious if you're lying.
- Shop at the end of the month. Salesmen get bonuses depending on how many cars they sold in a month. If they've had a bad month, they will be much more likely to do anything to get you to buy the car, including throwing in a tank of gas or window tint. The slowest months are November-February, with January probably being the slowest month for car dealerships.
- Rebates. If there's a car you want to buy, keep an eye out for commercials and check the company's website for rebates. These actually work in your favor. Rebates are taken from the company's profit margin, not the dealerships'. If a dealership tries to explain that they can't go down on the price because of a rebate, call them on it.
- If you have bad credit and know you have bad credit, be flexible. This is so, so important. A good thing to do is to bring pay stubs or your W2- a lot of lenders will require proof of income (or POI). Don't expect to get your dream car for your dream payment. Dealerships are willing to work with you to make you happy, but if you aren't in the place to make demands, don't. Just the other day, two women were in, trying to buy a new car. One of their credit scores was around 500. Our finance manager was trying to pull favors from the bank to help them out, but they refused to either drop down a model or even to the 4-cylinder from the V6. Trust me- if you're an older lady, two cylinders is not going to make a difference. Unless you drag race your fellow ladies from church.
- Ask for their best price, then say you'll sleep on it. Most of the time, when customers leave, they don't come back and dealerships know this. Do not leave, but act reluctant or say you'll go home and sleep on it and watch the salesman shit his pants. They want to close the deal more than you do, and if they really can't go down in price, they'll throw in a tank of gas, scotchguard (which costs the dealership practically nothing), maybe even window tint if you're good.
In all, try to keep in mind that the car business has changed. There isn't as much trickery and secrecy as there used to be, and the days of hard bargaining are pretty much over. If you have any questions, leave them in the comment box and I'll update this post.