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I paused my software development career to sell cars for a year. I sold cars at two different Honda dealerships, both owned by Fortune 500 companies in, what I

by venning 11y ago

I paused my software development career to sell cars for a year. I sold cars at two different Honda dealerships, both owned by Fortune 500 companies in, what I believe is, the densest single market for Hondas in the US (Metro DC). There's a couple things missing from the situation as described by the author. First, dealerships don't really make that much of a profit on new car sales. At least not Honda dealers. Used cars averaged around $1000 profit, but new cars were around $200. Yes, they really do lose money on some sales. That's not to say that there weren't expenses that were being covered in the price that are exclusive to the dealership, such as the salesperson's commission, but the total profit going to the dealership per new car was low. One of the older, wiser managers, who had come from Toyota told me, "A properly-run dealership pays for everything on Parts & Service. Car sales is just the profit." There are a lot of lean years in car sales. I can attest that no one in management was panicking when gas prices hit $4/gallon and we couldn't give a car away (car managers don't hold back their emotions). Sales stopped, but people kept getting expensive oil changes. Second, at least within Honda's North American division, you cannot just buy inventory. A dealership inventory is controlled in such a way that area dealerships are forced to compete heavily with each other. In order to sell a car, you have to have a car on your lot. In order to have a car on your lot, you have to order it from Honda. The number of cars you can order from Honda is restricted to a percentage of the number of cars you sold last year, something around 106-110%. You can't just take a big loan and buy yourself volume. To a dealer, inventory is life and must be protected. As a salesperson, I would lose so many deals to other Honda dealers who would lie through their teeth over the phone to sell. Dealers will cut their own throats to steal a sale from another dealer because each one is a net +2 in the inventory war. In theory, this is great for customers on cost, but terrible for customers on experience. The owner of the first dealer I worked for had just sold the dealership to a Fortune 500 company. He spent years and years basically giving cars away until he had the largest inventory on the entire East Coast (a big deal for Honda) and then had something very valuable, something that couldn't be bought. Somewhat like how Amazon, in theory, operates.

A_Beer_Clinked 11y ago
I've done a lot of data work for several other brands in a few markets and can confirm the used car part of this is true. A properly run organisation can sell and re-sell the same car several times, also selling parts and services to each owner in between sales. Rental and other fleets are particularly battled after for this reason as they can "inject" far more life time value in the the network than just the initial sale.
alkonaut 11y ago
> In order to sell a car, you have to have a car on your lot. I don't understand the above: you mean people buy new (unused) cars from dealers, "off the shelf"? Aren't most new cars custom? Are US customers more impatient, so that in order to close a sale you need to have the various options pre-built, so that people don't have to wait four months for their new car to be built? I have rarely seen a new car sitting at a dealer here (Europe), most dealers have one, maybe two, of the latest model, to be used by testing for potential customers.
- venning 11y ago
  Correct. I discovered in selling cars that car buying was an incredibly emotional, often impulsive, decision for most people. Yes, some are able to handle the experience dispassionately, but most people are "on the edge" of being a "buyer" (as opposed to being a "shopper"). It is the job of the salesperson to "get them there", to nudge the customer towards making a decision to buy a car today. More wisdom from a great manager: "Sales is the process of transferring emotion from the salesperson to the customer." If you're morose and apathetic, you can turn a buyer into a shopper. But if you are engaged and energetic, you can take even the most guarded shopper and make a sale out of it. I saw this every time I watched Steve Jobs give a keynote.
- deleted 11y ago
  [deleted]
- bane 11y ago
  Yes. In fact the threat of leaving that dealer for the one down the road who had the model the buyer wants provides a negotiating advantage. It also drives other interesting behavior, like people driving their cars until they are literally on their last legs and then dumping them off at the dealer on trade-in, knowing they wouldn't have been able to drive their old car home because it would have died on the way.
- deleted 11y ago
  [deleted]
- joshuakarjala 11y ago
  Yes - it's not uncommon to have to wait a few weeks to get your car delivered after purchase.
jasode 11y ago
>A dealership inventory is controlled in such a way that area dealerships are forced to compete heavily with each other. In order to sell a car, you have to have a car on your lot. In order to have a car on your lot, you have to order it from Honda. Maybe Toyota does it differently from Honda but this is the way the Toyota dealership manager explained it to me: all the dealerships are grouped into a "region" such as Houston+Dallas+Austin+etc. The new cars going to those 3 cities enter the USA at the gulf port of Houston (or Galveston? can't remember exactly). If I go to a Houston dealership "A" and I want a black Camry but they don't have any on the lot, the dealer can check the entire region's inventory. If Houston dealership "B" or Austin dealership "C" has them, those other dealerships are required to swap cars with dealer "A". That way, the customer isn't forced to go to another dealer just to get a particular car. The dealers' computer screens showing inventory all show every competitors' available inventory. It's possible the Toyota manager's explanation was bs or I left out some critical details. To make the Toyota story compatible with your Honda story, I suppose that for a dealer to sell a car, he still needs to have inventory. To sell 50 cars, he needs to be allocated 50 by Toyota Inc. But he's doesn't have to sell particular the 50 he happened to get. The "50" is really part of a shared pool of cars.
- bane 11y ago
  I just purchased a new Honda and this is basically what happened. The car I wanted wasn't at the dealer I was at, so they sent a guy 100 miles away to another part of the region to drive it back down so I could drive away with it that day. They knew from the shared inventory system that the other dealer had it. I had negotiated a pretty large discount on the car so I have no idea what sort of shenanigans the two dealers had to go through to exchange inventory.
  - jasode 11y ago
    >I had negotiated a pretty large discount on the car so I have no idea what sort of shenanigans the two dealers had to go through to exchange inventory. The Toyota manager said they exchange on either MSRP-to-MSRP or dealer-cost-to-dealer-cost basis. Either way they do it, it comes out the same for them. Whatever amount of discount you were able to negotiate from a dealer would be independent from their internal swap basis.
MrFoof 11y ago
>First, dealerships don't really make that much of a profit on new car sales. At least not Honda dealers. This is essentially the case on all volume mainstream manufacturers. Hyundai/Kia, Toyota/Scion, Honda, Nissan, Mazda, Ford, Chevrolet, Dodge/Chrysler all fall in this bucket in the United States. The exception to this being trucks (RAM, GMC and Chevy Silverado, Ford F-Series). Where money is actually made on sales are in the luxury segment. However, who is really making the good money has become interesting over the years. Lexus, Acura, and Cadillac margins are fine, but the Europeans have better margins still, though there's still a chasm between everyone and the VW Group. Rolls-Royce aside, BMW only has Mini which has been little more than break-even since its relaunch. Moreover, there are slimmer margins on the 1/2-series since they serve as conquest cars. The same goes for Mercedes-Benz with SMART, and the CLA/GLA being their (very aggressively positioned) conquest vehicles. For mainstream luxury brands, Audi has some of the highest gross margins at 10%. Yet their ultra-luxury brands -- Bentley, Lamborghini, and most importantly Porsche -- is where the real money is made (at least on a per-unit basis). I struggle to think of the last time (since their return to form 10-15 years ago) where Porsche's gross margins were under 20%. Porsche prints money. Sorry for not taking JLR into account, as they're still restructuring. Infiniti is excluded because Ghosn has nearly killed the brand twice. As for Tesla, I've been saying for years that they were more likely to model themselves more after Porsche than Honda/Toyota, as that's where the real money is for a still growing company. When the Model X pricing was announced, that was all but confirmed.
- venning 11y ago
  From everything I've read about the industry for the last 15 years, this is all completely correct and serves to demonstrate why it's such a hard industry. Extremely high costs, low profit margins, fiendish competition, considerable regulation, and absolutely no guarantee that the new product you just invested billions in won't flop after you've done all the work.
  - grandalf 11y ago
    True, but there are some low hanging fruit that have not been attempted yet... in the following areas: Finance: - why can't I rent a car for a month and if I like it sign up for a year or two or three? If I want to own it, why can't I just convert to a purchase? These options are not fluid and interchangeable which necessitates much more of a "sale" rather than a more flexible, value oriented approach. A manufacturer should always be willing to convert a purchased vehicle into a lease or rental again. Inventory/Planning: - trim levels are out of control and make inventory planning much worse. If the base model sells for $18K but is available in a $36K trim level, is it really the same car? Why not just keep it simple. Nobody wants the salesperson to exert pressure to make me buy some "touring package" that I don't care about just because that is what is on the lot. Pricing/Selling: Buying a car takes hours while you wait for the salesperson to try to sucker you into paying full MSRP and he/she pretends to be negotiating on your behalf with the manager, who writes with a marker on the sheet of paper the best price. This horrible practice is highly unpleasant for all involved. The dealer lobby prefers negotiated pricing over fixed price because it suckers poorly informed consumers (many of whom are elderly) into overpaying. I'd like to walk into a dealership pre-approved for a loan and pick from among 3 or 4 exterior colors and be done with it in 10-20 minutes. Better yet I'd like to just order it online and have it delivered in a few weeks, or better yet (per the above suggestion) just rent it for a month on an impulse. All this is probably a distraction though, since self-driving car tech will allow us to get by with a fraction of the number of cars on the road and likely few of us will choose to own a car in the traditional sense.
ywy9876 11y ago
C_C
drzaiusapelord 11y ago
> At least not Honda dealers. Used cars averaged around $1000 profit, but new cars were around $200. I went to the Honda dealer a month ago and test drove a new CRV. The salesperson refused to even consider budging from the MSRP. He let me walk when I said I would only consider going lower (largely based on Truecar pricing). I looked at the details of the cost and there were endless dealer fees on there as well. The whole thing was Kafka-esque and insane to me. My wife and I walked away with nothing and the sales guy left me a VM on my phone every single day for a month afterwards hoping I had a change of heart. The car, while decent, is far from a luxury product and the idea that its so far in demand that they won't negotiate is laughable. The CRV comes at a slight premium of other cars in its class as well. Meanwhile, at other dealers I can negotiate literally thousands off the MSRP. I find it very hard to believe the Honda dealer is making merely $200 per sale. Considering the real estate they have and cost of running that operation, they would have to sell hundreds of cars a day to avoid bankrupcy. Oh and the trade-in cost for my car they offered was literally half its market value. Considering the value of my trade-in car and the terrible price offered, my estimate is that they were going to make about $5,000 off me if I agreed. Probably more, especially if I took their financing. Then we're looking at, 2 or 3x that? There's a reason cars aren't sold at flat prices like other goods. This game they've developed can be very profitable.
- Retra 11y ago
  "[T]he trade-in cost for my car they offered was literally half its market value." I'm curious why you'd expect them to take it for more? They wouldn't do trade-ins if they couldn't profit off of them, and you can't buy things for market value and run a successful business. If you want close to market value for your car, you have to sell it yourself. And if you think about why you didn't do that, you can see why it costs you something to do a trade-in.
  - drzaiusapelord 11y ago
    I expected a bit more than 50%. Anyway, my argument isn't about trade-in sales, its about typical profits of dealerships. They absolutely do not make "only $200" per car. When you factor all the things they typically do, they can and easily do thousands per car sale.
it_learnses 11y ago
tangential questions: why did you pause your career? Did you regret pausing it? were you easily able to get back in?
- venning 11y ago
  > why did you pause your career? Like a lot of programmers, I was bad at dealing with people, both personally and professionally, and knew I needed a way to address that. While a year of going up to complete strangers in an already tense environment and being rejected by 97% of them (an average rate) helped me greatly, it's taken quite a few more years to get better "at" people. > Did you regret pausing it? I did not and do not. > were you easily able to get back in? Hmm. I've discovered over time that I am particularly good at weighing what is worth learning and what is worth ignoring. (I base that on revisiting my old assertions of what technologies and trends will matter in the future.) In that way, any loss of time to periodic pauses to my career (there has been more than one) have been outweighed by my ability to renew it quickly. I wouldn't consider myself a "10x coder" but I'm decent and I reason well about complexity, which helps. Whatever your status in your field, I highly recommend exploring other adventures in life for two reasons. First, seeing life without your career helps reduce its importance in your life, providing perspective on what can otherwise seem like an inviolable part of your identity. Second, if and when you return to your career, if it is something that you like, you will find yourself valuing it more. I started out not really sure I wanted to be in this whole software thing. Now, I love it and love being good at it. For that, I am thankful.
  - it_learnses 11y ago
    thanks :)

by venning 11y ago

A_Beer_Clinked 11y ago

I've done a lot of data work for several other brands in a few markets and can confirm the used car part of this is true. A properly run organisation can sell and re-sell the same car several times, also selling parts and services to each owner in between sales. Rental and other fleets are particularly battled after for this reason as they can "inject" far more life time value in the the network than just the initial sale.

alkonaut 11y ago

> In order to sell a car, you have to have a car on your lot. I don't understand the above: you mean people buy new (unused) cars from dealers, "off the shelf"? Aren't most new cars custom? Are US customers more impatient, so that in order to close a sale you need to have the various options pre-built, so that people don't have to wait four months for their new car to be built? I have rarely seen a new car sitting at a dealer here (Europe), most dealers have one, maybe two, of the latest model, to be used by testing for potential customers.

venning 11y ago
Correct. I discovered in selling cars that car buying was an incredibly emotional, often impulsive, decision for most people. Yes, some are able to handle the experience dispassionately, but most people are "on the edge" of being a "buyer" (as opposed to being a "shopper"). It is the job of the salesperson to "get them there", to nudge the customer towards making a decision to buy a car today. More wisdom from a great manager: "Sales is the process of transferring emotion from the salesperson to the customer." If you're morose and apathetic, you can turn a buyer into a shopper. But if you are engaged and energetic, you can take even the most guarded shopper and make a sale out of it. I saw this every time I watched Steve Jobs give a keynote.
deleted 11y ago
[deleted]
bane 11y ago
Yes. In fact the threat of leaving that dealer for the one down the road who had the model the buyer wants provides a negotiating advantage. It also drives other interesting behavior, like people driving their cars until they are literally on their last legs and then dumping them off at the dealer on trade-in, knowing they wouldn't have been able to drive their old car home because it would have died on the way.
deleted 11y ago
[deleted]
joshuakarjala 11y ago
Yes - it's not uncommon to have to wait a few weeks to get your car delivered after purchase.

jasode 11y ago

>A dealership inventory is controlled in such a way that area dealerships are forced to compete heavily with each other. In order to sell a car, you have to have a car on your lot. In order to have a car on your lot, you have to order it from Honda. Maybe Toyota does it differently from Honda but this is the way the Toyota dealership manager explained it to me: all the dealerships are grouped into a "region" such as Houston+Dallas+Austin+etc. The new cars going to those 3 cities enter the USA at the gulf port of Houston (or Galveston? can't remember exactly). If I go to a Houston dealership "A" and I want a black Camry but they don't have any on the lot, the dealer can check the entire region's inventory. If Houston dealership "B" or Austin dealership "C" has them, those other dealerships are required to swap cars with dealer "A". That way, the customer isn't forced to go to another dealer just to get a particular car. The dealers' computer screens showing inventory all show every competitors' available inventory. It's possible the Toyota manager's explanation was bs or I left out some critical details. To make the Toyota story compatible with your Honda story, I suppose that for a dealer to sell a car, he still needs to have inventory. To sell 50 cars, he needs to be allocated 50 by Toyota Inc. But he's doesn't have to sell particular the 50 he happened to get. The "50" is really part of a shared pool of cars.

bane 11y ago
I just purchased a new Honda and this is basically what happened. The car I wanted wasn't at the dealer I was at, so they sent a guy 100 miles away to another part of the region to drive it back down so I could drive away with it that day. They knew from the shared inventory system that the other dealer had it. I had negotiated a pretty large discount on the car so I have no idea what sort of shenanigans the two dealers had to go through to exchange inventory.
- jasode 11y ago
  >I had negotiated a pretty large discount on the car so I have no idea what sort of shenanigans the two dealers had to go through to exchange inventory. The Toyota manager said they exchange on either MSRP-to-MSRP or dealer-cost-to-dealer-cost basis. Either way they do it, it comes out the same for them. Whatever amount of discount you were able to negotiate from a dealer would be independent from their internal swap basis.

MrFoof 11y ago

>First, dealerships don't really make that much of a profit on new car sales. At least not Honda dealers. This is essentially the case on all volume mainstream manufacturers. Hyundai/Kia, Toyota/Scion, Honda, Nissan, Mazda, Ford, Chevrolet, Dodge/Chrysler all fall in this bucket in the United States. The exception to this being trucks (RAM, GMC and Chevy Silverado, Ford F-Series). Where money is actually made on sales are in the luxury segment. However, who is really making the good money has become interesting over the years. Lexus, Acura, and Cadillac margins are fine, but the Europeans have better margins still, though there's still a chasm between everyone and the VW Group. Rolls-Royce aside, BMW only has Mini which has been little more than break-even since its relaunch. Moreover, there are slimmer margins on the 1/2-series since they serve as conquest cars. The same goes for Mercedes-Benz with SMART, and the CLA/GLA being their (very aggressively positioned) conquest vehicles. For mainstream luxury brands, Audi has some of the highest gross margins at 10%. Yet their ultra-luxury brands -- Bentley, Lamborghini, and most importantly Porsche -- is where the real money is made (at least on a per-unit basis). I struggle to think of the last time (since their return to form 10-15 years ago) where Porsche's gross margins were under 20%. Porsche prints money. Sorry for not taking JLR into account, as they're still restructuring. Infiniti is excluded because Ghosn has nearly killed the brand twice. As for Tesla, I've been saying for years that they were more likely to model themselves more after Porsche than Honda/Toyota, as that's where the real money is for a still growing company. When the Model X pricing was announced, that was all but confirmed.

venning 11y ago
From everything I've read about the industry for the last 15 years, this is all completely correct and serves to demonstrate why it's such a hard industry. Extremely high costs, low profit margins, fiendish competition, considerable regulation, and absolutely no guarantee that the new product you just invested billions in won't flop after you've done all the work.
- grandalf 11y ago
  True, but there are some low hanging fruit that have not been attempted yet... in the following areas: Finance: - why can't I rent a car for a month and if I like it sign up for a year or two or three? If I want to own it, why can't I just convert to a purchase? These options are not fluid and interchangeable which necessitates much more of a "sale" rather than a more flexible, value oriented approach. A manufacturer should always be willing to convert a purchased vehicle into a lease or rental again. Inventory/Planning: - trim levels are out of control and make inventory planning much worse. If the base model sells for $18K but is available in a $36K trim level, is it really the same car? Why not just keep it simple. Nobody wants the salesperson to exert pressure to make me buy some "touring package" that I don't care about just because that is what is on the lot. Pricing/Selling: Buying a car takes hours while you wait for the salesperson to try to sucker you into paying full MSRP and he/she pretends to be negotiating on your behalf with the manager, who writes with a marker on the sheet of paper the best price. This horrible practice is highly unpleasant for all involved. The dealer lobby prefers negotiated pricing over fixed price because it suckers poorly informed consumers (many of whom are elderly) into overpaying. I'd like to walk into a dealership pre-approved for a loan and pick from among 3 or 4 exterior colors and be done with it in 10-20 minutes. Better yet I'd like to just order it online and have it delivered in a few weeks, or better yet (per the above suggestion) just rent it for a month on an impulse. All this is probably a distraction though, since self-driving car tech will allow us to get by with a fraction of the number of cars on the road and likely few of us will choose to own a car in the traditional sense.

ywy9876 11y ago

C_C

drzaiusapelord 11y ago

> At least not Honda dealers. Used cars averaged around $1000 profit, but new cars were around $200. I went to the Honda dealer a month ago and test drove a new CRV. The salesperson refused to even consider budging from the MSRP. He let me walk when I said I would only consider going lower (largely based on Truecar pricing). I looked at the details of the cost and there were endless dealer fees on there as well. The whole thing was Kafka-esque and insane to me. My wife and I walked away with nothing and the sales guy left me a VM on my phone every single day for a month afterwards hoping I had a change of heart. The car, while decent, is far from a luxury product and the idea that its so far in demand that they won't negotiate is laughable. The CRV comes at a slight premium of other cars in its class as well. Meanwhile, at other dealers I can negotiate literally thousands off the MSRP. I find it very hard to believe the Honda dealer is making merely $200 per sale. Considering the real estate they have and cost of running that operation, they would have to sell hundreds of cars a day to avoid bankrupcy. Oh and the trade-in cost for my car they offered was literally half its market value. Considering the value of my trade-in car and the terrible price offered, my estimate is that they were going to make about $5,000 off me if I agreed. Probably more, especially if I took their financing. Then we're looking at, 2 or 3x that? There's a reason cars aren't sold at flat prices like other goods. This game they've developed can be very profitable.

Retra 11y ago
"[T]he trade-in cost for my car they offered was literally half its market value." I'm curious why you'd expect them to take it for more? They wouldn't do trade-ins if they couldn't profit off of them, and you can't buy things for market value and run a successful business. If you want close to market value for your car, you have to sell it yourself. And if you think about why you didn't do that, you can see why it costs you something to do a trade-in.
- drzaiusapelord 11y ago
  I expected a bit more than 50%. Anyway, my argument isn't about trade-in sales, its about typical profits of dealerships. They absolutely do not make "only $200" per car. When you factor all the things they typically do, they can and easily do thousands per car sale.

it_learnses 11y ago

tangential questions: why did you pause your career? Did you regret pausing it? were you easily able to get back in?

venning 11y ago
> why did you pause your career? Like a lot of programmers, I was bad at dealing with people, both personally and professionally, and knew I needed a way to address that. While a year of going up to complete strangers in an already tense environment and being rejected by 97% of them (an average rate) helped me greatly, it's taken quite a few more years to get better "at" people. > Did you regret pausing it? I did not and do not. > were you easily able to get back in? Hmm. I've discovered over time that I am particularly good at weighing what is worth learning and what is worth ignoring. (I base that on revisiting my old assertions of what technologies and trends will matter in the future.) In that way, any loss of time to periodic pauses to my career (there has been more than one) have been outweighed by my ability to renew it quickly. I wouldn't consider myself a "10x coder" but I'm decent and I reason well about complexity, which helps. Whatever your status in your field, I highly recommend exploring other adventures in life for two reasons. First, seeing life without your career helps reduce its importance in your life, providing perspective on what can otherwise seem like an inviolable part of your identity. Second, if and when you return to your career, if it is something that you like, you will find yourself valuing it more. I started out not really sure I wanted to be in this whole software thing. Now, I love it and love being good at it. For that, I am thankful.
- it_learnses 11y ago
  thanks :)