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This may seem counter-intuitive, but an educated car shopper today can actually get a better deal because of this archaic franchise system. The truth is, deale

This may seem counter-intuitive, but an educated car shopper today can actually get a better deal because of this archaic franchise system. The truth is, dealers do compete against each other ferociously. Yes, they will rip you off if you come unprepared, but if you shop your deal around to enough dealers, chances are you will get a zero-profit or even below-cost deal on your new car. When the dealer franchise system has been gotten rid of (I give it another 15 to 20 years), supply and demand will be better matched and manufacturers will be optimizing their profits.

randomdata 13y ago
Without access to the dealer's financials, how do you know what their profit/loss even is? There are many variables like land/rent costs, local wages, etc. that could have a dramatic effect on profitability between seemingly similar dealers. Also, having recently purchased a new car, I noticed that every dealer specced them slightly different, so you couldn't easily compare the vehicles one to one. Something as simple as the color of paint changed the price by hundreds of dollars. Not an insurmountable detail if you are careful, but you really have to do your homework. Not to mention that it becomes a massive time sink. Given a typical programmer's hourly pay, in many cases it would be more economical to pay out more money and get back to work than spend that time looking for the savings. So, I do agree that shopping around can net you a better deal, but for all the effort required, I question if it is worth it. I'm going to very sad if I can't buy my next car online (and I hope it will drive itself to my door).
fancyketchup 13y ago
See, but this just shows that even those who think they are educated car shoppers actually aren't. Dealers never sell cars at zero or negative profit, unless you ignore things like holdback (a rebate on the wholesale price of the car when the car is sold at retail) or factory quota incentives (a "bonus" for dealers who sell a certain number of certain models of cars in a particular month). If you think you got the car for below cost, chances are you forgot to factor in holdback or you just pushed the dealer over the edge for a big fat manufacturer bonus check.
- sixQuarks 13y ago
  A lot of irony in your statement. I've been involved in the retail automotive space for 8 years, so I'm not just talking out my ass. It's a FACT that some dealers will sell new vehicles for below cost. One very simple example is when dealers are trying to hit stair-step incentive goals near the end of the month. This is where a manufacturer will pay out a bonus incentive on EVERY vehicle sold that month, if and only if the dealer hits a certain sales goal. If they are off by 1, they don't get any bonus. If they sell that one additional vehicle, they may get as much as $100,000 in bonuses. Dealers sell cars for below cost all the time.
  - fancyketchup 13y ago
    Yea, neither am I: Grandpa had a Ford dealership until about 5 years ago, his son ran the service department. My uncle on the other side currently sells cars for Honda. I'm well-versed in the car business. I'm not sure how your comment contradicts mine. If you get a $100,000 bonus for selling a vehicle, the marginal profit on that vehicle is damn near $100,000. Dealerships don't sell cars for a loss. Of course, that doesn't help the consumer unless the consumer wants that particular model, with the particular options that need to be sold to get the bonus.
    - sixQuarks 13y ago
      OK, now you're just using semantics to change your argument. Regardless, the stair-step incentives is just ONE of many examples I can provide. The backlash against TrueCar's initial business model showed there were some dealers selling vehicles for below cost, in hopes of making up the difference with add-on sales. Whether these dealers made up the profit difference on the whole does not change the fact that at least some of those customers purchased vehicles at a profit loss to the dealer.
      - fancyketchup 13y ago
        And I quote: "[...] chances are you will get a zero-profit or even below-cost deal on your new car" Let's say I'm a car dealer and I need to sell one more car to get my bonus. Let's say that car cost me $20,000. Let's say the bonus is $100,000. Now let's say I give away the car for free. I still have $80,000 more than I started with at the beginning of the comment.
mikeash 13y ago
You can get a better deal because of it, but how often do you? Most people do not. In other words, the current system offers benefits to the best negotiators, and screws everyone else. I'd rather even that out, especially since there will be plenty of competition between car makers anyway. I don't know that people really get zero-profit or below-cost deals. I'm sure they think they do, but when people say that they're typically (not always, and not saying you're doing this) looking only at the car's invoice price, and ignoring holdbacks. (For those unaware, manufacturers typically pay out a sum of money to the dealer when the dealer sells the car. This effectively reduces the invoice price of the car but, crucially, doesn't reduce the actual number on the invoice. Thus, you could buy a car "at cost" and the dealer still makes a profit because they get extra money afterwards.)

randomdata 13y ago

Without access to the dealer's financials, how do you know what their profit/loss even is? There are many variables like land/rent costs, local wages, etc. that could have a dramatic effect on profitability between seemingly similar dealers. Also, having recently purchased a new car, I noticed that every dealer specced them slightly different, so you couldn't easily compare the vehicles one to one. Something as simple as the color of paint changed the price by hundreds of dollars. Not an insurmountable detail if you are careful, but you really have to do your homework. Not to mention that it becomes a massive time sink. Given a typical programmer's hourly pay, in many cases it would be more economical to pay out more money and get back to work than spend that time looking for the savings. So, I do agree that shopping around can net you a better deal, but for all the effort required, I question if it is worth it. I'm going to very sad if I can't buy my next car online (and I hope it will drive itself to my door).

fancyketchup 13y ago

See, but this just shows that even those who think they are educated car shoppers actually aren't. Dealers never sell cars at zero or negative profit, unless you ignore things like holdback (a rebate on the wholesale price of the car when the car is sold at retail) or factory quota incentives (a "bonus" for dealers who sell a certain number of certain models of cars in a particular month). If you think you got the car for below cost, chances are you forgot to factor in holdback or you just pushed the dealer over the edge for a big fat manufacturer bonus check.

sixQuarks 13y ago
A lot of irony in your statement. I've been involved in the retail automotive space for 8 years, so I'm not just talking out my ass. It's a FACT that some dealers will sell new vehicles for below cost. One very simple example is when dealers are trying to hit stair-step incentive goals near the end of the month. This is where a manufacturer will pay out a bonus incentive on EVERY vehicle sold that month, if and only if the dealer hits a certain sales goal. If they are off by 1, they don't get any bonus. If they sell that one additional vehicle, they may get as much as $100,000 in bonuses. Dealers sell cars for below cost all the time.
- fancyketchup 13y ago
  Yea, neither am I: Grandpa had a Ford dealership until about 5 years ago, his son ran the service department. My uncle on the other side currently sells cars for Honda. I'm well-versed in the car business. I'm not sure how your comment contradicts mine. If you get a $100,000 bonus for selling a vehicle, the marginal profit on that vehicle is damn near $100,000. Dealerships don't sell cars for a loss. Of course, that doesn't help the consumer unless the consumer wants that particular model, with the particular options that need to be sold to get the bonus.
  - sixQuarks 13y ago
    OK, now you're just using semantics to change your argument. Regardless, the stair-step incentives is just ONE of many examples I can provide. The backlash against TrueCar's initial business model showed there were some dealers selling vehicles for below cost, in hopes of making up the difference with add-on sales. Whether these dealers made up the profit difference on the whole does not change the fact that at least some of those customers purchased vehicles at a profit loss to the dealer.
    - fancyketchup 13y ago
      And I quote: "[...] chances are you will get a zero-profit or even below-cost deal on your new car" Let's say I'm a car dealer and I need to sell one more car to get my bonus. Let's say that car cost me $20,000. Let's say the bonus is $100,000. Now let's say I give away the car for free. I still have $80,000 more than I started with at the beginning of the comment.

mikeash 13y ago

You can get a better deal because of it, but how often do you? Most people do not. In other words, the current system offers benefits to the best negotiators, and screws everyone else. I'd rather even that out, especially since there will be plenty of competition between car makers anyway. I don't know that people really get zero-profit or below-cost deals. I'm sure they think they do, but when people say that they're typically (not always, and not saying you're doing this) looking only at the car's invoice price, and ignoring holdbacks. (For those unaware, manufacturers typically pay out a sum of money to the dealer when the dealer sells the car. This effectively reduces the invoice price of the car but, crucially, doesn't reduce the actual number on the invoice. Thus, you could buy a car "at cost" and the dealer still makes a profit because they get extra money afterwards.)