In fact, Mazda gave me a $500 incentive to borrow at 0% for 5 years. My GM loan was also 0% (but no incentive). So obviously they aren't making anything loaning me money.
Further, I find it hard to believe there's no or slim profits in the sales. I think I did a pretty good job negotiating. I don't even mind disclosing the numbers.
The Volt had an MSRP of $40,325. I managed a $38,258.25 sales price + $1147.75 tax + $94 tag less $1000 rebate for $38,500 out the door. The invoice on this car is supposedly $38,651.
The CX-9 was a similar situation, with an out the door price below invoice.
Both dealers I purchased from were in fact a bit out of town and had to secure the vehicles from other area dealerships. They knew I wasn't likely to use their service departments (each is almost an hour away), so I doubt they cared about any more than making the sale. The sale alone has to have been profit motivated.
Now, maybe individually they didn't make a lot of money on these sales. But it has to be the case that they are making money on their total sales volume. Maybe they'll take a loss on a sale or two if it puts them above a quota which gets them a huge bonus.
These dealers are obviously costly to operate. They have a lot of real estate and the show rooms are beautiful. They hold a ton of inventory for months at a time. I just can't believe they could exist on the slim margins they claim they make on each sale. I would be shocked if they aren't easily clearing 20% or more on average on sales alone, even on deals like mine.
As mentioned, most profit is generated from service and finance.
Both of these cars you purchased are from high volume mfgs. The dealers made holdback money plus the sales count towards yearly tier incentives.
https://electrek.co/2017/01/31/audi-dealerships-behind-elect...
EV sales are currently less than 1% of total sales volume. But the fastest growing segment.
[1] http://credit.typepad.com/credit/2006/04/buying_a_car_wi.htm...
I also did some research on gm-volt.com and mazdas247.com to see what other folks claimed to be getting in terms of pricing.
Eventually I contacted a bunch of dealers that I knew had the car I wanted (Mazda and GM's web sites will show you all the inventory in an area) via email and asked them what their best price was. The dealers near me which had the cars on their lot didn't offer me the best prices though.
In the end, I got the best prices (and the most pleasant sales experience) from two dealers each about an hour from home. They were happy to negotiate via email. Even though they didn't have the specific car I wanted, both claimed they could secure it from other dealers, which they did. Both of those dealers had the most aggressive price up front and I was able to get them each to come down a bit from there.
"The last day of the month continues and the truism is accurate: some people get great deals because it’s the end of the month and they have to hit their goal. When you look at the numbers, the average car they sell in the last two days actually loses money."
https://www.thisamericanlife.org/radio-archives/episode/513/...
https://en.m.wikipedia.org/wiki/Ford_Motor_Credit_Company
http://www.businessinsider.com/uber-encourages-drivers-sign-...
Example: https://www.toyotafinancial.com/
This is correct, in my experience. My credit union had a set of data that was supposedly KBB but had totally different info (and lower numbers) than the consumer website. They also capped their auto loans at 120% of that value, to account for dealership markup.
Made money from buying and selling used cars a long time ago. The business flow died down slowly with the rise of the internet and car estimate sites.
Ultimately people could just go to whatever-site, enter their car model and get an accurate estimate, corrected for year, mileage and maintenance tasks done. There ain't any car bought or sold for 10-20% under or over median value.
My understanding is that dealer incentives aren't captured in those transparent prices. And those can add up to several thousand dollars.
That's why if you go to a dealership and say "I'll pay your invoice plus $500", they'll gladly do it since they'll get $5,000 on the backend.
There never was room for a $5000 margin. The rare multi-k hit became rarer and rarer with the advance of the internet, until it completely disappeared.
While I did not hear anyone in that APR range one couple was working towards a 14.90 rate six year loan. Another was trying to roll over money owed on a new car but kept getting told no one would make that loan as the new exceeded the value of the new car by too much. Yet my salesperson told me they have customers they turned down and drive a new car to their dealership as if to brag they got it elsewhere.
short story, too many people are just irrational about their purchases and have very bad reasoning. thinking a thousand extra interest is okay over a long term 84 vs 60 usually by factoring the extra across the whole period instead of the extra 24 which is more telling. Let alone taking 84 month loans!
Yeah, but with the extremely low interest rates we've been seeing the past several years, how are they making money there either?
0 percent brings in good credit buyers who might otherwise buy a different car, or who might just keep driving their old cars.
They will, but not necessarily with the same lender. Lender A giving out 0% loans is not getting money from lender B giving out 15% loans.
>The finance guy has contacts with a dozen or more lenders.
Exactly. So what's the incentive for bank A to lend at 0%? They're not going to see any of the profit that other lenders get. In fact, they're not going to get any profit at all, unless the buyer defaults early or misses payments. It seems to me that the whole 0% loan thing is a way for dealers and mfgrs to keep their inventory moving, and perhaps make money just on the regular mark-up of the car itself (which isn't much with new cars these days), and hope the buyer comes back for overpriced service.
You should get a bigger cash discount to buy the car outright, instead of financing through them.
Instead, that buyers is more likely to be trading that car in 2-3 years at which point the dealer can make more off the car again.
If you have shitty credit, that 0% loan pops up to 8-11%.
Besides, it doesn't matter what the prime interest rate is - the consumer rate is always (prime + markup)%.
(Of course, if you miss a payment, that 0% rate will jump to 12%.)
There is so much data on cars and what their worth (KBB, truCar, etc) nowadays it is tough to make much of a profit on the car itself.
Most make their money in the finance or service department. It was not uncommon for a loan to be 5-6 years long or for a buy-here pay-here play to charge up to 25-30% APR