Don't believe the dealer invoice price

[eleven24]

New to the forum, and doing my research on pricing on the Raptor I started doing some math.

Hypothetically, lets assume a dealership has $10 million in revenue from vehicle sales alone. ALL of those sales came at MSRP. The "dealer invoice" is 9% under MSRP, so in this case the dealership's cost on those vehicles sold is $9.1 million. That leaves a profit of $900k.

Now let's assume there are 6 salesmen making $50k each. That's $300k. Dealer profit is now at $600k. Sales manager? $75k. Profit drops to $525k.

Now, let's say that the average new car is sold at a discount of 3% off MSRP. That drops the dealer income from $10 million to $9.7 million. Deduct the vehicle cost, salesmen, and manager. Now they're left with $225k, or $19k a month to cover expenses like other employees, payroll tax, business tax, building lease, property lease, utilities, advertising....

The math doesn't add up. I just plugged my info into TrueCar and got 4 different Ford dealers in my area give me a price between 6.8% and 7.5% under MSRP on a $74k Raptor. Dealers pay TrueCar $299 for each car sale they get. Why would they do this if selling a vehicle at 7.5% under invoice would pretty much bankrupt their business?

Those dealer invoice numbers we see on the internet are part of the game. The dealers know this info is out there. It's been out there for 2-3 decades now, and they're using those numbers against us.

Personally, I think the dealer invoice number is now simply the MSRP. Any dealer would still make a profit selling at the number WE think the dealer invoice is. They're downright giddy if they can get more than that.

 

[GordoJay]

Strange as it sounds, car dealers don't make much of their profit selling cars. The service department is the biggest profit center. Financing and insurance(extended warranty) are also big profit centers. Used cars are fairly profitable. But new cars? No. They mostly sell new cars to bring business in to their real money makers.

 

[Oldfart]

What he said^^ They rely on other profit centers for profitability. Service, finance, insurance, body shop, they would die on just sales profits. Gun industry has gotten to be the same way, very small profit on new guns, you make money on trades, accessories, and ammo.

 

[911 Crazy]

They make it up selling hats and coffee mugs.

 

[FL4x4]

 

[Gaptor]

You’re forgetting the gigantic fact that they get a volume bonus and its tiered

 

[GordoJay]

And there are people out there who overpay. I remember talking to a couple that we're friends with. They had just bought a new minivan and she was chattering about the buying process. "We've got this guy at Toyota that we just love. We figure out what payment we can afford and then he helps us pick out a car." I bit my tongue so hard that it bled. These are late middle-aged college-educated adults with careers. Mind blowing. If that salesman doesn't send them cards and little gifts at every opportunity, he's an idiot.

 

[pdaly419]

Also why dealers add a bunch of little unnecessary accessories to cars on the lot. They increase the selling price and make better margin on those accessories/add-ons. But yes, like others have said, most of their profit is from service dept and used car sales.

 

[Icecobra]

Your thought process is exactly what dealers are counting on. If you knew the real numbers you would hemorrhage a **** the size you never thought possible.....

 

[Braaaaptor]

Also why dealers add a bunch of little unnecessary accessories to cars on the lot. They increase the selling price and make better margin on those accessories/add-ons. But yes, like others have said, most of their profit is from service dept and used car sales.

This ^

My dealership added Nitrogen filled tires for $899. I didn't even bother to fight it, despite it's uselessness (dealer filled the tire to 50psi). These dealer added options are basically straight profit for them and an easy way to jack up the price.