Monday, December 02, 2019

COMPETITION: Car Dealers’ Achilles’ Heal

The retail and wholesale auto industries are highly competitive. Toyota desperately wants to outsell Honda, Chevy desperately wants to outsell Ford, and Mercedes desperately wants to outsell BMW. The auto manufacturers “live and die on the 30-day sales cycle, month to month. This desperation is passed along to the retailers of their products, the car dealers. Car dealers have short term contracts (franchises) with their manufacturers, typically 6 years. If a car dealer doesn’t meet his performance goal in the number of new vehicle sales, his franchise can be canceled. This literally puts him out of business and the millions of dollars he has invested in his buildings, land, equipment, and inventories can virtually vanish.

The auto manufactures assign quotas to their dealers. These quotas are based on intensive market studies of the geographic areas surrounding each of their dealers. The manufacturer tells each of their dealers the minimum number of new cars he must sell each month. If he falls short, his existence as a car dealer is in danger. The dealer must sell his assigned number and percent of vehicles sold within his market area. These market areas vary but are typically about a 20-mile radius from the dealership. Within that radius are representatives of most other makes of cars and the same make as the dealer’s, because markets usually overlap.

The major competition to the auto manufacturer is different from the major competition to the auto dealer. A Mercedes dealer is far more likely to lose a sale to another Mercedes dealer than to a BMW dealer. The Mercedes manufacturer doesn’t care which Mercedes dealer sells the customer; the manufacturer is worried about BMW, Infinity, and Audi dealers. Thanks to the Internet and the information explosion, most car buyers today have decided which make car they’re going to buy before they enter a car dealership. When the customer visits Mercedes dealership A and leaves without buying, that customer is probably going to buy a Mercedes from Mercedes dealership B or C.

Now you’re beginning to understand why car dealers’ desperate competitiveness is your friend when buying a new vehicle. Car dealers pass along the quota assigned to him to his sales managers and salespeople. A manager that doesn’t hit his quota loses his job just as does a salesman that doesn’t sell a certain minimum number of cars per month. Adding to this desperation is that EVERYBODY in the auto industry is paid on commission. Mercedes management, from the CEO all the way down is paid on performance. The car dealer is paid by profits, not salary, and sales managers and salespeople are paid a commission based on profit on each car.

As hard as this may be to understand or believe, car dealers will sometimes sell cars at a loss in order to not lose a sale. Your awareness of this desperation is your “ace in the hole” when buying a new vehicle. By “working” at least 3 car dealerships against each other, you can buy your new car at the lowest possible price. Unfortunately, this is easier said than done. It’s not for the timid or faint of heart. You’re going up against seasoned professional salespeople and their managers. You’re playing in their “game” that they play day in and day out.

Here are a few simple rules that, if followed to the letter, will result in your buying your next new vehicles at the lowest price possible:
  1. Choose the exact make-year-model vehicle you will buy and the exact accessories. Do not change your mind after you begin gathering competivive prices. Car dealers’ favorite tactic is to “switch” you to a different vehicle from the one you initially planned to buy.                           
  2. Make your lease or buy decision before you begin shopping and stick with your choice. Car dealers’ second favorite tactic is to switch buyers to leasing. This greatly enhances their profits and makes it more difficult to be compared to their competition.                                                   
  3. Insist on an out-the-door price from each dealership. This will be your most difficult task. An out-the-door price, strictly speaking, is the amount of money you pay the dealer permitting you to drive the new vehicle home. It’s acceptable to be quoted the full price with only government fees of sales tax and license and registration added. Be clear that you will not pay for any dealer installed accessories not installed and included in the current price. Also you will not pay for non-government fees aka “taxable fees”. Here are links to my two blogs that will assist you in this most difficult task. and

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