Monday, December 12, 2022

Car Dealers Secret Profit Rapidly Rising to Record Levels

OK, you just “bought” that new or used car and you breathe a sigh of relief. All your hard work, aggravation with the car dealers you’ve dealt with, and worry about price and affordability are behind you…RIGHT? Maybe, if you’re paying cash or financing through your bank or credit union. But, most people finance their cars at the car dealership they bought from and, for them, their aggravation, problems, and expense have just begun.
“Mr. and Mrs. Schor, thank you so much for trusting us with your purchase. If you’ll just follow me, I’ll take you to our ‘business office’ and introduce you to Elliot, our manager. He’ll assist you in taking care of the paperwork associated with your car purchase.” Nothing could be further from the truth. The office isn’t just a “business office”; it’s the most lucrative profit center in the entire car dealership for R.O.I. (return on investment). This small office and a few more like it are staffed by, on average, three or four employees and the only investment in equipment is a PC and printer. This department generates millions of dollars yearly for the average car dealership…more than $2,000 for every new and used car sold.

What the salesman told you was the “business office” is the Finance and Insurance Office, aka the F&I office. The “business manager”, Elliott, is paid a commission percentage for every dollar he can extract from you in interest expense and high priced “products” like extended service contracts, maintenance agreements, road hazard insurance, GAP insurance (guaranteed asset protection), roadside assistance insurance, and anything else the dealer can think of to add to the cost of the car you just bought. Many dealers have their own “insurance companies” which allow them to set their prices as high they like. F&I departments also “broker” loans from banks. This means they buy the money from the bank at the lowest rate and then mark it up on your finance contract. One of the largest retail automobile dealer groups in the USA, AutoNation, made $2,766 on every one of the tens of thousands of cars they sold in third quarter of this year. This $2,766 is much higher for every car financed because some buyers pay cash. In reality, if you finance your car with the dealer, his profit averages over $5,000 on every car.
Unless you’ve been in a coma for last three years, you know that new and used cars are selling at the highest prices in history. Sadly, interest rates are rising too. There’s not much you can do about the price of car; that’s dictated by supply and demand. The good news is that car prices are coming down very slowly. You don’t have much of an option other than buying the “lowest high price” you can find. You do have an option when financing your car. FINANCE YOUR NEW OR USED CAR THROUGH YOUR BANK OR CREDIT UNION. 

You’ll save yourself thousands of dollars.

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