10 things car dealers wonâ€™t tell you
J Thoendell stashed this in Cars
Itâ€™s all part of a post-Great Recession consolidation â€” since 2007, the number of new-car dealers in the U.S. has fallen from 21,200 to 17,665, according to the National Automobile Dealers Association (NADA) â€” as the industry looks for ways to become leaner and more effective. By having several dealer locations, a company can easily reduce back-office expenses per location. (Another contributing factor to the dealer-count decline: the fact many car brands that were around at the turn of the century â€” from Oldsmobile to Saturn â€” no longer exist.
There are two lessons that every car salesman learns upon entering the business, circa 2014.
The first is that the business has forever changed: Gone is the high-pressure era when salesmen did anything and everything to close a deal on the same day a buyer walked into the showroom. Now, salesmen are just as likely to be called â€śinformation specialistsâ€ťâ€”car-savvy folks whose job it is to help the buyer find the right vehicle at the right price at the buyerâ€™s own pace.
And the second? It never hurts to carry a roll of mints with you, since no one buys a car from a salesman with bad breathâ€”and at the end of the day, a salesman still has to sell, sell, sell.
Cars themselves are a loss leader for the firm to sell you parts and services.
4. Weâ€™re selling you a car so we can sell you something else
Americans may be happily buying new vehicles, but that doesnâ€™t mean dealers are profiting greatly from those transactions. In fact, the average dealer profit per vehicle in 2013 amounted to a mere $69, according to NADA â€” and thatâ€™s before commissions are paid out to sales staff. (The situation was even worse in 2006-2010, when dealers actually lost money per vehicle, according to NADA.) The profit margins have gotten so low in large part because of the Internet and the growing transparency in pricing â€” consumers are able to drive a better bargain because they know what everyone is charging.
But with such low margins, how can dealers make money? Increasingly theyâ€™re looking to just about every other department in the dealership â€” especially their service and parts department â€” to drive revenue. The strategy seems to be working: In 2013, service and parts revenue was up 6.8% over the previous year, according to NADA. And as NADA pointed out in its most recent annual report: â€śDuring 2003-2013, net profit in the service and parts department has been higher than in the new- and used-vehicle departments.â€ť In other words, car sales are becoming something of a loss leader in the industry.