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10 things car dealers won’t tell you

10 things car dealers won t tell you MarketWatch


It’s all part of a post-Great Recession consolidation — 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) — 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 — from Oldsmobile to Saturn — no longer exist.

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I wonder if my Saturn will be a collectors item.

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 “information specialists”—car-savvy folks whose job it is to help the buyer find the right vehicle at the right price at the buyer’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 breath—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. We’re selling you a car so we can sell you something else

Americans may be happily buying new vehicles, but that doesn’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 — and that’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 — 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 they’re looking to just about every other department in the dealership — especially their service and parts department — 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: “During 2003-2013, net profit in the service and parts department has been higher than in the new- and used-vehicle departments.” In other words, car sales are becoming something of a loss leader in the industry.

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