2011 Silverado/Sierra

[Dargo]

I can't for the life of me figure out why anybody would talk about "dealer invoice" when talking about buying a vehicle. The dealer doesn't pay invoice, the dealer pays floorplan. Plus they have incentives from the automakers to sell so many, etc. Your best tool when pricing is go to as many dealers you can and compare prices. It never ceases to amaze me how much cheaper you can buy vehicles when you just shop around. This is part of the reason why GM and Chrysler wanted to axe so many dealers, it lowers the cost of each vehicle.

Just like when I was tractor shopping the Deere dealers were $2-4K apart on the same tractor that cost low $20's.

What?!! Sorry man, but you honestly do not have a clue. A dealer's "floorplan" is simply the amount he has financed on his inventory. When the dealer reports a vehicle as sold, he has to pay off his floorplan amount on that vehicle. If not, he is considered 'out of trust' (sorry, I'm not even going to begin to explain all of that stuff to you) Although it's relatively rare, I know several dealers who do not floorplan anything. I don't intend to sound condescending, but after being in and around the auto industry for over 25 years, your statement is typical of a person who knows absolutely nothing about how a dealership is run but yaps like they know it all.

An "invoice" is just that; a bill for the vehicle from the manufacturer. Most manufacturers have 'holdback', which represents approximately 3% of the invoice that the dealer gets back months after they sell the vehicle. A dealer selling everything at dead invoice price will go out of business. Besides, why would they work 14 hours a day, take loads of stress, deal with misinformed customers and all the other hassles when they can get better than 3% just investing their money?

Just like when there are rebates and special interest rates, at times there is 'dealer cash' from the manufacturer on certain vehicles for a certain time period. Generally, this is to help clear out slow moving units, units the factory has built too many of, or to clear out the last year's model. Most of the time the dealers give up this cash to move those units and get them off his floorplan so he's no longer paying interest on that unit. A sign that there is dealer cash or dealer incentives is when a dealer advertises "below invoice" (and isn't a shady dealer) on certain units.

Right now it wouldn't surprise me to see some dealer cash and large rebates from the factory come out soon on diesel pickups with diesel right at $4 a gallon and looking like it will only go up. On the other hand, this same market force drives down the price of used diesel pickups. I bought my last diesel pickup almost 3 years ago when diesel was $5 in many places. Once diesel fuel dropped in price, the value of my pickup raised up past what I paid for it and my truck is still worth more than what I paid for it 3 years ago. I don't look to see 'panic selling' like we had then with diesel pickups. At $5 a gallon back then, some customers were trading in their diesel pickups and taking a HUGE beating on depreciation, terrified that they couldn't afford to drive their truck. Regardless, unless you just want 'new', most of the best buys on pickups are 1 to 3 year old used ones.

 

[hawkeye08]

I can't for the life of me figure out why anybody would talk about "dealer invoice" when talking about buying a vehicle. The dealer doesn't pay invoice, the dealer pays floorplan. Plus they have incentives from the automakers to sell so many, etc. Your best tool when pricing is go to as many dealers you can and compare prices. It never ceases to amaze me how much cheaper you can buy vehicles when you just shop around. This is part of the reason why GM and Chrysler wanted to axe so many dealers, it lowers the cost of each vehicle.

Just like when I was tractor shopping the Deere dealers were $2-4K apart on the same tractor that cost low $20's.

It is pretty simple, MSRP, invoice price are both "set" prices that can be used for comparison. "What is this dealer asking compared to invoice?". If you don't have a decent reference point, you can end up paying more than MSRP. They are tools to give some relative understanding. I have never seen what you call floorplan published anywhere so how would one go about getting that information? My dealer finance person shared their invoice and how much "hold back" they had on my truck. Of course they are making money somewhere, they cannot sell below what it cost them and stay in business.

I also use kelly Blue book and NADA to help me understand what my tradein might be worth, whether I should trade or sell myself.

At the end of the day, you have to shop around (compare prices, service, comfort level with dealer, etc), have to know what you are willing to pay and be disciplined enough to walk away if you can not afford it or are not willing to pay the price.

It is interesting around here, most of the dealers are near MSRP on GM (I have not shopped other brands so could not say what they do) and if you go out of the local area, you find dealers willing to work at invoice or lower...

The important thing to remember is that the sales person is just that, a sales person. They are going to try and sell you a vehicle, some have really good stories.... and remember, not all stories are non fiction..

 

[TheGoose]

What?!! Sorry man, but you honestly do not have a clue. A dealer's "floorplan" is simply the amount he has financed on his inventory. When the dealer reports a vehicle as sold, he has to pay off his floorplan amount on that vehicle. If not, he is considered 'out of trust' (sorry, I'm not even going to begin to explain all of that stuff to you) Although it's relatively rare, I know several dealers who do not floorplan anything. I don't intend to sound condescending, but after being in and around the auto industry for over 25 years, your statement is typical of a person who knows absolutely nothing about how a dealership is run but yaps like they know it all.

An "invoice" is just that; a bill for the vehicle from the manufacturer. Most manufacturers have 'holdback', which represents approximately 3% of the invoice that the dealer gets back months after they sell the vehicle. A dealer selling everything at dead invoice price will go out of business. Besides, why would they work 14 hours a day, take loads of stress, deal with misinformed customers and all the other hassles when they can get better than 3% just investing their money?

Just like when there are rebates and special interest rates, at times there is 'dealer cash' from the manufacturer on certain vehicles for a certain time period. Generally, this is to help clear out slow moving units, units the factory has built too many of, or to clear out the last year's model. Most of the time the dealers give up this cash to move those units and get them off his floorplan so he's no longer paying interest on that unit. A sign that there is dealer cash or dealer incentives is when a dealer advertises "below invoice" (and isn't a shady dealer) on certain units.

Right now it wouldn't surprise me to see some dealer cash and large rebates from the factory come out soon on diesel pickups with diesel right at $4 a gallon and looking like it will only go up. On the other hand, this same market force drives down the price of used diesel pickups. I bought my last diesel pickup almost 3 years ago when diesel was $5 in many places. Once diesel fuel dropped in price, the value of my pickup raised up past what I paid for it and my truck is still worth more than what I paid for it 3 years ago. I don't look to see 'panic selling' like we had then with diesel pickups. At $5 a gallon back then, some customers were trading in their diesel pickups and taking a HUGE beating on depreciation, terrified that they couldn't afford to drive their truck. Regardless, unless you just want 'new', most of the best buys on pickups are 1 to 3 year old used ones.

Thanks for your insight. So what you're telling me is that, since most dealers do not actually pay for the vehicle in question outright, they actually have a little financial vehicle called a "floorplan"? In other words, the dealer only pays a percentage of what that vehicle costs to have it on-site, and then when they sell the vehicle they pay off the remaining amount? Hmmm.......

Also I seriously laugh at the people who think they can actually see what the invoice price is on most vehicles. Sure, the salesman will show you the "invoice". I have a computer, I can print one too....
I just don't think that dealers and manufacturers are being completely honest when talking about "invoice".

And as far as all that mistrust most of that is on the dealers themselves. There have been so many shady actions by dealers that I think most people would agree that shopping for a car has become a huge headache. You ever see the way people describe someone shady as "a car salesman"? Wonder how things got that way?

I have known some that were honest and we could deal. It is absurd to think that I want to come in and get a vehicle at such a price that the dealer cannot make any money but at the same time when a lot of dealers are trying to just rake you over the coals it just rubs me the wrong way. There should be no more than $1-2K difference on the price of a vehicle, yet over and over I've seen differences greater than $5K.....yet the consumer is the one who's misinformed....

I think that most people here agree that dealers probably make their most money on used cars and on the financial side of vehicle sales. My favorite one is when you hear the "how much a month do you want to spend" or such. I almost feel sorry for the poor SOB's who fall into that trap...

 

[TheGoose]

Here's the deal though.....

I can buy a Duramax 3500 truck for about $40K + taxes. It will not be fancy by any means....but it will have a bed and an allison and a disel engine. Now start adding in leather and backup cameras etc. So you're telling me that the poor little dealer and manufacturer, by throwing in somewhere around $5K worth of options, now has to get $60K for that truck?

The deception starts with the much inflated sticker prices....and ends with the obscene amount that "options" are inflated too. Also they know exactly which options people want and they make sure to lump those in with all the B.S. options just to drive up the price. When I was shopping for a 1-Ton truck a few months back I found out real quick that the dealers have the upper hand and you're just there for the ride. Thankfully I found a used vehicle already equipped how I wanted and got a decent deal.

 

[Dargo]

You're certainly justified in saying that some dealers have more than earned their bad reputation. I used to own part of a dealership, but that was many years ago. Now a big part of my company is doing consulting and training with dealerships who are losing money. A lot of those are the criminal dealers you rightfully call out. My issue, and problem, is how do I know which of those dealers losing money and want my company's services are honest dealers who need help and which ones are crooks? Trust me, I'd be a very, very happy man if I could get my accounts receivable halfway paid by dealers who hired me and then stiffed me when the first bill came due. Obviously I quit working for them, but how do I get my money? Our legal system sucks in helping solve this problem!

It's no big secret what my company trains dealers to do. It's so simple it's crazy. However, one part that is not up for debate is being honest with the customers. Somehow that's a problem for some dealers. If you came into a store my company trained, they would first do the 'meet and greet' with you and ask you what vehicle you want. From there the salesperson should point out the features and benefits of the unit to allow you to make an intelligent and informed decision if you want to buy it. If you do want it, they would negotiate from the invoice price. Believe it or not, the invoice price you can get online is generally very accurate and most now even show holdback. They would ask you what you feel is a fair profit for the dealer to make on that unit. If it's a rare and hard to replace specialty unit, the dealer will need to make more on it. For a easily replaceable pickup, it shouldn't be hard. It generally should be fair to allow the dealer to make $500 to $1000 (depends on many variables) on the truck. After all, you want him there for you in the future. You then settle on a fair price over the true cost and then you're finished.

I don't understand the scam dealers who want to play games and try to take your head off on a vehicle. Sooner or later you'll likely find out that you were robbed. If you were, is it likely that you'd go back there for another vehicle or recommend them? Obviously doubtful. It doesn't have to be that hard, really. Unfortunately, some dealers will never do business the way I just described. Maybe I'm all wrong and my training for them is wrong. All I know is that the dealers I work with almost always do well and they get many referrals from their customers who also come back for their next vehicles. The BS stuff should be gone with the bright green pants and plaid jackets with dark sunglasses.

 

[TheGoose]

Thank you for your reply and insight...I realize that there are lots of honest dealers out there...but it seems that the crooked ones have forced the hands of even the honest guys too.

I find it very difficult to believe that a dealer could only make $500-$1,000 on a vehicle and stay in business. I would think it would start at $1,000....


Someone told me once that the average dealer sales about 100 vehicles per month. Of course, this changes based on size, location, brand, etc. So if a dealer made his 1,000 per month, and made $750 per vehicle, then he would net $75K. That seems like a lot to me, but with payroll, building upkeep, taxes, insurance......

Of course there is the service dept. which I'm told is very profitable, financing gimmicks/income, etc.

 

[timswi]

The financing is another profiit center for dealers. The banks pay a reserve to the dealer for finaning the customer through the bank. This reserve is a portion of the gross finance charge.

Example: bank retention=3.5%, customer rate=4.75, the dealer keeps the 1.75% of the finance charge. This is paid in a lump sum to the dealer each month. This can be equivilant or more than the 750-1,000 profit on the vehicle itself.. There are some recourse issues for the dealer have to account for, but 95% or more of the customers pay as agreed, so this isn't an issue either.

Extended warranties are also a cash cow.

Service departments are sometimes the most profitable part of the dealer. I used to be a dealer service manger and found that for a good portion of the year, the service department carries the dealers fixed overhead coverage. Very frustrating when you are making a nice consistent departmental profit.

As was said, the floorplan is what the dealer owes on the vehicle while it sits on the lot. The banks inventory this and payment in full is expected and demanded at the time of sale. You won't find this information in the public square. Its between the dealer and the floor plan provider. That could be a bank or the manufacturer, although I think this is less common today. Not sure...

 

[Dargo]

The financing is another profiit center for dealers. The banks pay a reserve to the dealer for finaning the customer through the bank. This reserve is a portion of the gross finance charge.

Example: bank retention=3.5%, customer rate=4.75, the dealer keeps the 1.75% of the finance charge. This is paid in a lump sum to the dealer each month. This can be equivilant or more than the 750-1,000 profit on the vehicle itself.. There are some recourse issues for the dealer have to account for, but 95% or more of the customers pay as agreed, so this isn't an issue either.

Extended warranties are also a cash cow..

Rate rape, as I call it, is becoming a thing of the past (fortunately), except in 'buy here-pay here' lots. Most prime customers are only charged the actual 'buy rate' from the bank. The bank then does pay the dealership a 'finder's fee' for processing the paperwork and sending them the business. That way it costs the customer no more to finance through the dealership than going directly to their bank or credit union. Every credit union I've ever seen requires this method. It saves the customer time and hassle of going to the bank, waiting to get financed, going back to the bank to get the check etc. and the customer is generally able to take delivery at the time of sale if they are credit worthy.

Again, like price gouging, rate raping is one way to assure a customer doesn't come back to your store. The name of the game now is repeat business and customer retention. On service contracts, that is a definite "it depends" if it is a cash cow. On some vehicles it's foolish to NOT take advantage of one. Of course the price is negotiable on them, but with the days of shade tree mechanics being able to fix new vehicles and $100 an hour labor rates, if a vehicle doesn't have a stellar track record for reliability, they are well worth the money. Say, hypothetically, you can buy a Dodge (not picking on Dodge, just a for example since they are running great incentives and the price is low) for $20k and a similar Toyota for $25k, but you can add a 7 year or 100k mile comprehensive (slang term 'bumper to bumper') contract for $2000 on the Dodge, you'd really have to like the Toyota a LOT more to buy one. And, this is generally the case when comparing a domestic to Toyota.

 

[schmism]

hears the "dealer numbers game" ive always "heard"

a successful dealer will sell new cars/trucks for virtually nothing more than what they pay for them.

they will pay you 30-50% of "market value" for your trade in. they then flip this car on there used (pre-owned, 1000 pt check bla bla bla) lot. why struggle to sell a brand new one for 2K over "invoice" when the guy shopping for the new car is going to beat you over the head with internet prices etc. when you can make 3-4 times that money on the used car you took in on "trade"

Secondly dealer program incentives, cash back, loyalty programs, "pay off your old car no matter what its worth" etc. they get a percentage of the interest that loan generates. so ill sell you the new on for invoice, give you peanuts on your used one, then use all the "incentives" to roll you into a new car loan which i make money off of (not to mention that trade in).

THE WORST customer for a new car? someone that wants all those program incentives, cash back etc money off an "invoice" number and then pays cash for the vehicle. youll likely see the salesman walking away because they KNOW they are going to loose money on the deal and arnt interested in your bis because of that.

My .02

Buy that f450 used. youll likely get the best deal and save the most money while getting a truck that suits your needs the best. Any fluff that you couldnt get on it could easly be added later with the money you saved.

 

[timswi]

Dargo,

Have to disagree with you on this one. I now work for one of the largest financial companies in the US and dealer financing and dealer reserve is a growing, not shrinking thing. We only deal with new car dealers and only the best of those. We compete directly with credit uinions and other commercial banks. We're all competing on the same rate and reserve terms. The only ones who can give the money away is the captives (Ford credit, GMAC/Ally etc).

Dealer reserve is a huge financial benefit to car dealers. There is nothing "rape" about it. The rates are usually far below what you can get on your own, even with the reserve component. I've bought vehcles where I know I was paying a small reserve because I had a rough idea what the retention was ...Trust me on this one. For once I can say I know more than you do on this subject, I work in it everyday.

A customer can always try to ask for financing at retention, but that's a tough one to get.

I've seen first hand where dealers have backed out of deals when friends showed up with a check from a credit union after negotiating the vehicle down to nothing. The dealer was counting on the reserve. When the dealer saw that wasn't coming, he backed out. That's the reason you NEVER tell a dealer that you're paying cash out of the gate, although the subject will come up and the price will reflect the reserve loss if you insist on doing so. It all works out even, but paying cash saves you nothing at purchase. You're better off financing it and paying it off the following month.

There's noting sordid about any of this and no one is being ripped off unless you let a dealer run you over and he finances with a sub-prime finance company. There aren't many of those left. And besides, the regulators do watch the banks for unjustified rate spreads on car loans. Most banks have caps of under 3% on what the dealer can mark up the retention.