It is Labor Day weekend, one of two holiday weekends tailor made for new car purchasing. The other great car shopping weekend is Memorial Day. Why are these two weekends better auto shopping weekends than Fourth of July? Simple. Labor Day and Memorial Day typically come at the end of the month, while Fourth of July comes at the beginning. As you will see later, there is still an advantage to doing your auto shopping at the end of the month.
The 2015 models are starting to hit Baltimore area car dealerships, which brings out two different types of car shoppers. The first is the person who has to have latest and greatest, while the other is more cost conscious and will try to snag a good price on a left-over 2014. There may be a few variations between different dealer groups, but most follow the same formula. Here is a quick Labor Day car buying guide to help you navigate the intricacies of auto shopping
The very process of auto shopping is a psychological battle of wills between customer and salesperson. Not only is the customer looking for their perfect car, they also want to pay as far below the sticker price as possible. On the other side, most salespeople likewise want the customer to find the car that best fits their needs. It makes their job easier as the process unfolds. Unlike the customer however, the salesperson wants to sell the car for the full price. Nothing earth-shattering on the auto shopping front here.
Most, if not all car dealerships are tied into the Reynolds & Reynolds dealership system. This system includes a comprehensive contact management system (CMS) which is becoming more robust and mobile as we write this. Once you tender your driver’s license to the salesperson for a test drive, all the information on it is photocopied. It is then entered into the dealer’s system. Regardless of whether you purchase a car that day, your information is stored in the dealer’s system. Just thought you should know.
The balance of power in the auto shopping process however does not rest solely on the auto dealership side. Over the past twenty years, more and more information has become available to the consumer regarding the auto industry. Your smartphone is now a lethal weapon in the struggle between consumers and car dealers. We have composed a primer on some useful tools which are accessible through your computer or smartphone which you can find at reliabledigitalworld.com.
There are a few things you need to know when auto shopping, and these are important facts to remember. The first is do not have unrealistic expectations. Most consumers believe that the dealer has thousands of dollars profit in any given new car. This is not true. On entry level cars, such as the Hyundai Accent, Honda Fit, Toyota Yaris or Chevrolet Spark, the difference between invoice and MSRP is frequently less than $600. You can check these numbers for yourself at U.S. News and World Report. That profit margin goes up through category models, but not as much as the average customer thinks. This frequently leads into problems between consumers and the dealership throughout the auto shopping process.
One important fact that is not known to most consumers throughout the auto shopping process is who owns the cars sitting on auto dealership lots. The answer is a finance company, and the dealer is paying interest on each and every unit, new and used. A dealer would much rather sell a car than have it sit on their lot bleeding money. Another fact to keep in the back of your mind while auto shopping this weekend is how manufacturers compensate auto dealerships. With the difference between invoice and MSRP shrinking over the last two decades, unit bonuses from a manufacturer is becoming just as important, if not more so than profit margin. Reaching a certain number of cars sold in a month kicks in an escalating bonus for the dealership. As the dealer reaches certain plateaus, their percentage on vehicles sold grows. Consider the following scenario, which probably accounts for the lowest price found on the car buying apps.
An auto dealership needs to sell sixty cars to qualify for any type of percentage bonus. The bonus is retroactive back to the first car sold in the month. At eighty cars that percentage bonus increases, also retroactive back to the first car. Get the picture. The next benchmark is a hundred-ten cars, with the percentage of money paid to the dealer increasing and again retroactive to the first car.
A customer enters an auto dealership on the last day of the month, and after much back and forth, is still insistent on a price that the dealer feels is unreasonable. Ordinarily, the manager would thank the customer for his/her interest, but a deal just cannot be put together. On this day however, selling a unit pushes the dealership to the next plateau. The dealership can afford to lose a little money on the deal, because the return will more than cover whatever profit is lost. The deal gets made. We suspect that most of the lowest prices found on TrueCar are born out of this scenario.
While we have no way of knowing what the actual unit bonus or percentage numbers are, we can attest to the above scenario taking place. Yes, the end of the month still may be the best time to purchase a new vehicle, but it is a roll of the dice on whether you will find yourself in this fortunate situation.
Next week we going to warn you of the biggest traps dealerships use to get more money out of your wallet. The worst part is, most consumers willingly give up this important piece of information.
**** The author spent more than ten years selling cars, both new and used in the Baltimore metro area.