Thanks for the mention Karen.

We generally ask the price of the "want to own" vehicle prior to mentioning the trade-in; once we have that info then we ask what the price of the "wanted vehicle" with our trade.  You'll find out pretty quick that the two will not be close.

I believe this advice was appeared in READER'S DIGEST in 1968.  It has been rehashed infinitely since.  CONSUMER REPORTS has had it in their advice for eighteen years.  Lame, lazy, weak.  Go get out of your easy chair and get a story that we can use.  This does not make the grade.  Go back to the campus newspaper

where they thought you were a phenon.  You weren't.

As a very successful car sales person that is no longer in the business, that info is weak and obvious. The reality is that a educated, patient non impulsive buyer is always going to get a better deal. A used vehicle with two years and low miles with a warranty is always the best deal. Used cars usually have 4- 5k in profit built in the price, most will sell for a thousand or two profit especially if they see the potential to make more money off of you in F&I. Car dealers are 5 individual profit centers.

1. The retail sale

2. F&I

3. Service

4. Wholesale (Trade Ins)

5. repeat sales

Dealers are looking to make $$ off of you in every area. To many consumers go in on guard at the price negotiation, but get crushed or as we say it in the business knocked over the fence in the other areas.

I work in car sales. Yes, there are a variety of ways we can make money. However the reality of the matter is that most new domestic made cars are sold at or near vehicle invoice price due to competition.  Buyers sometimes have a very unrealistic approach especially when buying small economy cars. For example, a VW Beetle (base model) has about $400 in markup on it. A Ford Focus has about the same. Vehicles like a VW Touareg have about $2,500 in them as well as Ford F-350 models. The more expensive, the more room to negotiate in most cases.

As far as trade ins are concerned, a car is only worth what the auction will pay for it. Not what Kelly, Edmunds or NADA tell you, remember, they are not writing teh check and absorbing the cost. I can't tell you that for every time we make a healthy profit on a sale, there are times we lose bundles due to the amount of repairs needed on the trades to "make them right" and the fact that the cars lose value and accumulate interest charges just sitting on the lot. There are a variety of costs a dealer absorbs on a used vehicle. For example, Kelly Blue Book rates your car at a value of $12,000 TRADE  and $14,750 Retail. You, the buyer never want to pay what Kelly suggests as the retail value, you want a deal and oh by the way throw in free floor mats and fix the little scratch on the bumper. Ok, so we sell you the car for $13,500 and absorb another $150 in costs for the add ons and repairs. So, now you assume the dealer still soaked you for $1,350. Wrong. If we paid $12,000 for the trade, and found out that it needed a brake job and 4 new tires and there were some scuffs on the front bumper and a small bullseye chip in the windshield we would absord about $1,350 in repair bills. So, we're at break even.

Now in reality, the auction may value the car at $10,500, a more likely scenario and this is the amount of risk we are willing to take. The dealer absorbs $1,350 in repairs and now owns the car for $11,850. Then we start accumulating interest on the vehicle and then incur the expense of providing a tank of gas at an average of $50, have to clean the car at a cost of $50, have to provide a 3 month warranty on it at a cost of $300, in our state provide a state inspection sticker at $28, determine that there is a minor issue with the CD player which costs $400 to replace and then pay the salesman his commission at a % of the gross profit of the sale, typically 20-30% at most dealerships. So, ultimately the car costs us $12,678 before all is said and done. Now, we make a profit of $822 and have to pay the salesman between $165 and $247 on the sale.

Now take a moment to think how much time a salesman really does spend both with you and with your car before you actaully take it home. They typically have to deal with your insurance company as well as provide a test drive, get the car cleaned and through service, and go over it with you before you take it home. They also have to field your calls if you experiebce problems, have questions or concerns after the sale. How much is their time worth to you?

In the above scenario, the dealership nets between $575 and $657 before having calculated for insurance costs, interest paid, etc. Yes, there are situations that cars come in perfect and in this scenario, it could be a potential profit of $3,000, in 95% of the cases it is not and there is a reason you are trading out of your old car.

Dealers would gladly give you full value for your trade if your were willing to pay full value for ours i.e. sticker on new or asking price on used.  The reality here is everyone wants a deal and the dealer needs to ensure no loss of money. It's always difficult to meet it the middle. Suggested prices are just those, they don't assume the reality of all the costs involved.

Kevin, while I enjoyed your article,it fails to show that lots of big dealers are profitable. Very Very profitable. They are not losing money.Lets not kid ourselves. They have huge staffs of people, they have huge pieces of prime property that must be paid. They have huge overhead to cover. so much so that just to break even there is no way that circumstances you describe above are the norm. They are knocking itover the fences more often than not. Alot more. I have no pity for the uninformed shopper with bad credit who gets knocked over the fences,  yet the informed patient shopper who is reasonable (and with good credit)_ can always get a better deal. thanks to the internet the informed shopper is in a much metter position than ever before on how to get a good deal.

When I get to the dealer and speak with you, I am reasonable and expect fairness. When the "other guy" gets there and his credit is "Less than perfect" send him over the fences.

You were very good at spinning it so that you the businessman is victimized by the bad old consumer. The reality is that you (the business) do this all day everyday. You have refined the ripoff to an science. You control everything about the transaction from the length of time customers are in the showroom (wear them down), to having the right to refuse to do any deal that doesn't make you the kind of money you want on the deal. In your hypothetical deal above you simply took the worst case for every variable that you mentioned. You forgot to mention that a lot of your customers are trusting and come to you and say that they want to pay X amount per month and let you construct the deal any (profitable) way you want. The overwhelming advantage is with the dealer in a car buying transaction.  

Oh my goodness Kevin... only at 125 an hour could you come close to your 1350 in repairs... And we KNOW you dont pay your ASE techs that much.  Lets break it down... a brake job? try about 12.87 in parts. Its a 45 min job if you are traing 5 guys on it. 1350 my butt.

You WONDER why you look like a sleazebag?  Oh its because you are.

Wouldn't it be great if car dealers could be regulated as to mark up a car so much to include all their overhead costs? Maybe then the consumer would not be screwed! I foolishly bought a used SUV at a dealership and thought I was getting a good deal only to find out they sold me a used rental from out of state! I have know a car lot owner that told me when they see a woman or a mexican the price of the car automatically goes up $1,000 due to lack of negotiation skills. That is not exactly a warm fuzzy for us single mothers just trying to make ends meet! Don't you wonder how the car salesman can go home at night with a clear conscious?

Econ USA, The same way a customer can after they come into a dealership take up about 2hrs of a salesman day,then ask to see the new car invoice then offer 500.00 below the dealers cost because they have been internet educated!. profit is not a dirty word. ask yourself would you be willing to do your job for free? p.s. your car lot friend sounds like a racist sexist.