Good Car Dealers Make A Lot of Money
by Dave LaLonde on Thursday, August 23rd, 2007A good car dealer is not the dealer that makes the least amount of profit on their customers, it’s the auto dealer that can provide the best deal. Good car dealers have the people, processes, inventory, lenders, and technology in place so that they can make a profit while providing a good deal to their customers.
For example, let’s say you have bad credit and are interested in a used 2006 Chevrolet Malibu for under $325.00 per month. Via the web, you find two local Chevy dealers that have some on their lots.
First, you visit the Bad Auto Dealer. The bad auto dealer has a used Malibu with 35K miles on the lot selling for $12,995. With taxes and registration fees, the total selling price is $13,991. You like the car, so you decide to complete a finance application.
Next you visit the Good Auto Dealer; the good auto dealer has a similar used car on the lot selling for $12,695. With taxes and registration fees the total selling price is $13,674. You also like that car so you complete another finance application.
The next day you return to both stores. The first store does not have a dedicated special finance department for people with bad credit; all consumers with sub prime credit are routed through the traditional F & I office. The store only has four sub prime lenders that it utilizes; the F & I manager presents you with what he believes is a great deal:
60 months financing with an interest rate of 22.00%, the payments are $386 per month.
The payment is higher than you expected so you ask the F & I manager if there is any way to lower the payment. The F & I manager explains that there is not much profit in the deal and since you have bad credit, you are lucky that he was able to get you approved.
Next you visit the Good Auto Dealer. They have a dedicated sub prime finance manager that utilizes LotPro financial software - cutting edge technology that compares the customer credit profile and the desired vehicle with hundreds of lending programs in seconds. The sub prime manager is able to find the right lender program for your credit profile and the vehicle you wish to purchase. The F & I manager presents you with the following terms:
72 months financing with an interest rate of 15.95% and the payments are $296 per month.
Since the payments are under $300.00 you decide to buy the vehicle from the Good Auto Dealer and add a service contract for $1,000 that covers the engine and drive train for the length of the loan; you payments increase to $318.00.
Now let’s look at the two hypothetical profit scenarios at each of the dealerships.
The Bad Auto Dealer is a low volume dealer; the Malibu that you were considering was on their lot for four month. Four months ago it had a higher blue book value so their used car manager took the car in on trade for $12,000. Additionally, the lender that you were approved charges the dealer a fee of $595. This fee has to be absorbed by the dealer and cannot be passed on to the customer.
The Good Auto Dealer is a high volume dealer; the Malibu that you bought was on their lot only 15 days. Their used car manager had purchased 20 similar off-lease vehicles directly from GMAC. Since he bought 20 he was able to acquire each one for $9,000. Since the Good Auto Dealer uses LotPro software, he was able to find a lender that not only had no fee but also allowed the dealer to earn 1 point reserve.
The table below is a side by site profit comparison:
| Bad Dealer | Good Dealer | |
| Sale Price | $12,995 | $12,695 |
| - Cost | 12,000 | 9,000 |
| - Lender Fee | 595 | 0 |
| Vehicle Profit | $400 | $3,695 |
| Service Contract Price | NA | 1,000 |
| -Service Contract Cost | NA | 750 |
| Service Contract Profit | NA | 250 |
| Lender Reserve | NA | 400 |
| Total Profit | $595 | $4,345 |
| Monthly Payment | $386 | $296 |
| Total of Payments w/oService Contact | $23,160 | $21,319 |
| Difference | $1,841 |
As you can see, over the life of the auto loan with the Good Auto Dealer you would have saved $1,841 and the Good Auto Dealer made $3,045 more profit than the Bad Auto Dealer would have (to compare apples to apples I excluded the service contract from the calculation, with the service contract, there is still a savings of $265).
You may think that the above example is extreme, but it isn’t. Just like a good doctor or good attorney, Good Auto Dealers are highly profitable. They are highly profitable because they run a good business, and save their customers money.
So next time you’re sick, in legal trouble, or experience bad credit, ask yourself if you would sleep better at night knowing that a service provider made only a little profit on the transaction, or would you sleep better knowing you got the best deal.
is there a chance for me with my low credit score
Abigael,
One way to find out is to go to http://www.autocreditexpress.com. Click on the “Apply Today” button. This will take you to the “Loan Calculator” tab where you can estimate your budget for a car. Once you have completed this and the worksheet shows that you have enough income to qualify for a loan, click on the “Application Form” tab and fill out the application. If you have any questions, feel free to contact us at the toll free number listed at the bottom of the web page.