How Car Dealers Make their Money might surprise you - the profit mostly comes from everything else
The new Ward’s Dealer 500 List is out, listing the top 500 dealers in the nation, and Jeff Mauk is smiling. He’s the guy who owns/runs Jack Maxton Chevrolet in Worthington, Ohio. His dealership hauled in over $122 million last year, putting him at #73 in the nation and the rough numbers from Ward's tell you a lot.
48% of the money came from new vehicle sales and 38% from used vehicle sales. But when you count the iron (that’s dealer talk for the vehicles themselves) 38% of vehicles sold were new and 62% of them were used. It takes a lot more used cars to make a buck apparently.
But over $3 million of gravy was cooked in the F&I office where the sales staff (they call it the business office - it’s where your financing is arranged and set up) sold soft add-on’s like service contracts, GAP insurance, credit life and disability, etc. You can take quite a few extra vacations on three million, folks. They’re called soft add-on’s because they don’t really add any “hard” value to the vehicle itself and a lot of folks doubt that they are worth the high prices most dealers charge. You can read about car dealer slang terms on this web site dictionary here.
But Maxton Chevrolet isn’t really trying apparently because they were #73 on the list and the dealership that was #72, just once notch higher, was The Andira-Winton Chevrolet dealership in San Antonio and their F&I staff processed a lot less sales, nearly a thousand fewer vehicles, but made over TWICE as much money selling those soft add-on’s.
It’s like we said before - selling cars is like selling movie tickets - the real money is at the refreshment stand. And in the car business, the extra profit (made with little real cost of what’s being sold) is in the F&I office. Not coincidentally, that happens to be where a lot car dealer sales fraud occurs too.
Smoking paperwork, packing deals, menu selling and other buzz words that basically mean ripping off the customer. Be careful you don’t become an auto sales fraud victim. You can learn how to buy a used car and not get ripped off by reading this Avvo.com Legal Guide here: http://www.avvo.com/legal-guides/ugc/how-to-buy-a-used-car-and-not-get-ripped-off
Remember: most car dealerships only has one goal and that’s to get as much of your money as possible. You should also have just one goal: to get the best deal you can without paying anymore than you have to.
Oh, and that guitar playing brother whose dealership used to be #1? They aren’t even on the Ward’s Dealer 500 list now.