So you’re thinking of buying a car and your local dealer is just around the corner, but you’re concerned that the salesman may be too pushy or even dishonest…?
Are they trying to make a lot of money out of you, and is profit their only concern? Should you take out finance, or is cash a better option? Should you negotiate the price down because they’re making too much money already?
There are lots of misconceptions when it comes to buying a car from a dealer and car salesman often pick up a bad reputation for misleading customers and being too pushy. This may be true in some cases, but often it’s the misconceptions about what goes on behind the scenes that puts a lot of people off.
We reveal what it’s like from the salesman’s perspective, and how to understand what goes on behind the scenes in order to help you get the best deal on a car…
How much profit is actually made?
One of the biggest misconceptions is that a car salesman is making a huge profit out of you. However, what a lot of people don’t realise is that there isn’t as much profit in a car sale as most people would believe.
This is especially true of new cars which have very low margins, and from a salesman’s perspective can be more trouble than they’re worth. The majority of profit is made on a used car, and the margins are much higher. A new car may only make a few hundred pounds, whereas a second hand car can make much more.
From the dealer’s perspective they have to compete on price with the internet and private car sales. This is why the profit margin is not as high as what you may first think, and dealerships take into consideration the public’s perception on price and what they are expecting to pay if they’ve looked it up on the internet.
Information on how much a car is worth and the hundreds and thousands of comparisons are readily available on the internet, which nowadays forces the dealer to be competitive in order to make a sale. This is great for the customer, as they are less likely to over pay for a car and get ripped off. More and more customers are doing there homework before they get to the dealership, and some dealers just can’t take the risk of putting their prices up too high in order to make huge profits.
Most people know that they can get a car for a little less if they buy it private, but sometimes they prefer to go to the dealer for a guarantee that the car will be in great condition, and possibly hold some kind of warranty. The car will be immaculately clean inside and out, and scratches and dents will have been repaired.
Dealers often obtain their used stock either from car auctions, trade, or part-exchanges; and because every buyer expects even a used car to be in pristine condition, the dealer often has to spend a lot of money on the car to get it looking and driving that way.
The public don’t often realise how much more they are getting if they pay that bit extra at a dealer than if they decide to go private. Not only are you getting a car that has been cleaned from top to bottom, has been serviced, has many months of MOT left, has road tax, and has all of the scratches and dents removed, but you also have an after sales service to take the car back too if something goes wrong.
The problem however is that a lot of people demand and expect the salesman to discount the car based on the fact that they’ve seen something on the internet for much less. So not only are the dealers having to reduce prices to compete, they are also being asked to reduce the price further in order to make a sale.
Ultimately this leaves the salesman and the dealership with very small margins, and in today’s world this is why we have car supermarkets selling used cars in mass over the internet. If you can’t beat them – join them!
Does the salesman really have to speak with their manager to close a deal?
Yes, it’s important that the salesman speaks with his/her manager before closing a deal in order to make sure the profit has been approved. If someone decides to buy a car for the sticker price they see when they walk into the showroom, then the salesman wouldn’t need to involve their manager at all, as this price has already been agreed.
However, ninety nine out of a hundred times the customer will present a counter offer which either involves a price reduction, more money for their part-exchange, extra road tax, extra fuel, free warranty, and so on. All of these extras instantly reduce the profit, and it’s the sales manager’s job to control this profit and ultimately agree if a sale can take place.
There are also lots of other things going on in the background that the customer will not be aware of. For example, the salesman may be one more sale away for the month from hitting their target and making extra commission, so they might be keen to sell the car and completely ignore the profit. This is where the sales manager steps in and ensures the car still makes an acceptable profit, and the salesman is not giving things away cheaply just to make that all important final sale.
What usually happens is that the sales manager does not reveal to the sales team what they would ultimately accept as a rock bottom price for the car, which in turns forces the sales team to remain firm and negotiate sensibly to try and keep the profit high.
For example, let’s say a car was selling for £5,000 on the forecourt. The sales manager may be happy to sell it for no less than £4,500 to still make an acceptable profit. If they were to reveal this rock bottom price to the sales team, and a potential buyer offers to purchase the car for let’s say £4,500, the salesman may accept the deal and shake hands on the spot to get the sale.
However, if the rock bottom price is not revealed and had that salesman come to the manager to propose the customers offer of £4,500, the sales manager could have counter offered at £4,800. Another couple of trips back and forth to see the manager and the deal may have been done at £4,700. So in the end, the manager has made the dealership £200 more than if they’d have accepted the customer’s first offer.
Car salesman and sales managers play a very different role than what a lot of people realise, and most salesman are under pressure to sell a car no matter what the price, whereas the managers role is to maximise not only the number of sales, but the profit each one makes.
Is cash or finance better for the salesman’s back pocket?
One of the biggest misconceptions people make when buying a car is offering cash as a means of payment, which they believe will benefit the salesman and the dealership. You’ll often here a potential buyer say, “How much off for cash?”
The reality is that if you take out finance, the salesman makes more commission – as well as the finance manager (if they have one). The reason why more commission is made is because finance companies have an agreement with the dealer to pay them a commission for every finance deal they make for them. So the more customers that take out finance, the more money is made.
A cut of the commission that’s paid by the finance company to the dealer is then passed along to the salesman and finance manager. So if you walk into a dealership and expect to get a discount because you are paying in cash, then think again!
How can I get the very best deal from a salesman?
There are a lot of factors to consider when trying to get the very best deal out of a salesman. First of all, salesman don’t like overly aggressive and demanding people as it will naturally upset them and make them angry and frustrated.
Salesman are just trying to make a living, and they want things to go just as smoothly as you do. So our advice is to always be nice and polite, but firm. Don’t let the salesman lead you onto something you don’t want, and make sure you list everything you’d like before they start showing you a car.
A lot of the time a salesman may show you are car just because they know they are going to make great commission from it. This could be because it’s been in stock for too long and the manager has decided to offer an extra bonus to the salesman who sells it. When this happens you will often notice that the salesman subtly steers you towards a different car, and it’s at this point that you need to make it clear to them that you want something different.
However, try to stay calm and relaxed, and don’t get angry if they try to do this. It’s only natural, and you would be doing just the same if you were in their position. Just be firm and tell them this isn’t what you’re after, and then remind them again what you’re looking for.
So should you negotiate on the price? Absolutely, and don’t forget that you’re in the driving seat. They do not, under any circumstance, want you to leave the showroom without having bought a car. When you realise how much power you have over them, you can start to realise that you’re in a position to get a great deal.
This doesn’t mean however that you can make a silly offer and expect a ridiculous amount of discount. This will only make the salesman angry, and sooner or later they will not take you very seriously and try to usher you out of the door. So you need to be reasonable and sensible when making an offer!
Don’t also forget that money isn’t everything, and the price of the car is not the only thing you can try to reduce. Do you want 12 months road tax and 12 months MOT? Do you want a full tank of fuel to drive away with, or some nice floor mats? These can all be negotiated into the sale, so don’t hesitate to ask.
Finally, don’t forget to tell the salesman that you are here to buy a car today and that you want to ultimately agree a deal. You are much more likely to get the best deal if you tell them you’re interested in signing on the dotted line today. It doesn’t matter if this is true or not, but if you commit to sitting down with a coffee and doing some hard negotiation, then the manager is much more likely to take you seriously.
Unfortunately a lot of people walk into the showroom to demand some discount, and then walk out again and say, “I’ll think about it”. This is the salesman’s worst customer, and it’s something they have to put up with all day long. So by sitting the salesman down and explaining that you are serious, you’ve won half the battle already.
When is the best time to buy a car?
Usually the best time to buy a car is at the end of the month. This is when a salesman may almost be achieving his/her target, so might be keener to push the manager for a sale. Like most businesses, there is always a mad rush at the end of the month to get as many sales as possible before the accounts are pushed through and wages are paid.
There are also lots of other times to consider purchasing a car, like during the winter. This is especially true if you’re looking to buy a convertible, as the prices are always much lower when the weather is bad.
Car sales like any other business will usually suffer during the winter months as the bad weather prevents a lot of people from bothering to step out of their nice warm homes to buy something. If you happen to walk into a showroom in the middle of winter when it’s snowing or there’s lots of rain, you will notice how excited the salesman is to see you. Sales may be low at this time of the year, so there is certainly a great deal to be had!
You also need to look out for new models arriving on the scene, which pushes the price of the previous model down. Another great deal to look out for is when the dealer sells off its demonstrators. You may be able to pick up a nearly new car with very little mileage and save thousands off the retail price.