Monday, January 13, 2014

Do All Dealers Pay the Same Price for New Cars?? Lennie weighs in.....

I have been asked this question a lot in my career---and the answer is Yes, most of the time. A long time ago, a group of powerful automotive executives got together (illegally of course) and made several big decisions that shaped the pricing model for new vehicles ever since. They decided that all dealers, regardless who they were, where they were located or how many vehicles they purchased at a time, would pay the same price for cars. So dealer "A", whose store was 1 mile from the factory paid the same freight bill as dealer "B", who was hundreds of miles away. I know what you're thinking--that is stupid! Right? It may be stupid, but it has worked, and it leveled the playing field for all dealers, regardless where they were located.
Many business folks cannot understand the fact that there are no "volume discounts" for dealers who sell 1000 cars vs. dealers who sell 100. Again, it has worked and it enabled small town dealers to survive in competition with the big dealers in major metro markets. But there is a caveat...there are volume sales incentives available to dealers whose volume exceeds established goals or objectives. They are called "Stair-step" bonuses, and they are designed to incentivize dealers to order more cars and increase their "Through-put" (inventory turn, or simply "Sales"). That's one way you could end up paying less for a car at one dealer than the other, all other factors being equal. The only problem is that you, as the consumer, have no idea who has hit the stairstep level and who has not! The fact remains that Auto dealer margins are miniscule compared to other durable and non-durable goods. Who knows, maybe all this discounting and back-and-forth negotiations will go the way of the Vega and the Pinto. It sure would make things easier for everyone involved.

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