Q: How can a dealership sell a car at a price that is close to their invoice price and still make a profit?
A: The dealership may be making its profit from the financing of the vehicle rather than from the selling price of the vehicle. The dealership may be making its profit from its Service Department rather than from its Sales Department.
The dealership may be receiving additional money back from the manufacturer in the form of a "holdback" (or "kickback") for selling a certain volume of cars. There may be a factory-to-dealer rebate for the car they are selling.
Q: Several auto manufacturers are offering special financing as low as 0%. What are the hidden tricks behind these great rates?
A: Believe it or not, there are usually no hidden tricks to these super-low financing rates. They truly are great deals offered by the manufacturers to help the dealers move out certain models which may be lagging in sales. There are, however, some things you should be aware of:
Only about 20% of car buyers actually qualify for these special loans. You need a good credit score (usually 680 or higher).
The dealership ends up making far less money on these special financing deals than they would on regular financing, so the dealership's Business Manager may try to convince you that you don't qualify for the low rate. If you know that your credit score is good, don't fall for that. You usually have a choice between the low financing rate and a rebate. For buyers who need the cash for their down payment, the rebate may be a better way to go.
These special low-financing rates are sometimes only applicable to short-term auto loans (2-3 years) and do not apply to the typical five-year loans that most buyers prefer.
Q: When buying a popular new car, what kind of price negotiation can one expect on a vehicle that is so much in demand?
A: The selling price of a vehicle is determined by pure supply-and-demand. The more vehicles there are (of the make/model you want to buy), the lower the selling price will be. If there are few to be had, the price will be higher. So when you are visiting the dealerships to shop for your new car, be sure to take careful notice of the dealership's inventory.
If you see several vehicles of the same make/model sitting there on the lot, you know that you'll probably be able to buy that vehicle for a few hundred dollars over the invoice price. However, if the vehicle you want to buy is very difficult to find and in high demand (and especially if there is a waiting list), you'll probably end up paying full price -- or even more.
Q: If I am paying cash for my new car, how much of a discount should I expect?
A: Paying cash for a new car can actually be a disadvantage - and you may end up paying more for your new car than if you chose to finance it through the dealership. That's because dealerships often make more profit from the financing of the vehicle than from the actual sale of the vehicle itself. So if you take away their financing profit, then they'll want to make it up by selling the vehicle at a higher price.
Here are three strategies for buying a new car with cash: