HIDDEN MONEY on New Cars (What you NEED to Know) Kevin Hunter the Homework Guy

There is HIDDEN MONEY on New Cars, and that's why some dealers can say "We're losing moey" and other car dealerships CAN sell so low. How Much Money do Car Dealerships Make on New Cars? Many people think it’s just the difference between MSRP and invoice, but for new car buyers out there, this idea is missing a lot of critical information. Why should you know this stuff? Because knowing about all the different ways a car dealer can throw things at you to put more money in THEIR pockets is critical to saving YOUR hard earned cash.

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Fighting dealer greed is a constant challenge to understand for car buyers: Here's the deal: If you get a great deal and simply focus on the price of the car, you may not think the dealer is making much money, but when you factor in all the other ways a dealer can make money - a $10,000 profit is possible off of just one sale! $10,000 dollars! Can you imagine leaving $10 grand on the table each time? That’s how you go broke, and how the car dealer keeps investing millions of dollars into these casino type showrooms!
FINANCING is one of the first big opportunities for dealers to make money, and that’s exactly why we said years ago that you cash car buyers out there should not start your communication with a dealer by saying “I’m Paying Cash!” Dealers LOVE customers who take out car loans because it allows them to hide a lot of the stuff we’ll mention shortly in a monthly payment proposal. For this reason we’ve said for years that you need to come in already pre-approved with your own financing if you need a car loan.

To wrap your mind around this, you must first be AWARE that most dealers don't make the bulk of their profits on the sale of a new car. The big profit usually comes through arranging the loans, forcing buyers into purchasing their overpriced add-ons, tacking on ridiculous fees, and making a nice sum of money when they basically steal your trade-in with a lowball offer. We will cover all of these in-depth!

Holdback, Floor Plan loans, and Manufacturer Incentives. They are three big profit centers. On top of all the other money they collect, Car dealerships also receive a "holdback" from the manufacturer, which is a percentage of the invoice price of the vehicle. Holdback is essentially a reimbursement for the cost of “floor plan” financing the inventory.
Most people incorrectly assume that dealers pay for all their vehicles and have a bunch of money tied up in their inventory. But, this is false. The vast majority of dealers take out manufacturer loans to build their inventory and are essentially "renting" the vehicles they have on their lot. Most manufacturer's provide this financing, known as "floorplan", and that's not all - they also reimburse dealers for this cost through a kickback we’re referring to as holdback. (it’s usually 1 - 3% of the invoice price of the vehicle).
For example, a typical dealer may pay $350 per month to finance each vehicle. If it takes two months to sell, their cost is $700 - but the holdback amount usually covers this. If a dealer sells the vehicle in less than a month, they will make a tidy profit simply on the holdback amount, and on what was essentially a free loan.
Dealerships also receive manufacturer-to-dealer incentives, which are cash incentives from the manufacturer for selling certain models or reaching certain sales goals. These incentives can add up to thousands of dollars per car sold. These are largely intended to be passed along to the consumer, but if you don’t know they exist and are available to you, the dealer will still cash them in, and pocket the money. We mentioned this recently in our New Car Scams video. Check that out if you didn’t see it.