[RickFLM4]

Originally Posted by djsaad1

I might be in the minority, but if I negotiate a price let's say at $1000 over invoice I know the dealer is making more than that $1000. At the same time I don't really care how he gets to that number as long as I get to pay what was agreed upon.

In this case the dealer gave the price to the customer that was agreed upon, the dealer shouldn't be blamed because they are making more on the car than the customer thought.

I understand the internal dealership issues, but that shouldn't effect the customer in this situation.

The dealership is making less on the deal... The F&I guy is making more. If the F&I guy signed doctored papers that is fraud. As I've stated a couple of times OP doesn't really have a loss since he agreed to the price, but I can understand annoyance with the BS business practice by the F&I guy.

[tony20009]

Originally Posted by RickFLM4

OP was effectively sold products he didn't want. OP agreed to the car price without these add-ons, so didn't really suffer a loss but believes the dealer should have provided a better price on the car without them included, which may or may not be the case.

If unaware of the practice, the people most pissed off should be the dealership owner and GM because the finance guy pissed away margin to roll in F&I products and earn more commission for himself, while potentially exposing the dealership to a regulatory violation (and fines). If OP was willing to pay the same price without these products, it would have been a higher margin for the dealership because they wouldn't have to pay the companies that provide the add-ons.

Red:
Well, if that's the case, why did he sign the deal and then log onto B-post and gripe about it? I'm not saying you're mistaken, but as others have intimated, it feels like something is missing from the story. The simple solution was to tell the seller that the sum being asked for the car (lease or purchase price) was unacceptable. After all, no cost "add ons" don't alter the price; $97K is $97K, no matter how it's divvied up.

Blue:
Maybe, but I wouldn't commit to that. Quite often F&I products and services are higher margin than is the car. More often than not, the "stuff" the F&I guy in a dealership sells is stuff that (1) sells itself and (2) that the dealer can charge whatever it wants for them because the competitive environment isn't as competitive and the emotional situation is highly favorable, especially when the price of them, folded into the car payment, amounts to a couple dollars more a month and the apparent benefit (real or emotional) seems "worth it."

Generally speaking, new car dealers make money servicing cars and selling "back of the house" stuff than they do selling new cars. After all, when examining new car dealerships, one never sees the "sells new cars only" business model, but one routinely sells "sells new cars, service, parts and miscellaneous 'stuff' ." In the general car sales market, one also sees the "sells used cars only" and "provides maintenance and repairs" as stand alone businesses. Those observations make it pretty clear that selling new cars and nothing else isn't much of a money maker for anyone except the manufacturer.

Green:
No question there. Depending on how the details were handled, there could be added business risk and the dealer probably isn't keen on that being introduced as a result of a single transaction that in the greater scheme of things wasn't necessary from a risk profile standpoint.

All the best.

P.S./Edit:
The above is written assuming F&I is part of a car dealership. It may be a little bit different with a 3rd party financing entity.

[rad doc]

Originally Posted by NickyC

Hello, let me welcome you to 'Murica. Here in the land of the debt enslaved and the home of the sheep, we buy crap we don't need with money we don't have. I'm not sure where you come from but 'round here seven year car loans are now king.

First off, if you don't like "Murica", gtfo! Second, financing is certainly not unique to the US nor am I aware it is any more common here. Do you really think materialism is a uniquely American malady? Third, paying cash is debatable given the very low, and sometimes free financing. Preserve capital!

[tony20009]

Originally Posted by djsaad1

I might be in the minority, but if I negotiate a price let's say at $1000 over invoice I know the dealer is making more than that $1000. At the same time I don't really care how he gets to that number as long as I get to pay what was agreed upon.

In this case the dealer gave the price to the customer that was agreed upon, the dealer shouldn't be blamed because they are making more on the car than the customer thought.

I understand the internal dealership issues, but that shouldn't effect the customer in this situation.

Off Topic:
You may be correct that the seller's revenue realization on that transaction is >$1K, but you can't know that your are right. Plus, revenue collected and profit earned aren't even remotely the same. Buyers shouldn't and don't have any good reason to presume they know what a seller earns on a given transaction. I don't even know why people think they do or should; it's none of their business.

Car dealers, like nearly every retailer make money not on the actual difference between wholesale and retail selling price but rather by investing small sums of their own money and turning it around very quickly, or in other words, by maximizing the power of their own capital. Floorplan financing is the industry term for it and it's how any retailer that isn't merely a manufacturer's wholly owned subsidiary makes money.

Take a look at the following and then combine the concepts found in each article:

• http://effectiveinventory.com/inventory-turnover-2/
• http://www.santez.net/how-does-floor...r-dealerships/
• https://www.edmunds.com/car-buying/w...ake-money.html
• http://www.realcartips.com/newcars/1...ke-money.shtml

All the best.

[RickFLM4]

Tony2009,

With respect to what you highlighted in blue above my point was simply this:

If the customer agreed to pay $97K for the car by itself, the dealer will absolutely have a higher margin by delivering only the car and collecting $97K. If the dealer collects $97K and delivers only the car, their cost on the deal is the cost of the car. If the dealer collects $97K and delivers a car + F&I products, the dealer's cost is the same cost of the car, plus the cost of the F&I product. Same revenue, higher cost.

(I think we agree on the part in red. He agreed to the price however it was presented to him. I don't see a loss for him to recover.)

[DC-T]

Originally Posted by HoustonRider

Completely hypothetical:

complete and new loan or lease on a new car (price is irrelevant). You sign all the docs as you are in total agreement to the deal and financing/lease payment.

In the finance office, there are some pre-completed offers for the "extras" like glass coverage, wheel and tire, etc. FS guy says "I'm tossing these in for free, paperwork has $0 on it" the items are nowhere to be found on any of the docs you sign. You sign and your docs do not reflect you paid for these.

Few weeks later, you review the contracts with the financial institution and the docs are different, the items that were "included" and would not impact your rate/price/fees are there, and looks like you agreed to purchase these add-ons.

* basically it appears on your original negotiated price, they included these add-ons, unbeknownst to you. Problem is, they had to separate them for the contracts to be valid, and you already have your docs, what are the chances of you seeing the changed ones from the financial institution.


What would you do?

Go back like this:

[tony20009]

Originally Posted by RickFLM4

Tony2009,

With respect to what you highlighted in blue above my point was simply this:

If the customer agreed to pay $97K for the car by itself, the dealer will absolutely have a higher margin by delivering only the car and collecting $97K. If the dealer collects $97K and delivers only the car, their cost on the deal is the cost of the car. If the dealer collects $97K and delivers a car + F&I products, the dealer's cost is the same cost of the car, plus the cost of the F&I product. Same revenue, higher cost.

(I think we agree on the part in red. He agreed to the price however it was presented to him. I don't see a loss for him to recover.)

Under "basic" accounting, I agree with you. Basic accounting isn't generally in play with car sales.

• Maker delivers car to dealer and the F&I company (buys) holds the title to the car. The maker "sells" the car to the F&I company for $80K.
• Dealer has a revolving line of floorplan financing credit with the finance company. That line of credit calls for the dealer, at the start of each month, to pay, say, $100/month per vehicle; thus the dealer's margin decreases each month.
• Dealer has a consignment arrangement with distributors of goods/services sold by the F&I department. The terms are that the dealer can charge whatever it wants for the items and must remit a fixed sum to the distributor for every unit of the consigned inventory sold, but the dealer does not pay the maker/distributor to have the items/services on hand in the dealership. The distributor pays/reimburses the dealer for any installation costs of the consigned goods and provide training to the dealer's personnel so they can install the products. For the example below, assume the dealer must remit $1000 for each unit of F&I goods sold. The dealer does not have to sell a car to sell the F&I products/services.
• In the second month the dealer has possession of the car, the Ddealer sells it for $97K and one unit of F&I goods amounting to $3K but tells the car buyer that he's "throwing in" the F&I products.
• Dealer Margin: The key thing to keep in mind about the margin on the car is this: (X - Y) = gross margin on the car, but Y must increase each month, thus cutting into the car's margin. The F&I goods don't cost the dealer any more no matter how long they sit; plus he has no burden for their obsolescence. (I used this as the reference point to develop the example below: https://www.truecar.com/prices-new/b...&zipcode=20008)
  • Car at $97K and F&I goods at $0:
    [(95,000 - 89,350 - 1000) ÷ 95,000] x 100% = 5%
    Profitability on the F&I goods is zero percent.
  • Car at $94K and F&I goods at $3K
    [(92,000 - 89,350) ÷ 92,000] x 100% = 3% on the car
    [(3000 - 1000) ÷ 3000] x 100% = 67% on the F& I goods

Yes, the sum of money the dealer collects is the same either way, but given the analysis above, which product do you think matters more to the dealer? Which one product produced the best return on his $200 investment? Which product gives the dealer more control over making the most return on his own investment?

I think you can see the following from the example above:

• Car dealers want to sell cars ASAP.
• The longer a car sits on a dealer's lot, the more he's go "in it;" thus the lower his margin becomes as time passes.
• The dealer spent $0.00 to sell an F&I product that returned him $2000. That's effectively an infinite rate of return.

Remember, the car maker has provided all manners of financial support -- below market rate financing on PP&E, advertising support, training, holdback on sales, etc. -- to help him open the dealership and keep it running in exchange for his selling their cars. Car dealers and car makers, though related within the industry are independent businesses. The relationship may be somewhat incestuous, but make no mistake, car makers practically pay dealers to sell cars for them.

(The preceding example, for the sake of simplicity, did not fully load the items sold with costs such as salaries, benefits ancillary selling/delivery costs and services, and overhead. Were they added in, they would have to be added to the COGS for the car, not the F&I goods, because they exist regardless of whether an F&I item is sold or not. So whatever they be, they just eat into the car's profitability.)

All the best.

[RickFLM4]

I am a little unclear on how the $97K becomes $95K in both scenarios. Additionally, these aren't the two scenarios contemplated, which are:
* Car sold for $97K, no F&I / protection product sold, so NO payment due to protection product distributor / underwriter (this is what OP agreed to)
vs.
* Car + F&I / protection product sold for combined $97K, so payment due to F&I distributor / underwriter (this is the way F&I guy wrote it up)

Presume everything else remains the same - same inventory costs, including floor plan net of support (if applicable) and same commission on financing (if applicable).

What you are referring to is writing up the same deal two different ways. I am saying if they could get the same sales price for the car only without making a payment to the protection product distributor / underwriter, the dealership makes more money because there is no payment to the F&I distributor / underwriter.

Nevertheless, I also think that we are now really overcomplicating the topic so we can just leave it at that.

[tony20009]

Originally Posted by RickFLM4

I am a little unclear on how the $97K becomes $95K in both scenarios. Additionally, these aren't the two scenarios contemplated, which are:
...

I used $95K because it was the sum for which I was able to generate quickly legitimate MSRP vs. dealer invoice sums, and thus have a representationally faithful dealer margin to present.

The sum I chose for the F&I goods is arbitrary, but what's not arbitrary about it is that the dealer can charge anything s/he wants to charge. In that regard, they work much like $200 pinstripes, that at most cost the dealer $2 for a whole roll of pinstriping tape.

I wasn't attempting to literally determine the profit figures that pertain to the OP's transaction, but rather to illustrate a point about how the car dealership business works and there after extrapolate the "norm" that pertains to the business model to the situation at hand.

All the best.

[RickFLM4]

Originally Posted by tony20009

I used $95K because it was the sum for which I was able to generate quickly legitimate MSRP vs. dealer invoice sums, and thus have a representationally faithful dealer margin to present.

The sum I chose for the F&I goods is arbitrary, but what's not arbitrary about it is that the dealer can charge anything s/he wants to charge. In that regard, they work much like $200 pinstripes, that at most cost the dealer $2 for a whole roll of pinstriping tape.

I wasn't attempting to literally determine the profit figures that pertain to the OP's transaction, but rather to illustrate a point about how the car dealership business works and there after extrapolate the "norm" that pertains to the business model to the situation at hand.

All the best.

Ok but we started the dialogue about this particular transaction and why the dealership's owner and GM would be upset if they were unaware of what was going on. That boils down to getting a fixed purchase price from the customer who would pay that price for just the car with no protection products included. If the customer agrees to pay $X for the car with no protection products and the F&I guy is paying $1,000 to a protection product underwriter out of that $X so he can earn a commission, that is not good for the dealership. There is an extra $1,000 going out the door to the detriment of the dealership. That's why I think the owner / GM should be more upset than the customer.

[stevenc]

This doesn't seem to be a customer problem. This is a internal dealership problem where the F&I guy is pulling a fast one to get extra bonuses for selling the addon products.

This kind of stuff happens all the time. It is internal fraud inside the dealership and the dealer principal will likely investigate and fire the F& I guy for fudging paperwork to get a better bonus.

[Bobble]

I personally believe stevenc hit the real point here. Buyer is paying the same regardless, no real loss for him, Owner, GM and possibly salesperson should be upset as the F/I person is basically stealing from them and if caught ruining their reputation in their market.
Example friend just bought a new Tahoe LTZ, negotiated deal was sent to the F/I department and they added on extended warranty, paint treatment and interior treatment and did not say one word just here's docs please sign. He caught it and said I did not want those, F/I guy said but I added them for free. He and wife signed but printed versions had different cost of vehicle and costs associated with add-ons. Asked to have them removed and cost of vehicle backed down to what the final printed contract said. F/I guy says oh made a mistake I'll take these off but cost of vehicle was right first time. Synopsis is F/I guy was trying to squeeze in add-ons which he and only he gets commission on while screwing fleet sales guy by $2700. Now if fleet guy was not in cahoots(which I believe he was) I'd beat the living nonsense out of the F/I guy for trying to stealing commission for $2700 from me.

[HoustonRider]

Originally Posted by stevenc

This doesn't seem to be a customer problem. This is a internal dealership problem where the F&I guy is pulling a fast one to get extra bonuses for selling the addon products.

This kind of stuff happens all the time. It is internal fraud inside the dealership and the dealer principal will likely investigate and fire the F& I guy for fudging paperwork to get a better bonus.

YAHTZEE® !!!

This is exactly the issue. I can argue both sides, and yes, the price is good, but the money for these extra $3k in add ons came from somewhere.

It is "internal fraud" where the price is right, everyone is happy, the FI guys gets a $500 bonus an nobody knows why.

It's integrity with me. I'll always ask someone twice if they are sure they gave me correct change when I know they didn't. Who in their right mind would pay $2000 for paint protection package on a 24 mo lease? Lol

It was misrepresented.

GM called me back, he credited me $3000 on my lease, so I'm 5-6 payments up on my 750. Not really a deal, I paid for it.