Most car dealerships display their inventory in a showroom and on a car lot. Under
federal law, all new cars must carry a sticker showing the offering price and
summarizing the vehicle's features. Typically, salespersons working on commission
only, negotiate with buyers to determine a final sales price. In many cases,
this includes negotiating the price of a trade-in — the dealer's purchase of
the buyer's current automobile. Negotiations from the dealership's perspective
is often referred to as "desking" a deal, although different terms are used throughout
regions and should be considered regional.
Profit margins on
automobile sales are surprisingly low. A new car dealer may mark up a car by less
than two percent over the manufacturer's invoice cost, and typically the car
dealer borrows from the manufacturer for inventory and pays interest (called
flooring or floorplaning). On the other hand, some manufacturers pay "hold-back"
to improve the fiscal stability of dealers. Typically this is around 1% to 2%
of the vehicles' wholesale price to the dealer. Hold-back is usually not a negotiable
part of the price a consumer would pay for the vehicle. Hold back is designed
to offset the cost the new car dealer has for paying interest on the money
s/he is borrowing to keep the car in inventory. |
