Why It's Important for Dealers to Sell Cars Quickly
There is usually several million dollars worth of inventory on a typical dealer's lot, and those cars are all owned by a bank or finance company.
The dealer borrows money through what's called "floor plan financing" in order to keep the inventory on their lots.
Floor plan financing is a type of short-term loan that is paid off in 30 to 90 days, the time it normally takes to sell a car.
A typical new car costs a dealer about $5 to $10 in interest per day. So if a car sits on the lot for 30 days, the dealer will be charged $150 - $300 in interest payments.
This is why dealers want to sell cars as quickly as possible - to reduce their financing costs and increase profits.
Most manufacturers reimburse these finance costs through what is called "dealer holdback". This is usually 2 - 3% of the invoice price of the vehicle.
On a typical $28,000 car, a 2% holdback would amount to around $550. If the dealer sells this car in 30 days and incurs financing costs of $300, then they will make a profit of $250 on the holdback.
If a car has been sitting on the lot for a long time, the financing costs will eat up all the potential profit and the dealer may have to sell the car at a loss.
You can usually get the best deals on cars that have been sitting on the lot a long time since dealers are anxious to get rid of them and cut their losses.
3 Steps Every Car Buyer Needs to Take to Save Maximum MoneyThe key to getting the best deal is to gather price or lease bids from as many local dealers as possible. Then shop that best price around until no one can beat it. Here are the steps:
Step 1 Get Prices From My Trusted NetworkSelect the vehicle you're interested in to see if there are local dealers in my network who will provide you with their best upfront price. You will get direct access to an internet sales manager who you can further negotiate with online (no need to visit dealership).
Step 2 Get Prices From TrueCar / CarsDirectTrueCar, and CarsDirect are my top 2 online price quote recommendations. These services show you pre-negotiated prices from dealers closest to you - and the deals are usually pretty decent. But remember, you can still negotiate further.
Step 3 Complete my ChecklistFollow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid