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What you are about to discover are the profit stream trade secrets in regard to the sale of an automobile. This information is not available online at your popular automobile shopping websites because if it was, they would lose their sponsors-the auto dealers who purchase their sales leads from.

Though online automobile pricing sites do provide consumers with invoice pricing, dealer incentives and rebates, they don’t venture into the hidden profit streams car dealers also receive and capitalize on during the sales process.

In the event you’re a novice at purchasing an automobile, I’ll quickly familiarize you with terms used that can relatively affect the negotiated purchase price of an automobile.

Invoice Price is recognized as the starting point of what auto dealers pay for their automobiles; however, there are other factors that can influence the true net cost. For example, auto dealers may receive a “factory to dealer incentive.” This incentive for practical matters is essentially a kick back. This is one of the primary reasons why dealers can advertise automobiles for sale at “below invoice.”

Rebates are what automobile manufacturers offer consumers as an incentive to purchase their automobiles. Rebates are often used in dealer advertising; to illustrate the perception of a great car deal-“below invoice price.”

Dealers may combine rebates and factory to dealer incentives in their advertising campaigns. You can generally find out what the rebates and factory to dealer incentives are in the automobile section of your Sunday paper, manufacturer’s website or online through one of the auto shopping websites.

All automobile dealers do pay the same amount for their automobiles in regard to invoice pricing; however, there are key elements that will influence the true net cost. Depending on sales volume and quotas, one dealer may receive a higher “special incentive” than another dealer. This “special incentive” known as “retro money” or “trunk money” is the guarded profit stream not discussed on car buying websites. This information is privy to auto dealers only-don’t bother asking your car salesperson, they won’t know what you’re talking about. You’ll have to get this information from a sales manager…”the person who sits behind the glass windows.”

To understand how important this retro money is, aggressive dealers will sell automobiles at a loss just so they can hit their sales quota to receive their retro money.

It’s always best to purchase your automobile during the last weekend of the month as auto dealers are more incline to offer better deals so they can hit their sales quotas to receive their retro money. Retro money is generally $500 to $1000 per automobile.

There’s another important factor why dealers sell automobiles for very little sales profit or at a loss-it’s called back end profit. Back end profit is what the finance manger makes after the sales negotiation is completed.

Finance managers for simplicity sake are just high powered sales people. Often, auto dealers rely on a strong finance department because it could make or break a dealership. Dealers rely on the finance department to make up for the loss on the “front end” (sales transaction) by selling warranties, after market products and obtaining finance reserve.

Finance reserve is profit made on the financing of an automobile. If you sign a contract at 7% interest and the finance department sells your contract to a lender for 5%, they will receive a reserve check from the lender. This reserve is additional profit to the dealer-just like how money is made on a mortgage transaction.

Another reason why automobiles are sold for a low profit margin or at a loss is because of “hold back money.” Hold back money is an additional profit stream to the dealer that the manufacturer “holds back;” however, it is eventually given to the dealer. This was designed to protect dealer’s profit margins against the savvy buyer who negotiated from an invoice starting point. Hold back is generally 2% to 7% of the Manufacturer’s Suggested Selling Price (MSRP).

Before, you decide to purchase an automobile, do your research first. Here are your 7 key tips:

1. Go online and get a copy of your credit report with the added “auto score” option. This is the score dealers will use to determine what interest they will write your contract at and what lenders will buy your contract for. The manufacturer generally offers the best interest rate; however, you may have to forgo your rebate money (if any) for the lower interest rate the manufacturer is offering.

2. Find out what the invoice price of the automobile you want; this can be achieved by going online and checking with the popular car shopping websites.

3. Check with your local dealer to find out what the factory to dealer incentives and rebates are. Confirm this information with another dealer or by checking online.

4. Do not negotiate payment. This is a tactic used by dealers to distract you from the true selling price of the automobile. While you may think you’re getting a great deal because your payment is dropping during negotiations, you may still be paying the full sticker price for your automobile.

5. Always ask for a computer print out of the final negotiated transaction. This will illustrate the selling price, tax, license and other official fees. Question each fee until you understand what they are and if they are required. Don’t be concerned about the interest rate at this point.

6. When you go into the finance department to sign your documents, be patient. Your finance manager will try to sell you everything there is. You’ll use your politeness to gain leverage on getting a better interest rate. At the end of his pitch, kindly state that you will take everything into consideration, however, you would like to know what the best interest rate they can offer you. Have the finance manager show you his “bank book.” The bank book will illustrate the going interest rate in relationship to your credit score.

7. It’s o.k. to purchase an extended warranty if you plan to keep your automobile beyond the manufacturers warranty period. Politely ask the finance manager how much over their cost will they sell their warranty for. This goes for any other after market products you may be interested in.

I hope this guide serves you well and good luck with your next automobile purchase.

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