Hack
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People finally figured out that it's a bad time to buy used.
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How long did it take to sell it?Vroom listed my Bullitt for $4,500 less than they paid me for it - it had ~9,000 miles and sat on their website (Portland OR) forever. Crazy!
On the financing side, most dealers do not make the financing profit unless they carry the note themselves. They will get back end money and commissions. If you were to finance at the dealer and then find better financing. When you cash out the contract the dealership will get charged back if is inside a certain window. That window used to be 90 days from the start date.They're not losing money.
Car dealers make money in 6 ways. 1) The sales price. Pretty simple. They buy it either as a trade or from the invoice from the factory and if they sell it for more, it's profit. 2) Trade in. Even if they make little to nothing on the current sale, if they can flip your trade in for more, it's a profit center. 3) Financing. They could either make no money or even lose money on the new sale and the trade in, but if your credit is bad, they make money off the financing. Given that auto loans are now common out to 84 months, the financing charges are actually much juicier than the sales profits. 4) Warranty and service work and parts sales. Either in reimbursement from the manufacturer or revenue/profit from non warranty work and parts. 5) Sales incentives and bonuses from factory. 6) Land/Real Property appreciation. This is the real long con for many urban dealerships (that are usually large properties). They can make little profit or even break even for 20 years and turn around the property for pretty big gains.
In this case, they're most likely focused on financing profits.
Just like why H&R block and most tax processors offer "free" 1040EZ filings, they're banking on the fact that MOST Americans will take the "advanced payment" option for 10% of the value of the return. They lose labor on the filing, but they make it back more on the juice they charge for giving the filer a refund anticipation check (minus 10%). In the end, they make MORE money that way by attracting more filers offering the service for free and taking advantage of the cost of money.
I know dealers have manufacturing financing bonuses and they also get a cut/kickback if they have habitual relationships with lenders. But I agree, an MBA major concept is that whole industries over time shift from initial sales and product profits to eventually service and repair parts/components.On the financing side, most dealers do not make the financing profit unless they carry the note themselves. They will get back end money and commissions. If you were to finance at the dealer and then find better financing. When you cash out the contract the dealership will get charged back if is inside a certain window. That window used to be 90 days from the start date.
Dealers make the majority of their money in the service dept.
I used to think that was true, but it seems like that the formula has changed a bit here recently and dealers are looing for trade or to make quick cash off the financing. Earlier this year, I had a dealer refuse to sell me a car unless I financed. They told me that I could pay off the loan after 90 days (which matches your window). I said no thank you and walked away.On the financing side, most dealers do not make the financing profit unless they carry the note themselves. They will get back end money and commissions. If you were to finance at the dealer and then find better financing. When you cash out the contract the dealership will get charged back if is inside a certain window. That window used to be 90 days from the start date.
Dealers make the majority of their money in the service dept.
They make a little back end money. Basically they get paid like a mortgage broker. Points. They look at your credit scores and match you up to their finance partners based on profit. They might make a quarter to half point on your informed buyer.I used to think that was true, but it seems like that the formula has changed a bit here recently and dealers are looing for trade or to make quick cash off the financing. Earlier this year, I had a dealer refuse to sell me a car unless I financed. They told me that I could pay off the loan after 90 days (which matches your window). I said no thank you and walked away.
This wasn’t Carvana, and we never got to the point of names and credit scores. I said I wanted to make a cash offer, they said that I had to finance and “agree” to hold the note for 90 days before paying it off. I said no. End of discussion.They make a little back end money. Basically they get paid like a mortgage broker. Points. They look at your credit scores and match you up to their finance partners based on profit. They might make a quarter to half point on your informed buyer.
The biggest missing part for carvana is service. That is what my many years in the business tells me. The internet killed front end profit. The front end brought you service customers. Before the internet parts was 2nd in revenue.
Yeah wrong thread on the carvana deal.This wasn’t Carvana, and we never got to the point of names and credit scores. I said I wanted to make a cash offer, they said that I had to finance and “agree” to hold the note for 90 days before paying it off. I said no. End of discussion.
I did end up buying a different car from Carvana. Got a good deal (by today’s standards anyway) and it was a painless process. I am still waiting on the registration though, and that does seem to be a common complaint about them. I still have about 6 weeks left on the temp reg they gave me.
A buddy of mine also bought from Carvana and also had a good experience.
No but they're pricing it to attract fish. Some fish with low credit scores (bigger payout bigger fish) and some with perfect credit (small fish).This wasn’t Carvana, and we never got to the point of names and credit scores. I said I wanted to make a cash offer, they said that I had to finance and “agree” to hold the note for 90 days before paying it off. I said no. End of discussion.
I did end up buying a different car from Carvana. Got a good deal (by today’s standards anyway) and it was a painless process. I am still waiting on the registration though, and that does seem to be a common complaint about them. I still have about 6 weeks left on the temp reg they gave me.
A buddy of mine also bought from Carvana and also had a good experience.
Have you seen VRM's financials? I pity the fool who has a large amount of that stock. 52 week high is ~ $46. Currently trading at $1.46 and is considered "overvalued". I think Vroom and Carvana had creative intentions when they tried shaking up the auto industry, but considering Carvana has yet to make a profit (not sure about Vroom but I don't think they have), I'd say their time is limited.Well this is why places and companies like Vroom are worth millions and billions of dollars and us normal people are not. Because they see money in a much different light than we see it. Losing even a few thousand on one deal means nothing when they can make it up elsewhere. There are protection plans, interest, higher prices on other cars to name a few. The difference is $180. They are not worried about that. Plus they contract the pickups and deliveries or probably even do it thru contracts or in-house. They didn't lose anything on your car. Even if they lose money initially, the money that will roll in for the next 5-7 years on interest will make up for it. Plus eventually the same car or other cars will depreciate and they'll buy in low then sell high. They aren't worth 5.5 BILLION dollars for nothing.
Financing a car for 84 months is pretty insane. But it's a reflection of where we are as a society and economy.
I agree with your post 99% The only thing I disagree with is financing a vehicle for 7 years isn't pretty insane, it is downright stupid.
Financing is where it is at for dealers. That's why the salesperson doesn't talk about features and benefits of the car, but starts out by asking "what monthly payments are you looking for?"