Car Dealer's Internet Sales
Car dealers’ Internet and Fleet departments have grown in size and profitability in the last 15 years. Over seventy percent of the car- buying public goes online to research and shop for their next new car. The attraction to buying a car online is simple: get the best price without the hassles of going through the games or gimmicks of normal negotiations. However, there are potential pitfalls to this strategy. Believe it or not, Internet and Fleet departments that appear to sell cars at a discounted price make some of the largest profits for the dealership. These profits are generated from the “Back-End,” which you now know is profit generally made from financing and leasing.
Advertising a low price on the internet is another way to get a customer into the dealership, more or less. Keep in mind, Internet and Fleet managers are really just salespeople and they will still employ the same techniques that are used during normal negotiations. These tactics will usually become evident when the customer arrives to finish the deal. As a large majority of customers buys cars through financing or leasing, the internet salesman will increase the APR or Money-Factor on the agreements. Amazingly, this goes largely unnoticed; the internet customer is less guarded against these potential increases due to the ease of the initial price negotiation. They already assume that they have completed the negotiation and often do not question the payments as readily as customers who negotiate the price and payment dynamically.
When pressed for a monthly payment amount by a customer over the phone or email, a common technique for an internet salesperson is to require the customer to be present at the dealership to finalize the deal. They may use the reasoning that they need the customer present to check his credit rating or “shop for the best rate.” The internet salesman may say: “Because the rates change so frequently, in order to give you an accurate quote, we will have to proceed when you are ready to take delivery of the vehicle.” This is not entirely untrue. However, most of the rates and money factors change once a month or at most twice a month. This is just a technique to get the customer to come to the dealership before they quote the “back-end.”
Another way internet salespeople will get the customer to complete the negotiations at the dealership is to apply the “first come, first served” policy. They tell the customer that they cannot reserve the vehicle and the customer must be present to finalize the payments. However, most of the time, the trade-in appraisal is the lure to get the customer in the showroom. Logically, dealers cannot place a value on the customer’s trade-in without first seeing the vehicle. If the internet manager has negotiated a small profit on the “Front-End,” he may try to increase his commission by buying the customer’s trade-in for less than the wholesale price. This is called “under-allowing” the trade-in. Although “under-allowing” for a trade-in is technically front-end profit, it is hidden profit, just like the “back-end”. Of course, not all internet departments in all dealerships will use these techniques. But think about it: if there was a department that simply wholesaled cars to the public at ridiculously cheap prices, these dealers would go out of business quickly.
Finally, customers should also be aware that by responding to an automotive internet website, they are essentially generating a lead to be sold to the local car dealers. For example, a website may offer to provide the customer with the price, and the customer selects the make and model of his desired vehicle on the website. Then the customer would have to include his name, phone number and email. By entering this information, the customer has authorized the website to sell this information to all the car dealers in the area.