Car Dealer's Internet Departments

Car dealer’s internet and fleet departments have grown in size and profitability in the last ten years.  Over seventy percent of the car buying public go on-line to research and shop for their next new car.  The attraction to buying a car on-line is simple; get the best price without the hassles of going through the games or gimmicks of normal negotiations.  There are potential pit-falls to this strategy. Believe it or not, internet and fleet departments that appear to sell the 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.

Believe it or not, internet and fleet departments that appear to sell the cars at a discounted price make some of the largest profits for the dealership.

Advertising a low price on the Internet is more-or-less another way to get a customer into the dealership.  Keep in mind, internet managers 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. 

Since the large majority of customers buy 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 dynamically negotiate the price and payment. 

When pressed for a payment 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 their credit rating or "shop for the best rate". 

The Internet salesman may say "because the rates change so frequently, we will have to proceed when you are ready to take delivery of the vehicle in order to give you an accurate quote”.  This is not entirely untrue, however most of the rates, 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 serve” policy.  They tell the customer they can not 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 can not 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”, they may try to increase their 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 like the “back-end”.

 

Of course, not all Internet departments in all dealerships are will use these techniques.  But think about it, if there was a department that just wholesaled cars to the public at ridiculous cheap prices, these dealers would quickly go out of business