The Car Dealer's Back End Profit

What customers don't know won't hurt them.  The price, trade-in value and interest rate are all printed on the sales contract for the customer to review.  However, what most customers don't realize is that the actual dealer profit is often hidden in the "Back-End" and not disclosed in the sale.

The dealer's "back-end" profit can be as much as half of the income that is made on a modern car sale. .

This "back-end" profit can be as much as half of the income that is made on a modern car sale. Furthermore, if a customer purchases a car through an Internet or Fleet Department, often the dealer’s "back-end" income accounts for most of the profit.

The "back-end" can consist of profit made from the interest rate, Money-Factor, warranties and sealants (Mop-and-Glow).  Also, the dealer's "back-end" profit can be produced from add-on items like accessories, alarm systems, gap-coverage, and insurances covering the loan (LA&H).

"Back-end" profit is generally built into the deal in the form of a "Leg" in the payment.  For example, when you finance thirty thousand dollars at six percent APR it produces a payment of five hundred eighty dollars.  However the salesman may close the deal at thirty thousand dollars with a payment of five hundred ninety dollars.  Because this is a payment that is ten dollars higher than the interest rate would yield, it gives the dealer a ten dollar "leg". 

Since most of the "back-end" profit is generated by the finance department (F&I).  This "leg" allows the "F&I" manager to sell warranties and sealants for a large profit without dramatically increasing the monthly payment.

Keep in mind, just because you feel you have negotiated a great price you must pay attention to the overall cost.  You can use our pricing Cheat-Sheets and Payment Checkers to verify the dealer's total "Front-End" and "back-end" profit.