Dealers increase profits at customers’ expense

When you shop at a car dealership, watch out for expensive add-ons and costly financing. Often items like extended service contracts, “theft etch” and “GAP” are a rip-off, and usually you can get a better rate on the financing yourself, by shopping around.

For example, many service contracts and extended warranties have fine print that excludes “pre-existing conditions.” So if the engine blows, your claim may be denied when the provider blames the problem on a lack of maintenance by a prior owner, or a component that was supposedly faulty when you bought the car.

How much extra do add-ons and dealer-arranged financing cost? They can add $5,000 or more to the price of a car, without adding any real benefit. Of course, car dealers push add-ons aggressively because they are so profitable — for them.

According to Automotive News, in the first quarter of 2018, AutoNation, the country’s largest new car dealership chain, averaged a gross “finance and insurance” profit of $1,779 per unit sold. That’s just their profit.

Bottom line: If you want to save big, it’s smart to get your own financing and decline the high-cost / fat-profit / low value add-ons.

Car Dealers Rake in Billions

Auto dealers like to pose as “Main Street” “mom and pop” businesses, in order to get concessions from legislators and regulators. But according to Automotive News, “The $1 billion club for 2012 includes 34 [dealership] groups, including 13 with more than $2 billion.”

Increasingly, auto dealerships are consolidating and thousands are publicly traded on Wall Street. Microsoft’s Bill Gates is one of the largest investors in the nation’s largest auto dealership chain, AutoNation, which reportedly grossed  $15,668,8000,000 last year.*

*Automotive News, “Top 125 dealership groups in the U.S.” – March, 2013.