How Come Dealers Are Telling Me They Can't Sell Below Their Invoice?

Illustration for article titled How Come Dealers Are Telling Me They Cant Sell Below Their Invoice?
Photo: Toyota

As Jalopnik’s resident car buying expert and professional car shopper, I get emails. Lots of emails. I’ve decided to pick a few questions and try to help out. This week we are discussing dealers “making deals count,” the covid-19 impact on specialty cars, and negotiating a better buyout on a lease.

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First up, how come some dealers are being even less flexible on prices?

I was shopping for a new Toyota Tacoma and the dealer told me straight up, ‘We are not selling these below our invoice cost. Given the current situation, we need to make every deal count.’ What does that mean? Wouldn’t they be more likely to make it count at a more competitive price? I get that Tacomas are popular but I’ve gotten prices under invoice before.

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This is an interesting development with car sales and covid-19. When a dealer sells a car substantially below their invoice they are doing so for two reasons: First, they have additional dealer cash rebates from the factory that can be passed on to you; if the automakers are not providing those back-end rebates you can’t have them. In this case, it’s possible that Toyota is being strategic with those programs and putting them on higher volume cars like Camrys and Highlanders. These dealer cash programs also vary from region to region so it might be helpful to cast a wider net.

The second reason is that dealers often make their money on new units by hitting or exceeding certain sales targets set by the manufacturer. So if that dealer is supposed to sell 100 cars this month and they are lucky to sell 50, and the automaker hasn’t moved the goalposts for unit sale bonuses, that revenue stream is lost. Therefore they need to focus on getting their money from the individual units.

Next up, will dropping used car values have an impact on the specialty market?

I’m shopping for an Alfa 8C but the values are still inflated in my opinion. I’ve made a few offers to dealerships and have been met with either no response at all or just a simple, ‘this is our price.’ In the coming months will prices come down on cars like this?

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While used cars are expected to drop further in the coming months, remember that applies to regular cars that are essentially commodities. The key reason for this price drop is there are too many cars for sale and not enough demand. Specialty market cars like the 8C are a different animal. There are a handful of those cars for sale in the entire country and the type of dealer that stocks a unit like that isn’t likely to stress about it sitting in their showroom for another few months. Furthermore, the typical buyer spending upwards of a quarter of a million dollars on an Alfa 8C is less likely to be as dramatically impacted by the economic fallout of covid-19. Yes, the stock market took a dive, but things are likely to return to normal once the country figures out a way to safely open.

And finally, will the drop in used car auction prices give me an opportunity to get a lower buyout on my lease?

The lease on my wife’s Wrangler is ending soon. If I’m correct, it must be returned by 8/27/20. We wanted to purchase it, but with used car values plummeting, the KBB value is much lower than the contract’s residual amount. It’s so much lower that I doubt we could get a loan for it, and we don’t want to be so far upside down right out of the gate. Do you think the leasing company (Ally) would negotiate a lower residual amount? After all, they are going to get completely hosed if they take it to an auction. I would hope taking a smaller hit would be appealing to them.

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You are correct that wholesale used cars auctions are taking a hit and values are dropping. And yes, several automakers are encouraging lease extensions to keep cars out of the market. If you are considering buying out your lease you may be able to make a case for a lower price, but it really depends on the leasing company. I recently had a reader reach out with a similar situation on a Volkswagen and VW financial flat out refused to budge on the buyout number. However, other leasing outfits are more likely to take a reasonable and market-based offer that may be lower than the original buyout projection. Use the data you have access to and make your case, you really have nothing to lose. Worst case scenario, Ally doesn’t bite and you give back your Wrangler and move on to something else.

Got a car buying conundrum that you need some assistance with? Email me at tom.mcparland@jalopnik.com!

Tom is a contributing writer for Jalopnik and runs AutomatchConsulting.com. He saves people money and takes the hassle out of buying or leasing a car. (Facebook.com/AutomatchConsulting)

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DISCUSSION

acorr550m
Bimmerphile?

Isn’t there a third reason for the first question? The dealer is BSing to get more money out of the customer?

It’s not like dealers always tell the truth or anything...