Does anyone know what the % is of the $ amount the car sells for the dealership gets back from from the likes of Ally or any financial institution they place the loan with ?

 

They buy the money at one rate and sell it at another. Similar to a mortgage broker on a house. The rate difference is how they get paid and it varies with based on interest rates and credit scores.

 

I've never understood why everyone feels they need to know someone else business. What matters to you is the rate YOU are paying. Unless you need the dealer's leverage due to your credit history simply shop them the same way you shop for everything else. Get quotes from a number of lenders and use the one that give YOU the best deal.

Personally, I only use dealer financing when they beat what I can get on the open market which aside from subsidized deals they never can.

 

They also package loans and sell the portfolio to banks so honestly, the actual cost of the money isn't calculable on a deal by deal basis.

In fact, if you are a low risk, low rate customer they NEED your deal to offset the poor guy in front of you with a 580 credit score paying 12%. They will probably make nothing on your loan but pocket 3 or 4 points on the bad risk deals.

 

It is "very doubtful" that any new car dealership will carry the paper on any car.

Many will go thru Ally Bank (because the C7 is a Chevrolet product), which is the old GMAC. Once the car is financed the lender will usually "kickback" a fee to the dealership for securing the loan. The dealership only completes the paperwork for the loan. I do not know what that "kickback" or fee might be.

The dealerships "do not" buy the money at one rate and sell it at another.

 

Good post and great observation & comments!

 

Actually it depends on the dealer's size and what they have worked out with the local banks. Larger dealerships package their loans in a portfolio and negotiate a combined rate weekly. I agree, NO dealer actually carries the paper unless it's a "buy here, pay here" used car lot.

 

Don't twist my words. That's not what I said. They buy a stack of cash at x% and sell it at y% (to you, for you to buy the car with).

x% - y% is their profit. They don't carry it, they get the money upfront, its just calculated differently that if they carried it. Its just like a mortgage broker doesn't wait 30 years to get the money he makes when he sells you a loan. I don't know how I could have come up with a more clear example.

I didn't imply that what they bought it for, or if you could buy it cheaper (they buy a lot more money, so yes they have more leverage).

But interest is, by definition, buying and selling money. The car or house or other collateral is just the bait.

Finding five different ways to say what I said or bringing up left field items like Buy here Pay here does not change the simple answer to a simple question. They only way to make money selling money is interest and fees. And that is how ANY financial institution makes money.

OP didn't ask but finance dept at a dealership is usually tasked with selling aftermarket warranties and add-ons and a substantial markup.

 

Jedblanks:

The dealerships "do not" buy the money at one rate and sell it at another as you state.

Automobile dealerships "do not" play the interest rate game. They leave that to banks, credit unions etc. They simply fill out paperwork and the loan is secured by the lending institution, and they (dealer) don't set the interest rates on car loans, the lender does. The rate of interest charged on auto loans is dependent on several factors with "credit scores" having a very heavy impact on the final interest rate bearing loan.

Your explaination is "very twisted". They buy a stack of cash at x% and sell it at y% (to you, for you to buy the car with).x% - y% is their profit. They don't carry it, they get the money upfront, its just calculated differently that if they carried it.

I think you should stick with your profession of "programming" or take a course in finance!

 

 

OP, and now you see how "we" got into the mess of a recession most recently....

 

Exactly ! That is what I'm wanting to know. What their kick back is as a % of the sale. I can afford to pay cash if I want to. I want to know how much they get if I let them use my high end fico score to off set the bottom dwellers. I may be able to negotiate a lower bottom line for the car.

 

Negotiate and see what they're willing to do for you. My parents were able to get $500 off a new Jeep Grand Cherokee by financing through the dealership vs. writing a check for the vehicle. I attempted the same on my both cars but neither dealerships were willing the play, which tells me it depends on the dealership, manager, etc.

 

MikeyTX:

The dealer doesn't get very much, I would guess about .50% to .75% of the loan.

Thus a $60,000 car with $20,000 down leaves a $40,000 loan which might give the dealer a "kickback" of about $200 to $250.00.

Also, if the customer pays off the loan usually within 60 days, the "kickback" has a "clawback" feature and the dealership is required to pay the "kickback" back to the lender.

Generally if you consider financing and use this as a bargaining tool, the dealer might or may not respond to the finance deal to reduce the price. There just isn't that much there for them to work a reduction.

The dealership needs "volume" to make a good profit from the financing deals that they make for the banks, credit unions, etc.

Most likely when you go to close and sign the paperwork, the finance guys will want to sell you things like extended GM warranties, paint protection plans, tire warranties etc. That is where they can make a nice profit, in addition to the "document" or "doc fees" that the dealership charges each customer.

Just think, a "doc fee" at $200 each x 1000 cars sold in a year is an extra $200,000 in revenue for the dealership. Then there is future service from dealership. Even if the C7 is under warranty, the dealer charges back GM for any service repairs, which includes parts and labor.

Also the "holdback" to the dealer from GM is right 3%, so they always make money.

The automobile dealership is a very lucrative business, especially for high volume dealerships. They always make money.

Strike the best deal you can, as it's always about the "Art of the Deal".
Car dealers want to sell cars, just be careful of the "spin" that they try to give you.

You know from current conditions that a 10% discount off MSRP is very doable. You just have to find the dealer that is willing to discount. As American's, we always want the lowest price we can find.

Happy car hunting, and enjoy the new ride when you get it.

 

Wouldn't it be y% - x% is their profit as that would be a positive number? Say they get $50,000 at 10% which is x%. They then sell it to a buyer at 15% which is y%. The only way that number is positive is for it to be y-x.

 

The people who know will never tell you the dealer yield spread (the difference between the consumer's interest rate and the finance company's buy rate) & those folks would be the dealer and the lenders who buy the loans/leases/retail installment sale contracts. And the yield spread varies. Best way to get the best deal is negotiate the car price and have your best interest rate through banks/credit unions and then let the dealer match or beat it. Waste of energy speculating on what the dealer makes if it finances your car. Just my two cents.

 

FWIW, I just bought mine in Jan and did my museum delivery 2/5/15. My dealer didn't even attempt to offer to finance the car when I said I'm paying cash & my credit is stellar. Dealers don't think in the terms you posit. The lenders do and use risk based pricing. One with a better credit rating will have a lower rate than one who doesn't. But they're not going to incent you to finance your car. Realty is there are plenty of new car buyers with good credit who want or need financing.

 

Exactly

 

I am not certain where you come up with this stuff of "dealer yield spreads". The dealer is not in the business of carrying paper for lending on automobiles. They are "not" in the game to play the direction of interest rates, they are not in the lending business. They act as a "third party" and simply secure the loan agreements between the customer/consumer to the bank, credit union, etc. They do paperwork, and have a vast inventory of banks and credit unions that they do business with to provide customers with a choice of lenders. Car dealerships "do not" set auto loan rates. If it's a GM product most likely their #1 lender will be Ally Bank which recently changed it's name from GMAC (General Motors Acceptence Corp). Look it up, do some research!

Can you imagine a large dealer playing the role as a lender and then having to repossess automobiles when payments are not made. Dealers sell cars. There are some dealers (very small time used car dealers that will assume risks by lending on what they sell, but this is very few and far between and it won't be a dealer selling new Corvette C7's).

Ask the big players in Corvette sales, "Do you carry the loan/lending paper on new Corvette's? Do you act as the banker/lender and hold the note?"

Ask Kerbeck, ask Coughlin, ask MacMulkin, ask Les Standford. They will tell you NO!

To educate yourselves, here's a link that educates in simple understanding language how auto loans work. Read it! There are many others links and websites that explain this process.

http://www.carsdirect.com/auto-loans...interest-works

As for trying to determine what a dealer makes by handling the paperwork, securing the loan for the lenders and completeing the final paperwork, should not be a "dealbreaker" for any customer or consumer. The dealer earns a fee for the work they complete for the lender. The dealer has NO responsibility to the lender if any consumer defaults on their car payments to the lender. The lender accepts full responsibilty for the loan and repayment of the loan, not a car dealership. Be assured you will required to sign many documents between yourself and the lender, not the dealership. Do not just sign, be sure to take time to read the contract and ask questions. If you don't fully understand the lending process and policies of the lender you are dealing with, ask questions.

Keep in mind that there are shady dealerships out there. Scams do happen. My advice is to cross check interest rates with the lender directly to confirm the dealer is on the same page as the lender as far as rates. It is always best to try to secure any loan or lending direct with your bank or credit union, and be sure to know your own credit scores (FICO). The lower the score the higher the rate you will be charged when securing a loan of any kind, automobile or otherwise.

Be sure to acquire and learn factual information before making assumptions as to "dealer yield spreads" and other areas that you may not be privy too or fully understand. Misinformation can mislead other forum members greatly.

 

Appreciate. That was the information I was seeking.