If you’re looking to buy a new car, it’s important to understand why salespeople try to sell cars as quickly as possible. Most consumers are not aware that the cars on the lot are often not owned by the car dealership. Instead, they use several million dollars’ worth of inventory that is owned by a bank or finance company.
Most car dealerships use something called “floor plan financing” to ensure their lots are consistently stocked with cars. This type of planning is a way to borrow money and keep their inventory continually refreshed with new vehicles. This financing is a short-term loan, typically paid off in 30 to 90 days, which is the average amount of time needed to sell a car.
On average, a new car will cost the dealer between $5 and $10 each day due to interest. In other words, a car that sits on the lot for 30 days will cost between $150-300 in interest. A car that sits for 90 days will cost $450-900 in interest. Because of this extra interest, dealers are motivated to get cars off the lot as quickly as possible. It will aid to reduce financing costs and will increase the profits of each sale.
These finance costs are typically reimbursed through a “dealer holdback” by the manufacturer. The manufacturer typically reimburses 2 – 3% of the invoice price of the vehicle. For example, a car that costs $28,000 and has a 2% holdback, the dealer initially can earn $550. If the car sits for 30 days on the lot, the financing cost would be $300. This means they will make a profit of $250 on the holdback for the vehicle.
When a car doesn’t sell quickly, there will likely be a loss. The financing costs will eat the potential profit, making selling fast at a loss the best option. If you are looking for a new vehicle, it pays off to find which ones have been sitting on the lot for a while. A customer is far more likely to get the best deal on one of those models since the dealer will want to get it off the lot as quickly as possible.
My Auto Store is the best place to sell your car, as we are always looking for new vehicles. Unlike car dealerships buying used cars, we offer the best price for your car since we sell by the part and don’t have a car lot to worry about financing on. Sell us your car today to find out how we can help.