Hi all, I’m really new for leasing and I just read all articles in leasing 101. I’m just wondering that do the dealer still make some money when we use the way to calculate the monthly payments or it’s not?
Since I want to lease 2019 Clarity plug-in. And the monthly payment I calculate using the formula in leasing 101 is $290 (tax included) with $2000 DAS(drive off included). I’m kind of shocked.
Really appreciate for your answer.
Poor dealers!! I will be starting a charity to support my local bmw dealerships. With all the diesel and x2 deals, they must be having a hard time putting food on the table.
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Why does it matter?
Dealers are businesses and each individual one really won’t do a deal that hurts them all that much.
If they do too many “loser” deals and lose too much, then they go out of business. I’ve seen it happen, unfortunately… but that’s what doing favors to customers actually gets you.
Dealers typically lose money on new cars. They make up it up on service and f&i products. Also most customers are not as knowledgeable as most on this site.
Sure it’s gotten harder for dealers to make money since all relevant info is avail online but most people just don’t know much about leasing. This community is not representative of the average person going into a dealership to lease a car.
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I have heard that phrase before and being involved heavily in BD of different industry I seriously doubt that is true in the way most people would read it. They may be “losing” money when compared to assumed, projected or targeted profit per unit or model that was defined when the new car was ordered or delivered. I cannot believe dealers are losing in the meaning that the balance of actual costs of the combined vehicle invoice to the manufacturer, kickbacks, sales person commission and time cost of the managers involved is negative. They may be “losing” on overheads and profit but not on actual cash flow “here and now”.
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Dealers would go out of business if it weren’t profitable. They may lose money on a deal here and there, but only if it helps them push through to a volume bonus from the manufacturer. No one is going to sell you anything if there is nothing in it for them. Who does that?
What he means is that the majority of profit is made from Used car sales, followed by Service and Parts and then F&I. More F&I revenues are tied to used car sales compared to new car sales.
I have posted this before…other dealership holding companies such as Lithia have even higher gross profits from new car sales
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55% of revenue generating 15% of profit, that’s poor but still profit. Regardless, carrying a mayor car company logo allows you to charge by default +10% on used cars and brings a lot of traffic in the house. Not to mention that this looks like a wet dream of many companies, 29% of profit being generated by fully automatic and safe products, another 46% by relatively constant and and self propelled services - that’s better than many retirement plans!
I’m curious what’s that 0.5% “other” in revenue 
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lol. That’s humor.
You guys are right. If they lose money they will be out of this industry. That’s why I’m wondering how much room left for them to accept the price I calculate by leasing 101 formula. I don’t want to give the price, and the dealer just say “good bye”. you know.
That’s exactly what you have to do, though. It sounds like you’re trying to squeeze the dealer to the point where they make no profit so that you benefit solely from the transaction. Dealers are in business, they want to make profit. You need to make an offer and if they refuse it, then move on to the next dealer.
If you only want to work with one dealer, then you’re kind of stuck with what they’ll give you, aren’t you?
Just take a look at the ‘worst leases’ thread.
Once you see some people paying $600 or whatever silly nonsense for a Camry, you’ll see how dealers make money. For every hackr-worthy deal, there are hundreds of other terrible ones.
There is a reason a lot of dealers are closing doors, the manufacturers set insane goals or they threaten to terminate the dealer license if they don’t hit the “number”, they tell the dealer they will pay $400,000 every quarter if they hit goal as an incentive (some MFG pay less some more) - which breaks down to around $1000 car. Most dealers do break even or lose on the new car department, I have worked at many that lost an average of $3000-5000 month on total new car front gross for the whole department (a few broke even, some of the luxury stores turned a profit).
When I say loss of 3-5k (roughly), I don’t mean per car, but the entire new car dept. So it was a break even pretty much just to keep the MFG happy so they can keep their service dept and used car dept and that giant logo on the front of the building.
They had to have a strong service and FI dept to hold up the lost revenue, as well as properly buying used cars.
So why do they take the deals? To hit their number required by the manufacturer.
You have manufacturers pressuring dealers to move units no matter the cost, which is why you see the stupid deals going out. If they don’t hit the number they turn into the dealer with low stock, bad inventory etc.
Here’s some insight on the whole thing
https://www.kerriganadvisors.com/nissan-dealers-unhappy/
I was at a company that literally dumped their Nissan store, and they were one of the better stores in the area due to the pressure. MFGs cut dealer allotments (inventory) and create hell for the dealers if they didn’t hit goal.
I am in the industry, and it isn’t the customers to blame for these no profit deals. It’s the automakers themselves.
Interesting article but it pertains to just one company, not the entire industry.
The majority of the MFG (Toyota is an exception as is a couple of others) operate this way. I’ve been at a few franchises. There’s a lot of people that walk in the dealership doors who think they know everything about the car industry, having never worked a single day in the industry.
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I’d say it applies to Cadillac as well. They use a “pinnacle” program. There’s no holdback and most deals were 2-3k losers. F&I helped recoup some of the losses but still took a bath. If we didn’t hit our monthly target we lost a ton of money. Most manufacturers are heading in that direction.