GM employee discounts- How does the dealer make $?
Argh. not another one of these where I have to show how "Car dealing works"
Okay let's use a hypothetical number set up that is very representative to how it actually works.
Take an average 20K MSRP car.
Invoice for car = 18K.
Cost to actually make car 12K
Manufacturer sells car to deal for 18K .
Manufacturer provides a hold back for any car sold at a minimum of 5% of the MSRP. Maximum holdback as of right now for any car is 11%. this varies from car to car and manufacturer to manufacturer and dealer to dealer.
ALL CARS have a volume incentive from the manufacturer to the dealer. What that is, consumers, and usually not even the sales people even know. Only the dealership owners and the people from the manufacturer they deal with know. We'll use 30 cars a month = $500 back from manu for each car.
If dealer sells a car for the sticker price at 20K they make
(20K-18K) + (5% of 20K) + 500 (if 30 or more cars are sold) = $3500 per car sold of that type at MSRP, manu still makes $4500 per car sold to dealer even if the dealer sells at least 30 cars.
Now how does "employee" pricing work? Easy. The MSRP is gone and the "sticker" price is now the invoice price. This may SEEM like the dealer is now going to lose $2000 of profit and only make $1500 profit but here's how supply and demand work.
You see, manus will give $500 of each car sold if 30 cars are sold in a month, but they
will give $1000 if 60 cars are sold or $2000 if 90 cars are sold. PER CAR. So if the prices come down and people think, "Hey since it's so cheap lets go buy cars!" It works for the dealer because now they can sell higher volumes of cars and STILL make roughly the same money AND get better consumer satisfaction as well.
However, it now seems as if the profits from the manufacturer are being eaten into. That is an illusion as well. This is because the more cars you sell, the more cars you produce. The more you produce the cheaper it is PER CAR produced to produce more. This means that 20K car that costs 12K to manufacture in small quantities, now only costs 10K to manufacturer in LARGE quantities. Why? They get better rates on steel and other parts for buying large bulk quantities. There are also other factors involved but this is how assembly line production works.
That, and higher volumes of sales will overall reduce the chance of backstock. Which is cars left unsold. Any car not sold, is money eaten out of profit. Every car sold is more profit in the pot.
So you see. when car manufacturers and dealers stop being greedy a$$hats then everyone can win. They are just NOW starting to realize this after decades of idiocy and corruption stemming from the end of the first world war. This was because there was a high demand for cars from people with LOTS of money coming back from the war BUT there wasn't any supply. Dealers and manufacturers could set whatever price they want and get it. The Us economy has since then change dramatically but the car business has not until recently.