Most of us like to tell “fish stories,” and they often include tales about the great deal we negotiated on our new car or truck.
But behind closed doors, many of us obsess that we really paid too much.
At least that’s the conclusion of the first annual TrueCar Buyer Study, which polled more than 3,000 consumers across the country.
Despite all of the pricing information at our fingertips on sites like Kelley Blue Book (kbb.com) and Edmunds.com, it seems many new-car shoppers have no real idea how much the dealer is making in any given deal.
Because of that, 26% of new-car buyers believe they overpaid for their car.
Many of those surveyed guesstimated the dealer makes about 20% profit on the sale of a $30,000 new car. That would be about $6,000.
Most consumers, it seems, aren’t opposed to dealers making a profit. Survey respondents felt a fair profit would be in the range of 10% to 12%, or about $3,000.
Moreover, in a deal where they were convinced a dealer had made $0 profit, they would willingly “tip” the dealer 8% for his efforts.
In reality, dealers averaged less than 4% profit on a new-car sale in 2013, or about $1,200. That’s roughly a fifth of the 20% most of those surveyed thought, and half of what survey respondents would be willing to tip a dealer in a $0-profit sale.
According to the same report, the average dealer profit was 5.5% ten years earlier. Yes, it seems dealer profit margins are shrinking.
What this means for consumers is that they are probably negotiating a better deal than they believe.
Bottom line: Just go to Kelley or Edmunds and find out the invoice price for the car or truck you want to buy, which is how much it cost the dealer, and the average price buyers wind up paying.
This is all the information you really need to arrive at a fair price.
If you negotiate a deal that’s a little below the average transaction price you’re hit the sweet spot with no reason for regret.
With all of the information available, shame on us if we pay too much for a new car. But in many cases, we’re probably getting a better deal than we think.