Car dealerships in the USA
From Wikipedia, the free encyclopedia
In the United States, a car dealership is a retailer that sells new and/or used cars. Used car dealerships carry cars from many different manufacturers, while new car dealerships are generally franchises associated with only one or two manufacturers. However, in some areas, dealerships have been consolidated and a single owner may control a chain of dealerships representing several different manufacturers. New car dealerships also sell used cars, as they take in trade-ins and/or purchase used vehicles at auction. Most dealerships also provide a series of additional services for car buyers and owners, which are sometimes more profitable than the core business of selling cars.
In 2006, there are approximately 26,700 new car dealerships in the United States, accounting for $684 billion, according to the 2006 U.S. Industry & Market Outlook by Barnes Reports.
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[edit] Selling cars
Most car dealerships display their inventory in a showroom and on a car lot. Under federal law, all new cars must carry a sticker showing the offering price and summarizing the vehicle's features. Typically, salespersons working on commission only, negotiate with buyers to determine a final sales price. In many cases, this includes negotiating the price of a trade-in — the dealer's purchase of the buyer's current automobile. Negotiations from the dealerhip's perspective is often referred to as "desking" a deal.
Profit margins on automobile sales are surprisingly low. A new car dealer may mark up a car by less than two percent over the manufacturer's invoice cost, and typically the car dealer borrows from the manufacturer for inventory and pays interest (called flooring or floorplaning). On the other hand, manufacturers pay "hold-back" payments as incentives to dealers who reach sales targets, thus improving the fiscal stability of dealers.
[edit] Additional services
Most car dealers offer a variety of financing options for the purchase of cars, including loans and leases. Financing can be highly profitable for dealerships. There have been some scandals involving discriminatory or predatory lending practices, and as a result, vehicle financing is heavily regulated in many states. For example, in the U.S. state of California, there must be several warning signs posted in each salesperson's cubicle, and the contract must contain several prominent warnings, such as the words "THERE IS NO COOLING-OFF PERIOD."
Although the terms of installment contracts are negotiated by the dealer with the buyer, only a tiny number of dealers actually make loans directly to consumers. People within the business refer to such dealers as "buy here, pay here" dealerships. These stores are able to make loans directly to customers because they have some means of recovering the vehicle if the customer defaults on the loan. The means by which "buy here, pay here" dealers can recover a vehicle vary by state. Most dealers, however, are indirect lenders. This means that the contracts are immediately "assigned" or "resold" to third-party finance companies or banks, which pay the dealer and then attempt to recover the balance by collecting the monthly installment payments promised by the buyer. Sometimes the dealer has the option of marking up the rate of the contract and retaining a portion of that markup. This is a regular practice because the dealership is selling the contract to a bank just like it sold a car to the customer. Most banks strictly limit the amount a contract rate may be marked up (by giving a range of rates that they will buy the contract at). In most cases this amounts to very little difference in the customers payment. Customers may also find that a dealer can get them better rates than they can at with their local bank or credit union. It is best to allow the dealer to check your credit along with your own investigating and compare the results. Most financing available at new car dealerships is offered by the financing arm of the vehicle manufacturer.
Dealers may also offer other services, typically through the Finance and Insurance office. These additional services can include:
- Service contracts: While any vehicle sold in the United States now comes standard with some degree of manufacturer's warranty coverage, customers have a wide range of choices to cover their vehicle from mechanical failure beyond that point. Service contracts may have the sames terms of coverage as the vehicle's original manufacturer's warranty, but sometimes they do not. Because of the vast number of choices, it is important for consumers to be aware of the coverages before entering into an agreement. In some states, such as Florida, the cost of such agreements are heavily regulated.
- GAP insurance: GAP insurance is protection for the loan in the event that the vehicle is lost as the result of an accident or theft. A GAP policy ensures that in the event of a total loss, the remaining payments are made on the loan so that a customer does not have to pay for a vehicle he or she no longer has. Many states regulate GAP insurance (New York, for example, does not allow dealerships to profit from the sale of GAP insurance).
- Credit/Life/Disability insurance: Customers often have the option of purchasing protection for their loan if anything unfortunate happens to the borrower. While customers can often obtain this coverage from their own insurance companies, dealerships, depending on state regulations, can often offer comparable coverage while also offering the convenience of a "single stop purchase."
- Aftermarket accessories: Many dealerships offer accessories that are not offered by the manufacturer directly. Like Credit/Life/Disability insurance, there are many ways a consumer can purchase these options outside the dealership, but without the convenience factor.
- Maintenance agreements: Many dealerships that have their own service shops will offer pre-paid maintenance agreements. These are sometimes offered directly through the manufacturer (such as Saturn's Basic Care or Car Care programs) or by the dealership alone. Because of the vast differences in programs that can exist from dealership to dealership, it is important to know what gets covered under such a plan and what are the recommended service intervals (see below).
Car dealers also provide maintenance and in some cases, repair service for cars. New car dealerships are more likely to provide these services, since they usually stock and sell parts and process warranty claims for the manufacturers they represent. Maintenance represents a significant profit center for new car dealers, especially since it brings customers back into the showroom to see newer car models.
[edit] Regulation
In the United States, most aspects of operating a car dealership are regulated at the state level. Car titles are issued and transferred by the individual states through their respective Departments of Motor Vehicles. The purchase price of a vehicle usually includes various fees which the dealer forwards to the state DMV in order to transfer the vehicle's title to the buyer. In many states, the DMVs also license and regulate car dealerships. In many states, car dealerships are capable of issuing all of the necessary forms for the DMV, allowing the customer to skip a trip to the local DMV office.
Consumer complaints against car dealerships are investigated by the Attorney General's office in the state in which the dealership is located.
