Guide to Car Dealerships


In the United States, a car dealer can sell used vehicles or be involved in a franchised dealership wherein they become a retailer that sells used and old cars. Most of the time, franchised dealership includes employ trained car technicians, certified pre-owned vehicles, and they also offer to finance. In the United States, almost every state does not allow direct manufacturers are to sell cars because there are franchise laws that state that new vehicles can only be sold by dealers. There are some things most of us need to know when it comes to car dealerships. That is why in this article, we are going to give you a guide on the things that you should know about car dealerships.

What is the Difference Between Franchise Car Dealers and Independent Car Dealers?

Independent car dealerships – Independent car dealerships don’t have any agreements or contracts with a car manufacturer. Usually, the names of their businesses give away the fact that they are independent car dealers because they don’t include the name of an automaker. For example, you might see a car dealership with the name “ Peter’s Quality Used Cars” or “John’s Auto Sales.” This would quickly clue you in the fact that their business is not a franchise of some bigtime car manufacturer.

Franchise Car Dealers – A car dealership franchise often involves the franchisee in committing to selling cars that are manufactured by big, name-brand automakers such as Honda, Toyota, Mitsubishi, and Mazda. While the franchisee can often choose any name they want for their business, they will usually include the name of the brand they carry to inform the customers that they are selling authorized and official products. In other words, franchise car dealers have the authority to sell cars as a direct dealer of a major car manufacturer.

How Do Car Dealership Sells Cars?

Most car dealerships display all their available car models in a car lot or a showroom. According to a U.S federal law, all new cars must have a sticker that shows how much is the offering price of the vehicle and a summary of all its features. Salespersons are the ones who usually talks and negotiate with buyers to come up with final sales prices. In several cases, negotiation includes talking about the price of a trade-in, or how much is the offering price of the dealer when purchasing the buyer’s current car. The salesperson is the one who is responsible for making out a deal where the customer will seriously consider buying the vehicle. After they are done with the negotiation, the sales manager and the customer will work on some documents that include payment and pricing options. After that, the actual downpayment will be asked to the buyer. After paying, the customer will sign the paperwork, and he will be led into the insurance office where several add-ons such as wheel protection, special waxing, or extended warranty services are offered.

How Does Franchise Car Dealers Buy Car from Manufacturers?

Franchise car dealers order vehicles from the car manufacturer for inventory. They pay interest, which is also known as flooring or floorplanning. The car dealer follows a holdback system wherein car manufacturers will give a series of payments to their dealers in order to assist them in stocking their inventory and helping improve their profit. The holdback amount is usually 1 to 3 percent of the car manufacturer’s suggested retail price. More often than not, the holdback is not a negotiable part of the price a consumer will pay for the car. However, car dealers will have to give up the dealer’s holdback money if they wanted to get rid of a vehicle that has been on display for a long time.

The holdback system is created to help offset the cost that a new car dealer has when it comes to paying the interest of the money that they borrowed to keep a car into their inventory. The holdback system also allows car dealers to promote and invoice price sales while still achieving comfortable profits.

But today, the process of selling cars has gone through a lot of changes, all thanks to the internet. Reports say that almost 70 percent of car purchases in the U.S starts with the consumers researching on the internet. This gives them knowledge about the features and price of the car and enables them to compare the models, prices, and discounts with other dealers in a specific location. The internet helps car buyers in the negotiation process. At the same time, it puts pressure on the profit margin of the car dealer.

Other Services that Car Dealership Offers

Car dealers also offer other services through Finance and Insurance office, and these are some of the additional services that they offer:

  • GAP Insurance – This is insurance protection for the loan in case the car is lost because of theft or an accident. A GAP policy ensures the car owner that they will cover the remaining payments for the loan so that the car owner will no longer be paying for a car that they no longer possess. Several states in the U.S regulate GAP insurance.
  • Maintenance Agreements – Several car dealers who have their own service centers offer pre-paid maintenance agreements. Sometimes, these provided directly by the car manufacturer or the dealership alone. The services that are being produced in the maintenance agreements vary from dealership to dealership, you need to know the services that are covered by the plan and the recommended service intervals for your car.
  • Credit, Life, or Disability Insurance – Every car buyer needs to know that this kind of insurance is where a car dealership gets a lot of profit. It is kind of similar to the GAP insurance. However, this cannot be required as a condition of the loan. Car buyers have the option of purchasing for their investment if they become unable or disable to work for the time that they are required to make payments. This kind of insurance often takes effect on the 31s or 32nd day of disability. This means that the car buyer has to be unable to work for more than a month before he or she can file a claim. They are also required to submit paperwork to support their disability claim. This insurance often covers the remaining balance of the loan if the borrower dies during the term of the contract.

Aftermarket Accessories – Several car dealerships often offer car accessories that are not promoted or provided directly by car manufacturers. However, take note that these can be a bit dangerous for consumers because some car dealerships sometimes engage in illegal payment packing. This means that they estimate an exaggerated monthly payment of your car in order to convince the customers to purchase these aftermarket products.

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