Smart Dealership Structure

The Inner Workings of Car Dealerships.
When you’re in the market for the latest electric vehicle, it’s easy to be frightened, perplexed, and even bullied by the dealers trying to sell to you. Reading up on the inner workings and management of the typical dealership can not only demystify this confusing industry for you, it can also put you on the road toward getting the best deal possible on your next vehicle. In order to help you understand how dealerships work, we will be peeling back the neat, organized top layers to give you a peek at what lies beneath – the heart and guts, if you will.

Dealerships run a lot like living organisms with different systems providing different services, some more essential than others. While the flashy salespersons and display rooms may turn heads, there are many other departments that are essential to a healthy dealership.

In brief, most dealerships come with these standard departments: new and used car sales, finance and insurance, service, and body shop. These are complimented by the organizational departments, which include everything from the lofty administration and reception departments all the way down to the lowly cashiers and accountants.

The Display Room (AKA Showroom Floor)

Automobile makers strive to promote congruence among their dealers, often encouraging the same or similar formats for the decoration and design of the display rooms. This is in an attempt to move beyond simple brand status and into the world of strong identity and solid customer association.

Both Smart and MINI Cooper are great examples of this. Smart demands a modern, almost futuristic look for their dealers' display rooms, complete with all the latest in Smart-themed gadgets and décor. MINI Cooper dealerships are usually asked to offer the full range of MINI products in their display rooms, including MINI fashion wear, MINI sunglasses, and other MINI memorabilia. Although these brands are on the extreme cutting-edge of promoting their companies' identities, many of the smaller, less-defined brands are also jumping on the identity bandwagon and attempting to encourage standalone dealerships with themed display rooms.

Dealership Hierarchy

The sales manager is the big cheese of the new car sales departments. Besides his well-known task of sitting at his desk and frowning disapprovingly at your final offer before deciding whether or not to approve it, the sales manager is also in charge of tackling the formidable task of keeping the dealership stocked with a solid variety of makes, models, and colors.

Car manufacturers usually offer dealerships a computerized system for ordering new cars, allowing the manager to select expensive add-ons, specific models, and bright colors at will. The sales manager has to make sure that there is a good two or three months worth of cars in the display room at any given time and that there is enough variety in those cars to appeal to as many potential customers as possible. He doesn't want too few cars as that may limit customers' options, but neither does he want too many cars as they may just sit around for a long time and gather dust.

Don't let the manager quote you the "dealer invoice" price of the car and insist that he's losing money on it. Much like the suggested retail price, the dealer invoice price is nothing more than a pricing starting point. Even if the invoice price he's quoting is true, the manufacturer will refund him a percentage of that price once the car is sold. This rebate is called the holdback. Also known as a pack, the holdback is usually only about two or three percent of the total invoice price, but it is something that allows the dealer to be able to sell even at his cost price without necessarily losing money. Don't get your hopes up, however, as this is rarely done in real life.

Since dealers must pay manufacturers for the models they order at the time they order them, not when the cars are sold, this holdback rebate deal is in place to cover the financing of the car in the, hopefully short, interim. If the model is sold in three months or less, the dealer's entire financing cost, or at least most of it, will usually be covered by the holdback. The more time the vehicle remains unsold, the less of a holdback profit there will be.

The vast majority of dealers, however, will never tell you how much this amount is and will definitely not begin price negotiations anywhere near the invoice price, whether the holdback rebate is included or not. Still, though, knowing these details can help to give you more of a confident edge when the dealer swears that he will lose money on your offer. The pricing page of a vehicle can tell you whether or not it usually comes with a holdback as well as its average holdback amount.

Dealerships are usually only able to keep so many cars in stock thanks to a middleman that comes between them and the manufacturer. Known as the manufacturer's finance company, this middleman extends lines of credit to the dealers, allowing them to invest in new models without paying up front. The finance company pays the manufacturer right away for any cars the dealer orders, and when those cars are sold, the dealer reimburses the finance company's money, plus any slight interest that may have accumulated, which is usually next to nothing. Many finance companies don't even charge interest for the first 20 days after the purchase of a model.