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Casual reports are emerging that an increasing quantity of dealerships are starting to lessen their markups on replacement insurance and financing. The dealer finance markup, in addition to dealer insurance markup, can be pretty high as often as not.



Saying no thanks to dealer finance markup



There are a ton of dealerships out there, and they have to worry about balancing the short term revenue with long term prospective. They could attract investigators and very possibly lose business if they seemed to be forcing people into purchasing additional add-ons. Still, they want people to purchase add-ons because they make cash off of it.



According to AutoBlog, this is the reason why dealers are now avoiding extra markup on dealer financing and dealer insurance. There are increasingly more dealerships joining the group that already caps markup.



Why a markup?



Theaters make pretty much no money from ticket sales and have to increase the cost of concessions to make up for all the costs. That is the same idea as at dealerships. They make most of their cash off service repairs and markups. Dealerships do not really make all that much cash from selling the car, according to Forbes.



With finance markup, dealers make a ton of money.



Depends on the dealership



One part is the finder's fee, of sorts. According to BankRate, a “dealer reserve” or “dealer participation” fee is often incorporated, charged by the finance and insurance, or “F&I,” service division, for finding or even lending a loan. Charges of $952 to $1,587 per hour are somewhat common.



The Federal Trade Commission found in hearings that “indirect loans,” which customers get from third parties through dealerships were often at lower rates than direct loans from car dealers. The Automotive News, according to the Chicago Automotive Trade Association, was told 2.5 percent was common as of 2010 - that's the rate of the loan, plus an extra 2.5 percent APR paid to the dealership. This is why it's recommended a person get a vehicle loan from their bank as, say, BB&T car loans, can come with less interest than through the dealership.



Bells and whistles



Aside from dealer finance markup, there are also dealer insurance goods, such as extended warranties, LoJack and GAP coverage or guaranteed asset protection, which pays the difference between the car's value and the loan balance in the event a car is totaled or stolen.



There isn't a ton of data on how much cash this all represents, but Forbes reports that among the six publicly-traded auto dealership chains, F&I services were worth $1,100 per vehicle sold. One, Asbury Automotive, reported F&I services were 3 percent of income in 2011, yet 20 percent of profits.



Service stations are also a moneymaker for dealerships; Forbes reports parts and services were 13 percent of revenue but 44 percent of profits for Penske Automotive in 2011; the parts and services departments at Penske reaped a 57 percent profit that year compared to 8 percent on car sales.



Dealerships keep their doors open more often with these things. Anything is negotiable though, so keep that in mind.



Sources



AutoBlog

Forbes


BankRate
 
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