If You Know Their Rules ...
You Can Play Their Games

Front- Fad Profits

The amount of profit from the sale of the vehicle is called the "front end" of the deal. From this they have to pay the salesperson's commission and contribute to the dealership's overhead. Clearly, the new vehicle sales side of the dealership's operation is successful if they can:
1. Sell cars or trucks in volume
2. Earn a good gross profit on each vehicle sold

Back -End Profits-Profits after the Sale
If a dealership had to exist on the front-end profits alone, most would probably be out of business in short order. For that reason they will work very hard at selling "add-ons" after you've agreed to buy the car or truck. These include rust protection (which they sell to you for $150 but which costs them less than $10), extended warranties, and life, accident, and health insurance. All of these are major profit sources for the dealer. They will also try to convince you to finance your car through them. That becomes another source of profit.

Sometimes, car companies offer financing rates that are better than those you will find at your bank or credit union. This low APR (annual percentage rate) is usually part of the manufacturer's effort to move an oversupply of inventory. While we recommend that in most cases you say no to dealer-offered life, accident, and health insurance, there are some situations in which these add-ons can be of value: specifically, if you are elderly and in poor health and find it difficult to get insurance.

When it comes to after-sale add-ons, you will want to be sure that you aren't spending a lot of money on items you don't need or that you could find cheaper elsewhere.

Dealer Hold-Backs

Currently, most manufacturers are "holding back" from the dealer anywhere from 2.5 to 3 percent of the markup in their cars. In other words, if a car has a list price of $17,100 and an invoice of $15,000, that is a 15 percent markup. What the manufacturers do is hold back 3 percent of the profit-in this case $450-so that the dealer can, if he so chooses, show an invoice of $15,450 to a customer to prove how.