gameson

I have a question about discount for ordered car vs car in lot

this is what i understand how a dealership works, but maybe i m wrong

To be a dealership, they have to order certain number of cars to keep their quota and maintain status. I know that manufacturer also give a dealer holdback (cost to keep the car in lot) up to 90 days usually. If you order the car, the dealership is already eating that holdback and also already guaranteed one car off their order quota number, that means less cars on the lot. In my opinion, that should give the buyer at least the same discount as the car on the lot if not more discount than the car on the lot as the dealership already get profits from the dealer holdback.

so why does the car on the lot can command more discount than ordered car? maybe i m missing something here

Rick964

Because the car on the lot is already there and sitting in inventory. Moving inventory is always the prime motivation in any business. Who wants to order refills when the shelf is already full of product?

gameson

well, that's true, but what I am trying to say, I think, makes sense too.

if the dealer can sell more cars, means more order, that's good, but i think there must be a minimum quota/month that the dealer have to meet. Out of that minimum quota, some will go to buyers, some will go to lot. If I order one car from that minimum quota, that means it reduces the cars that will go to the lot, right? so that means if the manufacturer gives dealer holdback, as soon as this car arrives, it will go away, that means no inventory, dealers get 100% of the holdback, therefore that means dealers should sell harder on ordered car, not car on the lot.

However from my observation, it's the other way around. They give more discount to car on the lot than to ordered car. I know moving inventory is a prime motivation in any business, but then I just dont understand why more discount on the lot, not on ordered, while technically ordered cars REDUCED the cars that are on the lot and INCREASE the profit since they eat the manufacturer holdback.

Maybe if I give example with numbers, you would understand

let say, the minimum quota per month is 20 cars for a dealership. 60% goes to lot, 40% goes to ordered buyers on average, that means 12 goes to lot, 8 goes to direct buyers, that means the dealer gets 8 cars dealer holdback 100% profit while the 12 cars is on the lot on sale and profit depends on how hard the salesman is pushing and how long the car sits on the lot. let say that I come to a dealer today and they have ordered the minimum quota for june. same number, 12 goes to lot, 8 are sold. i want to order a new one, that means the dealer have to put my orders on their next month quota, july. that means on average, they would have to put 11 to lot, and 9 to ordered buyers because of me. if more people are ordering from dealer, that should shift the number to direct sales and that means less will go to lot, right?

If what I know is right, and example with numbers, it's more profitable to sell cars to ordered customer then on the lot since dealers eat 100% of the holdback. that's why sales have to push harder on ordered car, not on the lot. and i m talking if the ordered car goes straight to buyer, not when the buyer is flaky. if the buyer is flaky (cancel), that ordered car will go to lot and i think it's just as if there is no order in the first place.

What I observe is the other way around. maybe i miss a piece of information. does anyone know?

Rick964

I'm not sure if how you are describing the holdback is right or not. Also, I think that most Porsches are ordered rather than sitting on the lot, but I guess that could vary geographically and also based on new model releases, but that would mean the the cars on the lot are "struggling" to find buyers while cars ordered are exactly what the buyer wants. One other thing to consider is that selling the car off the lot today means revenue and profit this month while ordering a Porsche takes 6-8 months typically.

Just my $0.02, I'm no expert.

Steve Jensen

Of course, if you are gonna order one, why not do factory pickup? Wouldn't add all that much (percent wise) on the cost of a new car...

Tom

Don't forget the dealer probably borrowed the $$$ to get the inventory on the lot so selling that car means he gets to pay that off sooner and with less interest. Selling the ordered carmay get credit with the manufacturer but doesn't help move the product already there.

SilverSteel

For what it's worth, the dealer told me they order the cars in the most popular colors with the most popular options. Then they order a few just loaded up, knowing someone doesn't car how much it costs. I've noticed two instances where dealers are ready to deal deep on cars: they've had it on the lot so long they'll do anything to get rid of it (bought a white one this way); and ordering a car off peak season. Anything else can be a crap shoot. Oh, always buy towards the end of the month, the later the better!!!!

gerry100

The well run established dealers don't have to worry about maintianing there status as they already move enough cars.

They order cars/packages that they think they can sell and try to do it in the right numbers. Occasionally they take a flyer on something odd to test the market/customer base.

That' scalled being good at your business.

If a car sits around too long it's a screw up that they will try not to repeat.

ehall

Car dealers must carry a bond on their inventory. It has to be renewed. American companies have more issues with moving metal from the lot than does a Porsche dealership, because they carry so much more inventory. They are infact, in most cases, paying for the cars that sit on the lot, in terms of interest on borrowed inventory. That's the biggest reason they work harder to move what they have. You'll notice that Porsche dealers usually have a VERY small inventory compared to an American, or other main stream dealership.