The Truth About Detroit's Employee Discount Plans
The recent revelations by the domestic automakers that we all get to pay what their employees pay for a new vehicle appears to be a good deal on the surface. And in fairness, it is a good deal for anyone who normally walks into the dealership uninformed and gets ripped-off. Just by default, they will pay less.
However, for the savvy car buyer, this deal is a wolf in sheep clothing. Let me explain.
These employee discounts average 3 to 4% of the MSRP. Sounds good, right? Maybe not. When I purchase a new vehicle, I never pay more than the invoice price. In certain higher demand models, you may have to pay a few hundred over invoice. Why will they allow me to pay invoice price? Because they receive from the manufacturer what is called a "dealer holdback", usually 3 to 5% of the price they paid for the car, or "invoice price". This results in profit for them even though they sold the car to me for what they paid. The last vehicle I purchased was at invoice price which was 10% below MSRP. Think about what I just said.
Employee Discount.........3% off MSRP
Invoice Price..................10% off MSRP
At an MSRP of $28,000, it doesn't take an accountant to see that I paid about $2,000 less by negotiating the deal as opposed to receiving the "employee discount". What is even more disturbing, two dealerships that I recently visited informed me that the employee cost is what everyone pays and you can't negotiate below that price. What? This may be the most clever thing to come out of Detroit since Robin Williams.
The bottom line is this: Domestic automakers have simply laid a small discount on the table for all to see. However, this discount is not near as good as an informed car buyer could get. In fact, it's not even close.
Judging by the jump in domestic auto sales, America is buying into the little plan. People are coming out in droves to pet the pretty sheep. The problem is, Detroit is waiting inside to take a bite out of their ass.