Edmunds.com Reports Car Dealers Shouldering Cost of Employee Discount Deals, Gives Consumers Insider Knowledge About Deals

Edmunds.com Reports Car Dealers Shouldering Cost of Employee Discount Deals, Gives Consumers Insider Knowledge About Deals


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Edmunds.com Reports Car Dealers Shouldering Cost of Employee Discount Deals, Gives Consumers Insider Knowledge About Deals

SANTA MONICA, Calif. — July 18, 2005 — Analysis by Edmunds.com, the premier online resource for automotive information, reveals that the popular automotive employee discount deals may be an expensive program for participating dealerships.

In June, the first month of its employee discount program, the discount from GM's average sticker price increased $952 compared with May. Detailed analysis of Edmunds.com True Cost of Incentives data shows that GM dealers shouldered 71 percent of that difference.

"In essence, GM dealers purchased most of the sold vehicles at invoice price, expecting to sell them above that amount, but the employee discount deal dictates that those vehicles be sold for approximately three percent below invoice price," explains Jesse Toprak, Senior Analyst for Edmunds.com. "This represents a painful cut in dealer profits, especially for models that are in high demand compared with supply."

However, the reduction of profitability is not as great as it may appear.

For each vehicle sold, dealers collect "holdback" from the manufacturer. (See http://www.edmunds.com/advice/incentives/holdback for more information on holdback.) In the case of General Motors dealers, the holdback typically equals three percent of the total MSRP. During the "Employee Discount for Everyone" program, GM has increased the payment to five percent of MSRP.

Edmunds.com research indicates that rather than pocketing the savings, many consumers presented with generous incentives will buy a more expensive vehicle. In June, GM set a new record for average MSRP of vehicles sold in a given month, $32,712. Just a month earlier, the average GM vehicle sold had an MSRP of $31,181. As holdback is calculated as a percentage of MSRP, dealers benefit from this "upgrade" trend.

Toprak speculates that the dealers may also be receiving "volume bonuses" from the manufacturers, who are delighted to have the cars moving off the lots so quickly. For example, GM enjoyed a 41 percent increase in June sales compared with the prior year.

Perhaps even more significantly, the additional sales represent increased opportunity for dealers to make money on vehicle trade-ins, dealer-installed options, and finance and insurance products.

Phil Reed, author of Edmunds.com's "Strategies for Smart Car Buyers," reminds buyers to research and examine each component of every car deal, no matter how generous the incentives. "It is easy to spend away the savings. Consumers should decide ahead of time which vehicle they truly want to buy, know how they will finance the vehicle, learn the True Market Value of their trade-in, and carefully consider inevitable questions such as whether to buy an extended warranty."

About Edmunds.com, Inc. (www.edmunds.com)
Edmunds.com is the premier online resource for automotive information. Its comprehensive set of data, tools and services, including Edmunds.com True Market Value® pricing, is generated by Edmunds.com Information Solutions and is licensed to third parties. For example, the company supplies content for the auto sections of NYTimes.com, AOL, About.com and IGN.com, provides weekly data to Automotive News and delivers monthly data reports to Wall Street analysts. Edmunds.com also publishes a high-speed, on-screen car magazine called Inside Line available free at www.insideline.com. Edmunds.com was named "best car research" site by Forbes ASAP, has been selected by consumers as the "most useful Web site" according to every J.D. Power and Associates New Autoshopper.com StudySM and was ranked first in the Survey of Car-Shopping Web Sites as reported by The Wall Street Journal. The company is headquartered in Santa Monica, Calif. and maintains a satellite office outside Detroit.

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