The Front and Back-End Profits of The Dealer
The first thing you should know when you go shopping for a new or a used car is how car dealers make money. During the negotiation and the sale process, there are two times when the car dealer can make more money off of you by using different dealer tricks. This is referred to as the front-end and the back-end profits.
Here is what happens at each of these places during the negotiation process.
The amount the car dealer earns of the car itself is known as the front-end profits. For example, the dealer may buy a car for $15,000 and then spends another $1,000 into cleaning, repairs and reconditioning. When the customer goes to the dealership the dealer sells the car for $20,000. The dealer made a front-end profit of $4,000.
The add-ons and extras, such as financing, warranties, gap insurance, special coatings and other items and services are the back-end profits of the car dealer. You should watch out as most car dealers make most of their profit on these items and services.
Be aware when the dealer offers you a “great” front end deal because he will probably try to make a profit by selling you back-end items.