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Why buy cars at end of the month?

  • Story Highlights
  • Some of the best new car deals may be found at the end of the month
  • Expert: Salesmen and dealers are anxious to hit sales quotas
  • He says largest dealerships have biggest incentives to sell cars

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By Kevin Ransom
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(AOL Autos) -- Whether shopping for a new washer, a new home or a new car, everyone is always looking for the best deal, right? And why not? The capitalistic system is built on a free market where businesses compete with each other to offer the best product for the lowest -- or at least fairest -- price.

Sales managers may be willing to shave a bit more off the price at the end of the month.

Sales managers may be willing to shave a bit more off the price at the end of the month.

And in no other realm is the search for the best deal more coveted than in the new car dealership. Indeed, for some folks, haggling, and getting, a lower price when they buy new cars not only means more dollars in their pocket, but it can also be a badge of honor. Something about "getting a deal" -- and even better, "not being snookered" -- has always been a source of considerable bragging rights, whether at the Rotary Club, the water cooler or the corner bar.

Various theories abound on the best time to buy new cars. Some have touted the holiday season, the beginning of the week or a rainy day as among the best times to try and reel in that low low price. But one sure time that consumers can usually land a bargain is at the end of the month.

That's because the sales staff at most car dealerships generally operate on a quota system, where they receive an incremental bonus (otherwise known as a spiff) each time they hit their next sales "mark" for that month. So, if a car dealer is coming up on the end of the month and he's a few cars short of that next spiff, he or she usually has an incentive to get the sales manager to knock down the price in order to hit that quota. AOL Autos: Best new car deals of the month

"Actually, car salesmen receive bonuses from both the dealership and the manufacturer for meeting certain sales goals," says Michael Royce, a one-time high-volume car dealer in Southern California, who is now a consumer advocate dedicated to educating car buyers. To that end, he wrote the book 'Beat The Car Salesman' and runs the Web site, AOL Autos: 10 best cars of 2009

"These goals can and do change as the dealership's and manufacturer's needs change," says Royce. "Sometimes salesmen may receive a bonus for meeting a certain sales goal for the month. For example, if they sell 10 cars in a month, they might receive a $1,000 bonus. Or they may receive a bonus for achieving a "first" -- like a $100 bonus for selling the first car on a Saturday morning. Bonuses make selling cars more fun for the salesmen and most importantly, it supplements their income." AOL Autos: Best cars for winter driving

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Bonuses have become more and more important to the car dealers over the past few years. You can use this to your advantage. AOL Autos: Cars with best Blue Book values

"This is because car buyers are becoming more and more savvy due to the volumes of valuable free car-buying information on the Internet," says Royce. "And because buyers are now more savvy, they are becoming better negotiators -- and therefore, paying less for their new cars. That means that the car salesmen are earning less, because they work on commission. So, the dealerships and manufacturers began pumping up the bonuses in order to keep their salesmen. Bonuses are now an integral part of the car salesmen's income." AOL Autos: Best-selling sedans

Beyond the car salesman's fatter wallet, there's another incentive to cut a deal near the end of the month. The car dealerships themselves also have monthly quotas to hit. "If they meet or exceed their targets, the manufacturer may allocate more vehicles to that dealership," notes Royce. "That gives that dealership a larger inventory and more vehicle choices for their customers. If they don't meet their goals, the manufacturer may cut back on that dealership's incoming inventory until the excess inventory is sold."

This means that the sales managers are also more prone to shave a little off the price if the end of the month is looming and those goals have not been met. A car dealer at a Honda dealership in San Francisco, who wanted to remain anonymous, concurred. This is good information to know when you buy.

"Yeah, if the end of month is approaching, and the sales manager or general manager sees that the dealership might be in danger of not hitting its sales quotes for that month -- if it looks like they won't sell enough units to make the manufacturer happy -- they will definitely get more aggressive on the pricing," said the car dealer. "If it looks like they're not going to sell enough units that month, they'll definitely do what they have to do to push extra units out the door as the 30th of the month gets closer. They definitely want to make more money -- to pay the rent, pay for the cars, etc. So they'll definitely be more willing to cut you a deal."

In fact, Royce adds, "Due to the current economy and slow car sales, some manufacturers are offering huge rebates and other incentives so large that you can actually buy a vehicle well BELOW the invoice price (the dealer's cost). If you can afford it, [right now is] a great time to buy a new car."

So the question becomes -- how much can you expect to save if you buy at the end of the month?

That depends on the car dealership, the brand and the size of the market. Each car dealership has a specific minimum profit that they are willing to accept on each car, Royce points out.

"And that's usually in the neighborhood of several hundred to a thousand dollars over their cost -- their invoice price," Royce explains. "However, if a dealership is struggling to meet its monthly sales quotas, then it's not unusual for some dealerships to sell their new cars at very little profit -- or even no profit. They do this knowing that it helps them reach their sales quota -- and that they'll make it up by earning big profits from their service department."

One way to find out your dealership's "magic number" is to take note of their inventory.

"If you see several vehicles of the same model you want to buy sitting there on their lot, then you can reasonably assume that the dealership needs to move them out ASAP," advises Royce. "If the car you want to buy is harder to find, then they may not be willing to go low on the price. Ultimately, it's all determined by supply and demand."

Royce also offers this tip: The largest car dealership in your area will most likely have the biggest inventory and therefore, they have the biggest incentive to move their cars out at a discount.

While the end of the month strategy is generally true, there is something else to keep in mind. Car dealers earn a higher commission on cars sold at higher prices -- which means that, if prices are being cut at the end of the month, their commissions will be lower. It all amounts to something of a balancing act, and the amount of your end of the month discount may depend on how it all shakes out for the individual salesperson.

Another caveat to consider: At the end of the month, the car dealerships' vehicle inventories are down -- at least, they are if the dealer is doing a good job of moving his or her product.

So this might mean you won't get exactly the trim level or option package you're looking for. That is, you might have to settle for a black paint job instead of the silver coat you wanted. Or you might have to forego the posh amenities that come standard on a higher trim level and accept the more basic features of a lower-line edition. But that can be a small trade-off if you are one of the many car buyers out there for whom money is definitely an object.

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