Profitability is how much money a dealership makes relative to its costs. The speaker claims dealership leadership pay is tied to profitability, which can create incentives that don’t align with the customer’s best interest.
The finance manager is the person at the dealership who sets up your loan and paperwork. They may also try to sell extra add-ons that can increase what the dealership earns.
In car financing, “credits” are lender incentives that can change the terms of your loan. The speaker is saying that even if the lender setup is the same, the dealership can still push you toward a more expensive deal.
Commission means the dealership employee gets paid based on what they sell or what deal you end up with. If the dealership makes more money on your financing, they may earn more too.
A warranty is an add-on coverage plan that can extend protection beyond the vehicle’s factory coverage. Dealerships may sell warranties as part of the finance process, and the speaker claims higher spend on warranties can increase dealership profit and sales pay.
The invoice is what the dealer pays (or is billed) for the car. Knowing it can show how much the dealer could potentially lower the price from the sticker.
Information asymmetry is when one person knows more than the other. In car sales, the dealer often has pricing details the buyer can’t easily check, so it’s harder to know if the deal is truly good.
A "dock fee" is a dealership charge for moving the car from where it arrived to the store. Different dealers can charge different amounts, so the total price can change.
The "out-the-door price" is the final total you pay to drive the car home. It includes the car price plus taxes and all the extra fees, so it’s the best number to compare between dealers.
The Toyota RAV4 is a small SUV made for everyday driving and family use. People talk about it a lot in car-buying because the final price can change based on discounts and extra charges at the dealership. That’s why you might hear different numbers for the same RAV4 deal.
“Holdback” is a manufacturer rebate paid to the dealer after the car is sold. It can be part of how the dealer makes money even if the deal looks cheap.
Term
stair step and volume bonuses
These are extra payments from the manufacturer to the dealer when they sell enough cars. The more cars the dealer sells, the bigger the bonus.
“Trade-in spread” is the gap between the price you’re offered for your old car and what the dealer can sell it for. If the offer is low, the dealer keeps the difference.
The idea is that dealers can make money in many small ways at once. If the profit is hidden across lots of line items, it’s harder to tell what you’re really paying for.
Concept
Consumer Lending Act carve-out
Sometimes laws limit how much profit a dealer can make on car financing. A “carve-out” is an exception that lets some dealers keep doing it anyway.
The CARS Act is meant to make car deals more transparent—especially the price you see online. The goal is that the dealer can’t change it later with extra pricing games.
It means the number you see online should be the number you actually pay. The concern is that dealers might change the final price once you’re already committed.
Term
checkout line
The “checkout line” is basically the last step before you sign everything and finish the purchase. It’s often when the dealership tries to get you to move forward fast.
A conflict of interest means the dealership’s incentives might not line up with what’s best for you. If they make money from certain choices, they may push those choices even if another option could be better.
The finance office is the part of the dealership where they finalize your paperwork. It’s also where they arrange the loan and may try to sell extra add-ons that affect your total cost.
Here, “negotiate” means you shouldn’t just accept the dealership’s financing terms. You can ask questions and try to get a better interest rate or fewer extra charges.
“Transparent” means the dealer clearly explains how they’re making money. The host’s point is that if they don’t explain the financing markup, it’s harder for you to compare offers.
A “disclosure” is a clear statement about what’s really going on in the deal. In this case, it would mean telling you if the dealer is adding extra profit to your loan rate.
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Can you trust a car dealership?
No, no, this is not meant to be a loaded question.
I generally wanna know, can you trust a car dealership?
Because this is a question that I ask all the time
and I'm gonna give you an answer in just a minute.
But there is this battle between the dealership
and the consumer.
And dealerships believe that you should trust them.
I get into so many arguments talking about things
with rate, financing, and how things should be run.
And dealerships believe that you should generally trust them.
So the question I'm asking you right now,
should you trust a car dealership?
The answer is actually simple.
It's no.
And it's not because a dealership is a lying,
stealing, conieving, evil person
that is just trying to get you.
Actually, a lot simpler than that.
In this video, what I wanna do is I wanna talk about
five reasons why you can't trust a car dealership.
And again, none of them are because they're evil.
This answer is actually simpler than what you think.
If you guys don't know, my name's Tommy.
I negotiate car deals for a living.
I negotiate over 300 car deals on a monthly basis.
I go to save you time, energy, and anxiety.
One of the reasons why I think I have a good topic point
on this is I talk to a lot of dealerships
and I talk to a lot of consumers.
And I wanna give my general process on this
and talk about not you shouldn't trust a dealership
because they're evil because I think that's so surface level.
I wanna give reasons why we can't trust a dealership
so we can hopefully fix the problem.
So the people we can trust right now,
CPA had an 80% yes.
I'm gonna go through these here.
Can you trust a dealership?
89% of people said no.
Can you trust a realtor?
61% of people said no.
Then we get to yeses.
Can you trust your lawyer?
65% of people said yes.
Can you trust your doctor?
59% yes.
And your investor waiter was the closest 52, 48.
Do you trust your financial advisor?
So there's 62% yes.
That's crazy.
To me, that was a no.
I didn't trust my financial advisor.
That's interesting.
Do you trust your mechanic?
Yes or no?
53% no, 47% yes.
That one's interesting.
If some of a car salesman tells you
they're a non-commissioned salesperson,
do you trust them?
Yes or no?
76% still said no,
even if you did another commission.
Okay.
Do you trust AI?
77% of people don't trust AI.
What do you guys think AI is lying to you?
Do you trust delivered?
Like, do you trust me?
I'm not gonna look.
I'm not gonna look so I can't hold names,
but do you trust me?
Yes or no?
We're not looking.
Wow, wow, wow.
Jokes on you.
Moderators, man, everybody that said no.
Man, man, man.
I'm just kidding, that was a joke.
86% yes.
Okay.
I think one of the major reasons,
I'm gonna go in five specific reasons,
but I think the overarching reason
why people can't trust car dealerships,
in my opinion, is that for a dealership to be successful,
they have to rely on a consumer being less educated.
And I think when that is the premise
of your business model, you're doomed to fail.
And I know there's a lot of car salesmen like,
this isn't true, I love educated,
but it is true.
If two people walk in with the same,
or with two different education levels,
let's say somebody's watched Tommy's content up the wazoo,
they've watched it nonstop, everything gone,
rock and roll, they know everything to ask for,
compared to somebody that doesn't know anything
and just says yes to everybody, who will spend more money?
Now, somebody might say, well,
the person over here is happier
because they spent more money.
But that isn't the question.
The question is, did the experience change?
Did you offer this person that spent thousands of dollars
more a different experience?
Did they get something special or unique
or something that's worthwhile to make it
so they spend thousands of dollars more
for trusting the dealership?
It's just, no, and this isn't meant
to be an attack on dealerships.
This is the business model dealerships have created.
If I go to a dealership and I just go in
and say yes to everything, I will overspend by thousands.
But if I go in as an educated consumer
and negotiate through the deal,
which I'm allowed to and dealerships will say yes,
I will save thousands.
So that is one of the biggest reasons
the dealership model relies on people
not being educated in order to profit.
That's the overarching out,
I'm gonna go into five specific examples.
Option number one, a dealership's pay structure
at some level or at all levels
requires rewards, extraction, not service.
If I'm a car salesman that is a commissioned salesperson,
I get paid to convince you
to spend more on the same product.
Now, I wanna talk about that
because that is a very unique scenario in the car industry.
Now, if I was like, hey, I'm gonna sell you a car,
but if I can convince you to buy the book with the car,
this napkin, this fake money, and this drink,
and I can do more, now you're adding products on
and somebody can get paid for selling the additional products.
But what you are saying is, hey, this is a towel or a car.
And if I get you to spend $10, I make more money.
If I get you to spend $5, I make less money.
The general rule of thumb is that if I extract more money
out of you for the same product, I make more money,
which does make it so trust as hard to do.
And that isn't just the salesperson,
that works its way up.
The sales manager is almost always paid on a dealership level
based on the profitability of the dealership.
How profitable are they,
or how much money do they make per deal?
The finance manager, which I was in finance,
and we can have a whole conversation
about what I did or didn't, but what I will say is this.
First off, our dealership didn't mark up right,
but even if we did mark up right,
even if I did everything bad,
that doesn't mean that it gets a free pass, right?
But if I go rob a bank and I go to jail,
do my time and come out, I'm allowed to say
you shouldn't rob a bank, it's not right, right?
This idea that because I was in finance,
I can't talk about the bad things that happened in finance.
Finance managers are paid, talk about this for a moment,
to convince you to spend more on a rate.
If you, for the same bank, the same product,
the same credits here, if I can convince you
to do an 8% rate versus a 6% rate, I get commission.
That's not working for the best of the consumer.
If I convince you to spend more on a warranty,
more on a product, more on anything, I make more money.
The general manager is the same way.
And even if you're not a commission salesperson,
normally there's somebody in the path
that is getting a commission or a sale
on the amount of money you spend.
Again, I wouldn't mind, and I think most consumers would mind,
is if, hey, I'm selling you the book
and if you add these 10 items,
they're all extra that you can buy,
but the book costs 10 bucks no matter what.
Everybody can buy the book for 10 bucks,
but I am gonna try to sell you an Elani with the book
because I can make extra money
because I make a little profit on both,
but if I'm trying to sell the book to 10 bucks to you
and the next person walks through
and I'm trying to sell it for 20,
I'm trying to trust you, right?
Like why in the world did that price change
on the same day, the same item?
With all of this being said,
that means your priorities don't align.
Dealerships want to convince you
to spend the most amount of money
while you're trying to save the most amount of money.
It's hard to trust somebody
that you don't have that same alignment with.
Number two, the number two reason
is information is asymmetric by design.
When you walk into a dealership,
people say all the time,
you shouldn't tell the dealership all the information.
The reason being is information,
I always say negotiation is a game of chess.
One side knows how to play.
You give somebody all of your cards,
you never have all of their cards back.
You walk into a dealership,
you know what your budget is, right?
You know what payment you want,
you know what your trade-in is,
and you understand what your credit score is roughly.
The dealer is going to extract
all of that information from you,
but then also know what rate you were actually approved at.
They're gonna know what kind of incentives hold back,
stair step plan they have to,
and what money they can make on the product.
They're gonna understand the cost
of every single add-on that you're gonna buy,
so they know what can they can negotiate and where.
They understand the exact profit margin
on every single product in the back office,
finance, warranty, and they can compare
the deals that they've done over the last hundred deals
for the same car on the same month
from the same type of consumer,
or dealerships out there,
or even connections with other people
in their dealership group.
The information invoice and MSRP,
all of the information is asymmetric.
You don't have all of that information.
And no, you can't Google this.
ChatGPT cannot pull up what the invoice is on a car.
I can estimate it, but dealerships have all of the information
to make an educated decision, consumers don't.
When that happens, when there's this battle of information,
it is hard to trust the person that holds all the keys, right?
If I'm going through and I'm a commission sales person,
I said, the invoice is $58,000 and I have it
because it's in my hands.
I would not lie to you, I'm an honest Steve.
Even if you're being honest, it's hard to trust you
because you're the only one that has the information.
I can't go verify that.
Is that true? Is that not true?
Is that a lie? I don't know.
If I say, hey, the cost, the cost of the buy rate
on your financing is 5.8%, can't verify that.
I don't know.
Now I could call the bank myself, right?
And have that conversation, right?
But that is a whole different part.
Third reason, at dealerships, the price isn't just the price.
It is oftentimes a moving target.
If you go through and you have a employer plan,
you pay this price.
If you move this plan, it's this price.
What the price you advertised and came in
didn't include the add-ons that are mandatory.
Oh, we do also have a $1,200 dock fee.
So sorry, we forgot to mention that one.
That does change the price.
But another dealership down the road had an $85 dock fee.
There's so many things where the price
is a very much a moving target.
You can't go through and genuinely just say,
hey, the price of the car is $40,000.
Take it or leave it, right?
Everybody pays $40,000.
That's the price.
If you don't want the product,
go find a different product.
Instead, it is a moving target.
And on top of that, that moving product,
we could be the same situation, the same person,
the same day and pay two different prices.
I can walk into the dealership,
pay $40,000 for that RAV4
that you just paid $44,000 for.
Same day, same car, same trim, same options.
We can pay two completely different prices.
Just depends, because the price is moving.
Let's just say it's the last day of the month
and the dealership needs their 100th car
in order to make $250,000 in stair step programs.
I could pay $36,000, $34,000, $32,000 for that car.
Well, somebody else just paid $44,000.
And then on top of this, we have my trade-in.
What does my trade-in actually work?
But that number is a moving target.
The number moves at all times.
And if you don't believe me,
if you're like, hey, Tommy, that's not true.
Well, there's a reason why the FTC just sent a letter
to 97 dealership groups, not dealers,
97 dealership groups that's potentially thousands of heads
that went through and said, hey, you can't do this anymore.
You are suspected of doing this behavior,
of charging fees and not honoring the price
you have on your website, fix that.
Number four is dealerships have multiple revenue streams,
which they have multiple ways to win
against you for a consumer.
A lot of people like to compare
a lot of different business models, right?
They say, when you go to a Best Buy,
you're not mad about what they're making on the TV.
Yeah, correct.
Because if I am buying a TV,
I see the cost of the TV is $100.
I give you $100.
The revenue you made on this transaction was on the TV.
That's it, it's done.
If you hire me to negotiate a car deal,
it's more than 50 bucks, it's a thousand bucks.
You pay me a thousand bucks, I do a deal for you.
That's the end of the revenue stream.
It's very easy to see who to trust and who not
because you know where my revenue stream ends.
You know where Best Buy's revenue stream ends.
If I'm making $100 here from you
and I'm making $500 from this secret source back here,
to do this, you now don't know where my thing is aligned.
Dealer ships make money in multiple different sources.
The front end of a deal, they can make money on rate,
they can make money on finance.
They can do hold back from the manufacturer.
They have stair step and volume bonuses.
They have trade in spread.
They make money on the amount of money
that you're trading in if you take it under value.
Add-ons, markup and dock fees are all just a few reasons
on how they make money and are able
to move that money around and spread it.
You don't know where all the money is coming from
and you don't understand where the profit is coming from
and when you're trying to profit on 19 different things,
guess what?
It does develop somebody harder to trust.
And number five, in my opinion,
this is the most important one hands down
and this is caused by dealerships themselves.
The industry has spent decades and millions of dollars
fighting the fix.
And what 2013, they specifically carved themselves
out of the Consumer Lending Act,
which made it so dealerships could or nobody could markup rate.
It was Dodd Frank.
They couldn't markup rate anymore.
Dealerships lobbied, so they weren't included in that mess.
Three years ago, the CARS Act came through,
which is really simple.
The price online is the price you pay.
This is too hard for business.
We couldn't survive that.
What do you mean, the price of the car, the price you pay?
We couldn't do that, so they fought it and they won.
Now you have the 97 dealership groups that got regulated again.
You still see many dealerships not doing this
and they're fighting this again.
For decades, dealers have been fighting the fix.
Be more transparent and that's all consumers want, right?
It is crazy to me.
It is a crazy world to be in,
where I don't know as a consumer,
and most consumers don't know,
that when I go to buy a car and I give you,
and I say, hey, I'm ready to buy the car
and I have to go do the paperwork on the car,
when I'm going to end the checkout line
to sign the paperwork and do this,
I'm actually in a second secret negotiation
with the secret boss that is trying to sell me
a whole bunch of different things
that the last person just convinced me,
hey, I had to use, but secondly, it is on my side.
They're the best in the business.
They've been doing this for 10 years.
They know all the great banks and all the great rates.
That's a conflict of interest, right?
The decades of protect that department
that is in this world that is only trying to make,
it'd be different if every dealership went
to the same way with the finance office.
Instead of, you know what, with the finance office,
hey, we got 50 years back up.
They're going to test multiple different banks.
They're going to have banks
that really support all the backend product.
Banks that are going to give you a good rate.
You do pay a premium for the rate here,
but I'm telling you, it's going to be faster,
more convenient and rock and roll.
You're going to like it.
It's really hard for me to justify,
it's really hard for me to justify any rate,
but if you find a way to sell it, by all means, go do it.
But if you believe you're offering a service
to somebody, just be honest and negotiate,
or tell them you're charging a service.
Hey, for you to use my finance office,
it costs you $100 or one point of markup.
If you want to go get your own financing,
you certainly can.
The reason why dealerships won't do this
is that it would, nobody would pay it, right?
If I knew that it was going to cost me one point of markup
or just say 500 bucks for me to do my own financing
versus going to the bank, I'd just go to the bank, right?
Right? I'd just go to the bank.
But this is the problem with the dealership level.
Dealerships don't want to be transparent.
They don't.
The reason being is it's more profitable.
If dealerships wanted to fix this whole problem,
they could fix all these problems tomorrow.
They could start, they could start, for example,
letting people know with a simple disclosure
that I'm marking up your rate in finance.
Again, when somebody goes in there for the first time,
I'm telling you 95% of people do not understand
that that is a negotiation and a negotiation.
I lived it, I was in the industry,
I understand the people that are saying yes.
When people, we say certain percentage people just say yes,
they did not realize that that was an negotiation.
They thought they were at the checkout line
for the product they bought.
So what does this mean for you?
Is this mean all car dealerships and salespeople
are slimy, evil, horrible?
No, not at all.
Your interests don't align.
And that's okay.
That's how the dealership has built the model.
Now they could reinvent this model.
I really think they should and they could.
The reason that inspired this video was on Facebook,
I said that I believe rate markup should be illegal.
I probably have close to a thousand comments
on all platforms at this point.
For dealers, 90% of them are dealers
saying that I believe dealers should work for free.
By no means do I think dealers should work for free.
I just think you should be transparent
about the money you're making.
It's really that simple.
I believe that if you are going to charge for a service
and you believe it's a service,
people will happily pay.
That is as simple as that.
I wanna go through this full logic, right?
Cause there's your boy saying you don't wanna have this,
right?
Dealer ships make more money
if you don't know what's going on in the finance office.
Statistically, that's true.
If you just say yes to the rate
and they allow it full markup,
you're gonna make more money.
The answer to that is consumers can educate themselves, right?
So then I go and I educate consumers
and then it goes dealership.
You don't want dealerships to make a money
and make a profit.
You want people out of your job.
It's like you can't have it both ways, right?
If your business model relies
on people being uneducated to markup rate to make money,
you have to understand a business model
will then come to compete with that.
Welcome to America.
Well, guess what?
My business model is the anti-U.
I'm gonna say, hey, this guy is trying to screw you over.
I will give you all the tips you need for free.
Here you go.
Here's everything you need to know
so you don't get screwed over by him.
Like I charge a thousand dollars.
I'm very transparent about it.
I say, I save you time, energy, anxiety.
This isn't a money saving service.
If you don't see value, no big deal.
I don't chase people down for sales.
I don't do this.
I do this.
We have a good business.
It's rock and roll.
I'm confused on why this is a controversial take.
You can go get your own financing if you want,
but most of our clients agree
that it is easier just to do everything in one spot.
And then you go through it, right?
If you are a good sales person,
like I really want you to say,
like right now your sales model is,
I hope people don't know
because if they don't know, they'll buy a product.
And instead I'm like, hey,
you know what, why don't you just sell them?
Use your sales ability.
Do what I have to do every single day,
which is, hey, you don't need me to do this.
You can do this completely on your own,
but you should still hire me
because I'm awesome at what I do.
And I'm gonna save you time, energy, and anxiety.
The only dealers that you can make an argument
are Carvana and CarMax.
That aren't paid on any commissions,
that aren't paid on gross profit,
that aren't paid on anything,
that is a one price model.
Most dealerships don't have that model.
And if you don't believe me,
look at the hundreds of clients a month
that pay me to not deal with you.
And that number is going up, not down.
People pay me money to not talk to you.
That should be, I'm gonna look at myself in the mirror
and say, oh God, we've really fudged up here, haven't we?
So does this mean you can't trust your car salesman?
No, you shouldn't trust that,
but that's not because they're evil,
conniving, horrible people.
I say negotiation is a game of chess and I mean it.
One side currently knows how to play.
You shouldn't trust the person
that you're playing a game of chess is
that they're gonna guide you to win the game.
They want to win the game.
So educate yourself and understand
that every move that a dealership does,
everything they are doing,
they are morbidly doing with the very best situation
a mixed interest, your interest and their interest.
The only person that got your back is you.
So educate yourself, do that.
And if dealerships wanna change
this entire business model, they certainly can.
I can make an entire video on what I believe
would be ways for the dealership model to fix themselves.
That's for another day, another hour, another moment.
Thank you guys so much for watching.
Let me know if you guys wanna see more.
About this episode
“Can you trust a car dealership?” The host answers “It’s no.” He frames distrust as a business-model problem: dealerships rely on “a consumer being less educated,” and commission-driven incentives push salespeople and finance managers to steer deals toward higher rates and add-ons. Pricing can shift via financing markups, mandatory add-ons, and variable fees like dock fees, while trade-in values and out-the-door numbers change day to day. Negotiation is “information is asymmetric by design,” so the “only person that got your back is you.”
In this video I break down the five real reasons you cannot trust a car dealership, and none of them are because dealers are evil or trying to scam you.The answer is simpler than that. Dealerships have built a business model that relies on you being uneducated, and the less you know walking in, the more money they make.From commission pay structures to hidden finance markups, I go through every layer of how this system is designed and why your interests and the dealer's interests will never fully align.If dealerships wanted to fix this tomorrow, they could. They just won't.
