Dear Tom and Ray:

I had the agonizing experience of negotiating the buying of a new 1995 Jeep Wrangler S. The subject of dealer cost came up time and again during the course of our lengthy negotiations. The sales people, including two or three levels of management, insist that their cost was just $300 less than "list price." The vehicle had a base sticker price of $13,300. I find it hard to believe that a $13,300 piece of hardware would command less than a 3 percent markup. In fact, I don't believe it. I realize that the topic of sales may be outside your area of expertise, but I hope you'll have some insight for me. -- Harry

Ray: Well, Harry, you'll be glad to know that lack of expertise has never stopped us from commenting before!

Tom: There are actually a number of ways to get a look at the so-called "dealer cost" when you're buying a car. Consumer Reports is one of the best known sources. We happened to get our information on the Internet from a place called AutoSite (http: //www.autosite.com).

Ray: We looked up the last price available for a 1995 Wrangler S (they are now selling mostly '96s), and found the base price to be $12,290 plus a $500 destination fee. Now, yours may have had dealer-added accessories (like those all-important pin stripes) which raised the "base price." But that's the number we got.

Ray: The dealer cost for that $12,290 Jeep Wrangler is listed as $11,830 (plus the same destination charge). So the dealer markup on that model appears to be just under 4 percent.

Tom: Not bad, right? Well, before you jump to the conclusion that this poor dealer is barely squeaking by, we should explain that the concept of "dealer cost" is a little bit misleading. While it's true that more and more of a dealer's profits are coming from repairs and used-car sales, there IS more profit than there appears in new-car sales.

Ray: There's something called a "dealer hold-back." Essentially, the manufacturer "holds back" a small percentage of the price of the car (usually about 3 percent) to be paid to the dealer after the car is sold. That's why you occasionally see dealers advertising cars at "dealer cost plus $50," or similar such things. They can do that because there's an extra 3 percent of profit for them that you don't know about.

Tom: So they weren't lying to you, Harry. They just weren't telling you the truth -- if you catch my drift.

Ray: Here's what we recommend if you're buying a car. First, get a copy of our pamphlet (How to Buy a Used Car: Things Detroit and Tokyo Don't Want You to Know.You can order it by sending $3 and a stamped (55 cents), self-addressed, No.10 envelope to Used Car, PO Box 6420, Riverton, NJ 08077-6420) and see if a used car makes more sense for you. After reading the pamphlet, if you still want to buy new, do your homework and get a printout of the dealer cost.

Ray: Then shop around and see how close you can come to that dealer-cost number (remember, you're not cutting out the dealer's profit. He's still got the hold-back, plus whatever he gets above the dealer cost). How close you can come to that "dealer cost" number depends on a variety of factors, such as how car sales are going this month and this year.

Tom: And how popular the particular model you're buying is at this time (you're going to come a lot closer to dealer cost on a Ford Aspire than you are on a popular Toyota Camry).

Ray: Other factors include whether you'll take a less-popular color (a dealer may be dying to get rid of a hot-pink Lincoln Town Car) and how long a particular car has been sitting on the lot (because he pays interest to the bank every day it sits there unsold). You'll find out how close you can come to dealer cost by comparison shopping.

Tom: But in the end, I suggest you buy the car from a dealer that's convenient to your home or work. My brother has found through painful experience that driving 45 miles -- eight times -- to get the radio fixed under warranty wasn't worth the $200 he saved by buying his car out in the boondocks.

Ray: No,it isn't. Especially since my wife had to make those trips for me, and she's never let me hear the end of it.

Spending a little money now on "preventive maintenance" can save you big bucks down the road. Find out how by ordering Tom and Ray's pamphlet "Ten Ways You May Be Ruining Your Car Without Even Knowing It!" To order, send (check or money order) to Ruin, P.O. Box 536475, Orlando, FL 32853-6475. You can also order online.

© 1996 by Tom and Ray Magliozzi and Doug Berman Distributed by King Features Syndicate, Inc.

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