CAR DEALERS make BIG MONEY from these PRODUCTS! Buyer Beware! Kevin Hunter The Homework Guy

The most profitable products dealers sell and why they push them on you in finance. The top seven in ranked order. Hey folks, Kevin Hunter here, the homework guy. I spent 16 years inside the car business and today I'm pulling back the curtain on the dealer finance office. The real money maker at your local dealership. After we are done today, you won't be the least bit confused about why our statement that dealer finance is the money machine definitely not a banker. Most people think the dealership makes its money off selling the car. Nope. The real gold mine is what happens after you shake hands with the salesman and get walked back into that back room. You're thinking the negotiations are over. And you might even think you won, but then you enter the FNI office, which is short for finance and insurance. That's where they roll out the menu of extras, warranties, GAP, theft protection, and a dozen other shiny distractions. But some of these items are straight up profit machines. So today, we're ranking them from least to most profitable, and I'll show you exactly where they're making thousands off customers just like you. The amazing Elizabeth joins me now. So, let's get into it. Okay, let's do this. In reverse order, we're going to cover the top seven money makers that you'll encounter in dealer finance. So, let's discuss what's sitting at number seven, and that's credit, life, and disability insurance. These policies pay off your car at loan if you die or become disabled. Sounds kind of noble, right? >> A little. >> Well, the typical dealer cost for this is between 150 and $300. The typical price to you ranges from $800 bucks to $1,200. That profit margin is around 70%. And remember, this is the little guy on the list. >> Yes. >> Here's why it ranks low. Fewer people buy it and regulations in many states restrict the markup. But if you say yes, they make a quick $500 to $800 with zero effort. >> Sitting at number six, key fob replacement. Lose your key fob? This covers replacement and programming. Dealer costs 30 to 100 bucks. Typical price $500 to $800. Profit margin up to 85%. They're getting a little bigger. Yep. That's right. You're buying peace of mind for something that may never happen and costs far less than what they claim. A total profit play. By the way, a lot of dealers take the second key fob and go hide it in a drawer back in one of the manager's offices so you only see one key fob and then you think you have to buy another one. >> All right. Number five, paint and fabric protection or ceramic coating. They'll tell you it protects the resale value of your vehicle >> and it protects nothing, >> right? Spoiler alert, they usually spray on a $40 can of wax. So, the dealer cost could be $20 to $100. What they charge ranges from $600 to $1,500. The profit margin here is often 90% plus. Some of this stuff is applied before you even show up, and they even pretend it's optional. That's a big red flag. All right, at number four, theft protection or something known as VIN etching. They'll engrave your VIN on the windows or offer a GPS recovery lowjack, for example, service if your car is stolen. The dealer cost 10 bucks to 50 bucks. Your cost $300 to as much as a,000 bucks. The profit margin up to 95%. Yeah, >> it's one of the worst value products they sell, and many customers don't even know they bought it until they see it on the contract after the fact. Dealers just love this one. At number three is GAP insurance. Now, that stands for guaranteed asset protection. If your car is totaled and your loan is higher than what insurance will pay for it, GAP covers the difference. So, it's an insurance product. The dealer cost could be from 100 to 300 bucks. Your price is 600 to 1,200 bucks, >> even $1,500. >> Yep, that's right. So, the profit margin here is 60 to 80%. It's not a bad product. It's just a bad place to buy it at the dealership. Your own insurance or credit union often sells GAP for $200 a year or less >> and sometimes a lot less. >> A lot less. >> All right, sitting at number two, we're getting into the big guns. Extended warranties, or what are called extended warranties, which are actually service contracts. This one gets pushed very hard. They make it sound like your car will explode if you don't buy it. They will ask questions like, "Do you really want to pay $4,000 out of pocket for a transmission?" And I love the question that a gentleman just asked them recently. Are you telling me that you guys sell really lousy cars? >> Yeah. >> Perfect. >> Dealer cost on this one. 500 to 1,500. But your price 2 grand to 4,500 bucks. The profit margin up to 70%. They love this one because it sounds like insurance and it's easy to finance in your car loan. In reality, most people never use them or they find the fine print to be full of exclusions. Also, if you missed it, go back and see our video titled, "There's no such thing as an extended warranty." You'll never want to spend money on these things again. Okay, here it is. Sitting at number one, financing itself. Are you surprised? The number one most profitable thing they sell you isn't a product. It's just the loan itself. Here's how it works. The dealer shops your credit to lenders and adds a markup to your rate called a finance reserve. Here's an example. The lender approves you at 5%. The dealer tells you that you're approved at 7.5%. >> So the first number was the buy rate. The second number was the sale rate. >> That's right. They pocket the difference and that's easily a,000 to $3,000 in pure profit for them just because you got a loan. This is why they ask, "Are you financing or going to pay cash before they even want to talk about the price of the car?" If you're not financing through them, this big bonus for them is gone. >> A recap of today's show, ranked by dealer profit potential. Here's the list again from smallest to biggest money maker. The smallest one was credit life disability insurance and then key replacement or key fob replacement, paint and fabric protection, theft protection or VIN etching, gap insurance, extended warranties or financing reserve, the ultimate cash cow in dealer finance. So, if you ever wondered why dealers really don't like cash car buyers, these seven products tell you the whole story. >> And here's a bonus tip. Make sure you watch the menu trick. In the FNI office, they'll present you with a menu that shows payments in different package levels. What they don't tell you is those payments already include a major markup that we shared earlier. It's designed to distract you from the actual cost of each item if the warranty makes your payment go up $35 a month. That's $2,520 over a 72-month loan. And most people just nod and sign without a second thought. And when you get to see that menu, it most often comes on an iPad. >> That's right. Make it sneaky. >> All right, some homework advice here to close with. Don't be fooled by the Smooth Talking Finance manager before you walk into the dealership. Know what products you want if you want any of them. We say none. They're all a terrible buy. Get a pre-approval from your credit union. Super smart car shoppers do that. Ask for every add-on in writing with price and coverage. And remember, if they tell you it's something that you must buy, something you don't actually want, ask, "Is it legally required?" Never forget to ask that question. And then never sign under pressure or false urgency. And remember, you're not required to buy a single product to get your loan or purchase the car. No matter what they say and no matter what they claim their bank is saying, that's your legal right. If you found this video helpful, remember to give us that great big thumbs up, share it with family and friends, and leave a comment in the comment section down below. I hope you enjoyed this conversation about the number one money makers in a car dealership. Please let us know about your recent car buying experiences. We love hearing your stories and great comments always help the homework guy community. >> Also, if you'd like help from one of our car buying coaches when buying a car, where we do all the work so you don't have to, it's super easy to do. We find you the closest match to the vehicle that you're looking for. And you can get started with us by either visiting our website at theomeworkguy.com and clicking on the easyto find red button on the top of the home screen that says click here for our car buying service. You can also get in touch with me by texting 7014413399. >> To all of you long-term viewers and subscribers out there, you guys rock. God bless you all. I'm Kevin Hunter, the homework guy, signing off on behalf of Alex Stevens, our auto expert, the amazing Elizabeth, our master negotiator, and the entire hassle-free Homework Guy car buying team. Stick with us a moment as we scroll through some of our recent five-star Google reviews. Thank you for watching. [Music] down. [Music] Hey, hey, hey, hey, hey, hey, hey, hey. [Music]