Best Car Dealerships

What is a car dealership?

A licensed car dealership is a business that buys, sells, and/or exchanges motor vehicles as a retailer or wholesaler.

Dealerships are typically privately owned franchises, or they operate based on a licensing agreement with car manufacturers.

Many dealerships are mainly made up of a larger new car lot, and a smaller used car section. Others are dedicated solely to selling second-hand cars.

A much smaller percentage are online car dealerships. These let you browse various car makes and models, provide information on pricing and a location to view the car in person.

How do car dealerships make money?

Dealers make around an average of 5% profit on new car sales. In the case of new cars, the manufacturer is more likely than the dealer to make the lion’s share of profits.

For used cars sales, the profit margin for dealers is higher, at around 15%. In this case, dealers usually buy the cars cheap and sell them for a higher price. The dealer may buy the cars cheaply through customer trade-ins, or from a wholesaler that only sells cars to licensed dealers.

A dealership often makes most of its money on: old cars that get traded in, dealer’s finance, car parts and servicing or service packages. All the added extras that you get offered at the end of a sale can add to the dealer’s profit.

Is it better to get a car from a dealership?

Let's take a quick look at how a buying a car at a dealership compares to two other popular purchasing methods - buying a car through a private seller, or getting a car at auction.

Car Dealerships

Dealer Guarantees - The main difference

Any licensed car dealership is required by law to provide a dealer guarantee (previously called a statutory guarantee). These are provided in addition to a new car manufacturer’s warranty and in addition to the Australian Consumer Law or ACL guarantees.

Dealer guarantees make a car dealership responsible for fixing any major defects on a car that weren’t revealed in the course of a pre-purchase inspection by a mechanic. This requires the dealer to get the car back into a reasonable condition. This can involve making repairs or remediating - ‘diagnosing’ the problem in order to fix it.

Always check how long the dealer guarantee lasts for - known as the limitation period. The limitation period could be a time period or the distance driven. Once this is elapsed or reached, the guarantee no longer applies - but you can look to the manufacturer's warranty or ACL guarantees for help fixing the problem.

Used Car Dealer Guarantees

If you’re buying second-hand, dealer guarantees also include a requirement to guarantee the second-hand car has the following:

• No hidden debts: Guarantee that there's no money owing on the car by a third party.
• Any pre-existing damage must be disclosed such as flood or hail damage, or major modifications.
• Clear title guarantee: This means the car comes with full title in your name, and ownership.

Used cars sold 'as is'

Note that some used cars at a dealership are advertised and sold ‘as is.’ These cars are sold unregistered and without any warranties or guarantees. These cars may be cheaper but they are riskier to buy. However, you can hire a certified mechanic to inspect the vehicle before purchasing, to ideally identify what needs to be fixed. If repairs won’t be too expensive, you may score a bargain - if you're okay with purchasing without a warranty or guarantees.

Private Sales

Private sale guarantees

If you buy a car privately, the seller is under no legal obligation to guarantee that they’ll fix the car if there are any defects that present themselves after purchase. The seller is also not required to provide a warranty.

This means you’re on your own if the car has latent defects, or is the subject of a barely-disguised bad repair job. What's riskier is that you won't be covered by Australian Consumer Law in the event that something does go wrong. ACL only applies to businesses, and private sellers are usually individuals.

Private sale prices

While buying a car privately initially seems cheaper than buying at a dealership, it's likely to end up being more expensive than buying from a dealer.

When buying privately, you’ll need to tack on costs like a transfer fee, and stamp duty - calculated as a percentage of the car’s market value, not the sale price.

In comparison, dealers usually quote you a ‘drive-away’ price that includes everything in one figure. This includes dealer fees, stamp duty and registration. It’s worth shopping at multiple dealerships to compare the drive-away prices, as they can be quite competitive to get your sale.

Buying direct from the manufacturer

This is another way to buy a new car, however it’s more common for high-end car brands such as Tesla or Genesis. There are a few more everyday brands that are starting to offer this too, such as Honda.

However, a major drawback is that you can’t haggle on price when buying direct from the manufacturer. Also expect to wait some time before getting your car, as it’s rare to find available on-the-floor models.

For luxury cars, showrooms and experience centres let you browse cars and enjoy the experience without the pressure of a salesperson hovering over your shoulder.

Auction

Most cars sold at auction are sold ‘as is’ - without a warranty or guarantees, and are unregistered. This is the same situation as a car bought through a private sale.

Top 10 Tips for buying a car at a dealership

1. Do your research first

You’ll definitely feel more confident walking into a car dealership if you know what you’re looking for. This helps you stay firm about your priorities and reduces the likelihood of becoming swayed by emotion when you’re charmed by cars not in your wheelhouse - practically or financially.

This includes choosing the specific car you wish to buy beforehand. You can check the following so you know buying that particular car is the right decision for you: manufacturer websites, online car dealerships, car pricing sites like Red Book, expert reviews, buyer’s guides, reliability surveys and ANCAP safety ratings.

In terms of ongoing future costs, it will also be useful to check the following: fuel efficiency, car insurance costs, and resale value (this is based on the build plate date - the year the car was manufactured in). Also check that the model has a manufacturer-backed warranty.

Getting a fair trade-in price

If you're planning to sell your old car, most dealers will accept a trade-in.

Do some research on your car value and how much you’re likely to fetch for it through a private sale. This way you’ll be able to easily compare this figure with a dealer’s offer for a trade-in. The price you’ll get depends on a few factors, such as the popularity of the model and the condition the car is in. Keeping receipts from car servicing can help you get a better price.

When determining the trade-in viability at a dealer, ask for the changeover price. This is the total amount you’ll pay for your new car, minus the amount the dealer gives you for trading in your old car.

2. Organise your finances

Having your finances sorted out before you agree to buy a car helps you know whether you’re getting a good deal or not.

Dealer finance is often offered, and dealers make money on securing a successful loan arrangement. You can’t trust promises from a car salesperson that ‘this is the best interest rate you’ll get,’ because it’s just not objective financial advice.

Again, do your research beforehand on how to find the best car loan. Compare interest rates from banks, loan companies and credit unions to see what the most competitive rates are. This will let you apply sound judgment when a dealer offers the ‘best interest rate’ - you’ll know whether it actually is or not.

3. Get a Pre-purchase inspection

This is especially important if you’re looking for second-hand cars for sale. It’s not as crucial to inspect new cars as they’re covered by the manufacturer’s warranty.

However, for used cars a full mechanic check is required to make sure the car is roadworthy. Used car dealerships will often do reconditioning on a car - making cosmetic enhancements to the car body so it looks shiny and inviting. You want to make sure there are no nasty surprises under the bonnet.

An inspection reveals any obvious defects, like damage from a car accident, hail damage, a bad repair job, etc. This is part of your due diligence as a buyer. Being aware of any problems from the outset can avoid the financial burden of costly repairs later.

It can also strengthen your bargaining position - if you’re aware of any issues needing fixing, but still decide to buy the car, you can use this knowledge to negotiate a lower sale price with the dealer.

4. Go for a test drive

Used cars

The test drive is especially important if you’re buying a second-hand car. Hand-in-hand with a pre-purchase inspection, a test drive is one of the steps to take to make sure you’re not buying a lemon.

While it won’t alert you to all a car’s problems, it’s a good way to check the car isn’t plagued by obvious problems such as the car giving off smoke or having a rattling engine.

New Cars

For new cars, the test drive is about making sure the car feels right for you. It should feel comfortable to drive. Also keep a mental note of what you need in a car, and check that a prospective car ticks those boxes. For example, you might need enough storage space in the boot for soccer gear, or a built-in GPS that’s easy to use.

5. Be wary of optional extras

Dealers don’t make too much profit from the actual car sale, but they do pocket more cash on the extras.

Commonly, these can include fabric proofing, floor mats, as well as rust and paint protection. As a rule of thumb, if you don’t understand what’s being offered or haven’t heard of it before, don’t accept.

Some ‘extras’ like paint and rust protection, as well as capped servicing packages, are already included in the warranty, so if you opt for these without doing research first, you’d be handing over more money for no reason.

6. Carefully consider whether you need an extended warranty

There are two types of car warranties - manufacturer warranties and extended warranties.

Manufacturer warranty

Almost all new cars will come with a manufacturer warranty, also called a factory warranty. These typically cover repairs for mechanical failures due to design defects or faulty car parts. They usually last 3 years or 80,000 km as a minimum (whichever comes first), however the exact warranty details depend on the specific car and manufacturer in question.

Dealer/ Extended Warranty

You can also choose to buy an extended warranty, which is provided by the dealer. This kicks into gear after the manufacturer's warranty expires. For example, if you buy a Fiat 500 with a 3-year standard warranty, and then a 3-year extended warranty on top, you’ll be protected for 6 years.

Extended warranties are usually bought to give the buyer extra peace of mind. You might never have to make a claim for the entire warranty period.

It may be useful to keep the following factors in mind when making your decision:

• Dealerships usually get a big chunk of commission from selling an extended warranty: sometimes up to 50% of what you pay.
• Coverage in an extended warranty won’t neccessarily match what’s covered in the manufacturer’s warranty. Extended warranties are rarely manufacturer-backed.
• You’ll still have protection under the Australian Consumer Law guarantees, even if you say no to the extended warranty. ACL guarantees ensure cars must be of an acceptable quality and provide remedies if they're not.

Used car warranties

If you buy a pre-owned vehicle at a dealership, you get a used car statutory warranty. This is provided the car has less than 160,000 km on its odometer, is less than 10 years old and doesn't exceed the luxury car tax threshold ($77,565).

This warranty is valid for 3 months or 5,000km from the day you purchase the car - whichever comes first. The statutory warranty covers major defects, but excludes ordinary wear and tear.

7. Only talk about price at the end

This gives you more bargaining power and allows you to negotiate the best price. One of the benefits of buying from a car dealership is that you can haggle on price - so don’t be afraid to do it.

8. Question the fees and charges

These fees or item lines may include dealer delivery fees, documentation fees, and processing fees. Always question these fees, especially if you're paying for dealer delivery fees on a car that was already on the lot of the dealership (for example, a demonstrator model or floor stock).

9. Don’t succumb to pressure

Don’t buy into common selling traps, such as a dealer saying a certain price is for a limited time only.

Play it cool and don’t worry that an attractive offer from a dealer will be taken back or ‘expire’ if you don’t say yes and sign the papers straight away. It’s okay to take your time and have a think.

This may be an exception if the car is a limited edition - for example limited by how many models are being produced, not limited edition by name).

However, in the vast majority of cases there’s no reason you need to shake hands on the spot.

Car salespeople know how to put the pressure on - but if you’re well-prepared for this beforehand, you can resist this, even when under the guise of charming customer service.

10. Shop around

A car is usually the second most valuable asset a person will own, apart from real estate. Making a financial commitment you’re confident you can keep is likely to save you from stress in the future.

Shopping around is usually the best way to do this. Get quotes from at least 3 dealerships, and make sure you’re comparing the drive-away price for all three - with all costs included. Don’t sign anything until you’re absolutely ready to, and make sure that any deposit you pay is fully refundable in case you change your mind.

The bottom line

If you're in the market for a new or used car (but new to you), visiting a car dealership to make the purchase has a number of potential plus points. To make sure you get the best possible deal, always make sure to take a few precautionary steps.

These steps include knowing the make and model of car you're interested in buying beforehand, organising your finances, and being flexible. You don't have to sign anything on the spot, and always be prepared to shop around to compare prices. This will all help avoid a headache when buying a new car, and help keep the fun in it.