Article: Subcompact car sales collapsing in Canada... except for Nissan

[Howie]

Carmakers make cheap, base level vehicles, but if you want a few options like air, auto and cruise. The MSRP skyrockets because you either have to go up a trim level, or buy it as a "Package" just like nissan. If you buy a base model, its the same as the next one that rolls off the line- Its what goes into it that makes the difference. Each part has a profit margin. You buy a $300 stereo. It costs them $250 to make. A meager $50 profit. You buy the fancy one at $750, it costs them $350 to make they make a nice $400 profit off that radio.

At the end of the day when you end up a dealership.. You add the options you want. Then the dealer will almost always tell you. ."Well, if you are willing to spend an extra $130 a month...." and upsel the CUV which has a much larger profit margin. How do they do this? Im not sure. I think its because subcompacts typically have higher interest rates in the financing, making the bigger vehicle much more attractive.

Your typical subcompact might cost the manufacturer $5000 in material to produce, they sell it to the dealer for $8500, then they sell it to you for $9998. They make $3500, the dealer makes about $500.

Same car.. more uplevel might cost them $8000 to make. They sell it to the dealer for $12999, the dealer sells it to you for 14500. Manufacturer makes $5000. Dealer makes $1500.

I have tears for the demise of subcompacts. But I think its because they are engineered to be cheaper but to give the dealers a bit more leverage to push consumers to buy the CUV. And from my wallet, would I pay $130 more a month for "twice the vehicle"? Well.. No. Im a bit more frugal then that.

Also, planned shortages. For example, I walked into a Chevy dealership here while picking up new vehicles for work. I wanted to look at a new Spark. Surprise, none on the lot. What about a base model Sonic then. Oh no. We only have the luxury top of the line ones.

When I bought my micra, I wanted a 5 speed. Shocker. None. And Nissan underestimated the demand for manual S models. I don't really believe that. Well. I want a 5 speed S model with air.

That doesn't exist. You have to buy the S Auto at a difference of 3k to get air. But I want manual, with air. Well then you have to step up to an SV for $3600 more.

The micra SV intrest rate.. .99% or $197 per month.
The micra S intrest rate.. 1.99% or $166 per month.

Well, that doesn't seem so bad. Does it?

Why the difference? You'd have to know the numbers really. Profit margin to the dealer is about $600 on a micra S, where as an sv is $1200. Nissan finance doesn't care if they loose money on the finance charges. But the dealer wants a bigger profit margin. So is the dealer going to carry a lot of S models? No. One or two so they can advertise the $9998 price point. But if they can make double the profit on one sale, they will.

So its not just Nissan doing this, its all of them doing a lot of clever marketing, and a lot of careful financial planning. A good example of marketing genius is at Hyundai. "You pay what we pay." is thier big campaign each year. Do you play invoice pricing. You do. You pay what the dealership purchases the vehicle for from the manufacturer. What they don't tell you is the incentive they get from the manufacturer for selling it. An example is the santa fe. Might cost them 30k for the suv. You pay 30k for the suv. Good deal? You think so. What you don't see is the dealer getting a $1500 incentive for selling it.

There is a slight possibility that I may or may not have signed a gag order with a certain dealership I worked at once upon a time, but there is a lot that they don't and won't tell you. And if you don't believe me. Consider this. How long does it take for you to price out a vehicle online using the calculators provided. Think it takes the financial person longer? No. But it's their job to make the maximum amount of money and keep it within the budget you provide them with.