Everyone loves the BOGO (buy one get one free) offer – it’s universally understood and it’s a staple of any consumer product marketing strategy. However, when a car dealership offers you the BOGO offer, there’s a good chance you’re about to get ripped off. Here’s how it works and what you need to watch out for.
How Dealers Make The Buy One Get One Gimmick Work
Typically you’ll see car dealers offer this buy one get one deal on a new truck or SUV,because new trucks and SUVs have big MSRPs, lots of mark-up, and big rebates.
The “free” car is often a one year old economy car that’s been in a rental car fleet. These used rental cars will have 20-40k miles, and they’re usually stripped. A dealer can buy a car like this for as little as $8,000 at auction, but because the car is relatively new, many of the pricing guides (such as the NADA guide or BlueBook) show an inflated retail value of $12,000 or more.
The dealership’s math works like this:
- New vehicle MSRP: $56,000
- New vehicle invoice price: $50,000 (dealers have 10-12% mark-up on the more expensive vehicles)
- New vehicle rebates: $3,500 (dealers keep this rebate as part of the transaction)
- “Free” car retail value: $12,000 (an inflated number that doesn’t match reality)
- “Free” car dealer cost: $8,000
So, the dealer’s net cost on the new vehicle is only $46,500 (invoice – rebates). Add in $8k for the “free” car, and a dealer is looking at $54,500 in true cost.
Of course, the dealer is going to ask you to pay full MSRP ($56k), and very often the vehicle in the ad is either a) poorly equipped or b) has some “extras” that are added to the MSRP. So you might pay $56k for a vehicle that doesn’t have the features you want, or you might pay $1,000 – $2,000 over MSRP for “extras” like pinstripes and undercoating that aren’t worth the premium.
The dealership justifies full price by explaining that you’re getting a $12k car for “free,” but that free car isn’t really worth $12k. If you look online, you can often find your “free” car selling for thousands less than value the dealership is claiming.
Now I realize these are all make-believe numbers, but the idea here is to understand that you’re better off buying two vehicles separately than falling for a gimmick and buying two at once.
To give you a for-instance, back in my car dealership days a local Denver-area Ford dealership was selling brand new Ford Excursions for full MSRP after rebates and “giving away” a year old Ford Focus as part of the deal. The dealership was netting about $2,500 in profits on every transaction…on an Excursion. Not an easy thing to do back in the day, as those SUVs were never very popular.
Again – the moral of the story here is don’t fall for the gimmick. Negotiate every transaction – be it your trade-in, your financing, the second car you want to buy, etc. – separately.