HOW do car brokers really work?
Welcome to the guide that answers that burning question, as well as going into detail to answer others, such as
What is a car broker?
Is it worth using a car broker?
And, how much do car brokers charge?
In theory, it goes that a car broker will help you as a buyer to get the maximum discount on any new car, without any hard work or headaches.
That’s a pretty compelling offer.
Which makes the service seem like a no-brainer.
… this isn’t actually how the average car broker really works.
Who am I, and why am I telling you this?
Hey, James Whitbourn here, the founder of Sydney car broking business CarHelper.com.au.
When I started CarHelper.com.au in 2016, I did so to help new car buyers with a great deal, a smooth and enjoyable purchase, and genuine independent advice drawing on more than a decade as a car reviewer and automotive analyst for titles such as Wheels Magazine, whichcar.com.au and moneymag.com.au.
And over the years since, I have observed that what car many large brokers claim to do and what they actually do are two very different things.
It’s been an eye-opener, and with a 15-plus-year career spanning automotive engineering and motoring journalism, it not as though the car industry holds too many surprises for me.
There aren’t many articles about car brokers out there.
And the few that are there are as dry as toast to read, and range from ‘light on facts’ to inaccurate or plain untruthful.
And that’s why I’ve written this guide.
My only aim in producing it is to help you learn more about car-buying and car brokers and gain some practical help from it.
So, let’s get back to that basic premise of a car broker.
It goes that by using a car broker, everyday car buyers can buy their new at a substantial discount, over the phone and email, rather than paying near retail price in a dealer showroom environment.
With a car brokers, you can entirely avoid visiting any showrooms, doing any negotiating, or dealing with salespeople and their tactics.
The process, while not really do-able for the average private buyer, is really simple, especially for a car broking business that does it every day.
The business model is that the broker negotiates a terrific deal for you, and takes a small cut out of the discount for their effort.
And it can work really, really well for you as a new car buyer.
But, unfortunately, in practice, that’s not always how it works.
The dominant car broker model in Australia instead sees brokers behaving just the same as regular car salesmen.
That’s no surprise really, because who do you think car brokerages fill their call-centres with?
You guessed it.
Who else but former showroom floor car salesmen.
In a showroom environment, these car salesmen typically try to sell you a new car for as a high a price as you’re prepared to pay.
That’s their job.
They’re working for the dealership, not you.
And there’s plenty of evidence that many large car broker businesses operate in just the same way.
Hey, don’t take it from me.
Read the reviews and whirlpool forum posts about how some of the larger car brokers in Australia really work.
The average car brokerage salesperson will quote you a price over the phone, and listen carefully for your reaction.
If you respond positively, it’s game on, and they’ll try to ‘close the deal’.
If your response isn’t so enthusiastic, they might say, ‘Oh, we have a few more quotes coming in, I will call you back later.’
Or ‘There’s a big order going in tomorrow, we could add your order to it and get you a bigger discount.’
Well, why wouldn’t they just do that in the first place, instead of calling you with a not-so-good offer?
Why? Because it’s complete rubbish.
They’re playing worse-than-car-dealer games.
The exact games you came to a car broker to avoid.
So, let’s now go back to first principles with a real-world scenario.
Let’s say you’re looking for a new Toyota.
You could go to your local Toyota showroom, and maybe visit or call one or two other Toyota dealers.
You could ask for a price from each and perhaps play them off against each other, and get what you believe is a good deal.
“Come on in, we’ll look after you” sound familiar? Dealers really don’t like quoting over the phone…
You may not really know for certain that the best price you can get is a good deal, but you have done what the conventional wisdom says you should do by getting three quotes (Well done you.)
And you DO know that what you paid is less than the other dealers wanted to charge you.
The problem is this is hard work, time consuming and above all, it’s not an enjoyable way to spend your weekend.
Instead, you could find a reputable car broker, tell them the Toyota model you’re looking for (as well as some other details, like the colour and accessories you’d like) and let them put the request out to a network of Toyota fleet departments.
Fleet departments don’t deal with individuals, but if you buy through a broker, you can buy a car from a fleet department.
(By the way, a car from a fleet department is exactly the same as a car from a showroom. It’s not a ‘fleet special’ in any sense. More on this later.)
There are two kinds of quotes that brokers receive from fleet departments.
Quotes that are a bit too high.
And winning quotes.
In other words, if a fleet department doesn’t put its best foot forward when quoting, they won’t win the business, so they may as well not bother quoting at all.
What this means in practice, is that a broker usually gets a lot of fleet quotes for any given model that are all very close together, and all very sharp.
Of course, one fleet department might be in a better position to discount a car than another.
And it’s this fleet department that will offer to supply that car at the best price.
(We regularly connect our clients with fleet suppliers to purchase heavily discounted cars where the profit margin is $150 or even nil.
It’s a totally different equation with a fleet supplier.
Unlike a retail sale, where the salesperson is interested in the margin, fleet can consider a sale to be ‘just another unit’, with little regard for profit.)
All of this leaves just one, final link that’s often missing.
A car broker with integrity that will automatically pass on the majority of the discount to you.
Here’s our guide to finding that car broker.
Hey, you’re not silly.
When you see some car brokers claiming 25-percent discounts, you don’t miss the *.
Glancing at the fine print at the bottom, you read that this inflated percentage is the difference between full retail price including the maximum on-road costs, and the broker’s quoted price.
It’s a nonsense percentage.
Because no-one ever pays retail plus full on-road costs.
A more useful – though slightly less impressive – percentage is the difference between the average drive-away price a certain model sells for, and the price a broker can source that model for.
It’s also a percentage that’s a bit more difficult to work out, because we don’t really know how much buyers who don’t use a broker actually end up paying.
And, anyway, what’s really important is how many dollars you can save using a good car broker.
The table below shows that, as I write, for popular family SUV model the Mazda CX-9 Azami AWD, you could save a genuine $5727 (or 9.1 percent) using a broker, compared with the least-expensive price advertised in Sydney on Carsales.com.au. I think $5727 is a saving worth making, what about you?
|New Mazda CX-9 Azami AWD prices|
drive-away price in Sydney
client drive-away price
MYTH: Car brokers haggle and beat down the dealer for you…
Some car brokers suggest that they will haggle, negotiate and beat down the car salesman for you.
And while this does a terrific job of perpetuating the myth that all car salesmen are the devil – and, by extension, that a car broker is your best friend – it’s not an accurate description of the process at all.
Because while a car dealership can sometimes give the slime-ball or standoffish treatment to a retail customer, they’re just fine to deal with when you’re a car broker offering to bring them more business.
If they want that business, all they have to do is sharpen the pencil.
And, besides, don’t car brokers offer ‘fleet buying power’?
Well, yes they do.
So they’re not dealing with salesmen at all, they’re dealing with fleet managers.
Yes, the average car broker really does need to get its story straight…
Anyway, we really like fleet managers, because they routinely give us massive discounts, day in and day out.
(Yes, every day. With a car broker, you don’t have to wait until the end of the month, or the EOFY.)
And fleet managers really like us, because we send lots and lots of fantastic customers to them.
See, it’s a much more of a handshake than an arm-wrestle.
FACT: ‘Free’ car brokers are the most expensive ones…
The Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended that mortgage brokers should operate on a fee-for-service basis just as financial advisers do, to avoid conflicts of interest.
Car broking, unlike finance broking, is unregulated, and typically operates on a non-disclosed commission basis.
However, some car brokers – typically smaller, independent operators – do operate on a fee-for-service basis, or a combination of fee for service and commission.
I have summarised the two main types of broker in the table below:
|Broker Business Model||Cost||What you get||Their goal|
|‘Free’ car brokers||No cost up front||Phone calls from a salesperson (typically a former car salesman)||Hitting sales KPIs. Maximise profit by selling you a car at the highest possible price|
|Between $100.00 and $500.00||An expert who will offer advice and save you time and money||To provide fantastic service & source you a car at the lowest possible price|
MYTH: Car brokers are just a middle man that adds cost
Sure, ‘free’ car brokers would have you think they exist just to help you, and that they don’t earn any money.
But it takes just three nanoseconds of critical thinking to realise that this just can’t be the case.
I mean, how many people do you know who work for nothing?
There’s a commission, payable by the dealer or dealer group to the broker, for every customer a broker sends to them to buy a car.
In some, but not all cases this commission is added to the price of your car.
But here’s why the broker model stacks up.
When you take a fleet-discounted car and add a modest commission, you still have a very well-priced car.
Let’s take our CarHelper.com.au-sourced $62,763 Mazda CX-9 Azami AWD example from above.
And a commission of $550 – some brokers charge more; we’re not aware of any who charge less.
And, as we calculated above, the discount to you the car buyer is $5727.
So, the broker effectively brokers a discount of $6277, and passes on 91 percent of this saving ($5727) to you, while earning a commission of $550 for their work.
It’s very difficult, but perhaps not impossible, for an individual to achieve this sort of discount from a retail salesperson.
And, in cases where it is achievable, there can certainly be a huge amount of hard work and hassle involved.
More than $550 worth of effort?
That’s extremely likely.
So, a good car broker doesn’t add cost, they save you money.
FACT: Cars sourced by a car broker are identical to the cars under lights on the showroom floor
‘If something seems too good to be true, it probably is.’
Apply the scepticism inherent in this statement to car broking, and it follows that there’s probably a catch somewhere.
Okay, so you’re happy with the price the broker has quoted
And you’re crystal clear that it’s a ‘drive-away’ or ‘on-the-road’ price that includes everything that is usually referred to as the ‘on-road costs’.
- ‘Dealer delivery’ charges (a good car broker will minimise these)
- GST (unavoidable tax)
- Vehicle duty (more unavoidable tax…)
- 12 months registration
- Compulsory Third Party insurance (CTP or a ‘Green Slip’)
It also includes the extra cost of metallic paint, free floor mats and free home delivery.
So, what about the car itself?
Sure, on the surface it’s the same make, model, specification and grade as the one you saw in the showroom.
But is it exactly the same?
Or is it a fleet special that’s missing something?
Does it have cheaper tyres? Or fewer features?
Well, no. No it doesn’t.
The cars supplied by fleet departments are exactly the same as the ones under lights in the showroom.
They come from exactly the same dealer group, have all the same features, and give you all the same offers and benefits.
(This includes access to corporate benefit programs, if you’re part of a large company or organisation that’s on the car brand’s register.)
Cars supplied by brokers via fleet departments have the same manufacturer’s warranty as cars sold in showrooms.
And there’s no obligation to service at the selling dealer, or even at one of the brand’s other dealership service departments.
You can service your car at any dealer service department or any licenced mechanic without compromising your warranty.
Finally, if you do have a warranty claim, you can have that rectified at any of the brand’s service departments, too.
Some things aren’t too good to be true.
But it’s always good to double-check.
FACT: ONE THING separates a GREAT car broker from an AVERAGE one
There’s one thing that separates a great car broker from an average one.
It’s NOT their buying power, the size of their network, or how big they claim their discounts are.
I found this out very early on; back when I founded CarHelper.com.au in 2016.
Even then, I was able to beat the biggest players’ prices.
Because they’d got greedy.
And stopped acting in the genuine interests of their customers.
They’d started keeping too much of the discount for themselves instead of passing it on to their clients.
So, that’s it.
It’s the one thing a great car broker has that the others don’t.
Thank you for taking the time to read this guide.
I hope it has helped you.
I wish you all the best finding a great car broker.
And a terrific deal on your new car.
Founder & Car Broker