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Originally Posted by Perfectlap
otherwise it will hurt new sales which is where they make their real margins.
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While I agree with the rest of your analysis, dealers actually make money in this order:
1) Parts & Service (contributing over 70% of operating profit)
2) Used Car Sales (contributing over 25% of operating profit)
3) New Car Sales (contributing less than 10% of operating profit)
Source: NADA.org
Also you may find a better deal on a new car than a used one right now. In recessionary times, new car sales decrease while used car sales increase. According to Automotive News, franchised dealerships sold 675,100 used cars and trucks in January 2008, an 8.0 percent increase from the year-ago month.
If the dealer comes down substantially from 40K (which I agree is too high), make sure you're still getting the CPO. I had one dealer drop the price on a used one I was considering, only to discover he was trying to recoup his profit by dropping the CPO on me. Read the fine print and good luck.