Years ago, I worked in auto sales and then became a finance manager. The two halves of the sales process: selling the car and financing it, are calculated and managed separately on each transaction. Normally, the sales side doesn't know or care what finance does, and vice versa.

The sales side of the business makes its money on "top line price," the first number on the contract, less their true cost of the car -- which isn't shown anywhere to the public. It includes many discounts, incentives, and also fees the dealer pays which are not included in the public pricing transaction. However, finance isn't part of this.

Finance makes its money on the difference between the "buy" and "sell" rates for financing. It makes no difference to the dealership if you wait 3 years to pay off the car, or if you pay it off the next day. The dealer is paid immediately (often the next day) for the total difference in the buy and sell rate.

How does this work in practice? The finance managers job is to sell the cheapest contract that you qualify for. In reality, banks and other auto finance institutions (many are not banks) offer far lower rates than they tell you about -- they just don't offer them to you directly, only at wholesale to a dealer. In fact, there is great competition to get dealers to sell financing to these various companies, which update and publish new rates and programs daily.

By carefully understanding the loan packages offered by various lenders and matching them to the correct customer credit profile and vehicle (and these requirements can be quite complex), the finance side of the business, known as the "back of the house," profits from selling you a sales contract as expensively as you are willing to pay and then buying the money to fulfill that contract from a bank as cheaply as they can. If the finance guy can sell you on a 3.5% finance contract when he knows he can "get you bought" at 3%, he makes a 0.5% profit in full and immediately, regardless of what happens after your car "rolls over the line" off of dealership property. It is in that moment that the dealer's sales obligation to you is concluded and the sales contract can be bought or funded by a lender.

A good finance manager makes money for his or her store by taking advantage of this customer ignorance. It is always possible for customers to obtain financing outside the store and to do before they go shopping. In fact, you are doing the same thing as the finance manager when you use this approach. By "pre-qualifying" at a finance institution (credit unions are the cheapest), you are making the same kind of arrangement as the finance guy makes with his lenders: an agreement to purchase a sales contract on a specific car type (year range and cost) for a specific buyer (you!). That contract is only fulfilled when and if you drive off the line with a car.

On a day-to-day basis, finance managers make a small amount of money from everyday customers who probably don't know what kind of real rates they qualify for. With better financially educated customers and those with greater assets and credit scores, the finance department has little wiggle room and sometimes must sell a contract at cost -- which they despise. If you find your finance manager's attitude has suddenly changed from friendly and chatty to "let's get you out of my office," its because he has determined that he will have to offer you his buy rate.

Finance managers make the most money with "special finance" customers, those who have credit disabilities and poor credit scores. Only a few institutions will finance those customers and at high rates with onerous restrictions. Within a dealership, there will be a single person who handles this department, if there is one at all, although they can be highly profitable as customers who have damaged their credit have few choices. It's notable that this does not apply to customers with no credit, who will always be welcomed by auto manufacturer financiers, such as GM or Toyota's financing programs. With a year of a simple gas card or department store card history, anyone with new credit can buy a car that way and establish oneself for the next loan, which should be at a lower rate. Keep repeating that and you'll be able to qualify for those 1% or 0% offers the manufacturers hold out for just such buyers.