The car dealership is one of the highly profitable businesses. Secondly, it doesn’t require huge investments. Even you can start it with $25,000 and on credit as well. That’s why many people are interested in the car dealership business.
Once someone makes the mind of starting a car dealership business, the first question that arises is, how much money do car dealerships make?
Say you are curious to start this business and want to dig deep into what car dealers make; we have explained every area of the car dealership business where the money comes.
The surprising thing is that selling cars itself is just one small area of profit. So many other sides bring most of the money in.
Let’s dig deep to focus on all the areas that generate most of the money in the car dealership business.
Let’s start with some eye-catching statistics; Nada reports that used car dealerships make $2,337 a car, and for selling a new car, it’s approximately $2000. But many car dealerships owners have told that the profit ranges between $1000 to $1500 a car.
That means, if you could sell just ten cars, it can bring you some sound money. Some car dealerships sell even up to 150 vehicles a month, which means they make $200K to $300K.
It’s not how this business works. In reality, businesses usually spend up to $1500 per car sold (unless they are fully utilizing digital marketing).
That means the profit per car sold isn’t bringing anything; you already spend what you are making.
Then how it becomes a six-figure business?
Here comes the actual story!
Let’s discuss all the departments of this business from where car dealerships make money.
If car dealership owners keep working on all these departments, there comes a time when they don’t sell a single car a month. Still, they are in a considerable profit.
Especially, there is one brighter side of this business, from where car dealers make most of the profits. We have discussed that side at the end.
Here we go!
Profit Margins on Selling a New or a Used Car
No doubt, owning a used car dealership is profitable.
But it totally depends on how great a deal you got and what you do to sell at its best price. There is no limit in profit margins; you can sell at 2x, 3x, or even 4x of your purchasing price.
On the other hand, selling a new car itself doesn’t have huge profit margins.
The reason is that you can not sell more than the retail price. And you are spending a huge portion of your profits on your office, marketing, and all other expenses.
In short, if a car dealership doesn’t sell anything else, they only sell new cars on cash; they are overall at a loss.
However, it never happens.
Here are some other areas where car dealers actually make six figures a month.
Financing is one of the biggest revenue sectors in car dealerships.
Almost all car dealership businesses work with some banks or financing/leasing companies, who offer them a huge profit margin on each successful sale.
If they are financing a car on 4.5% to a customer, they offer 2.5% to the dealer.
That means if you could get financed a car, you are not only making from the retail price, but you are getting a flat amount or commission from the bank.
Everyone wants to get the car insured because it’s safe.
Over 217m people carry car insurance in America. That’s a notable figure. And companies are working hard to increase the figure.
They offer many benefits to car dealers, and this is how it becomes one of the money-making sides of the car dealership business.
Some fees are mandatory, like registration and sales tax, which directly go to the governments. But not car dealerships charge a lot more than that.
It could be the title fee, doc fee, VIN etching fee, and some other charges which directly go to the dealer’s pocket (at least most of it). So adding these kinds of extra fees get car dealers up to $1000 a car.
Accessories and Warranties
When someone is buying a car, if you are good at dealing, you can sell a lot of stuff along with the vehicle.
Car dealerships make vast amounts with selling accessories and warranties. The reason is that there are huge profit margins in accessories and warranties.
They make even 100% profit on all that stuff.
Offering a maintenance service is another big profitable area in the car dealership business.
Keeping in mind that the car dealership business is local. That means if you are selling a car and offer maintenance service, the buyer will prefer to come to you for maintenance.
This way, you are running a maintenance business along with you dealership business, and it has some good profit.
It’s basically for those who sell a good amount of cars.
Once you sell a reasonable number of cars a month, manufacturers offer you special incentives and discounts on each successful sale.
As mentioned earlier, it’s one of the most profitable sides of this business.
If you are offering car service on your dealership, that means on each sale; you are likely to increase a regular client for your service business.
Many car dealership owners have verified that even though they don’t sell a car for a month, their service business takes care of their expenses. It never lets them fail.
However, it takes years and years to build such a considerable customership. So if you are committed to doing your car dealerships business for years, then offering a car service on your dealership is the most profitable side of this business; you must keep it along with you.
How much do car dealers make on average?
However, it totally depends on the business. If you are good at marketing and have great relationships with customers and banks, you are surely likely to earn in 6 figures.
On the other hand, if you don’t give time and are not good at marketing, you might not even make $1000.
Although, on average, car dealership businesses make $30000 a month.
How do car dealers make money?
Car dealers have great opportunities to make from their business.
It’s not only selling a car but many other things that come along with this business. For example, say it’s selling a loan, insurance, accessories, and service.
So there are many areas we discuss from where car dealers make money.