Dealerships purchase vehicles from manufacturers at wholesale prices then sell to customers at higher retail prices. Additional profit comes from service departments, parts and accessories sales, and reselling trade-in vehicles. Understanding operations helps consumers negotiate fair deals.
Dealerships earn money offering financing options to customers through financial institutions. They earn commissions connecting lenders with buyers. Dealerships make money reselling trade-in vehicles at higher prices after providing owners trade-in values.
Sales and Profits
- Average monthly salary for a car salesman is $3,795. The median salary is $42,645.
- Commissions range from $2,000-$3,000 per sale.
- Back-end products like GAP insurance and warranties bring in thousands per sale.
- Most profit comes from loans, add-ons, and trade-ins rather than new car sales.
Profit Margins and Financial Aspects
- Profit margins range from 8-13% between invoice and actual dealer cost.
- Dealers mark up vehicles when inventory is tight.
- Dealerships profit from the difference between wholesale and retail pricing. They also facilitate financing between customers and lenders.