If you’re an entrepreneur or business investor wondering why car dealerships are an attractive business opportunity or how much money car dealers make, here’s the answer:
The car dealership business is appealing for two key reasons:
- It can be a highly profitable business.
- You can start with minimal investment, even leveraging credit.
However, there’s one important caveat:
Not all car dealers earn the same amount. Some make significantly more than others.
Key Takeaways:
According to Nada reports, used car dealerships make $2,337 per car, and selling a new car costs approximately $2000 per car. However, according to our research, the average is $1250.
Dealers make money from various sources:
- Financing: Dealers can earn commissions from financing deals, typically around 2.5% of the financed amount.
- Insurance: Selling insurance also adds revenue, with dealers earning commissions from insurance providers.
- Fees: Dealers charge extra fees, like documentation and VIN etching fees, which can add up to $1,000 per car.
- Accessories and warranties: These offer significant profit margins, sometimes up to 100%.
- Maintenance and service: Offering ongoing car maintenance can provide steady income, even if no cars are sold in a given month.
It’s possible you might not make significant money in this business, and that could be disappointing. You might even find it unattractive and decide to leave.
That’s why, if you’re planning to start a car dealership, it’s essential to understand the key areas where dealers earn the most.
Making good money in car dealerships isn’t rocket science; it comes down to focusing on the right aspects of the business.
Today, we will dive into the areas that generate the most revenue in the car dealership business.
But first, here’s a quick and clear answer to the question: How much do car dealers make?
According to NADA reports, used car dealerships make an average of $2,337 per car, while selling a new car yields around $2,000 per car in the USA.
Some dealers sell up to 150 cars monthly, which could lead to earnings between $200K and $300K.
But this isn’t the case for all car dealers. Some businesses fail for various reasons.
One major issue in the car dealership business is marketing. Many businesses spend up to $1,500 per car sold on traditional marketing methods. However, dealerships that leverage digital marketing best practices spend only about $150 per car sold.
That’s a significant difference—saving up to 90% with digital marketing strategies.
This is where many car dealers can save thousands, but it’s not the only area where they can maximize profitability.
There are several other key areas where car dealers make money to stay profitable, even after covering significant expenses. Let’s explore the secrets behind where car dealers earn the most.
On this page
Profit Margins on Selling a New or a Used Car
No doubt, owning a used car dealership is profitable.
But it depends on how great a deal you got and what you do to sell it at its best price. There is no limit on 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 for more than the retail price. You are spending a considerable 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 make six figures a month.
Financing/Leasing
Financing is one of the biggest revenue sectors in car dealerships.
Almost all car dealership businesses work with banks or financing/leasing companies. Such companies offer them a huge profit margin on each successful sale.
If they finance a car at 4.5% to a customer, they offer 2.5% to the dealer.
That means if you could get financed a car, you are making from the retail price and getting a flat amount or commission from the bank.
Insurance
Everyone wants to get their 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, which is how it becomes one of the money-making sides of the car dealership business.
Fee Charges
Some fees, like registration and sales tax, are mandatory directly to the government. But not car dealerships charge a lot more than that.
It could be the title fee, doc fee, VIN etching fee, and other charges directly going 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 by 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.
Maintenance
Offering a maintenance service is another big profitable area in the car dealership business.
Keep in mind that the car dealership business is local. That means if you sell 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 your dealership business, which has some good profit.
Special Incentives
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.
Offering Service
As mentioned earlier, it’s one of the most profitable sides of this business.
If you offer car service at your dealership, you will likely increase the number of regular clients for your service business on each sale.
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 have been committed to doing your car dealership business for years, then offering a car service at your dealership is the most profitable side of this business; you must keep it along with you.
Save money on marketing.
Marketing is one of the essential parts of any business. You can’t survive or grow without marketing.
But marketing for car dealerships takes a lot from your balance sheet. And you have no control over it.
So what to do to make your marketing cost-effective? How can you save thousands of dollars by utilizing advanced marketing techniques?
Here is how to do it.
- Start a business website.
- Appear on Google.
- Use local business marketing strategies.
- Hire an affordable SEO specialist.
- Use social media marketing strategies.
With digital marketing, your marketing becomes ten times cheaper.
The process might sound complicated. But if you hire an expert to manage your digital marketing, they will do everything on their own.
How do car dealers make money?
Car dealers have great opportunities to make from their business.
It’s selling a car and many other things that come with this business. For example, say it’s selling a loan, insurance, accessories, and service.