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My Recommendation for Car Shoppers
How much money do car dealerships really make on car sales? Photo: Creative Commons. How can that be? Keep reading. Yes, dealers make money on each car they sell. But often, that profit comes from the manufacturer, not the customer. When a car shopper finds herself in a car dealership she should remember the sticker price on the car is just a starting point and the price she should pay for a new car should negotiate down from there. Dealer cash incentives are often tied to particular models, something you might see when you go to look at one model but hear a lot about another model instead. So while the dealership may earn a single sum for the number of cars sold in a given month, that sum may jump up for a larger number sold that quarter and an even larger number sold for the year. This can add up to thousands of dollars over the life of a loan. Gap insurance is usually only recommended to buyers who make a very small downpayment on a car and finance most of the purchase.
My Recommendation for Car Shoppers
They’ll try to guilt you into paying a higher price, but don’t pay attention to the whining. I’m going to reveal how dealers really make money, and why you should never feel sorry for them. First of all, most people assume that dealers pay for all their vehicles and have a bunch of money tied up in their inventory. This is false. The vast majority of dealers take out loans to build their inventory and are essentially «renting» the vehicles. If a dealer sells the vehicle in less than a month, they will make a tidy profit simply on the holdback amount. But we’re just getting started. But wait, there’s more! Way more Most dealers don’t make the bulk of their profits on the sale of a new car. The big profit usually comes through arranging car loans, selling add-ons, and making money on your trade-in. They simply low-ball your trade-in, then turn around and sell it for a nice profit. Of course, that large a profit is not typical, but most dealers do make the bulk of their profit in areas other than the actual sale of the vehicle. Think about that next time a dealer is whining about not making any profit. These sites show you no-haggle prices from dealers closest to you — and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals.
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Used Car Sales
Standing outside a car dealership reveals an armada of shiny new vehicles. If you could look behind the curtains of the dealership, you would discover that each and every operation you are passing by is set up as a profit center—all of them competing for the money in your wallet. So who typically wins this war of dollars, and how does the dealer actually make any money? The answers might surprise you. Big dollars, factory fresh complete with that new car smell —you would think this is where the big bucks are kept, and in many ways you are correct.
Because they are a high-ticket item, new car sales account for over half of the total gross sales at the dealer. Dealers secure inventory by borrowing money, sometimes from the carmaker, to get all those cars into the showroom and onto the lot.
The longer the cars sit, the more interest the dealer has to pay on the loan. Cash flow, yes. Profits, no. More studies from NADA recommend that used cars sell in 45 days or. If they sit longer, they are losers. Back in the old days, the car business was much less transparent. Car values were determined and published in books that were available only to dealers. Or course, all the numbers were subject to the condition of the car.
The dealer would make good money on the trade and the sale of the new car. Those days are long gone. CarGurus can tell you what your trade is worth in a couple of clicks on our Car Values page, and a quick search will allow you to compare prices for the same car at multiple dealerships and from private owners.
Dealers buy and sell cars at auto auctions. Auctions can be sexy affairs filled with collectible cars and rich people—or they can be held by police departments or the IRS. Auctions are risky propositions even for the professionals. Dealers may take cars to auctions that have been on the lot too long or are too expensive to fix. Dealers may buy cars at auctions if they have room in their inventory for certain quick-selling models.
Pure capitalism, risk and reward: Auctions are not for amateurs, and even savvy car dealers can make costly mistakes. These are yet another risky-at-best potential profit center. Along with loaning you the money to buy your car, they want to sell you an extended warranty, gap insurance, undercoating, fabric protection, and anything else you can think of. According to NADA, net profits are pegged at 2.
Turns out selling money and peace of mind are more profitable than slinging rubber and steel. If you buy a new car or a certified pre-owned carit comes with some kind of warranty from the carmaker.
Who does pay? The car manufacturer pays the dealership to fix a new car, but usually not at the same hourly rate that you, as a customer, would have to pay.
The dirty work in the back of the building generates a Most of that comes from mechanical repairs. Dealers also sell wholesale parts to independent garages, and some will sell retail parts over the counter to people just like you.
So the next time you visit or drive by a dealership with all that shiny metal parked around it, remember that all of that is just for. The stuff going on out back is what actually makes the dough. Saved searches Saved listings Financing Messages Sign in. No new notifications!
My account. New Car Sales Big dollars, factory fresh complete with that new car smell —you would think this is where the big bucks are kept, and in many ways you are correct. Wait, what? Trade-Ins Back in the old days, the car business was much less transparent.
Auctions Dealers buy and sell cars at auto auctions. Parts and Service If you buy a new car or a certified pre-owned carit comes with some kind of warranty from the carmaker. Used BMW. Used Buick. Used Cadillac. Used Chevrolet. Used Dodge. Used Ford. Used GMC. Used Honda. Used Hyundai. Used Jeep. Used Kia. Used Lexus. Used Mazda. Used Mercedes-Benz. Used Nissan. Used RAM. Used Subaru. Used Toyota. Used Volkswagen. The content above is for informational purposes only and should be independently verified.
How Much Money Do Car Salesmen Make-REAL Numbers
Used Car Sales
Most consumers believe car dealerships make their money off new car sales. Aith reality, the balance sheet is much more complicated. New vehicles are the shiny, big-ticket items that get the most attention, but they are also the least profitable part of the business. Few dealerships can survive on new car sales. Which segment is most profitable? That answer might surprise you. New cars are the best-selling items for dealers, but they also have the mondy profit margins. They are considered a loss leader product because they bring customers dealershios the door without generating much profit on their. According to NADAnet profit margins for new vehicles dropped to 2. The problem is that dealers have to work within the confines of the original equipment manufacturer OEMthe maker of the vehicle.