How does a car dealership make money?

So, automobile dealerships are similar to car merchants because selling cars directly from the manufacturer is unlawful. Now I’m wondering, given the large number of cars these dealerships must originally purchase. I have some questions.

Is most of their profit derived from car sales?

How much more money do they make when they resale the cars than they paid for them?

I’ve also heard that they make money from auto repair, which is pretty obvious, but I’ve also learned that they sell loans and insurance from banks, which, if I understand correctly, comes from the fees they charge the banks for advertising their products to customers. How much would this fee be?

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Car dealerships make money through several key avenues. First, they earn a significant portion of their revenue from selling vehicles, both new and used. When they buy cars from manufacturers or trade-ins, they aim to sell them at a higher price, which is known as the markup. Additionally, dealerships often offer financing options to customers, earning money from interest on loans arranged through banks or credit institutions. They may also provide extended warranties, service contracts, and accessories, which can add to their profits. Another important revenue stream comes from their service departments, where they perform maintenance and repairs on vehicles. By managing their inventory efficiently and controlling expenses, dealerships can maximize their profits while providing valuable services to customers. Overall, it’s a combination of vehicle sales, financing, and service offerings that keeps a dealership financially healthy.

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Profit from Car Sales

A dealership’s primary source of profit is car sales. They earn from the difference between the wholesale price they pay the manufacturer and the retail price they charge customers. However, due to high operating costs, the profit margin on each individual car is often smaller than expected.

Profit from Resale

Dealerships profit from both new and used car sales. The margin on used cars can vary widely based on the vehicle’s condition, age, and demand.

Profit from Auto Repair

The service department is a major revenue stream for dealerships, generating income through:

  • Labor Charges: Fees for repairs and maintenance.
  • Parts Sales: Revenue from selling original equipment manufacturer (OEM) parts.
  • Additional Services: Income from services like tire rotations, oil changes, and detailing.

Profit from Financing and Insurance

Dealerships often collaborate with financial institutions to provide car loans and insurance products. They earn revenue through:

  • Finance Charges: A percentage of the loan amount charged by the lender.
  • Insurance Commissions: Commissions from insurance policies sold.
  • Product Markups: Some dealerships may add a markup to financial products.
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Car dealerships make money through vehicle sales, financing, trade-ins, service and maintenance, extended warranties, and add-ons like insurance and accessories.