how a car dealer makes money – financing + service

August 19, 2015

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A car dealership makes money from selling a car, new or used, no matter how slim the profit appears from the outside. What other revenue streams are available?

Financing & Insurance (F & I)

• Financing – A dealership may secure a financing at low interest rate, then sell the buyer a financing package at higher interest rate. Thus, generating a profit.

• Extended Warranty, Service Contracts – Hugely profitable. The percentage of buyers actually get to use the extended warranty services is low.

• Other Products – the financing manager will pitch anti-theft device, police tracking installation, anti-rust protection, interior fabric sealant, while the buyers are captive audience, sitting in his office waiting for the paperwork to be finished. These products are already in the vehicle. Whatever they can get from you, is pure profit.

Service

In economic lean times, service department often keeps the dealership afloat. While warranty work generate thin margin, it’s a chance to build up brand name and trust. It often leads to returns for regular services.

• Service Advisers Are On Commission – not a widely known fact. This is not saying they are dishonest. Just remember that sympathetic service adviser has a vested interest in getting you to agree to the list of services and repairs. A routine service performed early means profit for the dealership.

Okay, so a dealership has various way of generating revenue. But, exactly how much money could it potentially generate from selling you that car? We’ll take a look at that in a future post.

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One Response to “how a car dealer makes money – financing + service”

  1. annalice said

    I wonder how many people actually take the offer for that extended warranty…

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