how much money does a car dealer make?

September 2, 2015

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A car dealership has various revenue streams (see here and here). Let’s look at how much money a car dealer can potentially make from selling you that brand new car for, say, $20,000.

+ Sales Profit » Let’s say the dealership make $500 gross profit, above invoice.

  Sales Front-End Commission » 30% commission = $150

• + Dealer Holdback » $600

• + Dealer Cash Incentive » $500

•  Loan Interest Paid » Dealers take out loans to stock their lot with those glistening new cars. Interest rates are very low at this time. Let’s say the loan interest is $300 per car, per month. This car has been sitting on the lot for a month » $300 interest.

• + Financing » $2,000 profit for the length of the loan

+ Extended Service Contract » According to survey, 42% of new car buyers bought extended Service warranty. $1,000 profit

+ Anti-theft Device » $400, this is pure profit

Sales Back-End Commission » 5% of ($2,000 + $1,000 + $400) = $170

+ Service – All that warranty service work, though slim margin, generates good will, and likely returns for regular services. This could generate, say, $3,000 for the life of the car.

It’s immediately apparent, the sale of the car generate only a small profit. Most of the profit comes from F&I (financing & insurance) and Service. The dealer’s total profit is $7,380, for a $20,000 sale.  So, the next time, the dealership complains to you about not making enough profit…well, knowledge gives you leverage.

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2 Responses to “how much money does a car dealer make?”

  1. annalice said

    so, doesnt seem like car dealers make that much…

  2. skwchang said

    That’s $7,000 profit on a $20,000 car, pure profit. He probably took in $20,000 to earn that $7,000 profit (after subtracting out his expenses, taxes, etc.)

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