How much profit do car dealers make on new and used cars? Here's the perception versus reality – Car Dealer Magazine (2024)

FAQs

How much profit does a car dealer make on a new car? ›

Front-end gross profit is usually described as the difference between dealer invoice and the selling price. That percentage tends to be somewhere around 20%.

Is there a way to gauge how much of your money is going into the salesman's pocket? There's no hard-and-fast answer, unfortunately. But it's safe to say that used car sales are the most profitable of all deals. That's because, as we explain in this video, the margins on used cars are much higher than on new vehicles.

Auto dealerships make a lot of money off financing. Mostly, they act as intermediaries to connect their customers with banks and credit unions, earning either a flat fee for each loan referral, a percentage of the loan amount, or a portion of the interest.

Commissions on new car sales vary from one dealership to another, but the usual range is from a 20-to-30 percent of the profit. The profit amount is also different among dealers. The bottom-line is that a good salesperson at a popular dealership can make over $50,000, but the average is considerably less.

Blended total gross margin for traditional franchised auto dealers is approximately 15-18%.

Average profit per new or used car

On average, how much do dealers make on used cars? The National Automobile Dealers Association (NADA) reports that the average gross profit for a used car is $2,337. That same data set puts the average gross profit for new cars at $1,959.

Just like anywhere else, businesses win some and lose some. Car dealerships are no exception. If you're wondering how car dealers lose money, then read on. We have to reiterate that, yes, car dealers really lose money on deals, they can even lose a lot at times.

Generally, dealerships make the most money selling used cars. In a nutshell, there is a lot more variation among used cars than among new cars, making it harder for buyers to comparison shop and easier for dealerships to hide profit. Contrary to popular belief, the profit margin on most new cars is quite small.

Regardless of the age of the vehicle, we again found that Carmax is the best bet for a seller looking to get top dollar. The difference in offers is particularly pronounced for vehicles produced in the last six years, as well as those from 2009 and earlier.

According to data from the 2021 Kerrigan Dealer Survey, 94% of car dealers expect their profits to continue in 2022 and 79% expect them to rise even more. So, if you're looking to increase profits this year, it's not about finding ways to make more money per car.

What is a good profit margin for auto parts? ›

Many automotive business consultants suggest an overall 100% markup on parts in order to achieve an overall 50-55% profit margin. This markup is important to achieve a 30 to 35% net operating profit. Shops that fail to succeed often have net operating profits of less than 15%.

Car buyers pay 10% above the sticker price, on average — or more if you want a Jeep or Porsche. With limited inventory due to supply chain challenges, prices for new cars are often marked up at the dealership.

The best Car Sales jobs can pay up to $176,500 per year.

However, you can work at an existing dealership, typically working on commission, without the high bar of entry.

Yes, a skilled car salesman can make six figures per annum. If your goal is to make 100k in a year, you must be able to make 8,333 per month selling cars.

Markup is usually the difference between what a dealer paid for a used car and the amount they sell it. On average, markup ranges from around 10% to 35%. The percentage may sometimes include processing and repair costs. However, this is not always the case.

What is a good gross profit margin ratio? On the face of it, a gross profit margin ratio of 50 to 70% would be considered healthy, and it would be for many types of businesses, like retailers, restaurants, manufacturers and other producers of goods.

An NYU report on U.S. margins revealed the average net profit margin is 7.71% across different industries. But that doesn't mean your ideal profit margin will align with this number. As a rule of thumb, 5% is a low margin, 10% is a healthy margin, and 20% is a high margin.

Recent figures from Pendragon – one of the most profitable car dealership groups according to the Car Dealer Top 100 – revealed it made an average of 8.9 per cent on new car sales and 8.1 per cent on used cars in the first half of 2022. These percentage figures are more like the reality across the industry.

Even insurance premiums are remarkably low (about $870 per year). As you see, New Hampshire is the cheapest state to buy a car in, both new and used. It's worth mentioning Florida and Oregon as decent alternatives. The lowest initial cost in Florida can justify its unexpected fees.

Are used car prices on the decline? ›

The good news for consumers is that used car prices are declining and experts expect the trend to continue in 2023. Unfortunately, the drop won't come close to wiping out the massive surge in values that stretched from the spring of 2020 to the beginning of last year.

A final resort for the dealer with vehicles that don't sell at the dealership is to sell them at an auto auction. Most areas have auto auctions that are frequented by new- and used-car dealers.

Best month to buy a car

Data from Edmunds found that shoppers in December can get the highest discounts off MSRP—about 6% on average—and the most incentives like payment deferrals, zero percent financing and cash back.

Mondays. Monday can be the best day of the week to buy a new car. Other potential shoppers are often at work, so representatives at car dealerships are focused on anyone who comes in the door.

The most efficient way to pay for your vehicle is to bring a cashier's check, which is more secure than a personal check, and guarantees that the funds are actually available.

November 14, 2022

New car prices are rising due to an ongoing chip shortage and increased raw material costs. In the U.S., the average price of a new vehicle was up 6.3% in the last year. This has fueled demand for used cars. Average prices were up 42.5% in September 2022 vs.

Auto dealers are enjoying record profits, according to the Q1 2022 Haig Report. Not only are dealers enjoying record profits in 2022, the value of their businesses appear to be hitting new heights in the process, according to the Q1 2022 Haig Report.

Will used car prices decline in 2022? ›

Used vehicle prices are expected to come down further this year amid rising interest rates and improved availability of new cars and trucks, according to Cox Automotive. The firm expects wholesale used vehicle prices to end the year down 4.3% from December 2022.

Ideally, direct expenses should not exceed 40%, leaving you with a minimum gross profit margin of 60%. Remaining overheads should not exceed 35%, which leaves a genuine net profit margin of 25%. This should be your aim.

Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale. For instance, if a business reports that it achieved a 35% profit margin during the last quarter, it means that it had a net income of $0.35 for each dollar of sales generated.

An auto part store can make a significant amount of money online. In fact, many online auto parts stores are very profitable. There are several reasons for this, the most important of which being the following: Larger Customer Base – An online auto part store can reach a much larger customer base than a physical store.

Based on your pricing homework, you should have a good idea of how much you're willing to pay. Begin by making an offer that is realistic but 15 to 25 percent lower than this figure. Name your offer and wait until the person you're negotiating with responds.

It's above and beyond the factory MSRP. A dealership makes its gross profit on a vehicle from the spread between what it must pay the factory for a car and the amount it collects from a customer at the point of sale.

Some vehicles command well above MSRP.

With that bit of folksy poetry fixed in your mind, you'll need to guard against any dealers treating today's short supply of cars like a winning lottery ticket. Many are tacking thousands of dollars in dealer markups to the manufacturer's suggested retail price (MSRP).

They are actually going to talk to the manager. The main reason being that the sales manager controls all the pricing of the cars in order to ensure that the dealership is making a profit.

How many cars does a salesman sell in a month? ›

Dealership salespeople average about 10 car sales per month, and earn an average of about $40k per year.

The average Car Salesman salary is $45,996 as of January 26, 2023, but the salary range typically falls between $40,929 and $52,328. Salary ranges can vary widely depending on many important factors, including education, certifications, additional skills, the number of years you have spent in your profession.

The 24-10 rule for cars states that you need at least 24 months of continuous insurance coverage, with no gaps or lapses in cover, before you can get the maximum benefit from a car insurance policy. The policy must also include ten years of no-claims bonus.

Remember the thumb rule: Always remember the thumb rule of not spending more than half of your annual income on a new car. For instance, if an individual earns Rs 10 lakh per annum, the ideal budget for the vehicle would be Rs. 5 lakhs.

Throughout 2022, new-car shoppers have been paying an average of about $700 over the manufacturer's suggested retail price, according to Edmunds data. Those in the market for a new vehicle today may experience sticker shock after seeing a dealership has priced the vehicle they want well over MSRP.

Car buyers pay 10% above the sticker price, on average — or more if you want a Jeep or Porsche. With limited inventory due to supply chain challenges, prices for new cars are often marked up at the dealership.

A new trend we've seen since vehicle shortages started is dealers not accepting cash or even your own financing when buying a new vehicle. The reason? Dealerships make money financing cars. With far fewer vehicles to sell, they want to maximize every dollar of profit, so some will not take your check.

The total invoice cost on a vehicle typically ranges from several hundred to several thousand below its sticker price. For example, a midrange 2018 Honda CR-V with a $30,000 sticker price may have an invoice that's around 7 percent lower, or about $27,900.

Some vehicles command well above MSRP.

With that bit of folksy poetry fixed in your mind, you'll need to guard against any dealers treating today's short supply of cars like a winning lottery ticket. Many are tacking thousands of dollars in dealer markups to the manufacturer's suggested retail price (MSRP).

Are most car dealers charging over MSRP? ›

For most of 2022, the average price of a new car was around 10 percent over the official price, with the 15 most popular models all costing between 18 and 24 percent more than the manufacturer's suggested retail price (MSRP), according to iSeeCars.

September 2022 update:

It is not uncommon to pay over MSRP, and discounts are rare. This seller's market means that shoppers don't have much leverage in terms of negotiation. These days, if you don't like the price you're being offered, salespeople know that there will likely be someone else who will pay that price.

According to Auto Cheat Sheet, a good rule of thumb is to offer 3-5% over a dealer's new car cost. You can search sources like Kelley Blue Book, Consumer Reports, and Edmund's True Market Value to find the invoice price for your make and model.

Many dealerships appreciate having all their money upfront and not having to deal with monthly payments. You may find that you have more leverage when paying cash because the dealership might be willing to take less money in order to get all of it right away.

Spend less money.

There's no monthly payment or interest when you buy a car with cash. You pay for it upfront. That means you spend less money, including on interest payments and any potential loan fees.

Paying cash for your car may be your best option if the interest rate you earn on your savings is lower than the after-tax cost of borrowing. However, keep in mind that while you do free up your monthly budget by eliminating a car payment, you may also have depleted your emergency savings to do so.