Car Buying Articles

Where Does the Car Dealer Make Money?

Mostly From Service, Not From Car Sales

It goes without saying that car dealerships can't exist unless they are profitable. That's true for every business, from a neighborhood dry cleaner to a mega-retailer like Wal-Mart. At auto dealerships, the rows of shiny new cars might prompt shoppers to believe that they're where the business makes most of its money. But that's not the case. According to the most recent data from the National Automobile Dealers Association (NADA), the new vehicle department of a car dealership accounts for about 30 percent of a dealership's gross profits. In addition to car sales, that figure also reflects profits from finance

... Back to article

All Article Comments


Sort by:

By p0p02
on 10/06/12
11:35 AM PST

This article has to be written by a 3 year old. First off everything you buy has a profit in it. That does not make the product a bad choice. Secondly for a website that is geared towards cars and the "information" people seek. Your articles constantly bashing the car business is the reason why people are so guarded. When in fact if these "commissioned" sales people sold no cars you would have no job. I believe it is time for your company to write articles that dont paint a entire industry as scoundrels who are just looking to make a buck. But rather a place where services are offered to those who wish to use them and are accepting the terms of that service. All the things you mention above no one is pushing it on the consumer. If you dont want to pay a mark up in the service department. Solution: Fix your own car. Why should anyone show up for work and do it for free. How would the dealership afford to provide a service for free? The dreaded "Finance Office" Solution. Arrange your own financing, there are banks on every corner. But to ask someone to once again work for free makes no sense. I think you should work for free while typing this article since the quality of it is more like a copy paste from several articles written in past times. The salesman is entitled to get paid for assisting the customer find the right car that fits their customers needs. Any knowledgable customer appreciates this service. Which does not result in any commission getting paid until the customer agrees that the vehicle selected meets their needs. For a company that is about cars you guys always seem to have some "inside" information from crooks themselves. These guys dont represent the entire industry. But rather crooks who have probally done time for doing illegal activities and can not find any other work. Other than "protecting" consumers from individuals that think like they do. Ask any average consumer and you will find that their experience was good and they are pleased with their decision on which car they selected regardless of who got paid. Dont sell out the industry that pays your bills. We are not in the 70's the industry is regulated and there is protection from dealerships that look to take advantage of consumers. Find something else to discuss this is not journalism.

Recommend  (16) (14)

Report it

By joepiccaso
on 10/09/12
10:36 AM PST

It is amazing that when anyone tries to explain something or inform people the trolls come out. Noe where was it said making a profit was bad or evil. No one said they lie to you, though most seem to, just from my experience, especially the Service Centers, which by the way is a HUGE profit center for these dealerships. It's just good practice to have as much information as you can get before going into the Lion's den. I've had some good experiences at dealerships, but I knew that because I was informed going in. How many people understand the Rule of 78's for a loan interest calculation. Do you know how the leasing operation works? Most don't and dealers are trained to take advantage of it. Everyone one has to make a profit or they don't survive, except the Government, and that's another problem. Do your homework, get approved for a loan at a credit union before you go in. Know what your trade in is worth. Then talk Cash with them. Then look at their Trade in deal, and credit deals separately. They maybe be fine, or they may be bad, but you won't know if you are not informed, because the dealer won't tell you. Last, but not least, be careful of Extended warranties. They are 80% profit/commission, and I'm being kind to that. Don't buy a 3rd party warranty, and do buy one if you are looking at Hybrids, turbo or supercharged motors and the like. Dealer service centers are the biggest cheats ever! I'm sure there are some that are good, but I can't afford to find them. The manufacturer won't even tell you the truth about their cars' problems, etc., what incentive does a dealer's service center have? If yo find a good one, stay with them. They are worth their weight in Gold! And, yes, always buy through the internet if you can. Avoid the "Rubber room" interrogation and dog & Pony act (aka "let me ask my man anger if I can do something that crazy") routine. Know what you can buy and for how much, before you talk to anyone at a dealer, or elsewhere for that matter. Just don't trust them and Know your stuff going in, and you'll be OK. And a little prayer that you find a good dealer won't hurt, either. Good Luck!

Recommend  (16) (7)

Report it

By jcinwi
on 10/13/12
4:39 AM PST

Warning to car buyers, this is a crooked manuever many dealers now use that makes them a bundle of money! You negotiate a price but if you arrange financing at the dealer, they write the loan for more than you agreed to, then start by drawing your attention to the monthly payments so that you do NOT notice that the total loan amount is wrong! They have tried to pull that on me and my daughter and I know many people that did NOT catch it and were burned with a bug loan! You see, once you sign the loan, you have agreed to pay the amount ON the loan and it does not matter what was said before! It is a legal document and you signed it! It used to be only real shady dealers would try this, but I have seen it almost everywhere now! Remember, check the total loan amount and make sure it is right!

Recommend  (14) (13)

Report it

By carguy166
on 10/15/12
1:11 PM PST

here is the question , why in the world would someone invest millions of dollars in a car dealership(they are ver expensive to operate) and not try to make money. you guys ad edmonds are ridiculous, you open a business and i mean any business to make as much profit as possible. and why do you make it appear that its some kind of sin to make money. i dont see any exposes on mcdonalds or coca cola , i wonder what it really cost to make a big mac and how dare they sell it for one penny over their cost.

Recommend  (15) (20)

Report it

By wmjarski
on 10/16/12
2:26 PM PST

I have a friend who was a car salesman who told me that dealers make a lot of money stealing rebates. The dealers simply do not inform customers of rebates, and on the back of the contract there would be a statement that "dealer retains all rebates and factory incentives". And then there's the infamous "dealer fees" preprinted on the contract, added after the deal was agreed to.

Recommend  (17) (13)

Report it

By shawnfoster
on 10/25/12
1:22 PM PST

I find it very ironic that Edmonds, the very company that survives by dealers selling cars would print this article. Even more ironic is a former car salesman spilling his beans on the subject. I wonder how he would have reacted to this article had he still been in the business. That old saying holds true, "those that can, do. those that can't teach." Far more customers lie to dealers than the other way around. Ever tell a salesman what the least amount for your trade in was acceptable? If you are like all other customers, you started $3000 above that number. Was that lying?

Recommend  (15) (12)

Report it

By craigwbryant
on 11/02/12
11:57 AM PST

The post by AZGM clearly comes from an auto dealer. No one is saying that the car dealership shouldn't make money, what folks are saying though is that the practices employed at many car dealerships are plain out immoral and predatory. I recommend never going to the dealership without knowing that you have financing already secured through your own financial institution, or even better have cash to spend. Also, don't let them know anything more than they need to know at any point. Planning to trade in your car, great, don't tell them this until after you've agreed on the sales price of the new vehicle and have a signed agreement on the price. Planning to pay in cash, good plan as well, don't tell them until you have signed agreement on the sales price. I did this to a dealership in Houston, TX a few years ago, walked in, negotiated a price for a truck (got it for over $8,000 less than sticker, and at a price i felt was definitely fair), got in the F&I room, pulled out my checkbook stroked them a check for amount and asked for my keys and title. Needless to say they haven't really reached out to me since then. You're never going to stop them from making a profit (and you shouldn't try to, its part of the economic circle), but keeping as much of your money in your pocket isn't a crime. Smart, prepared buyers will be able to do this.

Recommend  (15) (11)

Report it

By jzal35
on 11/06/12
1:53 PM PST

While you have some valid points I stongly disagree with most of your blanket statements in this article. I work as a Used Car Manager at a multiline New and Used Car Dealership in Gardner Ma. I would consider the profits you suggest to be obscene and take issue that we run a dishonest business. I would be very happy to extend an offer to you to come to our Dealership, train to be a Salesperson and then work here for a month and see how you feel about our business at that point.. Come and live only on the normal pay structure for that time and then write an article about your true to life exeriences. Speak from personal knowledge of the business and not what some disgruntled ex employee has related to you. Do all this and I will consider your article at that time to be valid.

Recommend  (10) (12)

Report it

By jeffrey23
on 11/08/12
1:35 PM PST

The author of this article paints the dealer, the sales person and the very concept of making a profit in a bad light. Furthermore, he insinuates the dealer makes and excessive or even an unfair profit on pre-owned vehicles and products which are sold in the finance office. While he does mention the high expense of operating a dealership, in order to make an assessment of exactly what is a fair profit one must first consider how much does it cost to operate a car dealership? Most customers want to have an enjoyable shopping and buying experience in a nice facility, this means the dealer has to invest in realestate and erect a premium structure. If he is selling new vehicles the franchise (ie Ford, Toyota, Honda) will have stringent, specific guidelines for how this facility must look. Often times the franchise agreemnent requires the dealer to purchase even the fixtures (desks, kiosk displays, picture frames and the enclosed pictures) from the manufacturer. all together this requires an investment in most cases well over a million dollars many times into the tens of millions! not to mention the franchise itself which costs millions. Next, car shoppers usually want a variety of options to choose from, in other words the new car dealer has to inventory not only several of each model offered by the manufacturer but several of each model in variuous colors with various trim levels this means he must inventory humdreds of vehicles to give his customers a variety of choices. With the average cost of a new vehicle over $20,000 inventory expense is in the tens of millions and that is not including used cars. Also most people don't want to wait for a sales person so you need to have staff, in most states there are laws which govern paperwork and procedures someone needs to handle that, more staff! the manufacturer saus you have to have a certain ammount of parts on hand for customers and the service deparetment this equalls in most cases another million dollars in inventory expense. Now lets look at the service department, millions of dollars are spent on tools and equipment to set that up plus it is another staff intensive department! All together this equalls, in most metropollitan markets severla hundred thousand dollard per month fixed and variable expenses! So I ask again, how much is a fair profit margin on a vehicle? Studies have shown people are far less likely to shop in a run down facility where the dealer offers few choises, in a bad part of town where real estate values are low. Studies have shown people do not want to wait three hours for their car to be worked on in the service department because the dealer cannot afford to have a full staff of technicians or support personel, or several days because the dealer needed to order parts! Think about it

Recommend  (6) (6)

Report it

By consumeradvo3
on 11/14/12
10:19 AM PST

I'm sorry to all those dealers and salesmen commenting on here but I look at it this way. Your predecessors have set the bar low on dealer expectations. I hear a lot of dealers now advertising clear, transparent, no haggling sales. They are trying to change that. But like with any sales oriented industry, there are too many bad eggs out there to sway people's opinion or expectations of your industry. Kudos to those of you who are honest. Please pressure your managers to instill honesty, integrity, and professionalism into your culture. And this goes for all sales industries. I buy only private sales for cars because of the "dealership culture" that besets you.

Recommend  (13) (6)

Report it


Get Pre-Approved for a Car Loan


Get Pre-Approved for a Loan

Credit Problems?
We can help you get Financing!