Car Dealership Profits: How Much Do They Really Make?
Industry trade journal Automotive News is reporting that car dealers made, on average, more net pre-tax profit in 2011 than in any year since the National Automobile Dealer’s Association (NADA) first started tracking such data more than 40 years ago. In 2011, the average dealership raked in $785,855 in profit. Paul Taylor, NADA chief economist, told Automotive News, “It’s such a good time to be a dealer that dealerships even made money on new cars last year.”
WHAT CAR DEALERS MAKE IN PROFIT FOR EACH CAR SOLD
Now, before you go storming off to demand that your dealer sell you a new car for invoice, less rebate, less incentive, less holdback, less per-unit spiff, you should know this: the average dealer made $23 in profit on each new car sold in 2011. You spend more than that on dinner at our favorite burrito joint, Chipotle, for a family of four. “It’s normally a loss,” Taylor told Automotive News. Indeed. In 2010, the average car dealer lost $180 on each new car sold.
So where is all the money being made? Used cars are always a strong profit center for dealerships, and in 2011 dealers pocketed $269 for each used car sold, up from $252 in 2010.
FINANCE AND INSURANCE, OR F&I
Dealership F&I departments are also profit generators. They structure your deal, arrange financing, and upsell customers on various insurance and service products. With each bank loan arranged, extended warranty sold, and VIN etched, the dealer is taking a piece of the action.
DEALER SERVICE AND PARTS
Another major profit center is the service and parts department. People are keeping their cars longer today than ever before. New car buyers hold onto their vehicles for six years, and the deep recession of 2008 and 2009, combined with persistently high overall unemployment rates, has pushed the average age of cars on American roads to a record 10.8 years. When cars get old, they need more service, and more parts.
Newer cars are also more complex than ever, and it’s not as easy to drive down to the local mechanic for troubleshooting and repair. Greater levels of technology require specialized dealer service, and that typically comes at a premium.
Furthermore, many car companies offer a wide range of dealer-installed accessories padded with a fatter profit margin than factory-installed extras. In some cases, the only options offered on a vehicle might be installed by the dealership.
CAR DEALERS ARE MORE DISCIPLINED
Perhaps more than anything else, dealers are more disciplined than they were before the recession. Dick Heider, a dealer accountant from Colorado, told Automotive News: “Everyone learned a lesson in expense control over the last few years, and I think this will not be forgotten soon. Dealers are smarter and more focused on efficiency in their stores now than in the past.”
SPEEDY DADDY SAYS…
Car buyers should do their homework before purchasing a new car, but dealers deserve to make a profit on each and every sale. After all, that’s why they’re in business. If you owned your own company and people expected you to take a loss on every sale, you’d tell ‘em to get lost. If you’re looking for opportunities to save money, sell your trade-in yourself, and focus more on researching the best prices for used cars, service, and parts.
– Christian Wardlaw