How Much Do Car Dealers Make a Month
Most of us have visited a number of car dealerships. There, the car salesperson makes small talk with the potential customers walking through the door. On any given day, there are more people coming in to just check out the cars than to actually buy a car. The Car salesperson has to humor them all. But have you ever wondered how much car dealers make a month? What they earn per sale depends on the company, brand, car, and price.
Car dealerships make money from car sales and providing service even after the car is sold. But the income depends on how many cars they sell per month, the incentives and holdback they receive from the manufacturer, the average sales price, and how well the customers receive their service. Because it depends on so many things, no dealer can be sure of how much they can make monthly, but they follow various strategies to up the profit.
Do Car Sales Make a Lot of Money for Dealers?
A lot of money can be subjective. A car dealership makes money typically by selling the car at a higher price than the amount they paid to buy it. A salesperson makes money as a fixed salary provided by the dealership with some extra commission for each car sold. The commission also depends on the type of car they sell. Normally a new car sale brings lesser money than used cars for car salespeople.
Sometimes, the income of the car salesman has nothing to do with the number of cars sold. They get the same salary each month. But this is not widely practiced as it reduces the drive to sell more cars for higher revenue. Based on the pay plan of a salesman, he can make $0 to $10,000 per month.
- When the payment plan issues a fixed payment to the salesperson, how much they earn is not affected by sales volume.
- In some cases, sellers work solely on a commission system. if they sell a car, they will be paid a percentage of the sale. If they fail to sell any car in the month, they will not earn any money.
- But most of the time, the plan included a commission system that adds to the base salary. A percentage of the sale is added for each sale made by the salesperson.
Because of uncertainties, there is no way to pinpoint the effect and average salary of a dealer. It can vary based on changes in the factors and the market. Ziprecruiter calculates that the average is $60,000. According to Comparably, it is around $98,000 in the US. Certain vehicles that are from luxury brands bring in more money for the dealer.
How Do Car Dealerships Acquire Cars?
A car dealer can acquire cars in various ways. How much they can make from these cars depend on the way they sell them. Most ordinary shops display vehicles on their lot and pay the manufacturer or the supplier after a sale is made. This is helpful as they can change up the inventory and return vehicles that are faulty or unsellable. Some ways dealers acquire cars are mentioned below:
- Manufacturing the vehicle and selling them at their own brand outletsMany of the top brands sell their own vehicles at flagship stores. Ford dealership only sells Ford cars and other vehicles. They have the highest chance of making a good profit as the main percentage of the profit comes from the manufacturing process.
- Buying vehicles directly from the manufacturerSome dealerships buy the vehicles from manufacturers and display them at their shops. In this case, the dealer is paid with the dealer holdbacks. This is the amount that the manufacturers pay to the dealer for each car sold.
- Buying from middle agent supplierSome small and medium-sized sellers acquire the vehicles that they sell from other suppliers that collect the vehicles from manufacturers. The cost of these cars gets higher, as expected.
- Buying or trading in used carsMany dealerships nowadays have new car departments as well as used car departments. The dealerships buy used cars from individual sellers or trade in their own brand vehicles in exchange for a new car.
How Do Car Dealerships Sell Cars to Make Money?
Car dealership money comes from the manufacturer more than it comes from the buyer. In most cases, the dealers offer a good and fair price to the buyer willing to buy a new car. Because of this, they cannot and do not scam customers into paying more for the vehicle. So the dealers make money when the manufacturer pays the invoice price for each of the car sales. The dealer invoice is a huge part of the income of a dealer.
Dealer Holdback
Most manufacturers pay the dealer cash money when a car is sold. This amount depends on the invoice price for that vehicle, which amounts to a mere 1% or 2% of the invoice price. Even if the dealer sells the vehicle at a lower price than the invoice, he will get this money as it is the dealer’s holdback money. It affects the most revenue for any dealership’s gross profits. But in most cases, this holdback is only offered to the manufacturer’s own brand dealers.
Service and Repairs
A lot of auto dealers have service and parts departments. They offer you good service and repairment packages for the vehicles you buy from them. These dealers make money through the service and parts department. The service contracts for the vehicles include tires, engine repairments, interior welfare, etc. They offer extended warranties that make the customers more eager to return to them. The dealers often make as much money in extra services as they do in car sales.
Financing
To sell a car, many dealerships provide their own financing to the customer. As they offer good and inclusive facilities, the car buyer prefers to get financing deals from the dealership instead of getting a loan from a bank. When they offer a financing plan where they provide loans and allow payments in installments, they can add the interest from the customer payments to their revenue, making the dealership’s profit rates very high. With their top-notch financing deal and GAP insurance, the buyers of new cars can be reassured even in the case of total loss.
Used Car Purchase and Trade-in
Most car salespeople want to push car buyers to buy used cars instead of new cars as there is more money to earn from used car sales. In the hopes of getting a higher incentive and making back-end profit for selling a used car, they might even try to trick a customer. But these days, buyers are more interested in used cars as there is more available wiggle room in the price range.
Commission
In common situations, a car salesman earns extra money depending on how many cars are sold by him. This is called commission. The process by which the dealerships provide the commissioned money can differ, but this is the main way for sellers to earn good money. It keeps the sales volume of the shop high as the salespeople are invested in the sales for their own gains as well as the shop. The minimum commission rate is around 20% of the price of the vehicle deal’s front-end profit.
National Automobile Dealers Association
NADA or National Automobile Dealers Association is a safe space for auto dealers in the US. They represent more than 16,000 car dealers and truck dealers. They work as advocates to uphold dealer rights in cases such as problems with the federal government and manufacturers, as well as with car shoppers. NADA also promises to promote dealer interests before the federal courts, federal agencies, and Congress.
If there are any problems in the dealerships related to the violation of human rights for the salespeople, NADA can be seen as an advocate for justice. Because of this, if the manufacturer fails to provide the promised dealer invoice holdback, or if the dealership failed to give the salesman his legally earned commission, NADA can help the victim get proper justice. This association has been working for dealer welfare successfully for years.
Conclusion
Maintaining a successful car business requires a lot of hard work and strategizing. Making money is never easy in any case. A perfect car sale can be a transaction where all the parties come out happy: the buyer, the salesperson, and also the dealership. No matter how much the salespeople earn individually, it is far smaller in amount than the owner of the dealership. It is as expected, but the pay plans for the salespeople should not be dehumanizing.
New and used cars sold by dealers all over the world- all impact the market and the income statement of the company. No matter what, the dealers are a very important part of the automobile industry. We should all learn more about topics like this so that we can have a better understanding of what goes on when we buy a car.
