Pre-pandemic, the financial outlook for car dealerships was promising, riding a wave of economic growth. Now, as markets rebound, the prospect of owning a car dealership is attracting considerable interest. If you’re contemplating a career as a licensed auto dealer and wondering about the financial rewards, a crucial question arises: How Much Do Car Dealers Earn? Before investing in pre-license education and navigating the complexities of obtaining a dealer license, it’s essential to understand the earning potential within this industry. Let’s delve into the revenue streams of car dealerships and explore the expected income for dealership owners.
Decoding Car Dealership Revenue Models
Many believe that car dealerships primarily profit from the direct markup on vehicle sales – buying from manufacturers and selling to customers at a higher price. However, the reality is more multifaceted. Profit margins on vehicle sales alone have narrowed over time, prompting dealerships to diversify their income sources. Fortunately, car dealerships have multiple avenues to generate revenue. Here’s a breakdown of the key ways car dealers make money:
Invoice Price vs. Sale Price: The Initial Margin
The fundamental aspect of dealership profit is the difference between the invoice price – what the dealership pays the manufacturer – and the sale price – what customers pay. Ideally, dealerships aim to sell vehicles above the invoice price. While the Manufacturer Suggested Retail Price (MSRP) serves as a guideline, competitive market pressures often lead to sales below MSRP. Car dealers acknowledge that this direct profit margin has become increasingly compressed over the years, making it a less reliable primary income source.
Manufacturer Holdback: A Hidden Profit Center
To bolster dealer profitability, many manufacturers offer a “holdback” program. This incentive involves the manufacturer returning a percentage of either the invoice price or the MSRP (depending on the specific manufacturer’s policy) back to the dealership after a vehicle is sold. This holdback typically hovers around 2% and acts as a significant revenue supplement.
Alt text: Modern car dealership exterior showcasing various new vehicles parked in front of a glass-fronted building, illustrating the business environment of car sales.
While holdback funds aren’t usually received immediately at the point of sale, most manufacturers distribute these payments quarterly. This consistent influx of capital helps offset operational costs, including salaries and overhead. In fact, some dealerships strategically prioritize partnerships with manufacturers known for offering robust holdback programs to enhance their financial stability.
Manufacturer Incentives: Boosting Sales and Profits
Beyond holdback, manufacturers frequently introduce sales incentives to encourage dealerships to move specific vehicles, particularly as model years end or to clear out older inventory. These incentives, often referred to as “dealer cash,” act as rebates on particular Vehicle Identification Numbers (VINs). These targeted incentives directly contribute to a dealership’s profitability by providing extra funds per vehicle sold, further padding the bottom line.
Finance and Insurance (F&I) Products: Expanding Revenue Streams
A significant profit center for car dealerships lies in the Finance and Insurance (F&I) department. By offering a suite of add-on products and services at the point of vehicle purchase, dealerships substantially increase their revenue per transaction. This includes arranging vehicle financing, enabling the dealership to earn interest income on car loans originated in-house. Furthermore, F&I products commonly encompass extended warranties, gap insurance (covering the difference between the vehicle’s value and the loan balance if totaled), and security systems. These offerings provide valuable services to customers while simultaneously generating considerable profit for the dealership.
Service and Parts Department: Cultivating Long-Term Revenue
Establishing a service and parts department within a car dealership creates a robust stream of recurring revenue. By providing ongoing maintenance and repair services for vehicles sold, dealerships secure consistent income over the lifespan of those vehicles. Customer loyalty to a dealership for service often stems from the initial purchase experience, making a well-run service department a vital component of long-term profitability. This department not only generates revenue from labor and parts sales but also enhances customer retention and builds a sustainable business model.
It’s clear that car dealerships utilize a diverse range of strategies to ensure profitability. However, understanding the dealership’s gross revenue is only part of the picture. The crucial question for those considering dealership ownership is: how much money do car dealership owners actually take home?
Car Dealer Earnings: Personal Income and Profit Distribution
Typically, a car dealer’s personal income is directly linked to the overall profitability of the dealership. In smaller dealerships, the owner might also function as a salesperson, directly earning commissions from individual sales. As dealerships expand, the owner’s role shifts towards management, and their income becomes tied to the dealership’s overall financial performance.
As the dealership owner, you have the authority to design the compensation structure for your sales team and other employees. A common approach involves a combination of a base salary, commission on vehicle sales, and performance-based bonuses. When establishing these pay structures, it’s critical to ensure sufficient profit margin remains to secure a comfortable salary for yourself as the owner.
Quantifying Car Dealership Owner Income: What to Expect
Now, let’s address the core question: how much money can car dealership owners make? The answer depends on several variables, most notably the type of dealership and its operational efficiency. Used car dealerships often present higher profit margins compared to new car dealerships. This is largely attributed to the in-house refurbishment and reconditioning of used vehicles, allowing for greater control over acquisition costs and resale pricing. Therefore, the question, “how much do dealerships make on used cars?” often yields a more optimistic profit outlook. The profitability of used cars is influenced by the initial purchase price, reconditioning expenses, and the final selling price.
Average Profit Margins: New Cars vs. Used Cars
Industry data provides valuable benchmarks for understanding average profit margins. The National Automobile Dealers Association (NADA) reports significant differences in gross profit between new and used vehicles. According to NADA data, the average gross profit for a used car is approximately $2,337, while the average gross profit for a new car is around $1,959.
Alt text: Car dealership scene depicting a dealer in a suit shaking hands with a smiling customer in a bright showroom, symbolizing successful car sales and customer relations.
These average gross profit figures of around $2,000 per vehicle sale provide a starting point for estimating potential earnings. However, the actual income for a dealership owner is subject to a wider range of factors.
Factors Influencing Car Dealership Owner Salary
Several key factors determine the ultimate income of a car dealership owner. These include:
- Dealership Performance: The overall success and profitability of the dealership are paramount. Efficient operations, strong sales strategies, and effective cost management directly impact the bottom line and, consequently, the owner’s earnings.
- Manufacturer Incentives and Holdback: The availability and utilization of manufacturer programs like holdback and dealer incentives significantly contribute to revenue. Negotiating favorable terms and maximizing participation in these programs can boost profitability.
- Sales Volume: The number of vehicles sold is a critical driver of revenue. Higher sales volume, whether in new or used cars, translates to greater overall profit potential.
- Average Sale Price: The average price at which vehicles are sold influences profit margins. While luxury car dealerships may command higher prices per vehicle, they often experience lower sales volumes compared to dealerships selling more affordable brands. Finding an optimal balance between price and volume is crucial.
- Location: Geographic location significantly impacts market demand, operating costs, and competitive landscape, all of which affect dealership profitability and owner income.
Considering these variables, reports on average car dealership owner salaries vary. Ziprecruiter estimates a national average salary of just under $60,000, while Comparably suggests a higher average closer to $98,000. Older data from the U.S. Bureau of Labor Statistics positioned the average auto dealer salary around $70,000 per year, or $33.73 per hour.
It’s also important to acknowledge regional variations in car dealership owner salaries. Ziprecruiter provides state-by-state salary averages, offering a more localized perspective on potential earnings based on geographic location and market conditions.
Conclusion: Is Car Dealership Ownership a Profitable Path?
In conclusion, while the income of a car dealership owner is influenced by numerous factors, establishing a well-managed and successful dealership can lead to a comfortable and rewarding career. The potential exists to build a business that not only provides a substantial personal income but also operates semi-autonomously with a dedicated sales and service team. This allows the owner to transition from direct sales involvement to strategic business management, further enhancing work-life balance and long-term financial prospects.
If the prospect of owning a car dealership and achieving financial success in the automotive industry appeals to you, exploring the requirements for becoming a licensed auto dealer in your state is a worthwhile next step. With the increasing accessibility of online pre-license education and CE training in many states, obtaining your auto dealership license has become more convenient than ever. Taking proactive steps now could position you to capitalize on the rebounding economy and build a thriving car dealership business.
