I think many people assume that car dealers make a boat load of money when you purchase a vehicle. New vehicles cost 10’s of thousands of dollars so why wouldn’t we think that?
The truth is they do make a fair amount of money, but not nearly as much as people think. It’s important to understand this is to avoid confusion when negotiating and to have an understanding on how to be realistic.
People lie, and I’ve heard this one many times from many different people:
“I just bought a brand new Raptor. The sticker price was $65,000, I told them I’d give them $35,000 cash and they accepted.”
I actually heard someone say this last month, and they lied three times in the same sentence. First of all, this person didn’t have $35,000.00 in cash. He did have his own financing though, so it’s kind of like cash to the dealer. The real lie was the amount he paid for the truck. This is mathematically impossible to get a deal like that, it simply doesn’t exist. I saw his new truck off in the distance and I could see the “6.2” on the side, that’s when I realized he had bought himself a used Ford Raptor because Ford doesn’t put a 6.2 in a 2017 Raptor.
Anyway, I have some really cool data that I obtained via the ROI Detective Platform and the dealer’s DMS. I was measuring profits buy source, but if I did my math right this is the average number this particular car dealer made off each sale.
This is from a combination of new and used vehicles, but note that dealers typically make more from selling a used car.
For you data nerds this is how we broke it down to the dealer so they know where the golden customers lay.
Remember, this is gross. This is before any expenses they have like payroll and overhead. Dealer’s also get holdback and incentives from the manufacturers which are not factored in here. Neither is “the pack”. Let’s say a dealer obtains a trade-in from a customer for $11,500. They may have a pack of $500.00 which pays for the car to be serviced and ready to sell. Door dings fixed, a full detail etc… So the dealer’s DMS will say the vehicle cost them $12,000.00.
The front gross is how much they make when you buy the car. The back is how much they make when you’re in the finance office from things like finance charges, extended warranties and anything else they try to sell you. It’s pretty easy to sell things for an extra few dollars a month in your payment.
This data is from just one car dealer, so this number could vary regionally.