Let’s look at some statistics that will help you understand whether owning a used or new car dealership is financially profitable.
Statista estimates that approximately 2.2 million cars were manufactured in the United States in 2013. According to stats for 2021, there are more than 287 million cars registered. They are almost all traded for one or two years.
Let’s take these numbers and compare them to the average profit of each car dealer.
We’ve already discussed the amount of money that car dealerships make. On average, car dealers earn around $2000 per car.
This means that there are huge profits potential in the car dealership industry.
It is easier said than done.
Some car dealers are not making huge profits. Some car dealers make very little and sell their business. What is the reason for this?
They don’t know how to make more money for car dealers.
We will show you how to make huge profits in the car dealership business.
Let’s first look at the business model of a car dealership.
Car dealers typically get between 5% and 10% for each new vehicle sold. This means that they can earn $1500-2500 per new vehicle sold.
However, they spend as much as $1500 per car on traditional marketing (e.g. billboard ads). Rent, wages, and other running costs are all still there.
Combining both of these facts makes no sense, even if a dealer spends approximately $2000 on a car.
What’s the secret to success?
Dealers can use many other passive income-generating opportunities to make extra money.
These are just a few of the many areas we will be discussing on this page. We hope you’ll also learn how to make money in the car dealership business.
Let’s talk about the factors that make the car dealership the most profitable. We’ll also be able to see which profit-generating factor is most important between a used dealership and a franchise.
Profitable Zones in Car Dealership Business
Selling used cars is a great way to make a lot of money if you’re in the used car dealer business. It’s not the case for new car franchises.
Car dealers can find many income streams in this industry. These streams are available to all car dealers, new and old.
It’s much better to concentrate on the profits at the beginning, once you have made a commitment to your car dealership business.
These are the most lucrative areas of car dealership business.
Profit Margin By Manufacturer:
It is for new cars.
Car manufacturers usually offer profit margins of 5-10 percent. Focus on brands that offer higher profit margins.
It’s up to you to decide which brands to sell more. Every brand has a customer. It’s worth taking the time to choose the right brands.
This is one of the most lucrative parts of the car dealer business. Each successful financing brings in huge profits for car dealerships. Once you’re in, banks and financing companies can work with you.
The profit margin in car financing is entirely dependent on how you negotiate and run your business. You will soon learn the tricks.
Insurance companies have high profit margins, which we all know. Your profit margins could be even greater if you stick with one company and win great business.
Car insurance is, in short, another side of the car dealership industry that can be profitable.
Accessories & Warranties:
Accessories and extended warranties are a huge source of income for car dealers. It all depends on your marketing skills.
If you are able to find a skilled salesperson who knows how to increase the value of accessories and warranties for cars, it will be a rewarding business.
These accessories are sold by car dealers for huge profits. They also take a large cut (upto 70%) on warranties.
No matter if you have a used or new car, every car requires maintenance. Car maintenance is the best passive income for your car dealership business.
A mechanic is essential for your used car purchase, especially if you work in a dealership. You can actually have two businesses by making your mechanic available publicly.
Every car is serviced on a regular basis. This is why selling service for cars you own is one of the best aspects of your business.
It takes time to build trust, and then sell many cars. It can bring you more profit than selling cars.
It’s worth it to invest in the early stages of your business. Many car dealers handle all their expenses through their service businesses.
Old Cars vs. New Cars
Although you may already know which side you prefer, if you’re still unsure, we can help you decide whether to sell your new or used car or keep them both.
Let’s look at both the profit margins of businesses and their downsides in order to better understand them.
New Cars Franchise Upsides:
Manufacturer profit margins are fixed. However, new cars can be sold financing, leasing and accessories better.
A person buying a car can be either wealthy enough to pay all you ask or poor enough to get the financing that you offer.
Selling new cars has its downsides.
- Fixed profit margins are established.
- Some people cannot afford a brand new car.
Used car dealership Upsides:
The profit margin of a used car dealership can be as high as four times the purchase price. It all depends on how skilled you are at selling and buying.
Selling used cars has its downsides.
- Credit card holders are always allowed to trade cars earlier if they are in debt. For the minimum markup, you have 30 days to dispose of the vehicle.
- Finding a great deal takes effort.
- A good mechanic is essential.
Selling used cars can bring you greater profits than selling new ones. These two factors are because used cars are more affordable and there are many opportunities to trade.
If you are able to invest in your own cars, then focusing on used vehicles can be more beneficial for your car dealership.
However, people who purchase new cars have more chances to make money. They’re already ready to buy a model.
According to a survey, only 5% of car buyers return for reasons other that not buying the right model.
This will make you more likely to work less.
If you don’t want to put in the effort, you should avoid the used car dealer business. But, if it is worthwhile, then you can still make a profit. Both can be kept together.
Spend less and increase profits
I mentioned at the beginning that car dealers can spend as much as $1500 advertising each car they sell.
This is not true for all dealers.
Online marketing strategies can be very profitable if you spend little on advertising.
Research shows that car dealers spend 10x more on digital marketing than traditional advertising.
It’s a better idea to hire a local expert to help you reduce your advertising costs. If you don’t have the budget, it is possible to hire an expert. To make sure your business appears on Google, you can follow these guidelines.
- Get your car dealership business listed on Google.
- Local Business Marketing Strategies are almost free.
- Create a website for your business. Use GSC to monitor it. Get it indexed on Google.
- Create a blog for more customers.
- Promote your business to create links.
- To get free traffic and converts, invest in SEO
- Social media platforms such as Facebook and LinkedIn are useful.
- Use classified ads sites like Craigslist.
Although these resources can be helpful, it is not the best way to promote your company. This will require more time and not produce the desired results.
You can spend thousands on traditional marketing but hiring a digital marketing specialist or an SEO agency for your business campaigns is better than the alternatives.
Although it might seem expensive, you will see a higher ROI from your digital marketing investments. You don’t need an internet connection if you want to work on your own.