Car dealerships are part of a multi-billion dollar industry. Around 91% of households have access to at least one car in the US. And the profit from the sale of most of these cars goes to Car dealerships. Let us know more about how much car dealership owners make.
Car dealerships earn through two methods. One is to sell brand-new cars to customers for a retail price suggested by the manufacturers. This value is around 8.7 percent of the manufacturer’s price. This amounts to approximately $2120 per car. The other method is to buy used cars that have the potential of being sold for a high price and renovate them to increase their value. The margin for selling used cars depends on the price of the used car and the cost of repairs. On average, the owners of dealerships in the US can earn between $18,902 and $495,413.
Several factors affect the income generated by Car Dealership owners.
The location of a dealership plays a vital role in the sales and the margin of the car dealership owner. If the dealership is in a wealthy neighborhood, the people coming to the dealership will want quality cars and will not mind paying the dealership a higher commission for the car. Moreover, since the cost of living in the neighborhood is high, most of the people living here will be affluent and will want to buy cars. And the more the cars sold, the better for the dealership. For example, in Oklahoma, one of the best places for car dealerships, the average sales of car dealerships are $183.9 million.
On the other hand, building a dealership in a less affluent neighborhood could also be beneficial as the owner will have the opportunity of selling used cars at a high price. He could buy an old, worn-out-looking car for a very low amount and refurbish it to make it look new. This car, he could then sell for a high-profit margin. After all, cars are a necessity.
Competition is a huge factor that affects the income of a car dealership. People visit dealerships for two reasons. One is because of customer service, and the other is pricing. If there is a dealership located next to your dealership that offers a more competitive price, then most customers will be attracted to that dealership. Moreover, the manufacturers will also be willing to give them more cars as they will be getting a bigger cut from them. However, competition is not always harmful. Two dealerships located next to one another can have different varieties of cars and therefore, a different target audience.
Profit margin is the biggest key factor to making a successful car dealership. Manufacturers often allow a profit margin of less than 6% for a new car. This is less as the dealership needs to pay employees, rent, and other utility costs to run the store. Therefore, many dealership owners look for cars that have a higher margin.
Type of Cars
In the current era, trends are undoubtedly important. The same is true for cars. Trends are very important for car dealerships as they need to be aware of what people are buying and what the demand is for. However, one bad thing about trends is that they come and go. There may be a demand for one car on Monday and it may go by Friday. This could seriously affect the earnings of the car owner as storing cars can be expensive.
Customer acquisition cost
At the end of the day, the amount you earn is dependent on the customers you get. However, getting customers is not easy and often requires advertisement. A good customer acquisition cost is around $650. If it gets higher than that, profit margins are severely affected which could reduce the earnings of the owner of the dealership. To retain an already existing customer the cost should amount to no more than $100.
To conclude, the earnings of an owner of a car dealership can range from $15,000 to $450,000. This value depends on the variety of factors mentioned above. Hopefully, this article has helped you get an insight into car dealerships.
Q)Are Car Dealerships capital intensive?
A)Car dealerships can require huge sums of capital as they need to buy the cars up front with their own money. Moreover, the cost of labor, utilities, and most importantly the rent are very high. Advertisements also require a lot of money.
Q)Do sales representatives earn commissions in car dealerships?
A)To motivate their sales persons many car dealerships offer incentives per car sold. For full-time employees, there is often a base salary and any cars sold are a bonus. For internships, some companies only offer commissions for cars sold.
Q)Can Dealership owners lose money on cars?
A)It is unlikely that dealerships lose money because of the car devaluing over time, as cars usually appreciate value. Rather the money is lost in storing the vehicles and maintaining them over the years.
Q) Can a Car Dealership sell one car to two people?
A)Co-Owning a car is allowed by the state. In this case, the documents of the car have the name of both owners written on them. Although co-owners fall into disputes many a time, different states have different policies on co-ownership. For example, some states allow one owner to sell the car without the other owner’s consent.