Auto Dealers Make Just $23 for Each New Car Sold
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UPDATED: Mar 27, 2012
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The website TrueCar.com surveyed people how much they thought dealers made on a $40,000 car. The responses were mostly in the range in the $3,000 to $5,000. Needless to say, they, along with most other auto loan borrowers, would be very surprised to learn that auto dealers actually make hardly anything on each car they sell.
In fact, in 2011, car dealers made an average of $23 per car sold, according to the National Automobile Dealers Association. For many, that doesn’t even pay the gas bill (especially at today’s prices) to get to and from work.
“The reality is they make almost nothing,” said Jess Toprak, vice president of market intelligence for TrueCar, according to the Huffington Post. “There is a big disconnect between what people think the dealer is making and what the dealer actually makes.”
Despite that low number, auto dealers are ecstatic over that $23 average. Why, you might ask? Because in 2010, auto dealers lost an average of $180 per new car sold, according to a Huffington Post article. That’s right: the act of selling new cars to auto loan borrowers has never been profitable. And, as with 2010’s figures, selling new cars can even be loss-inducing.
But don’t feel bad for car dealers just yet.
Contrary to popular belief, they don’t make their profits off new cars. Instead their money comes primarily from auto repairs, selling warranties, originating auto loans, and selling used vehicles. The lack of profit to be made from new car sales is so minute that most dealers would rather not sell new vehicles at all. Instead, they’re forced to by car manufacturers if the dealer wants to carry any vehicle (new or used) from a given manufacturer.
Those additional services amounted to an average of nearly $786,000 per dealership in 2011, according to the dealers association, so despite the $23 average, car dealers will likely continue to happily accept auto loans for new vehicles.