How Do Car Dealerships Make Money?

Car dealerships sell cars to customers and provide service and repairs. They may also offer financing and insurance options. Car dealerships must comply with state and local laws. They must inspect vehicles before a customer takes delivery. They must also notify a customer, in writing, if the vehicle is rebuilt, salvaged, originally not manufactured to U.S. standards, or a replica (see Title Branding).

A listener recently asked us how car dealers make money. Many people have the impression that car dealers lose money on every new car they sell. While it is true that dealerships must pay for the inventory they buy on their “floor plan” or revolving line of credit, and that they have expenses related to advertising and maintenance of their lots and buildings, there are other ways in which car dealers can generate revenue.

New customers are key to a dealership’s business, but so is retaining existing ones. That’s why many – if not most – dealers place a great emphasis on customer satisfaction surveys and other methods for learning how well their staff is doing their jobs.

Dealerships can be an excellent choice for consumers who want a wide selection of automobiles, convenient access to a variety of financing and insurance options, and the ability to have their vehicle serviced locally. Nonetheless, consumers should always be aware of the dealership’s profit motive and bargain hard for a fair price. Consumers also need to realize that there are other car dealerships and private sellers who may be able to offer the same automobile at a lower price. car dealership

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