Understanding How Dealerships Make Money

Although most car buyers think that dealerships are cleaning up on each deal that they make, in many cases this is far from the truth. The fact of the matter is that car dealerships have to do a lot of work in order to ensure that they stay profitable month in and month out. Of course, they make money on most of the cars that they sell, but they do have many expenses that they have to cover. Not only do they have to pay the sales people, but they also have to store the cars, keep up the showroom, and much more. So as you can imagine, car dealerships need to do whatever they can to make money.

The Sticker Price

If you have ever bought a new car you are aware that there is a sticker price that lists the manufacturers suggested retail price, or MSRP. This is the amount that the car dealership would like to sell the car for, but unfortunately for them things rarely work out like this. But remember, just because they are not selling the car at MSRP does not mean that they are losing money. There are other costs that are built into this price that allow them to be profitable even if they give you a nice sized discount.

The Invoice Price

In most cases you will never get to see the invoice price of a new car. This is more or less the amount that the car dealership actually pays the manufacturer for the car. Each car dealership strives to sell all of their cars above the invoice amount so that they can make as much money as possible. There is no set way of knowing what the invoice price is, and car dealerships have nothing to do with it. Simply put, the manufacturers are the ones who set the invoice price on new cars. From there, the car dealership has to work within these guidelines, which ultimately affects the buyer as well.

hen it comes down to it, car dealerships make their money by selling cars above the invoice price. The dealership will pay the sales person a commission on the sale, and will then keep the rest for themselves. When you better understand how a car dealership makes money you will have a much better chance of getting the best possible deal.