Do you want to know how much money car dealership businesses make yearly? If YES, here is an analysis of the income potential of car dealership owners.
A car dealership business depends on buying wholesale and marking the vehicle up for retail. Sometimes these car dealers contract directly with a car manufacturer to sell new vehicles. However, used car dealers often acquire their stock from the secondary market through auctions.
How Car Dealerships Make Money
Indeed car dealerships can’t exist unless they are profitable. At car dealerships, the rows of shiny new cars might prompt shoppers to believe that they are where the business makes most of its money. However, dealers usually charge the manufacturer’s suggested retail price (MSRP) for their vehicles.
They can also discount their vehicles to entice prospects to buy. When this is done, a dealer may discount the vehicle to the dealer invoice price. Dealers often also receive incentives and “holdback” from the manufacturer.
Small dealerships are usually used car dealers. These types of dealerships purchase used vehicles at auctions and mark them up for resale to consumers. This type of business can be highly profitable and does not require a lot of overhead or inventory.
But bigger dealership might secure a contract with a major manufacturer to sell new and certified used vehicles. This type of dealership business is typically large scale, requires significant upfront costs (including franchise fees), and may require high volume sales to keep the manufacturer’s contract.
The Annual Estimated Income of a Car Dealership Business Owner
A car dealership earns revenue by selling vehicles above the dealer’s invoice price and by doing routine maintenance on vehicles sold. Customers typically pay commissions on vehicles they purchase (which is bundled into the total sales price of the vehicle) and pay hourly or a flat fee for maintenance.
As with dealer operating costs, profit depends entirely on the dealer’s wholesale pricing and cost for inventory, cost for bonds and insurance and other overhead. Generally, a dealer can make between 2 percent and 3 percent of the sticker or invoice price of the vehicle.
Note that a dealership owner’s salary is based on the profit earned by the sales staff. Immediately the car is sold and the employees are paid, the owner can take a portion of the profit as salary. The salary for a car dealership owner can vary greatly, especially since salary is dependent on how many cars are sold and at what price.
Have it in mind that a successful business will bring a higher profit, and thus a higher salary. The quality of car, whether it is used or new, and the interest of the local community, all weigh in on the average salary. Dealership owners in a good business can earn an average of $33.73 per hour.
It is important to note that car dealership owners make investment in the car before it is sold. It simply means that the owner needs to choose the right types of cars that will sell quickly. The dealership sales staff are responsible for selling the cars.
The only way to make a profit is if the car is sold at above the original buying price. Once the sale is made, the revenue from the sale is split between the salesperson, the other staff in the business and the owner. Some of the revenue is also dedicated to buying new cars and paying bills and upkeep on the business.
According to reports, the average Car Dealership Owner in the US makes $97,790. The salaries of Car Dealership Owners in the US range from $18,902 to $495,413, with a median salary of $90,593. The middle 57 percent of Car Dealership Owners makes between $90,596 and $225,300, with the top 86 percent making $495,413.
To ensure success, car dealership owners need to buy cars that will sell quickly. The market can change drastically, leaving dealership owners with un – bought, unpopular cars. While SUVs were once easy sells, the price of gas and concern about the environment has made smaller, more eco – friendly cars the most buyable. Car dealership owners need to be out ahead of the market so they are not left selling cars for no profit, or even a loss.
For an individual car dealership filer in this tax bracket, you would have an estimated average federal tax in 2018 of 24 percent. After a federal tax rate of 24 percent has been taken out, Car Dealership Owners could expect to have a take – home pay of $80,031 / year, with each pay check equalling approximately $3,335.
Note that a take – home pay of roughly $6,669/month and the median 2BR apartment rental price of $2,506/month a Car Dealership Owner would pay 37.58 percent of their monthly take – home salary towards rent.
Attracting new customers to grow profits can be difficult. Some new dealers hold a tent sale. This is a special sale conducted off – site (away from the primary business location) to attract new customers. Every state and county has different rules and regulations regarding tent sales.
Making a dealership profitable is not easy. Because there are so many laws and regulations governing the sale of vehicles, most dealerships rely on good customer service to fuel future growth.
However, a dealer can increase the odds of making more money by specializing. Auto dealerships are relationship-driven. Many customers are past customers, so referral business and retaining customers through excellent customer service is crucial in this business.