Pre-pandemic, car dealership earnings were on the upswing. And as the economy looks poised to roar back, that means that people who’ve been toying with the idea of becoming a licensed auto dealer have a promising opportunity ahead of them.
But before you go down the path of getting your pre-license education (if your state requires it) and securing your auto dealer license, you want to make sure it’ll be worth the money. Here’s a look at how a car dealer makes money and how much you can expect to earn if you start your own dealership.
People often assume that auto dealers primarily make money by buying vehicles from manufacturers, then selling them at a profit. But that profit margin has shrunk over the years, so dealerships have to look to other revenue sources. Fortunately, there are plenty. Here are some ways an auto dealer can make money:
This is the obvious one. The amount you pay a manufacturer for a vehicle (the invoice price) will ideally be less than what you sell it for. You’ll probably part with the vehicle for less than MSRP, though, and auto dealers report that this margin has gotten smaller over the years.
Fortunately, many manufacturers offer holdback. This means that when you sell one of their vehicles, you get a certain percentage of either the invoice price or the MSRP (depending on the manufacturer) back from the manufacturer. If a manufacturer offers holdback, expect it to be about 2%.
You usually won’t get this money at the time of the sale, though. Most manufacturers issue their holdback money once a quarter. Still, this can be a great way to earn some extra money to cover your operating expenses, including your salary. In fact, some auto dealers choose to work exclusively with manufacturers that offer holdback.
Beyond that, many manufacturers offer incentives to sell certain vehicles. For example, they might issue rebates on certain VINs if it’s the end of the selling season for that model. Also called dealer cash, these incentives help you pad your bottom line.
By offering add-ons at the time of a vehicle sale, you can generate more revenue for your dealership. That includes financing for the vehicle, allowing you to earn the interest on the car loan. Other common F&I products include extended warranties, gap insurance, and security systems.
Adding a service and parts department to your auto dealership gives you a great way to earn recurring revenue. If the vehicle you sell comes back to you for maintenance through the years, you’ll get consistent money from it, after all.
Clearly, there are a lot of ways for your dealership to turn a profit. But that doesn’t necessarily mean you’ll pocket all of it. So let’s look at what you can expect.
Generally, you’ll take a cut of the profit your dealership makes. If you’re the only salesperson, you’re earning money based on the sales you personally make. But as your dealership grows, your salary can grow right along with it.
As the dealership owner, you get the structure the way you pay any salespeople. Generally, you’ll pay a base salary and offer a commission on car sales, plus some bonuses. As you’re structuring pay for any employees, make sure you leave some wiggle room so you can earn a salary yourself.
Now, to brass tacks. The amount you’ll make depends on the type of dealership you run. Generally, because dealers refurbish used cars in-house, they can turn a bigger profit margin on used car sales. So, how much do dealerships make on used cars? It depends on what you purchased the car for, how much work you had to put into it, and how much you can sell it for.
On average, how much do dealers make on used cars? The National Automobile Dealers Association (NADA) reports that the average gross profit for a used car is $2,337. That same data set puts the average gross profit for new cars at $1,959.
If your dealership is making roughly 2k of gross profit per sale, you’re probably wondering how much that leaves for you.
Before we get into the numbers, some caveats. Your dealer income will depend on how well your dealership does, incentives and holdback from various manufacturers, and your sales volume, as well as your average sale price.
If your cars sell for more, will you earn more? How much does a luxury car salesman make? While luxury car dealers generally make more per vehicle, their overall sales volume is usually lower. It’s really about finding the sweet spot for your dealership.
Because there are so many factors at play, the reports of the average salary for a car dealership owner varies. Ziprecruiter puts the nationwide average at just shy of $60,000, while Comparably says the average is closer to $98,000. Old U.S. Bureau of Labor Statistics averages put an auto dealer salary somewhere in the middle, at $33.73 an hour, or just over $70,000 a year.
One final caveat: like pretty much all careers, the average car dealership owner salary depends on where you live. Ziprecruiter has compiled a list of averages by state to give you a better idea of what you can earn locally.
Ultimately, once you get your dealership established, you can earn a pretty comfortable salary as an auto dealer. In fact, you might reach a point where you can have a team of salespeople working for you, meaning you don’t have to do much yourself other than manage the business.
If that piques your interest, it’s well worth looking into what’s required to become an auto dealer in your state. Since more and more states are allowing future dealers to get their license education and CE training online, completing the to-dos and getting your auto dealership license is easier than ever before.
Start taking steps now and you could be well-positioned to build a booming dealership.