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How Car Dealerships Make a Profit


Has anyone ever thought how car dealerships business makes a profit? In the first place, what is a car dealership? Well, nowadays, the realm of business is getting larger and not only that, but also it is getting more successful than ever. People start a business venture not just to meet their basic needs, but more significantly, to make profit that is way beyond their initial investment. One of the most enticing and successful business ventures is car dealership.


Nowadays, cars can be considered as one of the basic material needs of a person. It provides convenience in a person’s life in terms of transportation and even communication. Other than a house, a car is one of the most expensive purchases most people will ever make. That is how car dealerships make a profit. A car dealership, or also known as a vehicle local distribution, is basically a business, which is selling brand new or used cars at the retail level that is based on a dealership contract with an automaker or its sales subsidiary. More often than not, the business employs automobile sales people who will sell the product. The business may also provide maintenance service for cars which also entails having automobile mechanics, stock and spare automobile parts for sale, and process warranty claims. One of the most important questions is how can this type of business venture make a profit?


There are several reasons or ways on how car dealerships make a profit. One of the most prominent ways on how car dealerships do it is by putting a mark up on their selling price. Even if the mark up applied is just a matter of five percent, still the business is dealing with thousands of money which makes the profit margin quite relevant. With a number of cars to sell, the business can make out millions by just applying mark up. Another way how car dealerships make a profit is by having good advertisement of the product itself. A good advertisement of the product is certain to increase its product sales which mean more profit. Also, when customers do trade in for their cars, it may seem unprofitable at first. If so, how car dealerships generate profit from such circumstance? It is simple. The business under values the trade to make an immediate profit and then another profit when the trade is sold and done. Some of the other ways how car dealerships make a profit are as follow:

• Have a customer service fee for the processing of the paperwork, title work, tax work, and many more.
• Add up bumper stickers.
• Have a service contract.
• Have a gap insurance.
• Apply the down payment rule.

Tips and comments

How this type of business venture make a profit can be just as simple as one, two, three. The idea may seem complex at first but when the effective and truly efficient methods are applied, there comes the easy profit. With application of smart marketing strategies and the use of relevant resources, surely, that is how car dealerships make a profit.

By Seth Evan, published at 02/10/2012
   Rating: 4/5 (10 votes)
How Car Dealerships Make a Profit. 4 of 5 based on 10 votes.