Ask The Best And Brightest: What Is Reasonable Dealer Profit?

Edward Niedermeyer
by Edward Niedermeyer

Well, it depends on the car being sold, doesn’t it? TTAC commenter and Hyundai salesman dwford writes in with a prime example too get the conversation started: the 201;0 Hyundai Elantra (sold at full MSRP).

MSRP: $17,760


Invoice: $17,472


Holdback: $511


Dealer Cash: $750


Total gross profit: $1549

That’s 8.7% of MSRP

From that, the dealer pays: My commission: $100, a portion of my weekly salary and related taxes, the cost of the detailing for delivery, any floorplan expenses if the car has been here longer than 90 days, and then a percentage of the costs of running the store – electric, heat, rent, phone, etc. Couldn’t tell you what that all adds up to.

The dealer could potentially earn extra profit from the sale of financing, extended warranties etc., but let’s keep it simple and talk about front end profit.

Edward Niedermeyer
Edward Niedermeyer

More by Edward Niedermeyer

Comments
Join the conversation
5 of 89 comments
  • Slance66 Slance66 on Nov 23, 2010

    Put me in the Wal-Mart style purchase camp. What would be ideal is a dealer with several makes, who charged a $10 no hassle test drive fee. $5 for each additional car. No salespeople in the car, no attempt to sell, and no haggle discounted pricing. You could use Kiosks like at the airport, to scan the driver's license, process the CC, and dispense the key. I have never, ever encountered a car salesperson who truly knew more about the car or its competition than I did. Sites like this one, Edmunds, Cars.com and others mean that many of us don't need any help. I'd buy a car from a vending machine if I could sit in it and drive it first. Best Buy is here and Circuit City is gone. Why? Circuit City had commissioned sales staff. Many people don't like to be sold to, it's annoying and adds cost. The world has changed. People under 55 use ATMs and don't set foot in a bank if they can avoid it. Older people like the human touch. My wife uses a self scanner at the supermarket. We buy online, we communicate online, share pictures online. Then you get to a car dealership and some stranger attaches themselves to you and won't let go. It is an unwelcome experience for many. The first dealer to alter this model significantly, while still allowing the test drive experience, will be a huge hit.

    • Dwford Dwford on Nov 23, 2010

      Circuit City went down the drain when it got rid of the sales people, not because it had them.

  • Cdnsfan27 Cdnsfan27 on Nov 23, 2010

    I worked at a small family dealership where I was lucky to be able to sell both new and used cars. We salesmen rarely made more than minimum commission on new cars. Pushing the add-ons helped a little, paying attention to the cars the manager wanted off the lot helped a lot (though most of the salesmen were to lazy to bother). Used cars on the other hand paid well enough to stay at the dealership. I could not have made a living on new cars alone.

  • Stevelovescars Stevelovescars on Nov 23, 2010

    One small clarification, there is no law against factory direct sales... as long as the factory doesn't already have franchised dealers. Tesla can sell directly and have factory-owned dealerships simply because they never had franchised dealers in the past. The dealer protection laws are based on state franchise laws. Similarly, if you paid to open a Subway Sandwich franchise you wouldn't want the corporation to start selling sandwiches at a factory owned store on the next corner... presumably with sweet insider pricing on the bread and bologna. I have no problem buying from a dealer and I've found most salespeople pleasant and professional if you deal with them the same way. I find the profit issue interesting... and granted, dealers are greatly responsible for this attitude based on generations of horsetrading tacticts. However, I have difficulty thinking of any other item that consumers buy where they even care what the seller is making in profit. If you're buying a new TV, you can compare prices across stores and the Internet. You care that you are paying as little as possible on what is essentially a commodity item, but you don't care that Best Buy is making 5% or 50%... just that it's the best price. Even for homes, you rarely care that the seller bought it for a song and is flipping it, you just make your offers based on similar market values. I think the key issue with cars is that customers really just want to know that they aren't paying more than the next guy. I know that salespeople at the dealerships work hard and spend a lot of time showing the cars and giving test drives. But in my recent buying experiences once I've shopped and decide what I want, I just email the various dealers of that make near me and ask for the best price. Some never respond, but inevitably, you'll get that guy who is two units away from hitting a retroactive factory spiff and will sell the car for less than you ever imagined. On my last one, a VW, I called back the very pleasant salesperson that had helped me, told him the offer and gave him a chance to match it. he couldn't even get within $800 of the price. I have no idea why one dealership would be willing to sell the car for that much less, but they did. If it was a question over $100 or so, I probably would have just gone back to the guy who spent time with me, but the difference was a lot more.

  • Dwford Dwford on Nov 23, 2010

    I agree with everything you just said. And you are correct. If you can find that one dealer/salesman that needs to hit the stairstep bonus, you can get a great deal. You wouldn't believe the difference one car can make when it comes to hitting a bonus.

Next