How much profit do car dealers make on new and used cars? Here’s the perception versus reality

Purley Automotive News - June 2021

The majority of car buyers think dealers make between 10 and 20 per cent profit on every new car they sell.

In an exclusive survey for Car Dealer, What Car? found that 28.2 per cent of 5,000 car buyers surveyed think dealers make 10-20 per cent on every car.

When it comes to used cars, again the majority of buyers think dealers make 10-20 per cent profit, but this time 35.8 per cent were in agreement.

Some 5.8 per cent of buyers think car dealers make more than 50 per cent profit on new cars.

When it comes to who car buyers think makes the most cash out of selling a new car, 56.7 per cent said they thought it was the manufacturer, with 43.3 per cent thinking it was the dealer.

im Holder, editorial director for What Car?, said: ‘While everyone knows car dealerships are there to make money, the public’s perception of how easy it is for them to rack up profits provides a fascinating insight into the challenges during a negotiation.

‘While I’m sure it’s possible, the suggestion from the significant proportion of respondents that dealers and car makers make more than 20 per cent margin on every new or used car deal is surely fanciful.

‘But there’s no question that the belief the dealer is racking up big earnings would compel buyers to haggle harder.’

When it comes to new cars, 30.8 per cent of respondents believe that car dealers make more than 20 per cent profit.

Shockingly 2.6 per cent even think car dealers make more than 75 per cent profit on every new car they sell.

At the other end of the scale, 15.2 per cent think dealers make five per cent or less.

Holder added: ‘In recent years we’ve seen car factories close and low-margin cars being axed from vehicle line-ups because of a lack of profitability, highlighting the reality of some of the wafer-thin margins that they operate to.

‘But at the same time we’ve witnessed massive investment – some of it forced by manufacturers on to retailers – into modern, often swanky “gin palace” dealerships and corporate identities, all of which I suspect is giving this impression that selling cars is a route to printing money.

‘To me, this data highlights the fine line that needs to be tackled by dealers and OEMs – it is not hard to understand why a customer’s expectations may be out of kilter if they are walking into a premises that gives the impression that profit margins on these high-ticket goods are sky high.

‘The suggestion from these figures must be that some dealers now lack an authenticity, customers having concluded that they are paying a high price in order to sustain a profit-rich industry.’

When it comes to used cars, 8.5 per cent of respondents think dealers make less than five per cent profit, while 2.1 per cent think dealers make more than 75 per cent a car.

The reality

The reality is car dealers make an average of around seven per cent on new cars.

Dealer group bosses we spoke to said gross profit on new cars ranged between five and seven per cent.

The used car market is a lot stronger with profit margins for dealers around 12 to 15 per cent.

David Kendrick, partner and accountancy UHY Hacker Young, said the figures dealers quoted to Car Dealer are accurate.

He said: ‘There is a huge misconception as to how much retailers make on vehicle sales.

‘We take on a large number of graduates every year and one of our questions is how much the average dealer makes on a £15k vehicle.

‘Answers range from £10k down to those who understand it may be minimal to a loss.

‘The issue is that there is such a huge range and misunderstanding. The substantial multi-million pound dealerships certainly don’t help that perception. I am not sure how this will ever change.’

Kendrick said the average most dealers make on new and used cars is around £1,000 a car.

Industry analyst Mike Jones, formerly of ASE, is an expert on profitability and concurred with the figures too.

He said: ‘Many people think dealers make large sums because the showrooms are that nice and expensive, they must be making that much.’

Last year Jones compiled the inaugural Car Dealer Top 100 which listed the most profitable dealer groups in the UK.

The full list, which can be found here, was led by Arnold Clark which made £194m profit in 2019.

Article courtesy of www.cardealermagazine.co.uk published on 3rd June 2021