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How do Used Car Dealers Make Money to Finance Used Cars?

Unlike popular opinion, used car dealerships in Greenville, South Carolina, do not make money by ripping their customers off. That strategy never works, especially in the used car market. According to recent statistics reported by the National Automobile Dealers Association or NADA, only 25% of the net dealership’s profit comes from selling used cars and that figure increases by a meager amount if you add financial and insurance services to it. Hence, the question naturally arises where does all the money come from? If the dealers are not making much money by selling their cars, how do they help their customers with financing?

Here is your answer. The typical cash flow areas of used car dealerships other than the obvious car sales.

Channel 1: Servicing

As per NADA, almost 49% of the dealership’s profits come from vehicle servicing. Be it for an oil change or replacing the tires, the dealers bank on the fact that their customers will bring their used cars or used trucks in Greenville, SC, to them only for servicing. Hence, the good ones often charge less while selling you the car and look to create a trustworthy rapport so that you take your vehicle for service to the dealership only.

In fact, during the lean seasons of car sales, dealerships heavily depend on their servicing department to keep the shop running. People do not buy cars all around the year but they do invest in repairs and maintenance almost every month. With volume comes the cash and thus, almost all used car dealerships have a servicing unit.

Channel 2: Manufacturer commissions

For used car dealerships, the commissions come from the car parts manufacturers. Top buy here pay here car lots like Family Auto sells only authentic parts from original car-part makers. Here, when they make a sale to you while repairing your car, the manufacturer pays a certain percentage of the MSRP to the dealer as commission. This complements the revenue flow of the servicing unit and helps the dealerships to make extra money. Disreputable dealers selling counterfeits try to increase profits in this department. Not only do they charge you the original MSRP of the original product, but they take the commission from the counterfeit maker as well. And as the profit margin is so high, you will often find fake car parts come at a cheaper retail price than the ones being sold by the genuine makers.

Channel 3: Interest on financing services

Used car dealerships in Greenville, South Carolina, who offer financing options as well earn a certain percentage of their profit from the interest that you pay. They also sell car and gap insurance along with extended warranties that bring in more cash flows. Here, the amount earned may seem like profit but what the dealers actually do is move the cash around. The interest paid by you helps someone else finance their car and the insurance bought by you basically pays the claim of another.

The profit generated is not much, as already stated, but the flow of cash in the system enables the dealers to finance their customers. The interest and premium rates that vary with your credit score also generate some income for the dealers. Still, at the end of the day, it is the above two channels that create the most money for the used car dealerships.

Other (unethical) areas

Unfortunately, a few dealers do make money by hiking the prices. Now, they cannot directly elevate the sale price of a used car as you are bound to stay informed about the general market price, but such dealers make the most from their trade-in offers. When a customer comes to exchange his/her old car, the dealers find ways to pay less for the trade-in, make a few repairs, and then bolster the price to sell high. The method is not illegal and disreputable dealers take advantage.

Naturally, it is understandable that used car dealerships have to make profits to keep their business running, but the unethical methods like selling counterfeits or paying less for trade-ins are unacceptable. For the best results, search only for the best used car dealerships near me and stick to the reputed ones only. You deserve to pay only your share of the price and it is up to the dealer to make their money from other ethical sources.

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2024-02-25<=======