USED CAR DEALERSHIP ECONOMICS:
Our average gross margin (by type of deal): 👇
- Finance (w/ upsells): $3,251
- Cash-only (w/ upsells): $2,540
- Finance (no upsells): $2,103
- Cash-only (no upsells): $1,462
Used cars average margin to be around 6-8%.
But 2021 was bonkers.
Some dealers got as high as 10-12%.
And that doesn’t include any ancillary product sales.
Let’s put some numbers to that:
Assume your average vehicle sales price is $25K.
8% of that is $2,000.
Let’s also assume that this dealer does sell ancillary products.
Sale price: $1,800
Gross margin: 55%
Sale price: $750
Gross margin: 75%
Add all of these together and you get your basic economics of a car dealership:
Average order value: $27,750
Gross margin: $3,561 or 12.83%
But it doesn’t end there... Now the really fun begins.
Dealers make MOST of their money in other ways:
- Service work
- Borrow against earned reinsurance premium
- Invest unearned reinsurance premium
- Rental payments to personal entities
- Cost segregation studies on RE
- And much more
If run correctly, dealerships are extremely lucrative.
Check out the Tax Advantages section for more info on how dealer’s maximize their earnings in clever ways.