What is the average margin on a used car?

USED CAR DEALERSHIP ECONOMICS:

Our average gross margin (by type of deal): 👇

  1. Finance (w/ upsells): $3,251
  2. Cash-only (w/ upsells): $2,540
  3. Finance (no upsells): $2,103
  4. 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.

Extended warranty:

Cost: $800

Sale price: $1,800

Gross margin: 55%

GAP insurance:

Cost: $189

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

So yeah,

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.

Welcome to the Car Buyer Cheatsheet
Welcome to the Car Buyer Cheatsheet