Car dealers make money from several streams, with the profit on the actual sale of a new or used vehicle being just one part. The real, consistent earnings for a dealership come from its finance, service, and parts departments. On average, a dealership's net profit before taxes is typically between 2% and 4% of total sales revenue. For a store selling $50 million annually, that translates to roughly $1 to $2 million in annual profit.
The profit on a new car, known as the front-end gross, is often surprisingly thin, sometimes only a few hundred dollars after incentives and negotiations. The real profit is made on the back-end, which includes financing commissions, selling extended warranties, and other aftermarket products.
However, the most reliable and significant source of income for a dealership over the long term is its service and parts department. This is where the business has high margins on maintenance, repairs, and genuine parts. A well-run service bay generates continuous revenue long after the car has been sold.
Here’s a breakdown of average gross profit margins across different dealership departments, based on industry data from the National Automobile Dealers Association (NADA):
| Department | Average Gross Profit Margin | Key Profit Drivers |
|---|
| New Vehicle Sales | 3.5% - 6.5% | Manufacturer incentives, volume bonuses, holdback |
| Used Vehicle Sales | 8% - 12% | Reconditioning costs, acquisition price, market demand |
| Finance & Insurance (F&I) | 35% - 50% | Commission on loans, leases, extended warranties, insurance |
| Service & Parts | 45% - 65% | Labor rates, parts markup, routine maintenance contracts |
| Body Shop | 60% - 70% | Insurance-paid repairs, parts, and labor |
Ultimately, a dealership's profitability depends on its volume, location, brand, and management efficiency. While the car sale gets the customer in the door, it's the ongoing business operations that build a sustainable and profitable enterprise.
