How do used car dealerships make money

Though there is more profit baked into used car pricing, dealers still make money by selling new cars. Many customers take their new cars back to dealerships for service, a loss leader while the car is under warranty but profitable in later years [source: Henry ]. The finance department is another opportunity for the dealer to score. Once the price of the car has been negotiated, the person at the finance desk starts his or her own set of sales pitches.

Some dealerships urge customers to buy extended warranties or add other services to the car purchase. They've also been known to qualify the customer for a loan at one rate and then quote the customer a slightly higher rate, pocketing the difference [source: Weathers ]. It's fair for a car dealership to make a profit. But some techniques, though legal, are still shady, and it's still up to the customer to be vigilant.

Sign up for our Newsletter! Mobile Newsletter banner close. Mobile Newsletter chat close. How can that be? Keep reading. Yes, dealers make money on each car they sell. But often, that profit comes from the manufacturer, not the customer. When a car shopper finds herself in a car dealership she should remember the sticker price on the car is just a starting point and the price she should pay for a new car should negotiate down from there.

Dealer cash incentives are often tied to particular models, something you might see when you go to look at one model but hear a lot about another model instead. So while the dealership may earn a single sum for the number of cars sold in a given month, that sum may jump up for a larger number sold that quarter and an even larger number sold for the year. This can add up to thousands of dollars over the life of a loan. Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase.

This includes Signup for The Weekly Newsletter. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals. Got a Question About This Article? Related Articles. New Cars. Used Cars. Sell Your Car.