| Car dealerships make money from three primary | | | | Insurance, Extended Service Contracts and Prepaid |
| revenue streams within a dealership. This article will | | | | Service Plans. Interest rates as well as these other |
| explain the basics and provide you with general | | | | financial products have a cost. The dealer marks up |
| information that pertains to most all car lots. | | | | the price of each and the difference equates to profit |
| 1) Front End Profit. This is profit made on the sale of a | | | | for the dealer finance department. Finance managers |
| vehicle. Whether a vehicle is financed through a loan | | | | are generally paid a salary plus a commission rate of |
| company or if you pay cash, the dealership's front end | | | | 5% to 10% on the sale of backend financial products. |
| profit is unaffected. Front end profit is the difference | | | | 3) Service Department. If a new vehicle is covered |
| between the sale price of a vehicle and the dealers | | | | under warranty and is brought in for a warranty repair, |
| actual cost. In addition, dealers make money from | | | | the dealership is paid by the manufacturer for labor |
| manufacturer's incentives, dealer "holdback" (a | | | | and part costs. Also, when used vehicles are cycled |
| percentage of the invoice cost, paid to the dealer by | | | | through the dealership and are prepared for sale, those |
| the manufacturer) and rebates, if retained by the | | | | expenses are charged to the used car department |
| dealership. The front end profit is what car salesman | | | | and paid to the service department. Those charges |
| are paid their commissions from, which is commonly | | | | become a part of the used car departments "cost" for |
| 25%, referred to in the industry as "gross". | | | | the vehicle. Service department profits easily exceed |
| 2) Back End Profit. This is profit that is made from | | | | front end and back end profits in many new car |
| brokering the financing for a vehicle sale in addition to | | | | dealerships. |
| various finance products. These include the sale of | | | | That's a general explanation of how car dealerships |
| Gap Insurance, Extended Car Warranties, Credit Life | | | | make money. |