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Dealer profit margins explained

Barely 5 per cent of a dealer's profit comes from new car sales.
Joshua Dowling
CarsGuide

8 May 2015 • 3 min read

With the recent focus on car prices and dealer profit margins, we thought we'd look at some examples from the bottom and top ends of the new-car market — and were shocked by what we found.

Would you believe there is a profit of just $290 in one popular small car that is selling for $23,990 drive-away? The profit increases to a giddy $430 if the buyer goes for metallic paint.

In another example, the profit is $200 after all hidden bonuses on a particular $19,990 drive-away sedan or hatch.

This is a far cry from the amount of wriggle room most people figure is in a price.

Barely 5 per cent of a dealer's profit comes from new car sales

Most small cars are lucky to have $1200 left in them for the dealer to keep staff employed and turn on the lights.

Analysis from Deloitte tells the full story.

On average, barely 5 per cent of a dealer's profit comes from new car sales. The majority (about 50 per cent) comes from parts and service, while the remainder comes from finance and insurance (30 per cent) and the balance is from used cars (15 per cent).

That's right: dealers make more from your trade-in than on the new car they are selling.

The art of haggling will never go away

But the art of haggling will never go away because, unlike the US where average transaction prices are published online, buyers here don't know where the bottom line is.

For example, a discount of about $20,000 is possible on one unpopular luxury four-wheel-drive wagon — but only if you approach a dealer who signed up for the manufacturer's scheme to take another identical one as soon as each example sells off the floor.

The lesson from this story? At the cheap end of the car market the dealer is probably not fibbing if he or she can't afford to throw in free floor mats.

But at the dearer end of the market there is definitely some wriggle room, especially if it's not a popular model.