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.

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