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car dealer

Who are Car Dealers and How Do They Make Money?

Car dealers became more prevalent as vehicles become more in demand. You do not need to be squeamish about who the car dealer is? Like the rest of us, he is a human performing his duties. 

You can not directly buy a car from the company or automakers. A car dealer acts as an intermediary between you and the automakers. 

In this article, we are going to explore who is a car dealer? Where do they get their money from? Come on, let’s begin without any further delay. 

Who is a Car Dealer?

A car dealer, as the name implies, deals in both new and used cars. Dealers have no role in manufacturing cars. But he is accountable for many other tasks. 

What are his Duties?

When someone is planning to buy a car, they want to know about the features and stay within their budget. A car dealer recommends a vehicle with pros and cons to them when they visit the dealership. Upon selecting one, the car dealers order automakers to produce that specific vehicle. 

Car dealers serve both sides in this way. 

He has to persuade the buyer to buy their company’s car. Not all the cars are built already to sell but some are for showing or testing. After making a deal, he orders the manufacturer’s factory to construct this particular car. Every car he orders must be sell anyhow. There is no way to return. 

In some cases, they have to sell the company’s substandard cars.  

What Perks do you Get When Choosing to Buy from a Car Dealer?

Whether you buy a used car or a new one, dealers give you a guarantee. But if anyhow, there is a defect you may find in a car, you have more consumers’ rights. Use it wisely. Following are the rights. 

  • Consumer Guarantee Act(CGA) 
  • Fair Trading Act(FTA)
  • Motor Vehicle Sales Act(MVSA)
  • Consumer Information Notice

Consumer Guarantee Act(CGA) 

The buyer has this right if he finds any defect in a new or used car. He can use it to perform repairs and exchange the parts of the vehicle. This act is basically in favor of customers. 

Fair Trading Act(FTA)

In accordance with this act, the dealer must provide information about the vehicle is authentic. If you are purchasing online, the dealer must inform the customer that he is the dealer. Therefore, you know your rights and are well aware of what the dealer will charge you. 

Motor Vehicle Sales Act(MVSA)

According to this act, it provides you with a registration certificate that you are the owner of this vehicle now. 

Consumer Information Notice(CIN)

It is for used cars. The seller and the buyer must be aware of the previous purchaser’s information. 

How do the Dealers Make Money?

Several people believe that it is a very profitable business that anyone can start. To those, there is a clear no. Because for this business, you have to deal with customers as well as company. Additionally, by just selling cars, they do not earn enough money. Other methods are available for earning money that is suitable to their needs.  

MSRP(Manufacturer’s Suggested Retail Price)

This method will allow him to gain a profit if he sells the car above the MSRP. But if his margin is less than the MSRP then he gains no profit. The markup price on a new car is usually 2 to 3%. But on the expensive cars, the markup increased up to 10%. 

The more costly the car you sell, the more profit you make. 

Finance and Insurance(F&I)

The car dealer makes money from hidden sources we are unaware of. Now we are going to unveil them. Three methods come under F&I

  1. By markup loans
  2. Adding a markup to leases
  3. By Selling Warranties
  4. By Selling Parts and Offering Services to Customers.

By Markup Loans

You will not get the loan for the same price that the dealer acquired. It’s then topped up with some additional money and given to customers. They make a profit by marking up the loans.  

Adding a Markup to Leases

If you do not buy a car on cash payment it also becomes a money-making source for dealers. Because they add little extra charges to it. 

By Selling Warranties

The dealer can’t lose money. He always finds some new ways. In such cases, he offers customers long-term warranties and various insurance packages.  

By Selling Parts and Offering Services to Customers.

Car dealers earn their highest income in this department. They sell the different parts to customers and profit handsomely. 

Similarly, when you are here for repairs, they charge you extra and give less to the mechanics. The remainder is their profit.