How Does a Car Dealership Work?by Derek Wray
A car dealership is a private, multipurpose business that is affiliated with a specific vehicle manufacturer, and it services and sells that manufacturer's automobiles and parts. Car dealerships are broken down into the following departments:
A professional automotive dealership service department performs maintenance, service and warranty repairs on vehicles sold by a specific manufacturer. Dealership service technicians are trained by the manufacturer to work on their particular brand of vehicle. In a 2012 report detailing the finances of The Penske Automotive Group, the gross margin for service and parts was 57 percent for the Penske service group, versus just 8 percent for new-vehicle sales. It is also noteworthy to mention that a dealership service department will commonly set its labor rate to achieve a 70 percent profit.
A car dealership sales department sells new and used vehicles. Salespeople are the backbone of this department, and they generally work on commission. The sales department employs car detailing personnel and finance specialists to oversee the sales and loan processes. Large profits can be made in the finance and insurance office. It sells extended service contracts, called "extended warranties," which can have up a 100-percent markup. Additional money is made on dealer markup on loans and leases and other packages, which can average $1,100 per vehicle, at the time of publication.
A car dealership parts department sells factory parts made by a specific automobile manufacturer. The parts department sells parts to local independent shops and the general public, and supplies parts for the service department and body shop. A dealership parts department will commonly try to achieve a markup on its parts which allows for a 40-percent profit.
A dealership body shop is a collision repair facility that performs wreck repairs on manufacturer-specific vehicles -- and often all other damaged vehicles -- to increase profits. Body shop revenues are paid mainly by their customers' automotive insurance companies.
The car dealership business office handles all of the normal business operations such as management, human resources, payroll and other accounting operations.
Car dealerships make most of their money from selling parts and service, not from selling cars.