Thinking of Starting a New Car Dealership? Why Not?

Are you interested in cars and wishing you can have a business that deals with your hobby? Why not start a new car dealership?

Lately, the number of new car dealerships in the US has been slowly decreasing due to the recession. In fact, there are some new car dealerships closing every month.

Though it is a risk, you should remember that car dealerships make money from 3 different revenue streams, so at least there’s much bigger scope to earn. Here are the three sources of revenue:

• The front-end profit is the earning you make once a vehicle is sold. Whether the sale is financed by a loan company or paid in cash, the front-end profit of the dealership is unaffected. Front-end profit is basically the difference between the actual vehicle cost and its sale price
  In addition, you can also make money from manufacturer’s incentives, rebates and dealer hold-backs, which is a percentage of the invoice cost that is given by the manufacturer to the dealer. The front-end profit is where the commissions of car salespeople come from, which is usually around 25%.
• Back-end profit is the earning you make from brokering the financing of a vehicle for sale. This includes revenue from the sale of car warranties, comprehensive insurance and extended service contracts. The dealer can mark up the price for each product, so that the difference equates into profit for the finance department. Usually, finance managers are paid a set salary plus a commission of about 5% to 10% from the sale of back-end financial products.
• The service department of new car dealerships is also a source of revenue for the company. If a vehicle is covered by warranty and is brought in for repair, the manufacturer pays the dealership for cost of labour and spare parts. In addition, when old vehicles are cycled through your dealership and are then prepared for sale, the expenses are paid to the service department by the used cars department, which include the cost in the final selling price. Profits from the service department usually exceed front-end and back-end profits in most new car dealerships.