How Much Do Car Dealership Owners Make? A Comprehensive Breakdown

When you think about owning a car dealership, it might seem like a lucrative business.

After all, car dealerships are everywhere, and cars are always in demand.

But how much do car dealership owners actually make?

Whether you’re considering entering the industry or simply curious, we’ll explore the factors that influence their income, the typical earnings, and what goes into running a successful dealership.

Factors That Determine a Car Dealership Owner’s Income

The income of a car dealership owner can vary dramatically depending on several key factors.

Let’s break down what determines how much money they bring in:

Franchise vs. Independent Dealerships

One of the most significant factors influencing earnings is whether the dealership is a franchise or an independent business.

Franchise dealerships operate under a well-known brand like Toyota, Ford, or BMW.

These dealerships benefit from the power of brand recognition and a steady flow of customers loyal to the brand.

If you’re interested in the details of how dealerships handle customer issues, check out our page on what to do if a dealership sells you a faulty car in the UK.

Independent dealerships, on the other hand, are not tied to any specific brand and often deal with used cars or lesser-known marques.

While they may have more flexibility in what they sell, independent dealerships generally face tougher competition and often have to spend more on marketing to attract customers.

As a result, franchise dealership owners usually earn more than their independent counterparts.

Location of the Dealership

Just like in property, location is everything.

Dealerships located in busy urban areas or affluent regions tend to have higher sales volumes and higher average transaction values.

The sheer number of potential customers means that these dealerships can generate more revenue, and in turn, their owners earn more.

In contrast, dealerships in rural areas or smaller towns may struggle with fewer buyers.

However, they may face less competition, which can balance things out a bit.

Still, on average, car dealerships in prime locations tend to bring in more substantial profits.

Size and Volume of Sales

The size of the dealership and its sales volume play a crucial role in determining how much an owner makes.

Large dealerships that sell hundreds of cars each month will naturally generate more revenue than smaller operations.

Owners of bigger dealerships often have a team of salespeople and managers to keep things running smoothly, while smaller dealerships might be more reliant on the owner’s hands-on involvement.

Selling more cars doesn’t just bring in more revenue – it can also lead to bonuses from manufacturers for franchise dealerships or additional profits through trade-ins and after-sales services.

Simply put, the more cars you sell, the more you earn.

If you’re curious about how much room there is to negotiate, take a look at how much a dealership will come down on price for a new car for some insight.

New vs. Used Cars

The focus of the dealership also impacts earnings.

Selling new cars typically involves lower profit margins because manufacturers control the pricing and incentives.

However, the volume of sales can compensate for the smaller margins.

On the other hand, used cars usually come with higher profit margins.

Independent dealerships often rely heavily on used car sales to make a profit.

If a dealership specialises in luxury or niche vehicles, it could see much higher profit margins on each sale, making the owner’s income more substantial.

Additional Revenue Streams

Most successful car dealerships don’t just make money from selling cars.

They have a variety of additional revenue streams that can significantly boost an owner’s income.

This includes offering finance and insurance (F&I) products, such as extended warranties, gap insurance, and financing options.

Many dealerships also have service departments where they make money from maintenance and repairs.

The service department can be a significant source of steady, reliable income, helping to smooth out the peaks and troughs of car sales.

Curious about how long it takes for a service? Check out how long it takes to service a car at a dealership to get the full picture.

Average Salary Range of Car Dealership Owners

Now that we’ve covered the factors that impact income, let’s look at some numbers.

How much do car dealership owners actually make?

National Average for Car Dealership Owners

Car dealership owners can expect to earn a wide range of incomes depending on their business model and location.

On average, car dealership owners in the UK make between £50,000 to £100,000 per year.

However, in some cases, especially for large or high-end franchise dealerships, owners can earn well into six figures, with some making upwards of £500,000 annually.

In the US, the numbers can be similar, with dealership owners typically earning between $60,000 to $200,000 a year, depending on the factors discussed earlier.

Of course, this is before taxes, expenses, and other costs are deducted.

Franchise Dealership Owner Income

As mentioned earlier, franchise dealerships tend to generate higher earnings.

It’s not uncommon for owners of large, established franchise dealerships to earn over £200,000 annually.

These businesses benefit from the stability of having a strong brand name and a more predictable flow of customers.

Independent Dealership Owner Income

Independent dealership owners may not see the same level of income as franchise owners, but they can still do quite well, especially if they run a large used car lot or specialise in a particular market niche.

Independent owners typically earn between £50,000 and £150,000 per year, though this can vary widely depending on the size and success of the dealership.

Typical Expenses for Car Dealership Owners

Running a car dealership isn’t cheap, and owners have several expenses to consider.

These costs can eat into profits, so it’s essential to manage them well.

Operating Costs

The day-to-day costs of running a dealership include rent or mortgage payments on the dealership property, utilities, staff salaries, and other administrative expenses.

These overheads can be significant, especially for larger dealerships.

Inventory Costs

One of the biggest expenses for a dealership is purchasing and maintaining inventory.

Cars aren’t cheap, and most dealerships need a substantial upfront investment to stock a variety of vehicles.

Additionally, they have to manage depreciation, especially for new cars that lose value quickly.

Marketing and Advertising

Marketing is another necessary expense.

Whether it’s online ads, local radio spots, or promotions, dealerships must constantly advertise to attract new customers.

Franchise dealerships may receive some support from the brand, but independent dealerships often need to spend more to build awareness.

If you’re interested in the process of buying a car with cash, take a look at how to pay cash for a car at a dealership.

Taxes and Licensing Fees

Business taxes, dealer licensing fees, and other regulatory costs also chip away at a dealership’s profits.

Owners must account for these costs to get a clear picture of their net earnings.

Maximising Profit as a Car Dealership Owner

Despite the expenses, there are plenty of ways for dealership owners to maximise their profits:

Focusing on High-Margin Vehicles

Some cars have better margins than others.

Dealerships that focus on luxury, used, or niche vehicles can often make more per sale than those focusing solely on new, standard vehicles.

Expanding Revenue Streams

Offering finance, insurance, and after-sales services is a great way to increase income.

Dealerships with service departments or maintenance contracts often see higher, more consistent profits.

Optimising Inventory and Sales Strategies

Using data to manage inventory efficiently and employing effective sales techniques can lead to better profitability.

Understanding what cars sell best in the local market and pricing them competitively can help boost overall earnings.

Challenges Faced by Car Dealership Owners

Like any business, owning a car dealership comes with its challenges.

These obstacles can affect the bottom line if not managed effectively.

Market Competition

Dealerships face stiff competition, not only from other local businesses but also from online platforms that make buying a car easier than ever.

Standing out in a crowded market requires strategic planning and investment in customer experience.

Economic Fluctuations

The car market is often sensitive to economic conditions.

Recessions, fuel price hikes, and supply chain disruptions can all impact car sales, meaning dealership owners must be prepared for these fluctuations.

Technology and Customer Preferences

With the rise of electric vehicles and changing consumer preferences, dealerships must stay adaptable.

Keeping up with new trends can be costly but necessary for long-term success.

If you’re curious about the latest in electric and hybrid cars, see what insurance group the Toyota Yaris Hybrid belongs to for more information.

Conclusion

The income of a car dealership owner can vary widely, but with the right strategy, it can be a highly profitable business.

Franchise dealerships in prime locations typically earn more, while independent dealerships can still bring in substantial profits with the right approach.

Managing expenses and diversifying revenue streams are key to maximising profits and running a successful dealership.

While challenges exist, the potential rewards for a car dealership owner are significant, making it a potentially rewarding career for the right person.

Are you looking to buy a new used car? Contact us today and we can help you!