As an automotive industry expert, I've spent a considerable amount of time analyzing the various ways dealers make money on new car sales. There are several key components to this process, and it's important to understand each one to get a clear picture of how dealerships operate.

First and foremost, the sticker price of a new car is the manufacturer's suggested retail price (MSRP). This is the price that the manufacturer suggests the dealer should sell the car for. However, this is often just a starting point for negotiations between the dealer and the customer.

One of the primary ways dealers make money is through the holdback. This is a rebate or discount that manufacturers provide to dealers. It's typically 2 or 3 percent of either the invoice or the sticker price of the car. On a $20,000 car, a holdback represents $400 to $600. The holdback allows dealers to sell a car at invoice price (or even below invoice) and still make money. Most manufacturers offer holdbacks to their brands' dealers, but not all.

The invoice price is the amount the dealer pays to the manufacturer for the car. It's typically lower than the MSRP, and this is where dealers make their profit. The difference between the invoice price and the MSRP is known as the gross profit. This is the money the dealer makes on the sale of the car before any additional costs or fees are considered.

Dealers also make money through financing. When a customer buys a car with a loan, the dealer may receive a fee from the lender. This is known as a dealer reserve. The dealer reserve can vary depending on the terms of the loan and the amount financed.

Additionally, dealers can make money through add-ons and accessories. When a customer purchases a car, they may also opt to add certain features or accessories to the vehicle. These can include things like upgraded sound systems, navigation systems, or special paint jobs. The dealer can mark up these add-ons and make a profit on them.

Service and maintenance is another area where dealers can make money. When customers bring their cars in for service or maintenance, the dealer can charge for parts and labor. This can be a significant source of revenue, especially for dealerships with a loyal customer base.

Trade-ins are also a source of profit for dealers. When a customer trades in their old car for a new one, the dealer can sell the trade-in vehicle at a profit. They may also be able to sell it at auction or to another customer.

Finally, dealers can make money through volume incentives. Manufacturers often provide incentives to dealers who sell a certain number of cars within a given time frame. These incentives can be in the form of cash bonuses or additional discounts on future car purchases.

In conclusion, there are multiple ways a dealer can make money on a new car sale. From the holdback to financing, add-ons, service, trade-ins, and volume incentives, dealers have various strategies to ensure profitability. It's a complex process that involves negotiation, customer service, and strategic partnerships with manufacturers.

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It's typically 2 or 3 percent of either the invoice or the sticker price of the car. On a $20,000 car, a holdback represents $400 to $600. The holdback allows dealers to sell a car at invoice price (or even below invoice) and still make money. Most manufacturers offer holdbacks to their brands' dealers, but not all.read more >>