As an automotive industry expert with years of experience in dealership operations and sales strategies, I can provide a comprehensive answer to your question regarding the markup on a new car.

The markup on a new car is a crucial aspect of the automotive sales process. It refers to the difference between the price a dealership pays for the car from the manufacturer and the price at which they sell it to the customer. This markup is what allows dealerships to make a profit on each vehicle sold. However, the markup is not a fixed percentage and can vary widely depending on several factors.

Firstly, it's important to understand that the markup is not a standard percentage across the board. It can be influenced by the make and model of the vehicle, the demand in the market, the dealership's pricing strategy, and the negotiation skills of the customer. For instance, high-demand models or luxury vehicles might have a higher markup due to their exclusivity and the higher profit margin they offer.

The concept of a "holdback" is also relevant here. A holdback is a rebate that manufacturers provide to dealers, typically 2 or 3 percent of either the invoice or the sticker price of the car. This holdback allows dealers to sell a car at invoice price or even below it and still make a profit. It's a strategic tool used by manufacturers to incentivize dealers to sell their vehicles and to maintain a competitive edge in the market.

On a $20,000 car, a holdback of 2 to 3 percent would represent $400 to $600. This means that even if a dealer sells the car at the invoice price, they can still earn a profit of $400 to $600 due to the holdback. However, not all manufacturers offer holdbacks to their dealers, and the percentage can vary.

Another factor that can affect the markup is the dealership's overhead costs. Dealerships have to cover expenses such as staff salaries, rent, utilities, and marketing. These costs can influence the markup as dealerships need to ensure that their prices cover these expenses and still allow for a profit.

Additionally, the dealership's pricing strategy plays a significant role. Some dealerships might choose to have a lower markup to attract more customers and increase volume, while others might opt for a higher markup to maximize profit per vehicle sold.

It's also worth noting that the markup can be influenced by the customer's negotiation skills. Savvy buyers who do their research and negotiate effectively can often secure a better deal, which can result in a lower markup for the dealership.

In conclusion, the markup on a new car is a complex and multifaceted aspect of the automotive sales process. It's influenced by a variety of factors including the holdback provided by manufacturers, dealership overhead costs, pricing strategies, and customer negotiation skills. While a holdback of 2 to 3 percent is common, the actual markup can vary significantly based on the specific circumstances of each sale.

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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 >>