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Car Dealers Earn Just $23 Per Car Sold

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Car dealers make much smaller profits on new cars than people realize, making most of their money on car repairs, used car sales and financing.
Car dealers make much smaller profits on new cars than people realize, making most of their money on car repairs, used car sales and financing.

Turns out car dealers don't make that much money when they sell you a new car.

Car dealers made an average of $23 for every new car they sold in 2011, according to the National Automobile Dealers Association. Put another way, that profit can help them afford one week of Starbuck lattes, a trip for two to the movies, or a round of drinks for four people (tip not included.)

Dealers are celebrating that $23, because it's a huge swing from 2010 figures, when dealers lost $180 for every car they sold.

Turns out that new cars are essentially a loss leader for dealers, who make most of their money by fixing your car, selling you a warranty when you buy a new car, financing car loans, and used car sales. New car sales are the smallest part of the puzzle, something most dealers do only because the automakers insist. If a business wants to be a certified General Motors dealer, for instance, GM will only allow that if they sell GM's new cars and new trucks.

Don't cry for the car dealers, though. They make a tidy sum on all this other business. The average dealership made $785,855 in 2011, according to the dealers association, the highest revenue since they started tracking the data 40 years ago.

The recession may be partly to thank for the profits. Many people are hanging on to their cars longer and longer, stretching the average life of a car from 8.4 years in 1995 to 10.8 years in 2011, and many of them are having repairs done more often than they have in the past, according to auto industry information service R.L. Polk.

The folks at TrueCar.com, a site which helps consumers research car prices before they shop, surveyed people last summer about dealer profits. They asked people how much they thought dealers made when they sold a $40,000 car.

Most people said they thought dealers earned $3,000 to $5,000.

"The reality is they make almost nothing," said Jess Toprak, vice president of market intelligence for TrueCar. "There is a big disconnect between what people think the dealer is making and what the dealer actually makes."

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