What percent commission does a car salesman (salesperson) make on a new car? Let’s assume I am paying cash (i.e., no financing) for a car and no trade-in vehicle to avoid complicating the issue.
When I sold cars 15 years ago, we got 25% of the gross profit shich was sale price minus whatever the “dealer cost” of the car is. Sadly, new cars have very little profit in them as the dealer cost is widely known and you can easily buy the same model from a competitor. If we sold a car with less than $600 profit - we would still get a minimum commission of $150. New cars almost always paid minimum commissions.
The real money is in selling a used car that you brought in as lowball trade-in to someone at full price while also getting them to take a lowball offer on their own trade in. Damn that was good money when that happened.
Thanks for the info, Grand Wino!
My brother in law is a car salesman and his current numbers are pretty much exactly the same. The only opportunity to make more than $200 on a new car sale is to find a completely clueless buyer, who is only interested in the monthly payment.
A lot of dealerships have started paying salesman a fee per car sold. For example, they might get $100 or $125 per new car sold.
Many dealers that still pay a percentage commission often pay a higher commission on sales of accessories or services. If the salesman talks you into getting the roof rack, sunroof wind deflector, mud guards and cargo liner for your new SUV, he’ll make a few extra bucks for those.
Depending on the dealership, if the salesman gets you to sign off on a monthly payment (which was calculated based on a certain interest rate), he will also get a bonus for that. Most people don’t realize that the most profitable area of a dealership is the Service department with the Finance department being the second most profitable! Usually it is followed by Used Cars and New Cars are at the bottom of the food chain in terms of pure profit.
By the way, just in case you didn’t know, a buyer with no trade-in and who intends to pay cash is the car dealer’s LEAST desirable customer! If you’re buying a new car, trading in an old car and financing the purchase, there are three opportunities for them to make money. If you’re only buying a new car and paying cash, they will only make a profit on the new car sale and it won’t be very much.
One other thing I wanted to mention is why financing is so profitable for dealers. When the finance guy submits your loan app and gets an approval back at a certa rate, he marks up the rate before it is presented to you. For example, the bank may approve you for 60 months at 4.9% APR and the dealer presents the loan to you as 60 months at 6.9% APR. It may not seem like much, but on a $25k loan the difference would cost $1,392.60 over the life of the loan. The dealership gets the most of that ‘markup’.
This American Life did a great show about car sales, where they followed a bunch of salespeople at a dealership for a month. Interesting that much of the profit for the dealership (don’t recall about the sales staff) came from the manufacturer bonuses for meeting certain sales targets.
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By the way, just in case you didn’t know, a buyer with no trade-in and who intends to pay cash is the car dealer’s LEAST desirable customer! If you’re buying a new car, trading in an old car and financing the purchase, there are three opportunities for them to make money. If you’re only buying a new car and paying cash, they will only make a profit on the new car sale and it won’t be very much.
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The Mazda dealer from whom we bought our last new car must’ve hated us. We came in with pre-approved financing (might as well have been cash) and no trade-in. I also explained patiently to the finance guy why the extended warranty price, if it were a fair measure of the probability of failure of the car, would make me not really want such a lemon.
I bought a new 2012 Mazda CX-9 GT back in November 2012 and the Internet Sales Manager was great…but everyone else hated me before the deal was finished! I had a trade-in (a 2007 Ford Explorer with 132k miles that I despised) and Carmax offered me within $200 of KBB Trade-In Value for it, so I just asked the Mazda dealer to match it. Due to the mileage, they would just ship it off to auction and not make much (if any) profit on it, but they agreed anyway.
Since I was buying a 2012 model after the 2013 (which was significantly changed) was released, I knew I would get a great deal on the car. I was prepared to offer $30,000 and go as high as $31,500, but I let the Internet Sales Manager make the first offer. I was blown away when he quoted $29,207 plus $66 tag/title fees and 6% GA Sales Tax.
The only part that I didn’t tell them during the entire process was that I would be paying cash for the vehicle! They Finance Manager was not happy to hear this and I told him in advance not to waste either of our time by trying to sell an extended warranty, service contract or any other add-on because I wasn’t spending another cent more than what was already on sales contract! He still tried to argue that an Extended Warranty could “more than pay for itself” and my response really pissed him off (and it was pretty arrogant)…I told him if I could afford to pay cash for the vehicle, I could afford to pay for anything that went wrong with it! =) Never mind that the only reason I could pay cash was because my grandmother had passed away several months earlier and was very generous to me and my sister in her will.
Just curious, what kind of Mazda did you get? In addition to my 2012 CX-9, I also have a 2006 Mazda3 5-door that I bought new in 12/2005. I’m a fan of the brand, but their dealerships leave something to be desired…
Motor Trend has a Car Salesman that writes blog entries based on his experience in the business. It is appropriately titled *“Car Salesman Confidential” *and he recently wrote a very detailed and surprising article about how much he earned in a month- LINK
Mazda 3. I don’t drive (legally blind), so it’s my wife’s car. It’s our first Mazda, replacing a Subaru Outback. My wife is fairly petite, and found the Mazda fit her better than any of the other relatively low-priced cars we were looking at. She loves how zippy it is relative to the old behemoth. I’ve gotten over my claustrophobia at its rather snug passenger compartment.