In the United States, a car dealership is a retailer that sells new and/or used cars.
Used car dealerships carry cars from many different manufacturers, while new
car dealerships are generally franchises associated with only one or two manufacturers.
However, in some areas, dealerships have been consolidated and a single
owner may control a chain of dealerships representing several different manufacturers.
New car dealerships also sell used cars, as they take in trade-ins
and/or purchase used vehicles at auction. Most dealerships also provide a series
of additional services for car buyers and owners, which are sometimes more profitable
than the core business of selling cars.
Most car dealerships
display their inventory in a showroom and on a car lot. Under federal law, all
new cars must carry a sticker showing the offering price and summarizing the
vehicle's features. Typically, salespersons working on commission only, negotiate
with buyers to determine a final sales price. In many cases, this includes
negotiating the price of a trade-in — the dealer's purchase of the buyer's current
automobile. Negotiations from the dealership's perspective is often referred
to as "desking" a deal, although different terms are used throughout regions
and should be considered regional.
Profit margins on automobile sales
are surprisingly low. A new car dealer may mark up a car by less than two percent
over the manufacturer's invoice cost, and typically the car dealer borrows
from the manufacturer for inventory and pays interest (called flooring or floorplaning).
On the other hand, some manufacturers pay "hold-back" to improve the
fiscal stability of dealers. Typically this is around 1% to 2% of the vehicles'
wholesale price to the dealer. Hold-back is usually not a negotiable part of
the price a consumer would pay for the vehicle. Hold back is designed to offset
the cost the new car dealer has for paying interest on the money s/he is borrowing
to keep the car in inventory. |
