Used car salesmen are more distrusted than, well...probably anyone except Congress. In any movie where the character is being portrayed as sleazy they are almost always used-car salesmen. We aren't going to look into whether this reputation is deserved just yet. Instead, we wanted to find out just how much money was being made every time you drove off the lot in that brand-used car.
How much is the salesman making and how much did the dealer really pay for your car? Let's explore.
How Much Did The Dealership Pay?
If you've bought a used car recently, you've probably heard the dealer talk about how he could get "more for this car at auction" than he's selling it to you for, implying that the deal you're getting is too good to pass up on. But let's be honest here, if he could get more at auction, then he would. Car dealers are in the business of making money. They can only make money if you pay more for the car than they do.
There's not once specific answer to the question of how much the dealership paid for a car. It will depend on a number of factors. It's possible that the dealer even loses money on a particular car, but rest assured, it doesn't happen very often. Also, if you have a trade-in, they will make more money by reducing the amount that they are willing to give you for your trade in while selling you a car.
Used car dealers typically buy their cars at an auction. Auctions will get their cars from a number of sources, including trade-ins from the very same dealers that are buying cars to sell.
The profit margins on used cars can be huge, which is why even new car dealerships make significantly more money on used car sales than they do on new cars. But dealers have to factor in the cost of any needed repairs when they buy a car at auction, along with paying for their facilities, employees and everything else that comes along with owning a business.
A good way to think about the price the dealer is paying is to consider your trade in value. Dealers are notorious for offering low amounts for trade-ins, and if they are taking it to auction, they're looking to flip it for a quick buck.
Ultimately, a used car dealership can make anywhere from no money to thousand of dollars on a car depending on how much they pay, and it's not possible to give an exact figure.
How much does the used car salesman make?
What's a lot easier to figure out is how much your car salesman will be making. Again, it will depend on the shop, but a car salesperson will usually make anywhere from 20% to 30% of the profit from a used car sale.
So, let's assume that the dealer paid $6,000 for a car that they're selling to you for $8,000. The salesman would keep 30% of the $2,000 (the profit on the car) or $600. Obviously, if a dealer's margins are less, then the salesperson will be making less on the sale, and more if the dealer's margins are higher.
Car salesmen may also get a base pay, or something called a draw to accompany their commission. A draw is like an advance on commissions, so if a salesman was making a weekly draw of $400, that $400 would be deducted from his future commissions as he earns them. So if he makes $450 in commissions on car sales in a week, $400 will go towards repaying his draw and the $50 will be his to keep as well.
According to The Wall Street Journal, the average salary of a car salesperson last year was $63,800, which has stayed fairly steady over the last 10 years, except for a drop during the financial crisis and ensuing recovery.
So the next time you're going to buy a new or used car, keep in mind that you don't know how much the dealer paid for it, and that the salesman trying to get you to sign on the dotted line is going to be directly affected by how much profit they can squeeze out of the deal, just like you thought.
