The majority of car buyers expect car dealers to make between £500-£1,000 profit on the sale of a used car.
A survey of 600 car buyers found nearly 34 per cent of those questioned expected dealers to make a margin of around £1,000 on a used car sale.
What Car? asked buyers how much profit they thought it was reasonable for car dealerships to make when selling second hand and new cars.
In second place, 26 per cent of buyers said they expected dealers to make between £200-£500.
Third place in the survey – which was conducted in February 2022 – saw 25 per cent of buyers say they expected dealers to make between £1000-£2000.
Nearly five per cent of buyers thought car dealers make more than £5,000 on a used car sale.
The reality varies wildly across the industry, but averages around 12-15 per cent on each used car and around 5-7 per cent on a new model.
Umesh Samani, chairman of the Independent Motor Dealers Association and used car dealer, said most customers don’t understand the difference between ‘profit and margin’.
He said: ‘Car dealers make thousands of pounds on every car, is what customers think.
‘Let’s face it, most customers only see what price was paid and what price it’s up for sale, which has no resemblance to what the dealer actually makes and most don’t understand VAT implications on the margin.’
Haymarket Automotive editorial director Jim Holder, publishers of What Car?, said: ‘Research suggests that the lower end of the £500-1000 scale is around the figure most successful traders operate to, hinting that car buyers have a slightly inflated view of the profits available to retailers after all the costs that are involved in running successful businesses.
‘Customers who think you are doing better than you are from a deal may not appreciate the time and costs that you are facing, from ensuring the premises are tip-top to preparing and selling high-quality stock.
‘Sympathy for dealers has never been in high supply, and complaining about how hard it is to eke out margins on cars will never garner much sympathy – but it does highlight that quality dealers can never do enough to highlight the work they do to provide buyers with great products.’
How much profit is reasonable for car dealers to make on a used car*?
- Up to £200 – 3.93%
- £200-£500 – 26.07%
- £500-£1,000 – 33.93%
- £1,000-£2,000 – 25.36%
- £2,000-£5,000 – 6.07%
- £5,000+ – 4.64%
*What Car? Survey of 632 in-market car buyers, February 2022
On new cars, the majority of buyers (27.84 per cent) in the survey said they think car dealers make between £1,000-£2,000 on a sale.
Following close behind, almost as many (26.99 per cent) of those surveyed thought dealers make between £500 and £1,000 on a new car sale.
Paul Hendy, boss of franchised car dealer group Hendy, said: ‘Franchise dealers operate generally within facilities that have high operational costs, to provide the very best experience for customers, and the very best facilities within the workshops and bodyshops.
‘Dealers simply have to operate therefore with gross margins that can cover these and many other costs to ultimately try and get an acceptable level of return on their investment.
‘We know that returns in our sector are somewhat challenging – new and used car margins are always under pressure so there certainly is very little room for them to give anymore away.’