What Is a New Car Dealership?

A new car dealership is a business that sells cars, trucks, and vans to individuals and businesses. A dealer may also provide services like repairs, financing, and extended warranties. Many states regulate the operation of automobile dealers, which are typically franchised with the vehicle manufacturer or independently owned. In the United States, there are more than 16,000 dealerships, mostly independent and family-owned, that are licensed to sell vehicles.

The new car dealership business model is changing as more consumers buy vehicles online and are better informed about pricing. This increased transparency has impacted car dealership profit margins and the tactics used to negotiate prices with customers.

Although the internet has made it easier for buyers to compare dealerships, a good number of dealers still use high-pressure tactics to sell cars. These tactics can include a four-square worksheet, no-haggle pricing, and prewritten scripts designed to overcome buyer objections or subtly nudge them into spending more than they originally intended. These scripts are sometimes called “word tracks” and can be quite effective.

Most dealerships are also required to charge a document fee (or doc fee) when the sale is finalized. This charge covers the cost of preparing and filing paperwork, including the sales contract and vehicle registration. It is generally a fixed amount by make and model. Often, the dealer will also collect sales tax, which is another variable item that varies from state to state.

Dealerships can make additional revenue through floorplan financing, which involves the dealership lending money to a financial institution for each vehicle they sell. This money is paid back when the dealer sells the vehicle, and in the meantime, the dealership earns interest on the loan. Dealerships that offer floorplan financing often have a strong incentive to sell vehicles quickly because they are making payments to the lender while the vehicle remains in inventory.

As with any type of business, a dealership needs to attract and retain customers in order to thrive. In addition to traditional marketing techniques, dealers can attract buyers by offering special programs such as low-interest or zero-percent financing, cash-back offers, and dealer incentives. In the past, some dealers have even offered to pay for a buyer’s current vehicle as part of a trade-in deal.

The current new car inventory situation is a seller’s market, and it has put some pressure on dealerships to add markups to MSRP. This has created a lot of frustration for some buyers, who are finding it difficult to find a car that they’re willing to pay sticker price for. Many of the more reputable dealerships, however, have kept their markups in check. In the long run, it will benefit all car buyers if more dealers adopt fair and transparent practices. Until that happens, we recommend that buyers contact multiple dealerships and be prepared to compromise on the color, engine, and options that they want in their next vehicle. The Rolling Stones said it best, “You can’t always get what you want.” The same can be true of car shopping.