Who gets paid the most at a car dealership?
Car Dealership Service Advisors Are Making Money From the Services Being Recommended to You
Dealership service advisors typically work on nothing but commission, which means they have an economic incentive to get you to buy unneeded repair services
November 22, 2021
Car dealerships have a bad reputation for high costs, which often comes from the extra money spent for the expertise of the service techs. It’s why many people don’t get routine maintenance performed there. But some people trust dealerships and have all service performed there, including recommended services. But did you know the person recommending services get a kickback for the services you buy?
the money is made in the service department
Many people think that big money is made in vehicle sales, but it’s actually the service department that brings home the big bucks. The sales department is often losing money, not making it, on the sales of new vehicles. The hope is that those vehicles will return to the dealership for repairs and maintenance. That’s one of the reason dealerships try to make their waiting areas warm and inviting. It’s also why you get a guided tour of the service area when purchasing a vehicle. Even the introduction to the service manager is gimmick to get you feeling special and wanting to return to spend money.
The Service Advisor gets paid when you spend money
Most people who visit a dealership service department are paid either an hourly wage or a salary, so it can be hard to imagine what life is like when living from pure commission. But that is likely what the service adviser does. It may surprise you, but the majority of service advisors working for car dealerships are paid commission only. In other words, they only make money to pay their bills when you spend money on repairs and other services.
So the service advisor, no matter how nice and friendly, has an economic incentive to get you to pay for as many services as possible, even if you don’t need them. So you need to know exactly what is required as part of your vehicle’s maintenance by consulting your manual.
We Recommend this because of the real world
You’ve heard it before. The dealership knows your car best. But with that mindset, you’re likely to buy into a product or service if recommended by a dealership employee, even if it’s not listed in your vehicle’s manual.
Sadly, the industry practice is to push owners into getting maintenance services earlier and earlier in order to get you spending more money more often. On top of that, you’ll often get additional ‘recommendations’ for everything from transmission and brake fluid flushes to your first oil change after only 500 miles, usually with the explanation that real world driving is hard on the car. But manufacturers test their vehicles in ways that are significantly more extreme than real world conditions. Many dealer recommendations based upon real world conditions have no factual basis. They can even be recommended purely because a service advisor needs to increase sales for the week. Sadly, some service advisors will say anything to get you to buy a service, just like some sales staff will say anything to get you to buy a car.
Don’t fall for it. You should be especially weary if you are getting hit with recommended services before your car has even been looked over. In this case, stick to only the service that brought you to the dealership in the first place. And definitely don’t fall for those postcards the dealerships send out telling you that you’re due for a particular recommended service.
Follow the Vehicle’s maintenance schedule
The manufacturer, not your dealer, knows your vehicle best. The manufacturer designed, built and tested it, after all. If your manufacturer says to change your oil every 8,000 miles, there’s really no need to change it sooner from a routine maintenance perspective. If your manufacturer says your transmission fluid gets changed every 200,000 miles, wait until then. If the engine coolant is “sealed for life” and doesn’t need to be changed unless it’s contaminated, then there’s really no reason to change it, even if ‘recommended’ by the dealership.
There’s also no reason to replace a standard fluid, such as brake fluid, with a high performance variety other than to get you to spend more money. So to keep your vehicle operating at its best and to protect your warranty, have only the items listed in your maintenance schedule performed.
‘Recommended’ Fluid Flushes
Dealerships invest money in fluid flush or fluid transfer machines that can push old fluid from a system and replace it with new fluid, usually while using chemicals to clean and remove deposits. These machines can be lucrative for the dealership, and consequently your service advisor. These flushes often run double or triple the cost of the simple drain and refill recommended in your maintenance schedule. Dealerships push this service since it’s quick and easy money, but many manufacturers discourage them while others have even issued advisories to dealerships warning against using them. Walk away if you are being pressured into one of these flushes.
The first problem comes from the chemicals used in the cleaning process. These chemicals are harsh enough to dissolve harmless deposits and push them from the system. But they’re also harsh enough to damage delicate sensors and other electronics. This damage often gets passed to the owner, who returns later with a concern, or to the manufacturer, who may deny a warranty claim.
In other cases, larger deposits that aren’t causing a problem can break free and work through the system, where they can get stuck inside a valve or sensor. It is especially problematic in automatic transmissions, which have a lot of fluid passages and delicate sensors and solenoids. If a solenoids gets a deposit stuck inside, the transmission won’t shift properly.
Fuel Injector Cleanings
Fuel injector cleanings can sometimes be beneficial and some manufacturers permit the dealership to claim it as part of some warranty repairs. But it’s only necessary when deposits have built up inside the injectors, causing noticeable problems. The vast majority of vehicles, even older ones, do not require any fuel injector or fuel system cleaning, even as part of normal maintenance. Detergents are added to gasoline to prevent buildups and clean your fuel system anyway.
Be Wary of Dirty filter and fluid performances
Service advisors love to show you how dirty your fluids have become. But motor oil is supposed to look dirty and can look black in as little as a few hundred miles. Brake fluid changes color over time as it picks up fine rubber particles from the lines. Transmission fluid changes color as the dye breaks down and as fine deposits get mixed in. But this is all normal. Change these items if and when required by your maintenance schedule. Just because it looks dirty doesn’t mean that it’s time to change.
Dealership service advisors love to bring out your ‘dirty’ filters and show them next to brand new bright white filters. But it’s just another gimmick. Your filter isn’t going to be bright white anymore, but that doesn’t mean it’s not good. It’s going to be a little dirty because it’s doing its job. Even worse, some service advisors bring an air filter for your inspection that isn’t really yours.
Many air filter changes are extremely easy for anyone to perform, often with only a screwdriver (if that). It can take you minutes to perform yourself, which can save you a lot of money. An air filter service, for example, can cost you upwards of $90 (or more) at a dealership when the part costs less than $10 and replacement is often a matter of opening a cover under the hood. Check out YouTube videos for common filter replacements on your vehicle and do it yourself next time!
Padding the bill with shop supplies
Most, but not all dealerships, pad their bills with charges for shop supplies. Be on the lookout for shop supplies on your repair bill and then challenge the charge. Adding shop supplies to your bill isn’t just getting the dealership money, but may be getting your service advisor money. Don’t be afraid to ask to see exactly what was used on your vehicle. You might be getting charged $20 for a few paper towels, which should be part of the cost of doing business.
Service Advisor Turnover is a red flag
When you have a new service advisor each time you visit the dealership service department, you should be on the lookout for issues and double checking every recommended service in your manual and each item on your bill. Turnover is a sign of a problem in the dealership. If that problem is related to low wages, for example, employees look for work elsewhere. If your service advisor isn’t paid well, he/she may be more tempted to pad the bill, to recommend services you don’t need, or even tell you something needs to be replaced when it’s perfectly fine. Regardless, turnover should be a sign that you want to go elsewhere.
Take Home Message
Not all service advisors are out to take advantage of you. But some will take advantage of your lack of knowledge and any hesitancy, so know what is and is not a required maintenance item before you go to the dealership. Don’t be afraid to say “no” and don’t be afraid to insist that your regular mechanic perform maintenance work.
If you are ever in doubt, decline the service and go to a mechanic you trust to give you an honest assessment and, hopefully, a better price. And remember that maintenance doesn’t have to be performed at a dealership or with filters sold by the dealership in order for you to get manufacturer warranty repairs.
The Average Salary of a Car Salesman
If you’re outgoing, relationship-oriented and possess the gift of gab, you might consider a career as a car salesperson. These individuals know a lot about the vehicles they’re selling and have the type of persuasive selling skills that can overcome resistance and turn a «maybe» into a «yes.» Most car salespeople work for a dealership, and their base salary may be fairly paltry as most of their income comes from commissions based on the dealership’s gross profit on the car. So, the more cars you sell, the more money you earn.
Job Description
First and foremost, you’ll be selling cars. There are a number of tasks associated with this objective, including talking customers through the features of various models, taking them on test drives, negotiating the sale price and trade-ins, explaining options for warranties and financing and coordinating after-sales services, such as repairs and valeting. You’ll also be responsible for preparing the paperwork associated with a sale. Outstanding customer service skills are essential for this job in order to enhance the buying experience for the dealership’s customers. You’ll also need solid persuasive skills to hit your sales targets and earn a good commission.
Education Requirements
There are no formal education requirements for this position, and most car salespeople enter the field with a high school diploma or GED. More important are a good work ethic and the ability to get along with a broad customer base. While some dealerships prefer experienced sales consultants, most appreciate that you have to walk before you can run and will train you for the job. An associate degree in business or marketing, or a qualification in automobile repair, could increase your job or promotion prospects in the long run.
One of the biggest perks of being a car salesperson is the ability to make more money the harder you work. Generally, the yearly income for a car salesperson is $39,903 in 2018. This amount is the median salary, or the salary in the middle if you lined all the car sales consultants up from the lowest to the highest paid.
Industry
Car salespeople generally work regular business hours including weekends and holidays, although it really depends on the dealership. There may be opportunities for overtime during busy periods. Most of the working day is spent at the dealership, but you’ll also be taking people out on short test drives. The job can be relatively strenuous when bending and stooping is involved, and you’ll spend most of the day on your feet. You may have to do some studying to learn about the cars you’re selling. Purchasers ask every question under the sun, and you’ll stand a better chance of making sales if you can communicate the benefits of the car properly.
Years of Experience
While most car salespeople are paid a base salary, this may be somewhere around the minimum wage. The majority of their earnings is based on how much they sell, which is called commission. The exact percentage varies from dealership to dealership, but it usually falls in the 20 to 25 percent range. That’s a percentage of the dealership’s profit, not the ticket price of the car. So, if you sell a car for $20,000 and the dealership makes a $5,000 profit, you’d earn $1,000 based on a 20-percent commission rate.
Since more sales equal more money, it’s hard to put a figure on the average car salesman salary across the industry – it really depends on your location, customer demographics, type of cars you’re selling, reputation of the dealership and other variables. For most car sales consultants, the pay scale ranges from $23,574 to $95,627 annually, with the median salary coming in at $39,903. Align yourself with a successful dealership and put the work in, however, and the payout could be well into six figures.
Job Growth Trend
Employment for all sales consultants, which includes car salespeople, is expected to grow by just 2 percent by 2026. This much slower-than-average growth rate is largely due to retailers taking their services online and away from brick-and-mortar stores. The rise in online sales doesn’t affect car sales consultants, however, since most people still prefer to visit a dealership in person when contemplating a new car purchase. What does affect the number of jobs is the overall economy. People tend to buy cars when wages are growing and disposable incomes are high, boosting demand for car sales consultants.
- Bureau of Labor Statistics: Retail Sales Workers Pay
- Salary.com: Car Salesperson
- PayScale: Sales Consultant, Automobile/Cars Salary
- Bureau of Labor Statistics: Retail Sales Workers Job Outlook
How Do Car Dealerships Make Money
When negotiating with car dealers, you will usually run across one that complains about not making any money on the deal.
They’ll try to guilt you into paying a higher price, but don’t pay attention to the whining. I’m going to reveal how new car dealers really make money, and why you should never really feel sorry for them (most make nearly a million dollars in profit per year). Used car dealers also take advantage of many of these profit centers.
If you get a great deal and simply focus on the price of the car, you may not think the dealer is making much money, but when you factor in all the ways a dealer can make money — a $10,000 profit is possible off of just one sale!.
Of course, that large a profit is not typical, but most dealers do make the bulk of their profit in areas other than the actual sale of the vehicle. Think about that next time a dealer is whining about not making any profit.
Financing
Most dealers don’t make the bulk of their profits on the sale of a new car. The big profit usually comes through arranging car loans, selling add-ons, and making money on your trade-in.
Dealers can easily make a profit of $3,000 just through the financing alone (see: How Dealers Make Money on Financing). Basically, dealerships work with third-party lenders and also the manufacturer’s lending arm to offer financing options to customers. The dealership earns a commission for every loan they secure, which can add up to thousands of dollars. The commissions often come as marked up interest rates on your loan.
The few times they don’t make money on the financing is when the manufacturer offers 0% apr deals.
Add-Ons
The dealership will likely offer you various add-ons, such as extended warranties, gap insurance, or other accessories. These add-ons can really increase the dealership’s profit margin. For example, an extended warranty may cost the dealership $1,000, but they may sell it to you for $2,000, earning them a profit of $1,000.
Add-ons typically add $750 to $2,000 in additional profit per sale
Trade-Ins
If you’re trading in your old car at a dealership, you won’t be getting the best deal. Dealerships will often offer you less than the car is worth so they can make a profit when they resell the car. For example, if your car is worth $10,000, the dealership may offer you $8,000. They’ll then clean up the car, make any necessary repairs, and sell it for a decent profit — anywhere from $1,000 to $5,000.
Service and Parts
Dealerships also make money through their service and parts departments. When you bring your car in for maintenance or repairs, the dealership charges you for the labor and parts. They may also try to sell you additional services or upgrades for your car, such as a new air filter or a brake service. Over the life of the vehicle, these additional services can add up to thousands of dollars in profit for the dealership.
Markup on New Cars
Historically, dealers would not make much profit on the sale of a new car. That’s when cars would sell for much less than MSRP. In our recent market however, dealers have been selling new cars at close to MSRP, allowing them to make a significant portion of their profit through the markup from the wholesale price. When a dealership buys a car from the manufacturer, they pay invoice price, which is lower than the MSRP (manufacturer’s suggested retail price). The dealership then adds their markup, which can range from a few hundred to several thousand dollars.
When demand is higher than supply, dealers will oftentimes add «Additional Dealer Markup», which is basically a bogus fee on top of the MSRP. I’ve seen additonal markups of more than $10,000 on very popular vehicles.
You can minimize this profit by browsing my Car Deals section and seeing which vehicles offer the best incentives — for example Best Toyota Deals, Best Jeep Deals, etc.
Holdback and Manufacturer Incentives
Car dealerships also receive a «holdback» from the manufacturer, which is a percentage of the invoice price of the vehicle. This holdback is essentially a reimbursement for the cost of financing the inventory.
Most people assume that dealers pay for all their vehicles and have a bunch of money tied up in their inventory. This is false. The vast majority of dealers take out loans to build their inventory and are essentially «renting» the vehicles. Most manufacturer’s provide this financing, known as «floorplan», and that’s not all — they also reinburse dealers for this cost through a kickback known as holdback (usually 1 — 3% of the invoice price of the vehicle).
A typical dealer may pay $350 per month to finance each vehicle. If it takes two months to sell, their cost is $700 — but the holdback amount usually covers this. If a dealer sells the vehicle in less than a month, they will make a tidy profit simply on the holdback amount.
Dealerships also receive manufacturer-to-dealer incentives, which are cash incentives from the manufacturer for selling certain models or reaching certain sales goals. These incentives can add up to thousands of dollars per car sold.
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About The Author
Gregg Fidan is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.
