How Car Dealerships Work

If you drive along almost any main road you are guaranteed to see a number of car dealerships. These stores offer a wide range of vehicles, both new and used, to the consumer. Their product is one that is not always easy to sell yet they manage to do a lot of business, or so it seems. If you have ever wondered how a car dealership works, wonder no more, simply read on. Your dealerships will work in one of two ways. They will either get vehicles on consignment to sell or they will buy the cars and sell them for a profit. Let us take a look at both options.

Consignment

The way that consignment works is fairly simple. The company that owns the vehicles will allow dealerships to keep a number of cars on their premises and take care of them. Each car has a value that the company which owns them expects to get for it. It is up to the car dealership to sell the car for more than that value and then to pay for the car that has been sold. Both sides run a risk here. The company that owns the cars runs the risk that the cars will not get sold. 

Buy to sell

In this car dealership model the dealerships will purchase the vehicles that they think they can sell. They will often only purchase one or two of a specific model of car and use this as a demo vehicle for potential customers to test drive. If a client elects to purchase a vehicle the car dealership will order exactly what the client wants from the vehicle manufacturer. The car is then sold to the client at a mark-up. The car dealerships make some loss on the sale of the demo vehicles but they make up for it with the number of cars that they sell brand new with a significant mark-up. This model is a lot less risky for the vehicle manufacturer and the car dealership. The car dealerships run the risk of the vehicles getting stolen or damaged, in which case they would still be liable for the cost of the car.

Second hand car dealerships will generally work on a model that is very similar to the buy to sell model of new cars. They will buy vehicles from private individuals, either as a trade in on another car or for cash, and then sell the car again for a profit. They do have to be careful to examine the car to ensure that it is road worthy and worth what they are offering for it.