How Does a Car Dealership Work?

Basics

A car dealership is a private business owned by a single owner or group of investors. Most car dealerships carry a limited number of franchises to sell various makes of automobiles and trucks. A used lot is often attached to a car dealership where trade-ins and other purchased vehicles are sold. Various departments make up a car dealership, including the sales team, business administration, mechanics and finance department.

Franchise

When a dealer buys a franchise, there are usually rules that come with the package--including how to decorate the showroom. Buildings, furniture and layout plans often come from the corporate office to provide an atmosphere that jells with the brand and is repeated in other locales. Manufacturers push lifestyle as part of their marketing campaigns and usually provide dealers with other items such as jackets, car mats and key chains to sell to customers.

Management

The sales manager oversees the sales team and the ordering of new vehicles. Most car dealerships try to keep an inventory of about 2 months in stock. They must order a mix of styles and colors to appeal to the most customers and not make them wait for special orders. Sales managers can check the manufacturer's supply via a company intranet and place orders accordingly. Dealers must pay for the cars when they're delivered, not when they're sold, so the dealer carries a large financing package. The suggested retail sticker price on a car includes an average of 3 percent commission for the dealer. Wholesale rebates to the dealers are sometimes offered to help move sluggish inventory.

Sales

Salespeople take turns greeting customers as they approach the showroom. Salespeople often work their own leads through referrals, networking and personal advertising. Customers often go to a showroom armed with a salesperson's name. The first job of the salesperson is to explain the features and benefits of a vehicle and get the customer to drive the car or truck. Salespeople are trained by manufacturer's reps to understand all of the features on their vehicles. A salesperson has no authority to negotiate but instead goes back and forth between the sales manager to ask questions and come to a final deal. A good car salesperson makes her clients feel as if they are fighting management to get the customer the best deal. Once an agreement is made, the salesperson walks the customer through the rest of the buying process.

Finance

The finance and insurance department (F&I) takes an application for financing from the customer or accepts the payments that the customer has pre-arranged. F&I people have the duty to sell extended warranties and their own financing packages. The finance person often is encouraged to sell a loan through the manufacturer's finance company and must meet sales goals each month, just like the car salespeople.

Service

The service department accepts the new cars when they come off the trailer and prepares them for the lot and the showroom. The cars must be cleaned and prepped, plastic covers removed and striping applied. The service department also installs add-ons that the customer ordered. The service department can repair cars and perform regular maintenance functions. Many service departments also have a body shop and keep parts on hand to sell and use for repairs.

Resources

• Car Buying Tips