North American New Car Dealerships Have a Deal for You

According to the National Automobile Dealers Association (NADA), there are approximately 20,000 new car dealerships in the United States. These automobile dealerships employed more than one million people and together generated $576 billion in sales in 2008. That means that car dealerships accounted for approximately 14.6 percent of all retail sales in the United States for the calendar year.

New car dealers generate income through not only new car sales, but also through used car sales, vehicle service, financing and the sale of add-on products and services. In the United States and Canada, a new car dealership is generally a franchise, that is they usually sell only one manufacturer's products. Used car dealerships, conversely, may carry vehicles representing a variety of different manufacturers. Because of consolidation in the industry, however, it is not uncommon today for one owner to operate a chain of new car dealerships in a given area, representing several different manufacturers.

Dealerships generally consist of a showroom and a car lot, where inventory is displayed for sale. Often a new car dealership will also include service bays where they may perform maintenance and repairs on vehicles. Dealerships may also include a parts department where replacement and aftermarket items may be purchased.

In the United States, federal law requires that all new cars display a window sticker that lists the manufacturer's suggested retail price (MSRP). This sticker is sometimes called a Monroney, named after Almer Stillwell "Mike" Monroney, the United States Senator from Oklahoma who sponsored the Automobile Information Disclosure Act of 1958, which mandated this disclosure of information on new vehicles.

Besides the vehicle's base price, the window sticker must include engine and transmission specifications, standard equipment and warranty details, optional equipment and pricing, city and highway fuel economy ratings, as determined by the Environmental Protection Agency (EPA), and as of September 2007, crash test ratings as determined by the National Highway Traffic Safety Administration options.

At most new car dealerships, salespersons work solely on commission. Salespeople will typically negotiate the final sales price of a vehicle with buyers, using the sticker price as a guideline. With the availability of wholesale, invoice or dealer cost figures through books, magazines and internet sources, most consumers today have more leverage in negotiations. Besides the negotiated purchase price, the typical transaction will often include valuation of the customer's trade-in, financing options, and the inclusion of additional aftermarket parts or services.

Despite public perception, the profit margins on automobile sales are often low. A new car dealer may be working with just a two percent mark up over the manufacturer's invoice cost. Typically a new car dealer will finance their inventory from the manufacturer, a practice known as flooring or floorplanning. Some manufacturers counter this by paying a "hold-back" fee, typically one or two percent of the vehicle's wholesale price. Hold-back is generally not included in negotiations with customers.

In the United States, General Motors has the largest dealer network with approximately 5,600 dealerships, followed by Ford with 4,000 dealers and Chrysler with 3,200 franchises. Foreign automakers typically have far fewer franchises in the United States with Toyota, Honda and Nissan being the largest with approximately 1,400; 1,200; and 1,100 respectively.