One of the biggest misconceptions in the UK motor trade is that car dealerships make thousands of pounds profit on every vehicle they sell.
At Redgate Lodge Motor Group, the best used car dealership in the north east, we believe in being transparent. That’s why, in a recent episode of Redgate Lodge | Dealership Diary on YouTube, we pull back the curtain and revealed exactly how much profit (or loss) is often made on used cars.
The reality may surprise you…
The Average Used Car Dealer Profit Margin
Many people assume dealerships make several thousand pounds on every vehicle. In reality, the average used car dealer profit margin is often far lower.
Across the UK motor industry, many used car dealers like Newcastle’s Redgate Lodge, aim to achieve between £800 and £1,000 net profit per vehicle after costs. However, that figure comes before accounting for business overheads such as:
- Staff wages
- Premises costs
- Advertising
- Vehicle warranties
- Utilities
- Insurance
- Finance costs
- Workshop expenses
Once those costs are considered, the actual profit can (and often is) be significantly lower.
Why Do Some Cars Sell at a Loss?
One of the biggest eye-openers from our dealership stock analysis was the number of vehicles currently showing little profit or even a loss.
Examples of this occurring at Redgate Lodge include:
- A used BMW 2 Series showing a projected loss of over £2,000
- A used Ford Fiesta Active X showing a loss despite low mileage
- A used Volvo car, which sold at a loss
- Several premium used SUVs generating less than £50 profit
Why does this happen?
The answer often comes down to stock age and changing market conditions.
What Is a 90-Day Stock Turn?
One part of the automotive industry that Managing Director Scott took us through was how dealerships generally work towards a 90-day stock turn.
This means a vehicle should ideally be purchased, prepared, advertised and sold within three months.
Once a car exceeds 90 days in stock, dealers frequently reduce prices to remain competitive and free up capital for fresh stock.
When a vehicle remains unsold for 120, 150 or even 200 days, profit margins can quickly disappear.
If you want to find out more about how 90 day stock turn impacts Redgate Lodge, watch our YouTube episode here.
Auto Trader Pricing Explained
One of the most important tools in modern used car retailing is Auto Trader’s pricing data.
Auto Trader analyses millions of data points and provides dealers with pricing indicators such as:
- Low Price
- Great Price
- Good Price
- Fair Price
- High Price
These indicators help customers compare vehicles against the wider UK market.
At Tyne and Wear’s used car specialists Redgate Lodge, we continually review pricing to ensure our vehicles remain competitive and offer value for money.
However, lower pricing doesn’t always mean there’s something wrong with the car.
Often, it simply reflects a dealer’s decision to reduce an older stock vehicle in order to generate interest.
The Hidden Cost of Preparing a Used Car
One area many customers never see is vehicle preparation.
Before a used car reaches the forecourt, it may require new tyres, brake discs and pads, new parts such as timing belts, suspension arms and batteries, as well as MOT tests and Services being carried out, not to mention cosmetic repairs too.
In our analysis, several vehicles required between £800 and £1,600 worth of preparation work before being advertised for sale.
For example:
- One used Audi Q5 required over £1,500 in preparation costs.
- A used Mercedes CLA needed more than £800 spent on maintenance and servicing.
- Multiple vehicles required new tyres, suspension components and major service items.
These costs are absorbed by the dealership long before the vehicle is sold.
Why Good Cars Sometimes Don’t Sell
One of the biggest mysteries in the used car market is why some excellent vehicles remain unsold. Factors can include:
Vehicle Colour: Certain colours perform better than others.
A white estate car, orange hatchback or maroon SUV may appeal to fewer buyers than black, grey or silver alternatives.
Vehicle Specification: Some niche specifications can limit search visibility and demand.
For example, models with uncommon trim levels or derivatives may not appear in as many customer searches.
Market Conditions: Fuel prices, economic uncertainty and changing consumer preferences can all impact demand.
Even highly specified premium SUVs can sit in stock longer than expected despite being competitively priced.
Why Dealership Preparation Matters
As a leading used car dealership in Newcastle, Redgate Lodge doesn’t believe in cutting corners.
Every vehicle is inspected, serviced and prepared to our standards before reaching a customer.
While this approach increases preparation costs, it helps provide greater peace of mind and reduces the likelihood of future issues.
Many of the vehicles highlighted in our stock review had significant investment made into servicing, maintenance and repairs before sale.
The Reality of Running a Used Car Dealership
A dealership may have millions of pounds tied up in stock at any one time.
When vehicles don’t sell quickly, that capital remains locked up while preparation, advertising and operational costs continue.
This is why stock management, pricing strategy and vehicle preparation are so important in the modern automotive industry.
Final Thoughts: How Much Profit Do Car Dealers Make?
The next time you wonder how much profit a dealership makes on a used car, the answer may be far less than expected.
Some vehicles generate healthy returns. Others make only a few hundred pounds. Some even sell at a loss.
The reality of the motor trade is that success comes from managing stock effectively, preparing vehicles properly and delivering value to customers and not making huge profits on individual cars.
If you’d like to see the full behind-the-scenes breakdown of dealership profits, stock management and vehicle preparation, watch the latest episode of Redgate Lodge | Dealership Diary on YouTube and discover what really happens behind the scenes at a modern used car dealership.
Find out more about Redgate Lodge, Newcastle’s leading used car dealership, here.