Tricks the Auto Industry Uses to Increase Their Profits

We always assume that car companies make vast profits because of the high prices of cars for sale, but that’s not where most of their money comes from. Unless you buy from an official company dealer, you are buying your car from an agent that’s licensed to sell the cars. Those agents make great margins, but the car manufacturers make little profit on the vehicle production process itself.

So, how do car companies keep growing and expanding if their margins aren’t actually that big? There are two main strategies that most car companies employ today to earn them a much higher income than production.

Financing Your Car

It’s very common for official dealerships to offer you financing in-house. This means you take a loan from the company itself and pay it back over time, plus any interest accrued. When the company doesn’t use a bank as a middleman and takes on their own financing, they are going to make a lot more profit than they would have normally.

GM is a great example of this strategy, as their GMAC financing sector earned more than three times as much profit per car as other parts of the company. Although manufacturing is necessary to pump cars into the cycle, financing the cars that are sold at official dealerships helps to add to the income of the company itself.

Spare Parts & Servicing

Perhaps bigger than the financing sector of the company is the spare parts and servicing sector. Every official or licensed dealership will usually offer to service cars or order spare parts for the brands they sell. This market is not just large in the main markets for these cars, but is also an important asset for overseas outreach and sales, as spare parts are shipped around the world to fix cars that have been imported to other countries.

Upscale car brands are one of the best examples of how servicing makes money for the company. In most cases, these upscale cars are made with brand-specific tools that don’t allow small dealerships or individuals to work on the cars. If you buy an expensive BMW, there’s little chance of you getting it properly serviced anywhere but at an official BMW dealership.

Dealers that aren’t officially licensed or branded shops may not be able to work on these cars at all, mainly because of the issue of tool compatibility. Unlike the tools that are reviewed at Toolversed.com, brand-specific tools are create to fit individual brands or cars, not to be used for general purposes. Therefore, most mechanics and competing dealership simply won’t have the right tools to get the job done right.

Conclusion

Many automakers do earn profits from manufacturing cars. But, if you compare the numbers to what they earn from these other two facets of the same company, it’s obvious that producing and selling cars is all about supplying these more profitable ventures with constant work!

There isn’t anything malicious about what’s being done, just clever strategies used within the auto industry worldwide to get as much profit as possible from the normal sales and maintenance of cars. Every brand and company does it, and so far the model has worked well and paid off for many of the same companies.