When you buy a car, its price includes much more than just the cost of manufacturing. Just like any other business, car dealerships also earn a margin on every sale. Many buyers wonder why the on-road price of a car is much higher than its ex-showroom price. The answer lies in dealer margins, taxes, commissions, and operating expenses.

Let’s break down how much a dealer actually earns when selling a car priced at ₹10 lakh.

Dealer Profit Is Lower Than You Think

According to industry data shared by Federation of Automobile Dealers Associations (FADA), car dealers in India typically operate on thin margins. On average, dealer margins range between 2.9 percent and 7.5 percent per vehicle.

This means dealers do not make a large profit on a single car sale. Their business becomes profitable only when they sell vehicles in high volumes.

Direct Earnings on a ₹10 Lakh Car

If we assume a mid-range dealer margin of 5 percent, then on a car with an ex-showroom price of ₹10 lakh, the dealer’s gross earning would be around ₹50,000 per car.

However, this amount is not pure profit.

From this ₹50,000, the dealer has to cover several operational costs, including:

• Salaries of sales, service, and administrative staff

• Showroom rent

• Electricity and water bills

• Vehicle storage and handling costs

• Advertising and promotional expenses

• Basic servicing and pre-delivery inspections

After deducting these expenses, the actual net profit per car is much lower.

Additional Income Sources for Dealers

A dealer’s income does not come only from selling the car itself. When customers pay the on-road price, several add-ons are included, from which dealers earn extra commissions. These include:

• Motor insurance

• Accessories and add-on packages

• Extended warranties

• FASTag

• Loan and finance processing fees

These additional services often help dealers improve their overall profitability.

Some Brands Offer Higher Margins

Dealer margins can vary depending on the car manufacturer, model, location, and demand. Reports suggest that brands such as Maruti Suzuki and MG Motor sometimes offer dealer margins higher than 5 percent, especially on select models or during high-demand periods.

However, higher margins are not guaranteed and can change based on market conditions.

What Buyers Should Understand

When you buy a new car, you are not just paying for the vehicle itself. The price also includes dealer operating costs, commissions, taxes, and a modest profit margin. This is why it’s important for buyers to carefully review the full on-road price breakup and understand what they are paying for before finalizing a purchase.