#clustering

According to website CarEdge, some secondhand dealerships can have average profit margins as in excess of $4k. Now, that's probably skewed by some secondhand cars being luxury vehicles; there's a reason Carvana is topping that list, and most people do seem Carvana's prices on newer, low-mileage models are actually too high. The others are more like 1.5-2k profit margins, which is still respectable.

Granted, these are large dealership groups, rather than small, privately-owned businesses. Independent used car dealerships are looking at a gross profit margin of something like 10-20% depending on how well people bargain with the dealer, according to website ProfitableVenture. After the costs of owning and running the dealership (wages, mortgage, insurance, taxes, etc), there is about 2-3% left for the owner.

I actually want to quote this paragraph from them, as I feel like it's pretty informative on the issue:

The average amount of money that a car dealer makes per used car today is around $500 to $3,000 per car, with your typical run-of-the-mill used cars selling for about $2,500 to $5,000. Have in mind that profit margins on used cars are narrower than they have been in the past due to more information is available. Keeping profit margins a secret is what allows dealerships to take advantage of customers.

Now, that explains how they stay afloat, but the clustering?

...it really does come down to the same reasons as the regular car dealerships, but with the lens of anticipated costs. If you are a parent helping your teenager buy a used car, because they want your opinion and you're better at haggling than they are, then you want to make sure they get both the best possible deal, and the best/safest car possible... but also, you have work in the morning, and do not want to drive twenty minutes to each used car lot. You want to either be able to look up all the options on the internet, or hop from one lot to the next in the span of two minutes. Even with the internet, you want to do a test drive, no?

You also said that none of those dealerships exist anymore, which means they also predate the internet option. Being small means they had to sell fewer cars to stay open, but also that they didn't have the luxury of being a wide enough selection for people to do a cost-benefit analysis of coming to visit them with the expectation of finding a car when they might be able to see more options at that dealership that's only a block away from the other one. Without the internet, especially, their advertising would be limited to car commercials and newspaper ads.

(My thoughts go to Big Bill Hell's Cars and that Tobey Maguire Spidey scene where the used car from the newspaper is doing powerpoint transitions across the screen.)