Car Dealer Commission in Pakistan: How Brokerage Works

Much of a Pakistani showroom's business is selling other people's cars. An owner brings a car in, the showroom finds the buyer, and the showroom is paid for the introduction. It is good business: no capital is tied up in the car, and the risk of it standing for sixty days sits with the owner. It is also the part of the trade where arguments start, because the terms are usually agreed by voice and remembered differently.

How brokerage works

1. A seller brings a car and names a price they want.
2. The showroom agrees to find a buyer, for a fee.
3. The showroom shows the car to its buyers and its network of other showrooms.
4. A buyer agrees a price, usually paying the seller directly.
5. The showroom collects its fee from the side or sides that agreed to pay it.

The car's price never belongs to the showroom. That sounds obvious until the month-end sales total includes a brokered car at its full price, and the showroom appears to have sold three million rupees more than it did.

Who pays: seller, buyer or both

Fixed amount or percentage

Both are used. A fixed fee is easy to explain and suits cheaper cars, where a percentage would be too small to be worth the work. A percentage scales with the car, which suits expensive stock, and it gives the showroom a reason to hold out for a better price for the seller.

Whichever you choose, write down three things when the car arrives: the amount or percentage, who pays it, and what happens if the seller withdraws the car or sells it privately. A one-line note signed by the seller settles most of the arguments this trade has.

Commission earned is not commission paid

Showrooms use the word commission for two opposite things, and mixing them breaks the books.

• Commission earned is the brokerage fee the showroom receives for selling someone else's car. It is income.
• Commission paid is what the showroom gives an outside agent who brought a buyer for its own car. It is a cost of that car, and it belongs in that car's total cost before profit is worked out.

Leave commission paid out of a car's cost and the car looks more profitable than it was, which matters most when investors are paid from that profit. The full costing is in how to work out what a car actually made.

What to record on a brokered car

• The owner's name, CNIC and the price they want.
• The agreed fee, who pays it, and fixed or percentage.
• Whether the papers are held by the showroom while the car is with you, and where they are.
• The final sale price and the date.
• The fee actually received, from whom, and when.

Keep brokered cars separate from your own stock in every total. They are not your capital, they should not appear in an investor's share, and they should not count as stock you are carrying. What to keep on file for any sale is covered in open letter sales: what to keep on file.

Common questions

How much commission does a car dealer take in Pakistan?

There is no official rate. Showrooms agree a fixed amount or a percentage of the sale price with the seller, and sometimes with the buyer as well. The fair figure depends on the car's price and the work involved. What protects both sides is agreeing the fee, who pays and what happens if the car is withdrawn, in writing, before the car is shown.

Who pays the car dealer's commission, the buyer or the seller?

Usually the seller, because the seller asked the showroom to find a buyer. Sometimes both pay, when the showroom also handles inspection, paperwork or transfer for the buyer. Both sides should know about any fee they are paying.

Is a brokered car's sale price part of the showroom's sales?

No. The showroom's income from a brokered car is only the fee it earned. Counting the car's full price inflates sales and confuses profit, cash and any investor's share.