Are car dealers losing money? (2024)

Are dealerships losing money?

According to a report by Automotive News, National Automobile Dealers Association stated that used car dealers in 2018 lost money on operations. This has been the first time in a decade that used car dealers have experienced sales loss.

Most dealers don't make the bulk of their profits on the sale of a new car. The big profit usually comes through arranging car loans, selling add-ons, and making money on your trade-in. Dealers can easily make a profit of $3,000 just through the financing alone (see: How Dealers Make Money on Financing).

According to J.D. Power, “used-vehicle values will begin their descent to more normal levels by late 2022 and into 2023.” Meanwhile, consulting firm KPMG expects a notable dip in used-car prices. They expect “used-car prices to drop 20%-30% sometime in the months after October 2022.”

In June, light vehicle sales are forecast to reach 1.2 million units, down 7.5% from June 2021. Sales volume in June is expected to rise by nearly 181,000 compared to May, or 7.5%. The SAAR in June 2022 is expected to be 13.8 million, below last year's 15.5 million level and up from May's 12.7 million pace.

Although some dealerships give better deals to those paying with cash, many of them prefer you to get a loan through their finance department. According to Jalopnik, this is because dealerships actually make money off of the interest of the loan they provide for you.

Fewer people work there and each customer might be talking to one of the finance managers for 30 minutes or so. While all this is going on, your new car is being washed, gassed and prepped for final delivery. If that process doesn't sync up exactly, you might have to wait a while longer for the car to be ready.

New cars. It is considered reasonable to start by asking for 5% off the invoice price of a new car and negotiate from there. Depending on how the negotiation goes, you should end up paying between the invoice price and the sticker price.

According to data from the 2021 Kerrigan Dealer Survey, 94% of car dealers expect their profits to continue in 2022 and 79% expect them to rise even more. So, if you're looking to increase profits this year, it's not about finding ways to make more money per car.

So where does the majority of a dealership's profit come from? It's not from car sales, at least not directly. It's from the service and parts department, which accounts for the other 49.6% of the dealership's gross profits, according to NADA.

“Car dealerships want you to finance through them for two main reasons: They can make money off the interest of a car loan you get through them. They may get a bit of a kickback if they're the middleman between you and another lender (commission).

How can you tell if a car salesman is lying?

They are actually going to talk to the manager. The main reason being that the sales manager controls all the pricing of the cars in order to ensure that the dealership is making a profit.

They're shattering profitability records. According to a report from the National Automobile Dealers Association (NADA), net profit before tax at the average new car dealership through the first nine months of 2021 was up an astonishing 128.2% over the same period in 2020.

Generally, the manufacturer pays a lower labor rate to the dealer for warranty work. And, because the parts come from the manufacturer, the dealership can't earn its usual markup on the cost of parts. But a lot of the fault here lies with the manufacturer.

The first point of call is to see what other people think about the dealership. Using Google, Facebook, and review websites like Hellopeter are a great place to start. Do a little research on their reviews and what people have had to say about them. Also, check out how the dealership engages with their clients.

A dealer incentive is a financial inducement used by manufacturers to motivate dealers to sell a particular product by offering discounts on that product.