Car dealers saw their profit margins soar during and after the COVID-19 pandemic, as its effects on supply chains lingered. But those days are largely over.
“After months of declines, same-store gross profit per new vehicle has dropped closer to levels last seen before pandemic-related vehicle supplies began to distort the market in 2021,” reports industry publication Automotive News.
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AN examined third-quarter reports from six large public auto dealership companies and found “all reporting double-digit percentage declines in same-store gross profit per new vehicle from the same period in 2023.”
Still Room to Fall
A pair of similar analyses find that dealers’ per-car profit could fall further.
J.D. Power analysts examined 16,000 franchised dealerships and found that car dealers made “$300 to $500 per vehicle” before the pandemic began. With pandemic-related shortages driving new car prices higher, profits rose as high as $3,600 per car in 2022. Now, they found, it sits at “about $1,200.”
Auto investment firm Presidio Group found similar results. “Net pretax profit for dealerships dropped 30% in the first nine months of 2024 compared with the same period last year,” they found.
Dealers Pessimistic
Kelley Blue Book parent company Cox Automotive surveys dealers quarterly to gauge their sentiment about their business. Third-quarter results found them pessimistic.
Researchers convert dealer answers into numerical values. A score of 50 is neutral. Scores above 50 indicate optimism, and scores below 50 show doubts. In Q3, the sentiment index dropped to 40, down from 42 in Q2 and 45 from a year ago.
Both franchised and independent dealers agree on the price pressure index, which is at 66, suggesting that all dealers feel increasing pressure to lower prices.
Volume Matters When Profits Fall
When you earn less on each sale, you must make more sales to make the monthly numbers work. Automakers and dealers each have ways of trying to spur sales.
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Both have increased incentives – advertised discounts meant to lure in shoppers – helping to drive prices down in recent months. Some have also begun to slash manufacturer’s suggested retail prices, though that trend is not yet widespread.
The news is good for shoppers, who can negotiate knowing the salesperson across the desk is motivated to make as many sales as possible this month.
“Dealers had several years in a row where they had a massive windfall,” Tyson Jominy, vice president of data and analytics at J.D. Power, told Automotive News. “Like anyone, when your income drops to a third of what it was, it’s going to hurt.”
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