With the rise of online price-checking, the profit margins on new cars have fallen dramatically over the past ten years. In 1995, the average markup on a car was almost 17%. As in, if you paid $39,250 for a new vehicle back then, approximately $25,000 covers the dealer’s cost of purchasing the vehicle from the manufacturer, and the remaining $4,250 represents the dealer’s cut in the transaction for getting you the vehicle.
Because people comparison shop and prioritize the cheapest price over nearly everything else, profit margins in the sector have fallen to 2.8% in 2017. That is a punishing drop in profits. A similar transaction with a $25,000 base would only deliver $700 in profits to the dealership on cars that cost $25,700 pre-tax to purchase.
As is typical with industries whose business models are in transition, car dealers have sought ways to recoup the lost profits from the … Read the rest of this article!