What Are Your Car Dealership Margins & How to Enhance Them in 2024

A local dealership proudly sells a high-end sports car at a hefty price, celebrating as they close the deal. However, when the financials are reviewed, the accountant reveals that despite the impressive sale, the profit margin is razor-thin due to high overhead costs and slim markup. Celebration turns to concern as the team regroups to figure out how they will recoup the loss.

As a local business owner in the auto industry, you know just how important it is to understand and optimise profits in a highly competitive and constantly shifting marketplace. We’re here to help.

Read on for key insights, strategies, and trends shaping dealership margins to enhance your fiscal strategies and grow your dealership in a sustainable way.

Significance of Understanding Dealership Margins

How much do dealerships make on new cars? Car dealerships in Australia average a net profit margin of 4%.

Understanding your dealership’s profit margins is crucial for maximising profitability, ensuring sustainable business growth, and making informed strategic decisions in an extremely competitive automotive market that continues to navigate chip shortages and supply chain interruptions.

Overview of the automotive industry landscape

So, how is the auto industry doing right now? In 2024, digital marketing and text have continued to gain traction as the market has steadily moved online.

Technological advancements and environmental concerns have continued to reshape industry terrain, with a global shift to electric, highly personalised, connected vehicle adoption and a focus on online presence.

Factors Influencing Dealership Margins

Several factors influence car dealership margins, particularly vehicle acquisition costs, operating expenses, and market demand and pricing trends.

Vehicle Acquisition Costs

How much do dealers pay for cars from manufacturers? And how much should you pay? Factors influencing acquisition costs include wholesale prices set by manufacturers, incentives or discounts offered, transportation fees, and import tariffs or taxes. Negotiating favourable terms with suppliers and manufacturers, leveraging bulk purchasing power, and optimising inventory management practices can help you mitigate the impact of acquisition costs on your margins.

You should always apply extensive research and quantitative data to determine how much a type of vehicle, new or used, will go for in the demographic you cater to with a specific location and time frame in mind. When acquiring the vehicle, your projected net profit margins should land around 4 to 5% or higher.

Operating Expenses

Operating expenses encompass all costs associated with running your dealership’s day-to-day operations. These expenses include salaries and wages, rent or mortgage payments for your dealership premises, utilities, insurance, marketing and advertising expenditures, maintenance costs, and administrative expenses. Managing operating expenses efficiently is crucial for maintaining healthy profit margins. You can achieve this by implementing cost-cutting measures, considering consulting to improve your operational efficiency, negotiating favourable contracts with your service providers, and investing in technology such as text, website chat, and automation to streamline processes and reduce overheads.

Market Demand and Pricing Trends

Fluctuations in consumer preferences, economic conditions, and industry trends directly influence demand for specific vehicle models and the prices at which you can sell them. You need to closely monitor market dynamics, analyse consumer behaviour, and adapt pricing strategies accordingly to remain competitive. Factors such as seasonality, new product launches, competitor pricing, and consumer perception of value also impact pricing decisions. By staying informed about market trends and leveraging pricing analytics tools, you can optimise your new car dealer cost.

How to Improve Profit Margins in Your Dealership: 3 Strategies

So, how do car dealerships make money? We chat with local businesses all day, every day. Read on for proven strategies to improve your auto dealer margins and how to get started with each.

Efficient Inventory Management

Implementing efficient inventory management practices can help you minimise carrying costs, reduce the risk of depreciation, and optimise stock turnover. Utilise data-driven analytics to forecast demand accurately, maintain an optimal mix of inventory, and streamline acquisition processes to avoid overstocking or understocking.

Negotiation Tactics with Suppliers

Pro Tip: Customer relationships aren’t the only kind that matters. Negotiating favourable terms with suppliers, including manufacturers and wholesalers, can lead to lower acquisition costs, volume discounts, and great payment terms. Build strong relationships with suppliers, leverage purchasing power, and explore opportunities for cost-saving initiatives to improve margins.

Marketing and Sales Strategies

Develop targeted marketing campaigns to attract potential customers and differentiate your dealership from competitors by using channels such as text, video, and online messaging. Invest in digital marketing channels such as social media advertising (influencers, campaigns, competitions, how-to videos) and local search engine optimisation to expand reach and generate leads. Pro Tip: Opt for a platform that gives you real-time, in-depth data on all of your channels to improve as you go.

Technological Innovations Impacting Margins in the Auto Industry

How much do car dealers make in the future? Technological innovation in the auto industry is bright–and it also has a big impact on your dealership margins. Here are a few trends to prepare for:

Digital Platforms and Online Sales

As we mentioned, as society has moved online, so have cars. Online car sales have taken on a major role in modern commerce, with a marked shift to internet selling, purchasing, and designing. Digitalisation has transformed the customer experience, with online demonstration platforms and virtual showrooms becoming increasingly prevalent.

According to one survey, 7% of buyers bought their cars completely online in 2023. Over 40% bought vehicles with a mix of online and in-person steps. And with the growth of dealerships such as Tesla, these numbers are only projected to grow.

CRM Systems and Data Analytics

Autonomous vehicles are disrupting the industry, with more and more self-driving cars joining the flow of family life as consumer and regulatory concerns get resolved.

Vehicles are also becoming increasingly connected with surrounding software and data collection systems as 5G and internet technologies continue to expand. Manufacturers are hyper-personalising vehicles to fit perfectly into the lives of consumers and optimise benefits, which means that your team will increasingly need to understand the intricacies of CRM systems and the data analytics that cars are being equipped with.

Get Started

Are you ready to improve your car dealership profit margin across the board? From streamlining customer communication to turbocharging your online reputation via text, Podium empowers local auto businesses to optimise profit margins and consistently exceed customer expectations.

Don’t let the competition leave you in the dust—click here to explore how Podium can accelerate your dealership’s performance today.