For the first time since the Great Recession, the average U.S. new car dealer operated at a financial loss in 2018. To survive, dealers are now dependent on financial incentives from automakers. This shift in dealership profitability is reshaping an industry that is over a century old.
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Retailing new vehicles is unprofitable for most dealers, with the average car sold for a $735 loss as of the latest data. Consumer adoption of online shopping sites forced dealers to lower retail margins as buyers pursued the lowest prices. New car pricing is another cause, with the average sale price reaching $36,000 in 2018, up from $31,000 in 2012.
Given the cost of meeting brand standards, many industry observers question dealers’ rationale for pursuing incentive income, but dealers explain that non-participation has disadvantages. They face reduced inventory allocation, less access to more desirable models, and the worst consequence of all — reduced competitiveness with same-brand dealers. If one dealer in a market agrees to take the automaker’s money, then others must follow to match their competitor’s pricing.
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