3 ways car dealers can protect their profitability from margin compression

The COVID-19 pandemic has changed the course of the automotive industry in many ways this year, including how car dealers think about the marketplace. Instead of focusing on who has the lowest price, dealers now have to consider who is managing and moving their inventory most efficiently. Joining us today to discuss best practices for car dealers to ensure resiliency and protect profitability for the long-term, is David Foutz, vice president of sales at Cox Automotive.

The issue of rising margin compression made headlines throughout 2019 and recent dealership financial data from the National Automobile Dealers Association found that the average gross, as a percent of selling price on new cars, dropped from 7.3% in 2011 to 5.5% in 2019. As we know, supply was constricted on vehicles, but consumer demand was consistently high. In turn, prices lifted and inventories shrank. Car dealers are gaining back some bargaining power, but their position is still a precarious one.

As the U.S. enters a reported ‘third wave’ of COVID-19 and cases continue to surge, dealership operations remain uncertain. However, inventory levels and sales volume are returning to relatively normal levels. According to Foutz, now is the time for car dealers to re-evaluate their operations, pay attention to the data, and battle margin compression because it’s on its way back.

Dealers can protect their profitability by closely watching their DMS platforms. They should compare their data year-over-year to and utilize the insights they find. Next would be to evaluate the dealership’s expenses. There are also many avenues for new revenue opportunities and efficiencies. Now is the time to explore those options.

For more insight and advice from David Foutz, be sure to read his CBT News exclusive article, “The Market Remains Uncertain but Your Margins Don’t Have to Be.”