Best PracticesDealership Operations & ProcessesIndustry Events

Changing Operational Perceptions Through Transparency

In 2014, auto dealers on average produced used vehicle department net profit of about $120,000. That number includes F&I. The average dealer sold 621 used vehicles retail (with another 435 sold wholesale).

In 2014, the average auto dealer made $193 net profit per used vehicle retailed.

That number is down from $254 in 2013 and about the same as in 2012.

Anyone can access NADA Data and see these simple facts. If I added all the man hours it took to produce that kind of net profit and compared that to any other industry I would bet that auto dealers return on hourly investment is one of the lowest per hour rates of any industry.

However, consumers perceive auto dealers much differently. Dealers made 2.2% net profit in 2014, a number which has been constant for each of the last 5 years. In comparison, Apple’s net profit margin is 10x that. Even Wal-mart has 54% higher net margins than the average auto dealer. Hmmm.

So, I ran a simple Google Consumer Insight Survey to find the actual perceptions of consumers. The results even surprised me. I laid out 5 options randomly for consumers to select and asked them how much net profit they thought dealers made per used car they sell.

Check out the actual Google Consumer Insight chart below…

consumer_perception_of_what_car_dealer_makes

90% of respondents thought dealers made over $254.  76% of respondents thought dealers made over $1,000. And incredibly, over 50% of respondents thought dealers made over $2,000.

In our industry I’ve heard the increased use of the word transparency. I think transparency and education are fundamental elements of trust and when considering a car may be one of the largest purchases of anyone’s life, how do we instill trust now and in the future.

So what do you think?

How can dealers educate customers to the realities of their business?  Is it wrong to disclose how the automotive market works? And if transparency is advantageous, how can auto dealers use transparent processes in the future? Comment over on the forums.