According to Car Dealership Guy, 1 in every 5 cars that were retailed has zero profit or lost money on the sale. It is said that the changes are four times more than the situation in December 2019. There are various reasons why this is happening which are mentioned below.
/cloudfront-us-east-2.images.arcpublishing.com/reuters/EVTHHGILNBLKFOKM7LXLVZ3AQY.jpg)
One reason is that the car is aged, and these cars are better off redeploying the capital. Then the other reason is that more money will be lost with other options like selling it at auction or another dealer.
Two reasons:
– Car is aged and needs to go / we’re better off redeploying the capital.
and
– We’d actually lose *more* money selling it at an auction or to another dealer.
— Car Dealership Guy (@GuyDealership) December 27, 2022
While the profit from the cars being sold is one thing, dealers don’t get profit just from selling cars. They sell many other lucrative products and services. They have a captive insurance company, a mini insurance company within the existing company. Also, there are ways to have tax-advantaged parts of the dealership. Where having a captive insurance company profits, means no tax for those profits. So, ultimately the dealers do find certain alternatives to make profits. Unfortunately, that is not applicable to all car dealers.
I asked him what specifically led to his decision.
His reply:
“the offer i got in q2 of this year was enough for me to leave the industry. by q3 i knew i had made the right decision. a lot of your insight reaffirmed my decision, truly, it’s tough out there.”
— Car Dealership Guy (@GuyDealership) December 28, 2022
This is a message shared by CarDealershipGuy, where a dealer is closing down with 100,000 loss. After further discussion, the dealer stated, “the offer I got in q2 of this year was enough for me to leave the industry. by q3 I knew I had made the right decision. a lot of your insight reaffirmed my decision, truly, it’s tough out there.”
Low December sales
As stated in some replies, car dealers do get lower profits in December. As the situation is four times much worse than in December 2019, the time when the whole world was in chaos due to COVID-19.
In a report from Reuters this year in March, auto dealers in the US are betting billions against the death of the dealership. The question came as new-age automakers in the EV market are opting to sell to customers directly. As of July 1, 2021, Urban Science counted 18,157 dealerships, or “rooftops,” in the United States, up 46 stores from six months earlier. In 98% of local markets in the United States, Urban Science found no net change in the number of auto dealerships. It was stated that for consumers, the consolidation of auto dealer ownership could be largely invisible in the short term. But longer term, industry executives say larger dealer groups will be better equipped to deploy technology to enable faster online shopping and financing, allow customers to select from a wider array of vehicles at multiple stores, and get repairs done more conveniently.
The way how dealerships are not particularly making profits is not going as planned. It doesn’t appear to be profitable. But if the above statements need to be proved right it takes time to actually see how dealers deal with the loss.
