As you meander through the empty lot at the dealership, don’t you dare feel sorry for them. Vehicle inventory is still at all-time lows, and we all know why (it’s the chip shortage!). But dealerships are in the business of making money, and the pandemic and associated bottlenecks have forced dealers to get creative with how they generate revenue. New data from J.D. Power shows that dealers have gotten TOO GOOD at making money at the expense of the consumer.
In January 2022, total profit per vehicle is up to $5,138. That’s five grand in pure profits for every customer that signs on the dotted line. In January of 2021, dealer profit per vehicle sold (PVR) was more reasonable at $2,169 per sale. That’s an unprecedented 137% jump year-over-year.
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This is the fourth straight month with average PVR over $5,000. J.D. Power estimates the increase in profits per vehicle sold was enough to offset losses from reduced inventory. The analysts also predict that dealerships’ aggregated new-vehicle sales profit will rise to $4.3 billion, up 117% from 2021.
Why Are Dealer Profits Up 137%?
Where do we start? Dealer markups masked as ‘market adjustments’ are at record-highs, and will continue to be as long as consumers are willing to pay the prices. Incentives are on the way out. Gone are the days of big incentives slashing thousands of dollars off the MSRP.
Unfortunately, consumers carry some of the blame. Data shows that car buyers are financing vehicles for longer and longer terms. The average car loan is now for a whopping 67 months. That’s over five dozen months of paying interest. With the average monthly payment for a new car now at $636 (!!!!!) per month, this isn’t looking good for consumer finances.
If you finance your purchase through a dealership, they will make money on the loan. Car dealerships offer something to lending institutions that you and I can’t: volume. Generally speaking, car dealerships get access to loans at rates that individual consumers can’t. Dealers then mark up these loans and resell them to customers. In the end, the consumer pays more interest and the dealer smiles all the way to the bank.
Keep in mind that you don’t have to get your car financed through a dealership. The next time you buy a car, you should consider getting a pre-approval on a loan from another lender, in addition to seeing what the dealer is able to quote you.
Next time you meander through a sparse dealer lot or step into the F&I office at the dealership, don’t feel obligated to shell out extra cash to line their pockets. Their bank accounts are doing just fine.
What If I Really Need to Buy Now?
That’s why we’re here. CarEdge is your team of consumer advocates. Our goal is to provide the consumer with the negotiating know-how to take control of the car buying process. We have experienced auto sales experts on the team, and a welcoming community of thousands of members. Check out caredge.kinsta.cloud to learn more. Now is not the time to go it alone at the dealership!