Understanding used car dealership profit margins can make buying a car at a fair price easier than you’d think. Thanks to fresh industry data we have insight into the profitability of eight publicly traded dealership groups. And while most used car dealers experienced a decrease in gross profits per used vehicle sold in Q1 2023, there were exceptions — Carmax (+3%), AutoNation (+35%), and Carvana (+52%).
Here’s the breakdown:
- Carvana: $4,303 (52% increase)
- CarMax: $2,277 (3% increase)
- Asbury: $2,141 (14% drop)
- AutoNation: $2,117 (35% increase)
- Group 1: $1,689 (16% drop)
- Lithia: $2,120 (30% drop)
- Penske: $1,808 (21% drop)
- Sonic: $1,626 (6% drop)
So, how does understanding dealership profit margins empower you, the consumer to get a better deal? Let’s dive in.
Timing Your Purchase and Negotiating Power
Fluctuating profit margins in the market hint at competitive dynamics, potentially paving the way for better deals for consumers. This could be an excellent time to consider buying a used car, especially from dealerships that are currently facing profit contractions.
With the knowledge of dealership profit margins, you could have an edge in price negotiations. If a dealership enjoys high-profit margins, there may be more room for negotiation. On the flip side, those with tighter margins might not offer as much price flexibility, but they could be keener on making a sale.
Interestingly the used car dealers with the greatest profit margins are Carvana and CarMax, the two dealer groups that do not allow negotiations. This means that if you are considering purchasing from one of these dealers you need to understand that you are paying a premium, and you likely could save money on a comparable vehicle from another dealer.
Exploring Dealerships and Researching Vehicle Value
Don’t restrict your search to one dealership or group. The disparity in profit margins among dealership groups underscores the value of shopping around. Independent dealerships could also provide attractive deals.
It’s also paramount to research the fair market value of the vehicle you’re interested in. Resources like CarEdge can provide an extensive array of data to help you make an informed decision.
Days Supply of Dealership Inventory – Another Crucial Metric
Understanding the days supply of inventory is another valuable piece of information. It indicates how long a dealer’s current stock of used vehicles would last given the current sales rate. The longer a vehicle stays on the lot, the more it costs the dealership in the form of floorplanning costs, which can encourage them to negotiate on price.
Current used inventory days supply for the six groups are:
- Asbury: 27 days
- AutoNation: 29 days
- Group 1: 30 days
- Lithia: 52 days
- Penske: 39 days
- Sonic: 29 days
Unfortunately we do not have a reliable source for days supply for Carvana or CarMax.
This information could influence your buying strategy. Dealerships with a high inventory supply might be more willing to negotiate on price. Timing your purchase when the inventory supply is high could lead to better deals. A high supply might suggest overpricing or less popular models, whereas a low supply could indicate competitive pricing or high-demand models.
Try using the new FREE CarEdge Data Explorer to get a sense for days supply of inventory in your area.
With this knowledge of dealership profit margins and days supply of inventory, you’re well-equipped for your next car buying journey. It may not look like the good old days, but you’re setting the stage for a win-win negotiation. After all, in this new era of car buying, information is your strongest asset.