7:30 am, March 19, 2025
Car dealers should be ‘out retailing’ their competitors rather than ‘out selling them’ and driving more profitability into their businesses, new research has found.
The latest edition of Auto Trader’s Road Ahead for Automotive Retailing report features new research carried out by leading US automotive researcher Glenn Mercer.
The research, carried out exclusively for Auto Trader, dives into how dealers can drive profitability in an increasingly complex retail environment.
It reveals that profit-per-salesperson is the most accurate measure of gross profit margin, not sales volume.
Mercer, who has been working in his field since the mid-1980s, has carried out work for a number of top US automotive firms and organisations, including NADA – the National Auto Dealer Association.
He, along with Auto Trader’s Marc Palmer, recently appeared on a special Car Dealer Live to exclusively tell Car Dealer readers and listeners about their latest findings. You can watch the full interview by clicking the video at the top of this story.
‘Called “Back to Basics”, this is my first project with Auto Trader and arose in the USA from over 17,000 dealerships and 6,000 owners,’ Mercer told host James Batchelor.
‘It came about from dealers who expressed what I would call “trend fatigue” – so that’s waking up each morning to robotaxis, ride hail services, connected cars, subscriptions, agency sales, and so on. Now that some of the erratic times of the pandemic have passed, they are asking “what is the new normal?”, and looking at how to secure profitability in the long run.
‘As one dealer in the US told me, half of his staff have never actually sold a car – they’ve just taken orders. So, this is about rebuilding skills and operational strategies and tactics for the long run, and through Auto Trader this report is the UK version of that research.’
Dealers have always had to think about profitability, but it’s fair to say that in recent years it has taken on a new importance due to downward pressure on profitability because of increasing costs – and that’s before April’s rise in National Insurance contributions kicks in.
‘That’s what we wanted to cover in this research,’ said Palmer. ‘If the new car market, in terms of sales, is broadly going to be flat this year and slightly up for used cars, prices behaving but cost pressure is rising, what happens with profitability? You can’t just sell more cars to make more money as the market might not grow to allow that chance.’
You can find out more about Mercer’s top tips to drive profitability by watching our video at the top of this story, and be reading the in-depth Auto Trader report by clicking here. But, essentially, there are five key areas dealers should be focusing on.
‘There is no silver bullet, I’m sad to say, but our interviewees – which are several thousand dealers who have been working for 125 years in the US – gave us five major themes,’ said Mercer.
‘Firstly, it’s about retention. With the fragmentation of car brands, people are not going to driven to you because their past four generations always bought a Ford. If you’re a Ford dealer, you’ve got automatic foot traffic but you have to retain all of those customers.
‘Secondly, cost reduction. Dealers need to think about this every single day that the showroom is open, but now there needs to be a renewed emphasis on this. The single biggest cost dealerships faces is personnel costs – there’s a lot of pressure from a variety of regulatory and legislative movements, not to mention interest rates, to turn to automation and software to bring those costs down.
‘The other two factors involve OEM relations and optimising those to gain some scale, because scale seems to definitely help the profitability, at least at store level.
‘And finally, we have a theme called “cracking the IT code”. Everyone knows that IT has transformed this industry, trouble is it’s a bit of a hamster wheel that you just keep buying more applications, installing more applications, but yet the bottom line doesn’t move much. And so with AI this time around, maybe it can uncork some really big productivity gains we’re hoping for.’
Along with the deep-dive research carried out by Mercer, Auto Trader has also analysed how dealers should be measuring their profitability.
As explained in the video interview at the top of this story, Palmer unpacked how this can be done, particularly around F&I, but also the relationship between units and profitability.
Palmer said: ‘We found that that the relationship selling lots more cars or cars-per-salesperson doesn’t necessarily mean that the department becomes more profitable. What does correlate really strongly to departmental used car profitability is profit-per-salesperson. Now that sounds incredibly simple – so simple that we kind of think, well, surely somebody must have talked about that before.
‘In all of our interviews – Glenn conducted 80 interviews with retailers – nobody mentioned profit-per-salesperson or comparing profitability by their salespeople in their department, which we thought was really, really interesting.
‘To give you a simple example, I’ve worked with retailers where there’s a salesperson who maybe sells 400 new cars a year and another one that sells 300. The 400-unit seller is the rock star, but through the data analysis we did that person doesn’t always make the department more money than the person who’s selling fewer units.
‘So the metric which talks most to departmental profitability is this concept of profit-per-salesperson. I would encourage retailers to look across their team and think, “right, that’s great – volume is one important thing and we know why it generates a lot of aftersales revenue, but what does profit-per-salesperson look like for me, and how can that be improved?”.’
You can read more about both pieces of research by clicking here.
