Car shoppers think dealers make a lot of money on each vehicle transaction

car shoppersCar buyers think auto dealers make a lot more money than they really do on the sale of each vehicle – five times as much – according to a survey conducted for TrueCar Inc.

And that sort of misperception is bad for business, according to the TrueCar Buyer Study.

“The TrueCar Buyer Study results show that fear and mistrust have a cost in the car buying process,” said Scott Painter, TrueCar founder and CEO, in assessing the survey results.

“The survey showed that roughly 26 percent of car buyers feel that they overpaid for their purchase and that 32 percent stated they would not return to the same dealership due to low customer satisfaction with the purchase process,” reported TrueCar, a negotiation-free, car-buying-and-selling platform.

On a $30,000 vehicle, shoppers think dealers make about 20 percent profit margin, the TrueCar study reported, while the typical margin actually was just under 4 percent in 2013, according to the National Automobile Dealers Association (NADA). That 20 percent translates to a $6,000 profit, which is almost $4,900 more than a dealer’s actual average profit of $1,140.

At the same time, car buyers would be willing to pay dealers more than their typical profit margin – an average of 10-12 percent was considered fair – if they had confidence in the car-buying process.

And what if car buyers knew dealers would make nothing on a vehicle transaction?

They would be willing to “tip” dealers around 8 percent ($2,400), according to the TrueCar study, more than double the actual average profit margin.

“If consumers believed that they were getting information that they could trust as part of a more transparent process, they would be willing to pay dealers more,” said Painter. “These survey results are consistent with the idea that increased transparency in the car-buying process can result in higher margins for dealers and greater consumer satisfaction – everyone wins.”

“This survey is further validation of something we hold dear at TrueCar,” said John Krafcik, TrueCar president, “That providing price confidence to buyer and sellers will bridge the trust gap.”

The study was conducted in February and surveyed more than 3,000 consumers across the country.

TrueCar works with a national network of 8,000 dealers.

 

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