In the automotive industry, dealer service agents strive to forge long-term, mutually beneficial relationships with their dealer partners. While some of those connections eventually evolve into friendships, others are and remain strictly business-oriented.
For agents focusing on profitability, understanding market trends and delivering effective solutions is the primary focus and crucial for success. We had been anticipating a return to stability in the automotive market, with expectations for interest rates and inventory levels to normalize. However, recent shifts in trade policy have introduced some uncertainty into the near-term outlook for vehicle sales. As a result, we’ve seen a wave of reactive buying behavior, which has contributed to a decline in inventory—dropping from a 90-day supply to a 70-day supply on new vehicles and down to a 39-day supply on preowned vehicles, according to Cox Automotive.
Profitability in a Shifting Market
What does this market change mean for profit margins? Data from Stone Eagle reveals a significant decline in dealership profitability: The average front gross profit has decreased by 57% from January 2023 to September 2024, with total front and back gross falling from $3,492 to $2,566.
During the pandemic and subsequent supply chain crises, dealerships began stocking higher-mileage vehicles out of necessity. The experience taught them an invaluable lesson: Used vehicles, especially those with higher mileage, can be a significant source of profit. Moreover, these vehicles attract a different demographic of buyers, ranging from budget-minded individuals to those dreaming of owning a new make or model from the dealer's brands.
Offering affordable, high-mileage vehicles can serve as an entry point for future buyers. The vehicles provide an opportunity for service at the dealership and can possibly lead to trade-ins for newer models when the time is right for the customer.
The Role of Used Vehicles
With concerns regarding vehicle availability, questions about interest rates, and the potential for incentives to vanish, used vehicles still represent a valuable profit source for dealerships. Agents who provide the right products and services can cultivate lasting and profitable relationships with their dealer partners. The approach is akin to using a Trojan horse—entering the dealership with solutions that address immediate needs without threatening the existing business structure.
The conquest of new business has always been a critical aspect of an agent’s role. As consolidation transforms automotive retail—with 9.3% of the approximately 17,000 franchise dealerships owned by the top 10 dealership groups, according to Bank of America—agents are increasingly focused on securing as much of the dealerships’ F&I business as possible. That often involves pitching participation programs as flagship products. However, building those relationships can take years.
A Unique Approach to Relationship-Building
So the question is how agents can differentiate themselves in this competitive environment and solidify relationships with dealers. By adopting a unique approach, akin to entering the market with a Trojan horse, agents can create opportunities for collaboration. For instance, used-car managers may struggle to sell older, higher-mileage units without offering an affordable vehicle service contract that provides peace-of-mind coverage to customers.
By starting with this unique offering, agents can establish a foothold in the dealership and gradually build a relationship that extends to other products and services. The strategy not only opens the door to immediate business but also lays the groundwork for long-term partnerships.
The automotive industry will continue to evolve, and dealer service agents must adapt to thrive. By recognizing the potential of used vehicles, leveraging market trends, and providing tailored solutions, agents can foster profitable, lasting relationships with their dealer partners. Much like the mythical Trojan horse, the approach enables agents to enter the dealership in a way that facilitates growth and collaboration, ultimately benefiting both parties in the long run.
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John Leaver is vice president of sales for C.A.R.S. Protection Plus.
EDITOR’S NOTE: This article was authored and edited according to Agent Entrepreneur editorial standards and style. Opinions expressed may not reflect that of the publication.
