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How much profit do customers believe dealers make on a sale?

July 3, 2014
Consumers believe car dealers make about five times more profit on the sale of a new car than they actually do, based on a survey commissioned by TrueCar, Inc., a negotiation-free car buying and selling platform. 
The finding comes as a portion of the results of the inaugural TrueCar Buyer Study, which examines the "trust gap" between consumers and dealers. While buyers fear they will overpay on their new-car purchases and believe dealers make about 20 percent profit on the sale of a $30,000 new car, dealer profit margins actually are shrinking, down from 5.5 percent in 2003 to 3.8 percent in 2013, according to the National Automobile Dealers Association.
TrueCar’s survey also showed that consumers believe that a "fair" profit margin on a new-car sale would range from 10 percent to 12 percent. In addition, if told that dealers theoretically made no profit on new-car transactions, consumers surveyed responded that they would be willing to "tip" them 8 percent on a sale.
"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. "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. 
"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. With upfront and transparent information, everyone wins."
The TrueCar Buyer Study was conducted in February 2014 and surveyed more than 3,000 consumers across the U.S. The objective of the survey was to identify consumers’ perspectives regarding perceived profits made by car dealers with questions aimed at determining what consumers believe a fair profit would be. 
The survey showed that roughly one-quarter of car buyers feel that they overpaid for their purchase and that 32 percent of car buyers stated that they would not return to the same dealership due to low customer satisfaction with the purchase process. The survey was executed by Strategic Vision.