Dealers have long served as the only viable way to obtain a new car from an automaker. Now, the direct sales model is finally taking a chunk out of their profits. In one state alone, California, it likely cost them $910 million in gross profits over 2022.
Gross profit is the selling price of a vehicle minus the direct cost of that vehicle. Dealers are somewhat notorious lately for slapping giant markups on new vehicles so that they can jack that gross profit number way up. EV automakers with direct-to-consumer sales models are taking full advantage.
Automotive News came up with the final figure of $910 million after crunching data from J.D. Power, S&P Global, and Kelley Blue Book. Franchised dealerships in California made an average gross profit of $4,700 per vehicle in 2022. In total, Tesla, Rivian, and Lucid made up 193,707 vehicle registrations in the state that same year.
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California is home to 1,303 franchised dealerships which means that on average, each one lost out on around $700,000 of gross profit. It’s worth noting that California led the nation in EV registrations with about 36 percent of the market. So dealers in other states likely lost out too but not as much.
“Product rules this industry,” said Brian Maas, president of the California New Car Dealers Association, whose dealer association represents most of California’s franchised new-vehicle dealers. “Dealers should be going to their OEMs and asking for product to beat Tesla.”
Other experts don’t agree though. Stephanie Brinley, a principal automotive analyst at S&P Global Mobility says that “It’s not about getting a Tesla buyer to buy a Cadillac. It’s about getting a Cadillac ICE buyer to switch to an EV… We cannot grow EV volume without conquesting internal combustion engine buyers.”
Not that any of us would, but there’s no need to feel too bad for dealers in this new age. According to J.D. Power, gross profit for dealers has more than tripled compared to 2019. Furthermore, as more traditional automakers introduce their own EV products, dealers will still have the opportunity to generate substantial gross profits from those as well.