Digital-first Car Dealers Are Making the Most Money, Study Shows

High-tech, connected vehicle manufacturing plants employ data-driven technology to improve uptime and production quality, with profits in focus. A new study by Cox Automotive shows that dealerships that use data-driven technology as part of their profit strategy have the highest profit margins.

The Cox Automotive Forward-Thinking Dealership Study is the result of a survey of 449 franchise dealerships in the United States from April 18, 2022 to August 18, 2022.

The study looked at sales, marketing and inventory management within U.S. car dealerships and discovered the secret to success. Those dealers that were "well into their digital transformation" having employed integrated technology, automation, and data throughout their operations are clear winners.

"The success we're seeing isn't specific to one brand or price point or to any specific size and or location," said Lori Wittman, President of Cox Automotive, Retail Solutions told Newsweek.

"Top performing dealerships had two things in common: an understanding of what the car buyer wants and the data and tools necessary to deliver it. This is the opposite of shoehorning a car buyer into whatever is available on the lot."

Forward-thinking dealers are categorized as those well into their digital business transformation. Modern dealers walk the line between old and new approaches while those that rely on traditional business practices are categories as "static".

Having a dedicated dealer marketing staff was one of the key indicators of success. The study revealed that two in three dealers with high profit margins have a marketing staff and leadership team that can include a chief marketing officer.

Forward-thinking dealers also marketed their vehicles in untraditional ways, offering 360-degree views or videos of the models.

Those forward-thinking dealers are two times more likely to also employ consumer relationship management (CRM) software Cox shared, often sending personalized communications to customers.

Over half of the highest profit margin dealers market new and used vehicles alongside their service department.

Successful forward-thinking dealerships have a longer term vision of their inventory while just 12 percent of static dealers take that approach.

The study shows that a real differentiator is how inventory is managed. Close to 99 percent of forward-thinking dealers have a dedicated staff member managing inventory. Inventory management can include sales projections, shipment predictions, trend identification, dealership-to-automaker relations and vehicle ordering.

The car buying process is a major sticking point for customers, with many telling Edmunds in a past survey that they would rather clean their toilet than partake in the new car buying process at a dealership. The longest part of the pathway to purchase for a vehicle can be the paperwork involved.

Cox's survey revealed that 70 percent of forward-thinking dealers have electronic libraries that allow them to automatically generate contracts and forms that can easily be sent to a lender. Only 17 percent of static dealers have this capability.

Forward-thinking dealers have the highest sales volume per month, averaging 145 vehicles moving off the lot. They also have the highest profit margins, 18.5 percent.

"Consumers have been asking to buy cars online for decades. The pandemic and supply shortage created the necessity for buying cars sight unseen. And we had the technology to do it. It was the dealerships who finally relented, and low and behold they are benefitting from it," Wittman said.