Survey reveals consumer misperceptions about car dealer profits

(June 24, 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. The company today announced the results of its first annual TrueCar Buyer Study, which highlights the "trust gap" between consumers and dealers.

While buyers fear they will overpay on their new car purchases and believe dealers make about 20% profit on the sale of a $30,000 new car, in reality, auto dealer new car profit margins are shrinking, down from 5.5% in 2003 to 3.8% 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 10-12%. In addition, if told that dealers theoretically made 0% profit on new car transactions, consumers surveyed responded that they would be willing to "tip" them 8% on a sale.

"The TrueCar Buyer Study results show that fear and mistrust have a cost in the car buying process," says 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 26% of car buyers feel that they overpaid for their purchase and that 32% 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.

"This survey is further validation of something we hold dear at TrueCar — that providing price confidence to buyer and sellers will bridge the trust gap in the car-buying process," says John Krafcik, TrueCar president. "That's what TrueCar is all about — we enable a delightful, negotiation-free car buying experience for car buyers and auto retailers."