Margin Compression Solutions: Process Improvements

Overcoming Margin Compression with Digital Sales

The age of margin compression is forcing auto dealers to think creatively about traditional car sales. Making a profit requires cutting costs and emphasizing other areas of your business, like fixed ops and F&I sales. But, it also means rethinking your approach to the very foundation of your business. As dealers know all too well, simply selling an automobile has become too expensive to keep many dealerships afloat. If margin compression has found a way to cut into your bottom line, it may be time to shift focus toward digital retailing.


Digital Retail as a Solution to Margin Compression

In the face of shrinking profits, the move to digital sales makes sense. In terms of overhead alone, it eliminates many of the costs of a brick-and-mortar dealership, including expenses associated with inventory, facilities and showroom, employees, and lot property. However, selling cars entirely online is a big leap for many of today’s dealerships even though the industry and its customers are moving in that direction.

It’s no secret that today’s car-buying customers prefer to do research online. Oftentimes they already know exactly what they want to buy (and how much they’re going to pay) before ever setting foot on an actual lot. In that respect, moving sales and purchasing activities to the internet allows dealerships to align with the preferences of modern consumers. But, the move isn’t all about the customer. It can have major benefits for dealerships, too.

By allowing customers to browse inventory, explore features, and even obtain ballpark pricing online, dealerships can cut costs and preserve precious margin. And, when the customer finally arrives on site, top dealerships run a name search to find out how much of the sales process has already been completed, improving efficiency and helping salespeople close deals faster. In fact, many dealerships have already established separate “internet departments” to facilitate this kind of experience.


The irony of margin compression is that the traditional way of selling cars is driving dealerships out of business. It’s time to think outside the box of auto sales and move toward a more online experience. The industry and your customers are demanding it.


If you’d like to learn more about generating profit through digital sales, and other ways to combat margin compression, download our free guide, 7 Solutions to Margin Compression: Strategies for Preserving Dealership Profit Margin.


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