SANTA MONICA, Calif. — Consumers believe car dealers make about five times more profit on the sale of a new car than they actually do, according to a new survey commissioned by TrueCar Inc.
Released this week, the first annual TrueCar Buyer Study highlighted 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, the reality is that profit margins on new-car sales are shrinking. According to the National Automobile Dealers Association, profits on a new-car sale have fallen from 5.5% in 2003 to 3.8% in 2013.
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 zero percent profit on new-car transactions, consumers surveyed said 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," noted Scott Painter, TrueCar’s 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."
The TrueCar Buyer Study was conducted in February 2014 and surveyed more than 3,000 consumers across the United States. The objective of the survey was to identify consumer perceptions regarding perceived profits made by car dealers. The questions were designed to determine what consumers believe a fair profit would be.
According to results, roughly 26% of car buyers feel that they overpaid for their purchase, while 32% of respondents stated that they would not return to the same dealership due to low customer satisfaction with the purchase process. The survey was conducted by Strategic Vision.
"This survey is further validation of something we hold dear at TrueCar — that providing price confidence to buyers 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."