Introduction
Buying a car used to mean walking into a dealership, kicking some tires, and haggling over prices with a sales rep in an ill-fitting suit. But today’s car dealership industry looks very different. From online purchasing and digital financing to the rise of EVs and looming tariffs, dealerships are navigating a rapidly changing market.
The traditional model of manufacturer-to-dealer-to-consumer is still dominant, but the industry is evolving. Direct-to-consumer sales from automakers like Tesla, supply chain disruptions, and shifting consumer preferences are forcing dealerships to rethink how they do business. Add in the fact that interest rates and vehicle prices remain high, and it’s clear that today’s car buyers have more to consider than just the color of their new ride.
For investors and business buyers, this changing landscape presents both challenges and opportunities. Whether it’s used cars, new EV models, or the growing digital sales space, there’s still money to be made - but only for those willing to adapt. Let’s take a deep dive into the current state of the U.S. car dealership industry and explore where the best investment opportunities lie. 🚙💰
Industry Breakdown
Driving Profits: The Future of Car Dealerships in the U.S.
For over a century, car dealerships have been the backbone of vehicle sales in the U.S. The franchise dealership model, where manufacturers rely on independently owned dealerships, has been solidified by state laws preventing direct-to-consumer (DTC) sales by automakers. However, this long-standing system is shifting, with digital disruption, changing consumer preferences, and the rise of EVs (electric vehicles) forcing dealerships to evolve.
As of 2024, there are around 16,500 new car and truck dealerships across the country, generating billions in revenue. Inventory levels, which were historically low due to pandemic-driven supply chain disruptions, are now bouncing back. In fact, the average discount on new vehicles surged 25% year-over-year to $3,400 in December 2024.
However, the industry faces headwinds. Proposed import tariffs could drive up vehicle costs by as much as $12,000, putting pressure on affordability and dealership margins. Meanwhile, the used car market remains strong, with high prices caused by limited lease returns and fewer trade-ins. Additionally, EV sales continue to rise, but two-thirds of dealerships still lack electric or hybrid vehicle inventory, indicating a major gap in market readiness.
The takeaway? The dealership model isn’t disappearing - it’s just adapting. Companies that embrace online sales, digital financing, and EV inventory will be better positioned for success in the shifting landscape.
Industry Trends
What’s Driving Change in Car Dealerships? The U.S. car dealership industry is evolving rapidly, shaped by economic shifts, consumer behavior, and technology. Here are some of the biggest trends:
🛒 Online Sales & Digital Financing
Buying a car from a dealership used to mean spending hours in a showroom, negotiating prices, and finalizing paperwork. But times are changing - nearly 30% of new car sales now involve some form of online transaction, and that number is growing. Consumers expect seamless digital financing and the ability to browse inventory, apply for loans, and even purchase vehicles without stepping foot in a dealership.
⚡ EVs: Growing Demand, Limited Supply
EV adoption is accelerating, but dealerships are struggling to keep up. While EV sales accounted for 7.2% of all new car sales in 2023, a lack of infrastructure, training, and inventory is holding back widespread adoption. Tesla’s direct-to-consumer model has also put pressure on dealerships, as legacy automakers look to implement hybrid sales models that incorporate online ordering and showroom experiences.
📈 Tariffs & Inflation Affecting Vehicle Costs
One of the biggest challenges facing dealerships is pricing volatility. With proposed import tariffs that could add up to $12,000 to the cost of certain vehicles, affordability is becoming a growing concern for consumers. Meanwhile, interest rates on auto loans remain elevated, making financing more expensive and pushing more buyers into the used car market.
🔄 The Shift Toward Subscription & Car-Sharing Models
Traditional car ownership is facing competition from subscription services and car-sharing platforms. Companies like Hertz, Turo, and Flexcar are giving consumers alternative ways to access vehicles, particularly in urban areas. While still a small segment, this trend could disrupt long-term dealership profitability.
The Finances
💰 What’s the Financial Outlook for Car Dealerships?
The U.S. car dealership industry remains a multi-billion-dollar market, but financial performance varies depending on new vs. used car sales, EV adoption, and macroeconomic factors.
📊 Revenue & Market Size
In 2023, U.S. car dealerships generated over $1.2 trillion in total sales, with new vehicle sales contributing the majority. The average dealership revenue sits at around $80 million annually, but profitability varies greatly.
💸 New vs. Used Car Profitability
While new cars generate higher revenue, dealerships typically make larger profit margins on used cars. In 2024, the average gross profit per used vehicle was $2,500, compared to $1,600 per new vehicle. With rising new car prices due to tariffs and inflation, the used car market remains highly profitable.
🚗 EVs: The Margin Dilemma
Despite growing demand, EVs have lower margins than gas-powered cars, and many dealerships lack the infrastructure to sell and service them profitably. EV inventory is expensive to maintain, requiring investment in charging stations and technician training. Tesla and other automakers selling directly to consumers are also cutting into dealership profits.
📉 Rising Costs & Challenges
- Floor Plan Financing: Dealerships finance their inventory through floor plan loans, and rising interest rates have increased carrying costs.
- Marketing & Digital Transformation: Dealerships now spend more on digital advertising and customer engagement tools, increasing operating expenses.
- Inventory Management: While supply chains are improving, dealerships must carefully manage stock levels to avoid overpaying for vehicles in fluctuating markets.
Bottom Line: While dealerships remain a profitable business model, success depends on adapting to changing market conditions. Owners who invest in digital sales, used car inventory, and EV readiness will have an advantage.
Buy or Bust?
Car dealerships aren’t going anywhere, but they’re changing fast. Traditional showroom experiences are being replaced by hybrid sales models, with digital financing and online ordering becoming the norm.
For buyers considering a dealership acquisition, it’s a buy - but with conditions. The industry is still lucrative, especially in the used car segment, but factors like EV adoption and online competition will shape profitability.
The best opportunities lie in well-established dealerships with strong local reputations, diverse inventory, and digital sales capabilities. If a dealership has a robust used car division, financing options, and a plan for future EV sales, it could be a solid investment.
