Dealers consider margin compression the biggest threat in auto retail, said Sandy Schwartz, president of Cox Automotive.
The used-vehicle department is where many dealers feel margin compression the most, he said. Dealers depend on used-vehicle profits to offset thinner new-vehicle margins, but now used-vehicle margins are under pressure, too, Schwartz said.
"We always recognized the used-car department as a last bastion" of profitability, but that's no longer a safe assumption, he said Friday at the Cox Automotive press conference.
For the average U.S. dealership in 2017, used-vehicle department gross profit represented 11.7 percent of selling price, down from 12.1 percent in 2016 and 12.6 percent in 2015, according to NADA Data 2017, the annual financial profile of franchised new-vehicle dealerships in the United States.
The good news for dealers: Even if per-vehicle margins are compressed, used-vehicle demand should continue to be strong. Cox expects U.S. used-vehicle sales of 39.5 million units in 2018, up from 39.3 million last year, according to Cox Automotive's 2018 Used Car Market Report & Outlook, released Friday.
Jonathan Smoke, Cox Automotive chief economist, said a higher mix of used light trucks is coming on the market in 2018. Used-vehicle inventories were too car-heavy when light-truck share took off. Smoke said, "It used to be hard to find a used crossover. Therefore, price was at a premium."