7th March 2025 – In an increasingly competitive and complex retail landscape, Auto Trader’s latest Road Ahead for Automotive Retailing report reveals a fundamental shift in how profitability should be measured. Exclusive research by leading US automotive analyst Glenn Mercer challenges the long-held belief that higher sales volumes drive greater margins. Instead, the findings highlight that operational excellence and a focus on profitability per salesperson are the real keys to sustainable success.
Beyond Sales Volume: The Power of ‘Out Retailing’
Mercer’s in-depth study of over 80 retailers and industry stakeholders underscores a crucial reality: in a market where growth is constrained, the traditional approach of aggressive pricing and volume-driven strategies is no longer viable. Instead, retailers must focus on refining internal operations—enhancing customer retention, reducing costs, and leveraging technology—to maximise profitability.
His research identifies an urgent need for retailers to shift their focus from merely ‘out selling’ competitors to ‘out retailing’ them. This means optimising internal efficiency, customer experience, and long-term value generation rather than simply chasing higher sales figures.
Profitability Per Salesperson: A Game-Changing Metric
Auto Trader’s extensive data analysis, covering over a million data points from 2,500 international retailers, supports Mercer’s findings. The research found that the most commonly used Key Performance Indicators (KPIs) have little direct impact on Gross Profit Margin when assessed in isolation. Instead, the study revealed a crucial relationship between sales volumes, staffing (both sales and non-sales personnel), and revenue.
Significantly, one of the strongest indicators of overall Gross Profit Margin was profit per salesperson per unit sold—a metric rarely prioritised by retailers. The data showed that while increasing sales per salesperson may seem beneficial, it often correlates with lower margins. In essence, retailers achieving the highest sales per salesperson often had among the lowest Gross Profit Margins, proving that volume-driven models do not necessarily equate to greater profitability.
To maximise margins, the focus must be on making each salesperson as profitable as possible. This means providing them with the necessary support, training, and resources to drive value rather than simply increasing their workload.
Unlocking the Power of Used Car Departments
Mercer’s study also pinpointed the used car department as a critical area for profitability growth. Given the margin constraints on new car sales, optimising used vehicle operations presents a significant opportunity for retailers to recover lost revenue. By implementing smarter pricing strategies, improving inventory management, and enhancing customer service, dealerships can extract more value from their existing assets.
Benchmarking: A Crucial Step for Measuring Success
Another key takeaway from Mercer’s research is the importance of benchmarking. Unlike markets such as the US, where data-sharing and comparative analysis are more commonplace, the UK’s fragmented data landscape limits the ability of retailers to gauge their performance against industry peers effectively.
To address this gap, Auto Trader has partnered with ASE Automotive Insights to provide retailers with robust, inter-brand benchmarking tools. This partnership will allow businesses to compare their performance against a broader competitive landscape, helping answer the critical question: Is it me, or is it the market?
A New Era of Retail Excellence
Marc Palmer, Head of Insights and Strategy at Auto Trader, emphasised the need for a shift in strategy:
“Retailers face an increasingly challenging market. They not only have to navigate major forces of change, such as electrification, but also fast-changing dynamics and stifled growth in market volumes, all of which limit the opportunity to increase profits by traditional means. The research highlights that a new approach is needed, one that requires a focus on retail excellence over ‘dealing’. The ability to reset your basics and concentrate on driving the metrics that can be controlled within your business will be key, and as we look ahead, it’s those capabilities that will differentiate the most profitable retailers in the future.”
Looking Ahead: Technology as the Key Enabler
Retailers looking to improve profitability must harness the power of technology. Digital tools can enhance efficiency in sales processes, streamline operations, and provide invaluable data insights to drive better decision-making. The Road Ahead for Automotive Retailing report provides detailed guidance on how businesses can implement these technologies to optimise profitability.
For a deeper dive into the research and strategic recommendations, visit Road Ahead for Automotive Retailing and discover how operational excellence can redefine profitability in the automotive sector.
