Navigating Challenges in the Retail Auto Market: Strategies for Success

The independent auto dealership industry is undergoing a significant shift. While Buy-Here-Pay-Here (BHPH) dealerships are experiencing a surge in growth and subprime dealerships are holding steady, many traditional retail dealers—especially those selling vehicles priced above $15,000—are grappling with declining profitability. This transformation is driven by evolving consumer behavior, economic pressures, and heightened competition. However, dealerships that recognize these challenges and proactively adapt can still carve out a path to success in this competitive environment.

WHO’S WINNING AND WHO’S STRUGGLING?

BHPH Boom and Subprime Stability
BHPH dealerships continue to outperform expectations, primarily due to their ability to offer flexible, in-house financing for credit-challenged buyers. In an era of rising interest rates and tightening credit approval standards, these dealerships provide a crucial alternative for consumers who may struggle to secure traditional financing. According to Experian Automotive, subprime auto loans accounted for 19.2% of all vehicle financing in Q4 2024, indicating that while the segment remains stable, it is not expanding at the same rate as BHPH.

Retail Dealers Face Headwinds
On the other hand, traditional retail dealers—particularly those selling vehicles above $15,000—are encountering increasing difficulties. Dealers specializing in lower-priced vehicles are seeing continued demand, but those catering to mid-range and higher-end used car buyers face more resistance. Kelley Blue Book’s 2025 Used Car Market Report found that the average price of a used car remains over $26,000, making affordability a growing concern for many consumers.

WHAT’S DRIVING RETAIL DEALER STRUGGLES?

Several factors are contributing to the challenges faced by retail dealers. Understanding these trends is essential for adapting and finding new opportunities in the marketplace.

Economic Pressures: High Costs and Stagnant Wages

• Rising Interest Rates & Inflation: Auto loan interest rates are now averaging over 8% for used cars (Experian), making higher-priced vehicles less appealing for cost-conscious buyers.
• Wage Stagnation vs. Rising Car Prices: While vehicle prices have climbed, wages have not kept pace, forcing many middle-class consumers to rethink their purchasing decisions.

Consumer Shifts: Prioritizing Affordability Over Premium Features

• Budget-Conscious Shoppers: More consumers are treating vehicles priced above $15,000 as luxury purchases rather than necessities.
• BHPH and Subprime Dealers Filling the Gap: These dealerships offer easier paths to ownership, making them more attractive to buyers who face financing challenges in the traditional retail market.

Increased Competition: Online Disruptors & Franchise Dealers

• Digital Marketplaces: Platforms like Carvana, Vroom, and Facebook Marketplace have increased price transparency, making it harder for independent dealers to maintain strong margins.
• Franchise Dealer Advantages: Manufacturer-backed Certified Pre-Owned (CPO) programs and special financing incentives give franchise dealers an edge in attracting higher-income buyers, leaving independent dealers to compete with fewer resources.

Inventory & Financing Challenges

• High Acquisition Costs: Wholesale vehicle prices remain high, cutting into dealer margins and making it more challenging to offer competitive prices.
• Limited Financing Options: Many independent dealers lack strong lender relationships, making it difficult to provide competitive financing terms on higher-priced vehicles.

STRATEGIES FOR RETAIL DEALERS TO ADAPT & THRIVE

For dealerships looking to turn things around, the answer isn’t just slashing prices—it’s about evolving strategies in financing, inventory management, and marketing to align with today’s market realities.

Expand and Optimize Financing Options

• Diversify Lender Partnerships: Working with multiple financing partners helps secure better rates and terms for buyers.
• Offer Flexible Payment Structures: Dealers should explore low down payments, extended loan terms, and deferred payment options to make higher-priced vehicles more attractive.

Optimize Inventory to Match Market Demand

• Use Data-Driven Insights: Leverage market data to stock vehicles that align with local demand. What sells in one region may not perform as well in another.
• Expand Lower-Priced Inventory: Maintaining a mix of vehicles under $15,000 can attract budget-conscious buyers and boost sales volume.

Shift Marketing to Focus on Value

• Emphasize Total Cost of Ownership: Highlight fuel efficiency, maintenance savings, and warranties on higher-priced vehicles to justify the cost.
• Target Local Audiences: Geo-targeted ads and localized SEO strategies help independent dealers stand out against national online retailers.

Strengthen Digital Marketing & Online Presence

• Improve Online Listings: High-quality photos and video walkarounds increase engagement and consumer trust.
• Invest in SEO & Retargeting Ads: Optimizing website content and using retargeting strategies can help recapture lost visitors.
• Enable Digital Financing Tools: Allowing online pre-qualification and payment calculators makes the buying process smoother and builds buyer confidence.

Build Consumer Trust Through Transparency

• Offer Free Vehicle History Reports: Providing CARFAX or AutoCheck reports reassures buyers about a vehicle’s reliability.
• Create an Independent CPO Program: Even non-franchise dealers can introduce their own certification programs to increase perceived value.
• Leverage Customer Testimonials: Highlighting positive Google and Facebook reviews builds credibility and trust.

Diversify Revenue Streams

• Maximize Trade-Ins: Encouraging strong trade-in offers can lower a vehicle’s effective price for buyers.
• Offer Add-On Services: Extended warranties and service plans not only generate revenue but also provide peace of mind for customers.

Invest in Dealer Training & Education

• Host Sales & Marketing Workshops: Keeping dealership staff up to date on digital marketing trends and innovative financing solutions can drive sales.
• Develop Dealer Playbooks: Providing guidelines on pricing strategies and best practices helps maintain consistency and effectiveness.

Consider Hybrid Business Models

• Incorporate BHPH Strategies: Retail dealerships can introduce in-house financing options to attract subprime buyers.
• Run Strategic Promotions: Offering limited-time discounts or creative financing specials can help move higher-priced vehicles.

A MARKET THAT REWARDS ADAPTATION

The auto retail market is evolving, but dealerships that embrace change can continue to thrive. Traditional retail dealers must adapt by focusing on:

• Flexible financing solutions to address affordability concerns
• Inventory diversification to meet shifting consumer preferences
• A value-driven marketing approach that emphasizes reliability over price
• A robust digital presence to compete with online disruptors

By implementing these strategies, independent dealerships can navigate today’s challenges, remain profitable, and position themselves for long-term success—even in a market where affordability is king.