For US auto dealers, the golden era of high margins is slipping away. Vehicle sales have not collapsed, but profits per unit are under sustained pressure. Dealers’ pricing power has diminished as supply normalizes, consumer affordability constraints intensify, and geopolitical headwinds persist. The result is a more challenging and more competitive market.
A recent BCG survey of more than 200 US auto dealers, supported by market data analyses and industry interviews, highlights how quickly sentiment has shifted. (See “About the Study.”) The optimism of 2022 to 2024—when tight inventory and strong demand drove record profitability—has given way to a more sober outlook shaped by margin compression, rising costs, and growing digital competition.
About the Study
The findings build on BCG’s ongoing research into automotive retail, including prior annual dealer surveys and insights from more than 500 automotive projects completed over the past five years. These inputs provide a comprehensive view of dealer sentiment, market dynamics, and emerging opportunities across the US automotive retail landscape.
To succeed in this environment, dealers need to strengthen their digital connection with customers and ensure visibility in an increasingly AI-driven search landscape. At the same time, they must leverage AI in operations to drive competitive advantage. They must also run more effective service operations, which is the part of the business that now underpins profitability.
The challenge is no longer just to sell cars. It is to win—and keep—customers in a market where visibility, customer experience, and execution matter more than ever.
The Macro Squeeze: Margins and Market Pressure
The pressure on dealers stems from an erosion of economics. Across both new and used vehicles, margins are being squeezed as cost inflation outpaces pricing. Our survey found that most dealers experienced increases in wholesale prices in 2025, but fewer were able to pass those increases through to customers. (See Exhibit 1.)
Persistently high financing costs are reinforcing this dynamic. Elevated interest rates are constraining affordability, particularly for used vehicle buyers, limiting dealers’ ability to raise prices even as their own costs increase.
Although many consumers remain in the market for vehicles, they are changing their behavior to manage monthly payments. That shift is showing up in multiple ways: trading down to lower trims, moving from premium to volume brands, or increasingly cross-shopping between new and used. The share of buyers actively considering both new and used vehicles has reached an all-time high: 43% in 2025, up 13 percentage points since 2020. The effect is to further compress margins, particularly in segments where pricing flexibility is already limited.
At the same time, the transition to electric vehicles (EVs) has lost some near-term momentum. The expiration of federal tax credits in 2025 has dampened demand more quickly than anticipated, adding another layer of uncertainty for dealers managing inventory and pricing strategies across powertrains.
Against this backdrop, traditional dealer concerns, such as EV transition and OEM competition, have declined in relative importance. In their place, a new set of priorities is emerging. When asked to rank their top concerns for the next three years, dealers placed technology and AI investment requirements at the top of the list, followed by competition from digital-first players and the impact of interest rates. (See Exhibit 2.)
As margin pressure forces change, dealers must address their new priorities in the context of structural shifts in how customers search, shop, and buy.
Capturing the Digital Customer
For most buyers, the dealership is no longer the starting point of the customer journey. Increasingly, it is the endpoint. Customers are doing more of the process online, and not just research. They want to complete financing, value their trade-ins, and structure payments before setting foot in a showroom. The expectation is not simply digital convenience, but a largely preconfigured transaction.
Customers are doing more of the process online. They want to complete financing, value their trade-ins, and structure payments before setting foot in a showroom.
The gap between those expectations and current dealer capabilities remains significant. While roughly 30% of buyers say they would prefer to complete their purchase fully online, actual online transactions remain below 10% for traditional OEMs—a figure that rises only when EV pure plays like Tesla are included. (See Exhibit 3.)
This gap is where market share is being won and lost. Whether new-entrant EV OEMs or digital-first dealers, these retailers have built their models around meeting customers at the start of the journey, offering transparent pricing, rapid trade-in valuations, and seamless financing options. By contrast, many traditional dealers are still structured around in-person processes, with digital tools layered on rather than fully integrated.
The result is a shift in competitive advantage. Dealers that can deliver a frictionless digital experience are better positioned to capture demand early, before customers narrow their options. Those that cannot risk losing customers before any direct interaction occurs.
The digital shift makes inventory and pricing more critical than ever, and easier to tackle effectively. In a price-sensitive market, having the right vehicle, in the right configuration, at the right price is increasingly the prerequisite for getting a customer through the door. But the same digital environment that raises the stakes also provides the data to meet them. Dealers that are tapping into customer signals from digital channels—search behavior, configurator activity, and financing inquiries—are unlocking significant profitability gains by aligning stock to real demand before that customer engages a competitor. The opportunity is not simply to keep pace with digital marketplaces, but to use them as an intelligence layer that drives better decisions across the entire operation.
Leveraging AI for Visibility and Competitive Advantage
Digital channels have changed where and how customers transact. AI is now reshaping every layer of that transaction, including which dealers customers find, how leads are managed, and how service operations run.
The shift from traditional search to generative discovery is already underway. Tools such as ChatGPT, Gemini, and Perplexity are reshaping how buyers explore options, moving from lists of links to curated answers. For dealers, this marks a transition from search engine optimization to answer engine optimization: ensuring that inventory, pricing, and local offers are surfaced and favored by AI models.
As this shift takes hold, visibility is no longer evenly distributed. BCG analysis shows that, even among dealers of the same brand operating in the same region, AI-driven visibility varies widely. (See Exhibit 4.) Some dealers capture a disproportionate share of mentions in generative search results, while others are barely surfaced at all, regardless of their underlying inventory or pricing.
The payoff for getting this right is substantial. Early evidence suggests that dealers optimizing for AI visibility are capturing roughly three times the traffic of non-optimized peers.
AI’s impact extends well beyond visibility. Adoption has accelerated sharply: 93% of dealers now use AI in some capacity, up from 77% last year. Leading dealers are putting it to work across the operation: responding to overnight leads, engaging customers on finance and insurance products virtually, targeting buyers through predictive marketing, and monitoring service calls at scale.
The challenge for most dealers is closing the gap with these early movers. Solutions deployed across marketing, lead management, and operations frequently operate in isolation. Data is not integrated, workflows are not aligned, and overlapping tools create complexity rather than clarity. The dealers pulling ahead are those that have moved from isolated point solutions to connected systems in which customer data flows across the operation and AI can act on it consistently.
Dealers are looking to OEMs for direction—and not just on standards and integration. In a market flooded with AI solutions, dealers have little visibility into what actually works. OEMs are well positioned to cut through that noise: identifying proven solutions, approving preferred technology stacks, and enabling faster, more consistent adoption across their networks. The benefit runs both ways. An AI-capable dealer network is a stronger competitive asset for OEMs as well as for dealers.
Delivering in Service
For many dealers, fixed operations—service, parts, and maintenance—now account for the majority of gross profit. In a market where front-end margins are under pressure, the service bay is the primary engine of earnings.
In a market where front-end margins are under pressure, the service bay is the primary engine of earnings—but that engine itself needs service.
But that engine itself needs service. Independent repair shops have taken notice of how profitable dealer service has become, and they are competing aggressively for that revenue. The most immediate challenge for dealers is parts availability. It has emerged as a critical area of competition, limiting service throughput and directly eroding revenue. Among dealers surveyed by BCG, 85% report measurable revenue loss due to parts constraints, with faster availability the top priority for improving service performance. (See Exhibit 5.)
These availability constraints are reshaping competition. Independent repair shops have faster turnaround times because they draw on a broader supply network, including dealers’ own parts counters, national distributors such as AutoZone and O’Reilly, and salvage sources. This gives them next-hour availability, whereas dealers are typically waiting one to two days for OEM replenishment.
Customer expectations are shifting in response. Buyers are less willing to tolerate extended repair times, particularly for routine maintenance. The consequences compound: a car that could be turned around the next day sits on the lot for two or more days when parts are not forecasted correctly, eroding throughput and the customer relationship simultaneously. Meanwhile, loaner fleets are shrinking, forcing dealers to make trade-offs between customer convenience and operational efficiency. The result is a service experience that can fall short of expectations, even as its importance to profitability grows.
To close this gap, dealers—and their OEM partners—will need to rethink how parts are sourced, stocked, and delivered. Faster replenishment cycles, better inventory planning, and more integrated logistics will be critical to matching the speed and flexibility of independent competitors.
The dealers that stand out in BCG’s 2026 survey data are those combining digital- and AI-driven customer engagement with service efficiency to capture demand early and sustain value over time. That insight carries broader implications for the industry. As digital and AI capabilities become more central, the transactional relationship between OEMs and dealers must evolve toward greater integration as joint operators of a digital ecosystem.
Dealers that embrace that evolution—investing in connected AI and digital capabilities and working closely with OEM partners to align data, validate technology, and integrate digital tools across the network—will be best positioned to grow. As dealers and OEMs become increasingly intercoupled, the networks that move beyond transactional relationships to genuine partnership will define what winning looks like in automotive retail.
