Rethinking dealer profitability in a shifting auto market

For the past year and a half, dealerships have navigated powerful market shifts: high interest rates, elevated vehicle prices, persistent staffing challenges, and evolving customer expectations.

The landscape has transformed dramatically, and dealers have responded with remarkable adaptability. But, as we look ahead at 2026, a critical question emerges:

What strategies will create sustainable profitability across all market cycles?

The distinction matters more than ever. Success today requires building resilience and a culture that meets every customer where they are.

Embrace the consumer affordability reality.

Nearly two-thirds of U.S. consumers say new cars are unaffordable¹. The numbers tell a clear story.

Average selling prices for new vehicles now exceed $50,000².
New vehicle loans average $42,600 at 7% APR³.
Used vehicle loans hover around $30,000 at nearly 11% APR⁴.
22% of buyers stretch loans to 84 months, some to 96 months⁵.
Nearly one in five consumers carries monthly payments exceeding $1,000⁶.
28% of trade-ins are underwater — the highest level since early 2021⁷.

These aren't isolated data points. They signal a deeper structural shift in consumer capacity. Repossessions have reached their highest level in 15 years⁸. Consumers increasingly opt for higher deductibles to reduce insurance costs⁹. Some delay claims altogether, fearful of premium increases¹⁰.

What does this mean for how dealers think about performance across customer segments and market conditions?

Prepare for ongoing margin compression.

Even at record selling prices, margins continue compressing. OEMs reduce incentives to offset tariff costs while pursuing factory bonuses and discounting structures that add pressure. Customers trade down — from new to certified pre-owned, from CPO to value used vehicles. Many simply keep their vehicles longer.

Meanwhile, operational challenges persist.

Lack of experience and burnout impact consistency and team performance.
Fixed operations face added pressure retaining repeat customers as ownership cycles lengthen.
Shortage of affordable inventory remains intense as OEMs shift toward premium models.
Departmental silos persist: sales versus F&I, the classic “make the month, lose the year” dynamic.

Even at record selling prices, margins continue compressing

In conversations across the country, dealers ask:

How do you maximize profitability and drive retention when short-term volume targets, factory bonuses, uneven sales flow, and month-end pressure don't deliver sustainable results?

Gear up for the technology-service shift.

While consumer affordability dominates headlines, a parallel transformation reshapes dealer economics: the technological evolution of vehicles themselves.

Consider the repair side. Average repair costs approach $5,000,¹¹ but that number masks what's happening beneath the surface. Parts inflation has accelerated sharply, jumping from around 7% in August to 9% to 10% in September¹².

More revealing is the technology shift in repairs.

Electric vehicles now represent nearly 10% of repairable claims for vehicles three years or newer¹³.
Hybrids account for 17%¹⁴.
Combustion engines have fallen to less than 75% (from 95% five years ago)¹⁵.

The implications extend beyond parts costs. Advanced Driver Assistance Systems (ADAS) calibrations now appear in 33% of collision repairs, up 8.5 percentage points year over year¹⁶. By 2029, half of all repairable vehicles will have at least eight ADAS features requiring calibration¹⁷.

This represents a customer retention opportunity. Vehicles become more expensive to maintain and more dependent on specialized equipment and training. Dealers who structure their service lanes to build customer trust and value gain a structural advantage in building customer lifetime value.

Transition from volume to value.

The dealers navigating this environment most successfully pursue total profit optimization across every profit lever in the customer lifecycle.

As front-end margins compress, F&I becomes critical to dealer profitability. Cox Automotive research shows customers with service contracts demonstrate meaningfully higher loyalty,¹⁸ translating to retention and revenue opportunity across sales, service, and parts. What we observe across our network is instructive: Assurant Dealer clients that are focused on moving their F&I numbers through strategic performance management achieve attachment rates on vehicle service contracts and GAP that run more than 200 basis points higher than industry averages¹⁹. That performance gap represents the difference between optimizing short-term strategies and leveling up long-term performance.

“Distinguishing what works because of market conditions and what works because of operational excellence means leveraging a data-informed strategy to build operations designed to perform in any cycle.”

Those dealers aren't necessarily selling differently. They're thinking differently and asking more insightful questions.

Are we benchmarking against meaningful data or just last quarter's results?
Do our compensation structures support shared goals or internal competition?
Are we structuring service operations to build customer trust amid technological complexity?
Are we accounting for full customer lifetime value or just individual transactions?

Close the training gap. Maximize opportunities.

When margins were abundant and inventory tight, training could take a back seat to processing demand. But, where every deal matters more and customer capacity is constrained, the performance gap between well-trained and undertrained teams hits hard.

Teams that performed in favorable conditions may struggle when market dynamics shift. The F&I manager who easily sold protection products during the boom may lack the consultative skills to reposition for cost-conscious buyers. Salespeople who thrived when customers paid over sticker may not know how to build value in a negotiation-heavy environment.

Dealers who view training as an ongoing strategic investment rather than periodic compliance create capabilities that perform across market conditions and strengthen over time. Their teams respond to market shifts with better execution, not just harder work.

Your no-regrets strategy: expert support for lasting performance

“Success today requires building resilience and a culture that meets every customer where they are.”

In an industry shaped by powerful economic forces, distinguishing what works because of market conditions from what works because of operational excellence can be difficult. When conditions turn unfavorable, actual performance becomes undeniable. Dealers who will thrive in 2026 and beyond respond to evolving conditions with data-informed strategy and build resilient operations designed to perform in any cycle.

At Assurant, we partner with dealers to understand performance holistically and provide consultative support, training, and data-driven insights to navigate uncertainty. We have visibility across the market and deep expertise in what drives sustained performance.

Dealers who consistently outperform in shifting markets:

Use data to understand performance in context, celebrating wins and learning from challenges.
Align organizational incentives around total profitability rather than departmental metrics.
Invest in training and development as a strategic priority, building capabilities that perform across conditions.
Build service operations capable of handling technological evolution and creating more opportunities for customer retention.
Leverage customer trust as a growth strategy by bringing clarity to pricing and predictability to ownership costs.

The automotive retail landscape is being reshaped by forces largely beyond any dealer's control: consumer affordability pressures, technological evolution, supply chain volatility, and shifting regulatory environments. What you control is strategic response: the choice between focusing on immediate results and building sustainable competitive advantages.

At Assurant, we help partners turn short-term affordability challenges into long-term customer confidence and loyalty. The ability to see both details and the bigger picture in your profit centers is essential to preparing for 2026 and beyond. With a no-regrets strategy, preparation and consistency will help move your F&I numbers, generate profit and wealth, and drive customer retention.

Your future is in your hands.

References

¹Deloitte, "Value-Seeking Consumer: US Automotive Industry," Consumer Behavior Trends State of the Consumer Tracker, accessed November 2025.

²Kelley Blue Book/Cox Automotive, Average Transaction Price data, Q3 2025.

³Edmunds, New Vehicle Loan data, Q3 2025.

⁴Edmunds, Used Vehicle Loan data, Q3 2025.

⁵Edmunds, Vehicle Loan Term data, Q3 2025.

⁶Edmunds, Monthly Payment data, Q3 2025.

⁷Edmunds, Negative Equity Trade-In data, Q3 2025.

⁸Cox Automotive/Manheim, Repossession Rate data, Q3 2025.

⁹Highway Loss Data Institute, Insurance Deductible Trends, 2025.

¹⁰Highway Loss Data Institute, Claims Filing Behavior data, 2025.

¹¹CCC Intelligent Solutions, Average Repair Cost data, Q3 2025.

¹²CCC Intelligent Solutions/BLS, Parts Inflation data, August – September 2025.

¹³CCC Intelligent Solutions, Repairable Claims Analysis by Vehicle Type, Q3 2025.

¹⁴Ibid.

¹⁵Ibid.

¹⁶CCC Intelligent Solutions, ADAS Calibration data, Q3 2025.

¹⁷IHS Markit/CCC Intelligent Solutions, ADAS Feature Forecast, 2029 projection.

¹⁸Cox Automotive, "Service Contract Customer Loyalty Study," 2024.

¹⁹Internal Assurant data compiled from StoneEagle reporting, 2025.

Turning post-holiday tech stress into customer loyalty

Scott McKinley

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