by Terry MacCauley - Posted 1 day ago
In the bustling world 2025, independent auto dealers and buy here pay here (BHPH) dealers navigate a landscape both vibrant with opportunity and fraught with challenges. According to Cox Automotive, new vehicle sales are projected to climb to 16.3 million units the highest since 2019, and used retail sales are expected to hit 20.1 million, the market pulses with potential. Yet, new tariffs on imported vehicles and parts, effective April and May 2025, threaten to inflate costs, while the shift toward electric vehicles (EVs) and online sales reshapes traditional models.
Profitability, strained by high interest rates and rising expenses, demands ingenuity. The challenge is even more pronounced for dealers without forward-facing service departments, as service revenue remains a cornerstone of industry earnings. This comprehensive guide unveils five proven strategies, enriched with industry insights and tailored solutions, to help independent and BHPH dealers cut costs, boost profits, and thrive in this dynamic era.
Economic tailwinds buoy the automotive sector in 2025. Cox Automotive forecasts a 2.6% increase in new vehicle sales to 16.3 million units, up from 16.0 million in 2024, with used retail sales reaching 20.1 million, the strongest since 2021. Declining auto loan rates, down one percentage point from 2024 peaks, and expanding credit availability signal improving affordability. Dealer sentiment is optimistic, yet profitability remains below the peaks of 2021-2022, per the BCG report.
New tariffs, including a 25% levy on imported cars starting April 3, 2025, and additional tariffs on parts from May 3, 2025, will elevate vehicle and repair costs, as noted by Kelley Blue Book. Dealers may need to adjust pricing on pre-tariff inventory and brace for potential model discontinuations, necessitating agile inventory strategies.
The transition to EVs is accelerating, with one in four vehicles sold in 2025 expected to be electrified, EVs at 10%, and hybrids and plug-ins at 15%, per Cox Automotive. Global EV sales are projected to hit 17 million in 2024, according to Exploding Topics, driven by regulatory pushes toward net-zero emissions by 2050. Dealers must prepare for EV sales and service, even without traditional service facilities.
Online car purchasing redefines retail, with 90% of buyers researching vehicles online and digital retailers like Carvana selling over 400,000 cars in 2022, per Exploding Topics. Independent and BHPH dealers must enhance their digital presence to capture this growing market.
Per Forbes, service departments are critical, often outpacing new vehicle sales in profitability. With the average U.S. vehicle age at 12 years, per Dealerware, and the automotive repair market projected to grow from $685 billion in 2021 to $950 billion by 2028, per Global Market Insights, service demand is robust. Dealers without service departments must find innovative ways to tap this revenue stream.
Artificial intelligence (AI) and data analytics are revolutionizing dealership efficiency. The BCG report notes that AI can boost margins by over 5% by configuring vehicles 30% faster and aligning inventory with demand. With 38% of dealers burdened by floor-planning costs and days to sell doubling from 30 in 2023 to 60 in 2024, AI-driven forecasting minimizes excess stock. For BHPH dealers, analytics can identify creditworthy customers, reducing default risks. These tools also support online sales, aligning with the digital purchasing trend, ensuring dealers operate leaner and sell smarter.
Action Steps:
Invest in AI platforms for vehicle configuration and demand prediction.
Use analytics to optimize inventory, focusing on high-turnover vehicles.
For BHPH dealers, leverage data to assess customer credit profiles.
Service departments are profit powerhouses, with 75% of dealers expecting parts and service to drive 2025 earnings, per a January 2025 Business Wire survey. AutoSuccessOnline suggests reducing wait times, hiring additional technicians, and streamlining appointments to boost repair orders by 10% for dealers with service facilities. For a dealership with 500 monthly repair orders, this translates to 600 additional orders annually, equivalent to an extra month of revenue without added fixed costs.
For dealers without service departments, three innovative approaches can capture service-related profits:
Strategic alliances with local repair shops allow dealers to refer customers for maintenance and repairs, ensuring vehicle reliability without in-house facilities. Partnerships like those with Finish Line Collision in Philadelphia enable dealers to offer bodywork using OEM parts, potentially increasing parts sales. Negotiating discounts or referral fees enhances customer satisfaction and generates revenue. For BHPH dealers, partnering with shops offering affordable repairs is vital for subprime customers.
Action Steps:
Identify certified (e.g., ASE, I-CAR) repair shops with strong reputations.
Negotiate customer discounts or referral fees to incentivize partnerships.
Promote partnerships through marketing to build customer trust.
Selling vehicle service contracts (VSCs) from providers like Buckeye Dealership Consulting generates revenue without service infrastructure. Customers purchase contracts at the point of sale, covering repairs at authorized shops, per the Washington Department of Revenue. Buckeye Dealership Consulting teaches that VSCs build lasting customer relationships, with 62% of warranty holders benefiting within a year, per Automoblog. For BHPH dealers, affordable VSCs reduce default risks by ensuring vehicle reliability.
Action Steps:
Partner with reputable VSC providers with extensive repair shop networks.
Offer tiered VSC options to cater to budget-conscious BHPH customers.
Train staff to explain contract benefits clearly at the point of sale.
Referral programs direct customers to trusted repair shops, often with incentives like discounts, while certification programs for used cars include warranties or service coverage, increasing vehicle appeal. Consumer Reports highlights that independent shops are preferred for out-of-warranty repairs, making them ideal partners. These programs foster loyalty, particularly for BHPH dealers serving subprime customers who value warranties.
Action Steps:
Curate a list of recommended repair shops with customer incentives.
Develop certified pre-owned programs with third-party warranties.
Promote programs via email and at the point of sale to enhance trust.
Tariffs and rising inventories demand lean inventory management. The BCG report notes that new vehicle sales growth slowed to 2% in 2024, with transaction prices dropping 4% from Q3 2022 to Q3 2024. Data analytics can predict demand, reducing holding costs, while sourcing parts from domestic suppliers, as suggested by SpendEdge, mitigates tariff impacts. For BHPH dealers, balancing inventory with loan portfolio health is critical to maintain cash flow.
Action Steps:
Use predictive analytics to stock high-demand vehicles.
Shift to domestic or tariff-exempt suppliers for parts.
For BHPH dealers, align inventory with financing capacity.
A skilled workforce and modern technology are the backbone of efficiency. Training reduces turnover costs and improves service quality, while dealer management systems (DMS) like Dragon2000, used by over 1,000 businesses, streamline operations with tools like Spin360 for vehicle imaging. For BHPH dealers, training on compliance and customer relations is vital for subprime markets. Technology also supports online sales, aligning with digital trends. Auto Master Systems, a leader in BHPH dealer DMS solutions, offers extensive training with its technology.
Action Steps:
Implement regular training on sales, compliance, and customer service.
Adopt DMS for inventory, sales, and customer management.
Use digital tools to enhance online presence and sales processes.
Diversifying income is key to resilience. Offering EV charging installations or mobile servicing taps new markets, with BCG noting EV services as a long-term opportunity despite 77% of dealers expecting EV sales to challenge profitability in 2025. Expanding into online sales platforms or partnering with digital retailers captures the growing online market. For BHPH dealers, tailored financing options for subprime customers open new revenue channels.
Action Steps:
Explore EV-related services like charging or maintenance partnerships.
Develop an online sales platform with robust digital marketing.
For BHPH dealers, offer flexible financing to attract subprime buyers.
Operating with leaner resources, independent dealers benefit from cost-effective solutions like AI-driven inventory management and repair shop partnerships. Certification programs enhance used car sales, while digital tools support online sales, aligning with market trends.
Serving subprime customers, BHPH dealers prioritize affordability and compliance. Third-party service contracts and affordable repair partnerships support budget-conscious buyers, reducing default risks. Training on compliance and tailored financing strengthens their market position.
In 2025, independent auto dealers and BHPH dealers stand at a crossroads of challenge and opportunity. By harnessing AI, maximizing service revenue, optimizing inventory, investing in training and technology, and exploring new revenue streams, dealers can cut costs and boost profits. For those without service departments, partnerships, third-party contracts, and referral programs, unlock service-related revenue without infrastructure costs. Grounded in insights from Cox Automotive, BCG, and Consumer Reports, this roadmap empowers dealers to not only navigate tariffs, EV adoption, and digital disruption but to emerge as leaders in a thriving market.
-by Terry MacCauley, Founder & CEO
We are proud to introduce websites built on all-new proprietary IP DaraCoreAI, the platform that finally ends the games dealers have had to play with their websites for way too long. No more delays on changes. No more sluggish vehicle feeds. No more canned responses. No more "that's the way it has been done."
Now reporting that works how you want it built and tagged from your advertising, form fills that correctly help with attribution from all channels, and a can-do attitude for all your website needs.
Onboarding is limited as we focus on excellence over volume. If you are ready to be treated like a partner, not just another account, apply to Best Used Cars powered by Big Time Advertising.
