Honda Canada Will Cut Dealer Margins By Up To 44%, How Will This Affect The Consumer?

According to a recent report by Automotive News Canada, Honda Canada will apparently cut dealer profit margins on each car sold by up to 44%. The move could come as a strategy from the carmaker to help it finance the expensive, but necessary, transition towards electrification.

As I write this, Honda Canada did not respond for comment on the matter, but several dealers shared their frustration and incomprehension with Automotive News, qualifying the situation as “never-before-seen” and a “blatant money grab”. Many also see this as an unfair move from Honda, as if penalizing its dealer network for its own financial woes.

For you, the consumer, what does this all mean? Could we see a similar situation happen in the US and other parts of the world as well? It’s still too early to know for sure, but as carmakers look for ways to trim expenses during their transition to an electric world, we could see more of this happening in the near future.

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Will That Profit Loss Be Transferred To The Consumer?

Dealer margins vary from one carmaker to the next. However, don’t believe a sales representative when they tell you they make no profit on the car they’re selling you. That’s a downright lie.

For reference, Honda Canada dealers make, on average, a 4.5% profit on a new car’s sticker price. That amount can climb as high as 8% depending on the model, as per Automotive News’ report. A 44% cut could eat up these margins by two percentage points, equating to $900 on a $45,000 vehicle.

Now, this is where things can get frustrating for the consumer. Dealers, who are constantly seeking ways to register profits, could transfer these losses to the consumer by way of additional administration fees on the purchase of the car, a practice up until now not tolerated by the carmaker.

Some dealers interviewed by Automotive News mentioned that Honda Canada expressed openness on the matter, but what we know from dealership fees is that they are often very vague and convoluted; manipulated, even, by the dealer itself. These fees contribute to an inflated final transaction price, all at the consumer’s expense.

The Dealership Business Model Put Into Question

It’s obvious that as it transitions towards the electric era, Honda, like many other big names in the industry, is observing what key players in the EV space are currently doing, like Tesla and Polestar, as well as upstart foreign players such as VinFast. What these carmakers all have in common is that they operate through a corporate business model, meaning that they do without franchised dealerships.

At these carmakers, you essentially order your new car online, or through a representative in a physical “store”. The car is then either delivered to you, or at the store itself. There’s no sales representative, no commission, and, consequently, no need for dealer profit margins. There are also no dealer markups.

This in turn allows the carmaker to maintain a better grasp on the cars that it sells, but also on the profit it makes on each car sold. The carmaker need not to worry about feeding the middleman (in this case, the dealer), saving millions in the process.

Honda’s Acura luxury division is already exploring the concept of corporate selling with its ZDX electric crossover in the US market. While still working hand-in-hand with its dealers for deliveries, Acura developed an online shopping and purchase tool for the ZDX. It therefore wouldn’t be surprising to see Honda push this strategy even further with its upcoming Afeela electric sedan.