Discounting At Record Levels: Is New Car Margin Now A Strategic Loss Leader?

When you walk into a UK showroom today, the atmosphere is... different. The shiny new metal is still there, but the numbers in the window have changed. We’re seeing record-level discounting, with AutoTrader reporting average price cuts of over 10% on new cars.

For years, the new car department was the crown jewel of the forecourt. Now, it’s starting to look like a "strategic loss leader", a way to get a driver into the ecosystem so you can make your real money elsewhere.

If you’re running a dealership, you know the drill: the margin on the car itself is razor-thin (or non-existent), but the value of the customer relationship is higher than ever. Here’s why we need to stop obsessing over the front-end margin and start looking at the bigger picture.

The 10% Reality: Why Discounting Is The New Normal

It’s no secret that the market is under pressure. Between the ZEV mandate, high interest rates, and a more cautious consumer, dealers are having to work harder than ever to shift units. When you’re lopping 10% off the sticker price just to stay competitive, the traditional "buy for X, sell for Y" profit model falls apart.

But here’s the thing: while that 10% discount might hurt the immediate bottom line, it’s often the entry fee for a much more lucrative long-term play.

From "Unit Sale" To "Customer Lifetime Value"

At Marsh Finance, we see this shift every day. Dealers are moving away from the "one-and-done" sales mentality. Instead, they’re treating the new car sale as the start of a five or ten-year financial relationship.

If the new car is the loss leader, where is the profit coming from?

• Finance and Insurance (F&I): This is where the heavy lifting happens. A well-structured PCP or HP deal provides more stability and profit than the metal itself.
• The Aftersales Engine: A new car sold today is a service customer for the next three to five years. From MOTs to scheduled maintenance, the workshop is often the real profit centre of the modern dealership.
• The Used Car Pipeline: In three years, that discounted new car comes back as a high-quality, one-owner used car. Given the current volatility in used car supply, securing your future stock through new car sales is a savvy move.

How To Rethink Your Strategy

If you’re feeling the squeeze, it might be time to pivot. Here’s how successful UK dealers are navigating the "loss leader" era:

1. Don’t Just Sell a Car, Sell a Monthly Payment: Most customers don't care about the 10% discount; they care if they can afford the monthly cost. By focusing on the finance structure, you can protect your overall margin even when the car price is slashed.
2. Double Down on Retention: If the new car is the "hook," your retention strategy is the "line." Are you booking that first service before the customer even leaves the forecourt?
3. Transparency is Your Best Friend: Modern buyers are researchers. They know the discounts are out there. Being upfront about pricing and focusing on the value of buying from a local, trusted dealer can win out over a slightly deeper discount from a faceless online broker.

The Bottom Line

The days of making a "fat" margin on a new car sale might be behind us, but that doesn't mean the new car department is dead. It’s just evolved. By viewing the new car as a strategic loss leader, you can build a more resilient, service-oriented business that thrives on customer loyalty rather than one-off wins.

At the end of the day, it's about keeping the wheels turning, literally and financially.

Partner With Marsh Finance

If today’s new car sale is tomorrow’s used car opportunity, having the right used-car finance partner in place is critical.

At Marsh Finance, we specialise in used car lending and work with UK dealers to help them monetise the full customer lifecycle. When discounted new cars return to the forecourt as high-quality used stock, our flexible HP and PCP solutions help you convert that stock quickly, profitably and with confidence.

We support dealers who are thinking beyond front-end margin and focusing on retention, repeat business and long-term value. If you are planning ahead for the next wave of used car supply, now is the time to strengthen your finance strategy.

Partner with Marsh Finance and turn future used car stock into sustainable profit.