TORONTO -

Average gross profits for Canadian dealers during May were down both year-over-year and month-over-month on both used- and new-vehicle sales, according to data provided by J.D. Power and Associates’ Canadian Automotive Practice.

But that might not be the only profit-related challenge facing dealers these days. Some misconceptions among consumers about what dealers are actually making on new-car sales may pose some issues for the nation’s dealer body, according to J.D. Power.

Citing the firm’s Power Information Network, J.D. Power’s J.D. Ney noted that the average front-end gross on a new vehicle in Canada is $1,161 (year-to-date through May).

“However, when J.D. Power recently asked vehicle owners how much profit they thought their local dealer had made on the sale of their current vehicle, their perceptions indicated a dramatic discrepancy, pointing to a potentially problematic scenario for dealers and manufacturers,” Ney wrote in the latest Automotive Analyst Note.

How far off were consumers’ estimates?

More than a third (36 percent) put dealer profit above $3,000, and more than a quarter (26 percent) believed dealers were making a $1,500 to $3,000 profit on each new-vehicle sale, Ney said.

“Undoubtedly, the largest problem for dealers in terms of these findings is that Canadian vehicle owners have an extremely inflated view of retailer per-vehicle gross profit, with one-third holding the opinion that gross profit rates are almost triple the actual average,” Ney shared.

The data also illustrated some differences between luxury vehicle owners and non-luxury owners on their profitability views. The proportion of luxury owners estimating dealer profits to be between $1,000 and $1,500 was at 10 percent.

Seventeen percent of non-luxury owners estimated that same range.

“However, when asked if they felt that the price they paid was fair, 7 percent of luxury owners said no, compared with 12 percent of non-luxury owners,” Ney stressed.

The analyst added: “While there was variability among owners in terms of their likelihood to say they paid an unfair price for their vehicle, for most brands, between one fifth and one quarter of owners perceive they overpaid.”

The following graph offers more insight on these numbers:

Offering more analysis, Ney added: “It’s important to note that these figures refer only to the gross profit on the vehicle transaction in isolation. As any dealer will say, their list of total costs is much more comprehensive.

“Sales commissions, floor planning and advertising are all costs that have to be recovered by the profit margins on the sale of new and used vehicles, so the difference between actual and perceived profits may be even larger,” Ney continued.

Summing up the analysis, the analyst stressed that looking at the full picture of this data sheds light on what’s “some considerable downside risk for the industry,” considering how the Canadian market is being inundated with a truckload of incentives in 2012.

In fact, there will likely be $6 billion in incentives in Canada this year, according to the PIN Incentive Spending Report.

“Should that belt eventually be tightened, Canadian shoppers — many of whom already feel like they’re being gouged — will be asked to pay more for their vehicle, while dealer profitability remains under significant downward pressure,” Ney emphasized.

Profit Breakdown

J.D. Power also offered a deeper dive into dealer profitability numbers for May. The average gross profit per unit on a used vehicle hovered around $1,500 during the May, with used trucks pulling in $1,631 (down $59 from April) and used cars at $1,355 (down $50 from April).

The overall used profit was off slightly from April, but a year ago, average profits were in the neighborhood of $1,600.

On the new-vehicle side, truck profits dipped from $1,237 per vehicle in April to $1,180 in May. However, car profits were up $26 at $1,105.