What is an Auto Broker?

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Two aspects of the car-brokerage business seem to defy logic. First is the question of why an auto dealer would co-operate with a broker. Aren't auto dealers potentially shooting themselves in the foot, since brokers represent low-priced competition?

The answer relates to the pressure auto dealers constantly face to buy quantities of cars from the manufacturer. “Manufacturers have emphasized ‘Produce, produce’”, says the spokesman for the National Automobile Dealers Association. “While automakers can’t require a dealer to take cars, they can put you on notice to improve your sales record or they'll terminate your franchise.”

From the dealer’s perspective, routinely purchasing a large number of cars, even in a slow sales year, means they’ll be assured of having the cars they need in years when cars are scarce and dealer markups are high. “You’re allotted cars based on past sales performance,” says Bill Nerenberg, executive director of the National Vehicle Leasing Association, which represents auto brokers. “So dealers have come to rely on selling cars to brokers and leasing companies to meet their allotment requirements.”