A recent Experian survey of automotive dealers, nearly 9 in 10 are concerned about fraud. The findings also show 70% of dealers believe fraudulent transactions are on the rise, signaling upward momentum.
A closer look at the study highlights the financial influence fraudulent transactions can have on a dealership’s bottom line. On average, over the last 12 months, dealers reported approximately four fraudulent deals were completed prior to detection. Additionally, 45% report that a single fraudulent transaction typically results in an estimated financial loss of $10,000 to $20,000, while 31% indicate their losses exceed that range. Dealers are bearing a substantial share of fraud related losses, with 64% reporting that insurance covers less than half of these costs. While some receive partial relief from lenders, 67% estimate that lenders cover under 50% of the losses and 10% say lenders provide no coverage at all.
“When one fraudulent transaction can wipe out tens of thousands of dollars in profit, it’s simply too big to ignore,” said Jim Maguire, Experian’s senior director for automotive. “These losses will eventually cut directly into a dealer’s margin and put serious strain on their operations, making it harder to stay profitable.”
Beyond direct losses, fraud is reshaping daily dealership operations and influencing customer experience. In fact, three-in-four dealers say auto-finance fraud affects their business operations. Furthermore, 53% cite balancing fraud prevention with a smooth and fast customer experience as their biggest challenge, while 46% say verification steps slow down the deal and frustrate customers.
Dealers reported automotive fraud can be classified into three primary categories: income, vehicle, and identity. The most common fraud schemes fall in the income-related category. Sixty-two percent of dealers say they encounter forged income documents and 50% see fabricated income claims.
While income-related fraud schemes are the most common, identity-related fraud has become one of the fastest growing risks dealers are facing. In fact, 44% of dealers express having to navigate synthetic identity attempts and 43% have seen both third-party and straw borrower fraud in the last 12 months.
Despite the prevalence of identity- and income-related fraud, nearly half (46%) of dealers only validate income when something seems “off”. Manual verification remains common, with 67% of dealers capturing ID via driver’s license scanners and 63% via photocopying. These methods will likely increase friction and create more vulnerabilities to sophisticated document manipulation.
“The best defense is simple: confirm identities upfront using multiple data sources, verify income and employment early, validate trade-in vehicle details so clean deals move quickly, and flag anything that doesn’t add up,” Maguire continued. “Dealers who take the time to leverage advanced fraud-detection tools to assess shoppers’ incomes and identities are best positioned to avoid major losses and reduce friction during the car buying process.”
