Dealers only make a little on car sales, I'm not having it!
Discussion
AW111 said:
with a lot of dealerships going "glass palace", does the increased sales cover the cost?
Like many things in business it depends what you choose to believe about human nature. For instance, do Red Bull's increased drinks sales justify their investment in F1? Does Torro Rosso add any additional value beyond the Red bull team or is it just wasted money?Cars sell to consumers. Consumers of new cars are looking for various things, including "image". The Bentley customer spending £250k doesn't expect to have to deal with Arthur Daley under the railway arches. A new £15k car is expensive for most customers and they want to feel valued when spending so much money.
Then there's the costs involved. Vehicle stock, parts stock and workshop equipment are all expensive irrespective of what building the dealer occupies.
So when you fit the whole picture together "chrome and glass" probably makes sense. The motor trade is highly competitive. If shifting cars from backstreet premises was the best way forward somebody would be doing it and making a huge success of it.
Ozzie Osmond said:
Like many things in business it depends what you choose to believe about human nature. For instance, do Red Bull's increased drinks sales justify their investment in F1? Does Torro Rosso add any additional value beyond the Red bull team or is it just wasted money?
Cars sell to consumers. Consumers of new cars are looking for various things, including "image". The Bentley customer spending £250k doesn't expect to have to deal with Arthur Daley under the railway arches. A new £15k car is expensive for most customers and they want to feel valued when spending so much money.
Then there's the costs involved. Vehicle stock, parts stock and workshop equipment are all expensive irrespective of what building the dealer occupies.
So when you fit the whole picture together "chrome and glass" probably makes sense. The motor trade is highly competitive. If shifting cars from backstreet premises was the best way forward somebody would be doing it and making a huge success of it.
I know Tesco entered the new car sales market with a different business model a few years back and failed pretty miserably.Cars sell to consumers. Consumers of new cars are looking for various things, including "image". The Bentley customer spending £250k doesn't expect to have to deal with Arthur Daley under the railway arches. A new £15k car is expensive for most customers and they want to feel valued when spending so much money.
Then there's the costs involved. Vehicle stock, parts stock and workshop equipment are all expensive irrespective of what building the dealer occupies.
So when you fit the whole picture together "chrome and glass" probably makes sense. The motor trade is highly competitive. If shifting cars from backstreet premises was the best way forward somebody would be doing it and making a huge success of it.
From this thread I've come to the conclusion that if you just sold mainstream cars from the type of premises i visited in Northampton you'd be out of business pretty quickly, but the building is a hub if you like for all the other things that go on, used car sales, servicing, parts, merchandise etc and once someone has bought a car the dealer then has the opportunity to use that sale for more business.
I spoke to a guy yesterday who was drioving a white Jag XF, he said every 18 months the dealer called him and offered him a deal to change to a new car whilst his monthly payment did'nt move much. it was his third new car in 5 years and he raved as to how hard the dealer worked to sweeten the deal for him.
One new car sale isn't going to cut the mustard but repeat business, servicing, taking that car back in and selling it as approved used is a good business.
Finally, for those who say that dealer groups who make 5% v turnover show it's not a good business, look at any retailer, Tesco, Dixons PLC even an oil giant like Shell. 5% isn't that bad at all.
Ozzie Osmond said:
If shifting cars from backstreet premises was the best way forward somebody would be doing it and making a huge success of it.
You've never been to one of the many Used Car Warehouse type places then.Manufacturers want their cars sold from shiny places and make it so, if they let someone sell them cheaper from less salubrious surroundings all their dealers would object.
berlintaxi said:
1. Perhaps you could point out where I acted like a "
"?
2. This is a car enthusiast forum, am I interested in cars Yes, am I interested in what dealers have to say No.
1. Speaking as someone who has come to the thread lately and only read the last few pages, I'd say you've acted like a t"? 2. This is a car enthusiast forum, am I interested in cars Yes, am I interested in what dealers have to say No.
t throughout the last two pages at least.2. In which case could you please kindly go away and stop bogging the thread down for those are interested in what the dealers or traders have to say?
V8RX7 said:
Ozzie Osmond said:
If shifting cars from backstreet premises was the best way forward somebody would be doing it and making a huge success of it.
You've never been to one of the many Used Car Warehouse type places then.Manufacturers want their cars sold from shiny places and make it so, if they let someone sell them cheaper from less salubrious surroundings all their dealers would object.
2. Have you noticed that all McDonalds restaurants look similar?
3. Have you noticed that all Beefeater restaurants serve the same menu?
4. Have you noticed that fancy cosmetics aren't generally available for 50p on a market stall?
The lack of business acumen in some contributors on PH is absolutely astounding.
AW111 said:
It is an interesting question : with a lot of dealerships going "glass palace", does the increased sales cover the cost?
I assume it must, or the accountants would not have signed off on the investment.
HTP99 (who BTW seems the most genuine of the salesman who post on here) posted a couple of pages back that at one place he worked, sales went down when they opened the building.I assume it must, or the accountants would not have signed off on the investment.
I can't imagine why the rebuilt and relocated VW dealership near us should sell more cars then they did before. The similarly glitzy new Honda dealership is a new location which merges two dealership areas, closing down a very well regarded independently owned dealer. I wouldn't be at all surprised if 1+1 equals a fair amount less than 2 in that case, although Honda's sales are dropping through the floor anyway.
AW111 said:
ps Here in Aus, Mercedes have pursued an aggressive policy of buying out independant specialists. Those who don't sell get letters threatening dire consequences if they use any Merc trademarked signage, ie the 3 pointed star.
By "specialists" do you mean repairers, or franchised dealers? MB canned most independent franchised dealers in the UK around 12 yrs ago. I haven't heard of them leaning on indie repairers - the retail side of MB doesn't seem interested in older cars at all.Sheepshanks said:
By "specialists" do you mean repairers, or franchised dealers? MB canned most independent franchised dealers in the UK around 12 yrs ago. I haven't heard of them leaning on indie repairers - the retail side of MB doesn't seem interested in older cars at all.
Repairers.Here, provided a vehicle is serviced according to manufacturers specs, you keep your warranty even if it is serviced by an independant from new. The manufacturers hate this. I think that is why MB bought up a lot of independant repairers.
Sheepshanks said:
HTP99 (who BTW seems the most genuine of the salesman who post on here)
Gee - thanks 
Sheepshanks said:
The similarly glitzy new Honda dealership is a new location which merges two dealership areas, closing down a very well regarded independently owned dealer. I wouldn't be at all surprised if 1+1 equals a fair amount less than 2 in that case, although Honda's sales are dropping through the floor anyway..
I did hear a (very vague) rumour that in time, Honda (cars) may well pull out of Europe altogether. The product range offered in Europe is abysmal compared to other worldwide market areas where they have 15+ models available (and that doesn't even include Acura). To give an idea of the scale of the business we are discussing, I was told (by a Honda Salesman) that there is ONE dealer in North America that sells more cars annually than the whole of European market combined.
The glitzy showrooms of today, in particular the Luxury Brands serve a number of purposes. They are of course there for people to finally come and have a look at and drive the products available. Yes, they will have done most of their research on the internet first but this only seems to mean that they now two or three cars on their shortlist, as opposed to half a dozen.
They also stop "Fred in the shed" setting up as a main dealer (which he can do, under block exemption rules) by having Dealer Standards. Fred cannot call himself a Main Dealer as he doesn't have 6,500sq feet of Italian Marble tiled floor finished in Meteorite Grey or (as in our case) a correctly aligned 4 foot granite compass embedded in the floor!
They are "Brand Awareness" Centres more than anything else. With regard to car sales most will make money, some of course more than others but in the main, these places are more about raising the image of the brand and the products that they make. If anyone here hasn't seen it, do look at Mercedes Benz World at Brooklands, or West London Audi, or Land Rover Battersea. Unbelieveable places that cost an absolute fortune to build and operate but if owned by the manufacturers or larger groups, they are just advertising and accounted for as such.
I'm not entirely convinced by the service argument, as other posters have pointed out Approved Service Centres can be set up for far less outlay than showrooms can. They are almost certainly more profitable too.
AW111 said:
Repairers.
Here, provided a vehicle is serviced according to manufacturers specs, you keep your warranty even if it is serviced by an independant from new. The manufacturers hate this. I think that is why MB bought up a lot of independant repairers.
It's the same in Europe. If a car is on MB finance they insist on dealer servicing - they can do that as they own the car.Here, provided a vehicle is serviced according to manufacturers specs, you keep your warranty even if it is serviced by an independant from new. The manufacturers hate this. I think that is why MB bought up a lot of independant repairers.
Many of the old MB franchised dealers became official Authorised Repairers, but there's literally only a couple of those left now.
What on earth do MB Australia do with the repairers when they buy them - shut them down? Surely more would just spring up?
Sheepshanks said:
It's the same in Europe. If a car is on MB finance they insist on dealer servicing - they can do that as they own the car.
Many of the old MB franchised dealers became official Authorised Repairers, but there's literally only a couple of those left now.
What on earth do MB Australia do with the repairers when they buy them - shut them down? Surely more would just spring up?
I am not sure what percentage of repairers got closed down. The ones I recall were all long established and relatively inner-city : it would cost a bomb to set up a new garage in those areas, what with rising property values and all.Many of the old MB franchised dealers became official Authorised Repairers, but there's literally only a couple of those left now.
What on earth do MB Australia do with the repairers when they buy them - shut them down? Surely more would just spring up?
The servicing lock-in for financed vehicles is an interesting one : there's a real incentive for the dealer to sell on finance there!
Mastiff said:
I did hear a (very vague) rumour that in time, Honda (cars) may well pull out of Europe altogether. The product range offered in Europe is abysmal compared to other worldwide market areas where they have 15+ models available (and that doesn't even include Acura).
To give an idea of the scale of the business we are discussing, I was told (by a Honda Salesman) that there is ONE dealer in North America that sells more cars annually than the whole of European market combined.
That'd be going some - quick Google says 2013 was 140K cars. Even if the 2014 number is horribly lower I can't visualise one dealership selling 100K+ cars.To give an idea of the scale of the business we are discussing, I was told (by a Honda Salesman) that there is ONE dealer in North America that sells more cars annually than the whole of European market combined.
I suppose it might be possible for one model - the Accord. That is going to be dropped in Europe and it does sell well in the US (although it's a different car there).
Apart from the much wider model range, Honda's prices are way lower in the US - OK, everything is cheaper, but Hondas are cheap cars there, with Acura being premium. Here Hondas are sold as if they're premium.
I know it's not fashionable, but my missus loves her Jazz and it pisses me off (as her car is older than I like to run) that everywhere else in the world already has the next one, but Honda has delayed it in Europe.
An example of whats wrong with new car sales in the UK is this...VW dealer I know is minimum 3 month wait for most of the product and longer on some models yet they are only retaining £280 per chassis average...the manufacturer is getting the big margins whilst their "dealer network" fight against each other for the scraps
Sheepshanks said:
What are they ranked by - the order is all over the place?
Total revenue (new+used+parts+servicing+finance, etc.) - there's a second page om the original. http://wardsauto.com/datasheet/wardsauto-2014-mega...I'd spotted the 1000 cars/year, too - but that's just NEW cars. Most sell another 700 used.
silentbrown said:
Total revenue (new+used+parts+servicing+finance, etc.) - there's a second page om the original. http://wardsauto.com/datasheet/wardsauto-2014-mega...
I'd spotted the 1000 cars/year, too - but that's just NEW cars. Most sell another 700 used.
Thanks. I'd spotted the 1000 cars/year, too - but that's just NEW cars. Most sell another 700 used.
Weird on the new car numbers - it's similar-ish to the UK. I'd have expected US dealers to be multiples higher. Apparently the average sales guy in the US sells 15 new cars per month - again seems really low, although most dealers probably have a lot more sales staff than their UK equivalent.
Rincewind209 said:
http://www.pendragonplc.com/main_content/pdf/resul...
A link to Pendragons 2013 accounts, as published. It clearly shows that the profit margin on new cars is 7.6%. Now as you pointed out Pendragon struggled a bit, so presumably they are not particularly good at making money. So that would indicate that other dealers make more perhaps? Also as you point out the business made only 2% net profit, but that is the overall performance and not the amount of profit on a new car.
So,A link to Pendragons 2013 accounts, as published. It clearly shows that the profit margin on new cars is 7.6%. Now as you pointed out Pendragon struggled a bit, so presumably they are not particularly good at making money. So that would indicate that other dealers make more perhaps? Also as you point out the business made only 2% net profit, but that is the overall performance and not the amount of profit on a new car.
A) £500 million gross profit split between 265000 new and used cars sold gives a gross margin of £1800 per car.
Does this suggest that this is the average "mark up" per car?
and
B) £38.9 million profit before tax split between 265000 sales gives £146 per car.
Surely this is what's left after all the staff have been paid, the glass showroom paid for etc. It's what's left over to pay as a dividend to shareholders (once corporation tax paid).
But how you get to B from A depends on how you run the business. Whether you have the choice to have a fancy showroom. How much you pay your staff. How many layers of backroom staff you have - irrespective of how many you need.
It's not at all clear!
silentbrown said:
Total revenue (new+used+parts+servicing+finance, etc.) - there's a second page om the original. http://wardsauto.com/datasheet/wardsauto-2014-mega...
I'd spotted the 1000 cars/year, too - but that's just NEW cars. Most sell another 700 used.
That list is not complete. It's only made up of dealers who fill out the Dealer.com survey, many don't. The giants like AutoNation, Carmax and Penske are public companies but a great many groups are family owned and a lot of them are publicity adverse when it comes to people knowing their financials.I'd spotted the 1000 cars/year, too - but that's just NEW cars. Most sell another 700 used.
Mastiff said:
They are "Brand Awareness" Centres more than anything else. With regard to car sales most will make money, some of course more than others but in the main, these places are more about raising the image of the brand and the products that they make. If anyone here hasn't seen it, do look at Mercedes Benz World at Brooklands, or West London Audi, or Land Rover Battersea. Unbelieveable places that cost an absolute fortune to build and operate but if owned by the manufacturers or larger groups, they are just advertising and accounted for as such.
To a degree. MB World does serve a dual purpose and i have not much knowledge of Battersea but WLA most definately isn't just a showcase. It's a fully fledged business that isn't carried by the manufacturer or the dealer group that owns it. If it couldn't make a profit it wouldn't be there. VW world opening across the road is the same. As is Kia next door. MB opposite is the same. Gassing Station | General Gassing | Top of Page | What's New | My Stuff