Dealers only make a little on car sales, I'm not having it!

[unrepentant]

PositronicRay said:

I think this "Eric can't do an oil change" thing a bit far fetched.

Software updates are always main dealer only.

Eric doesn't have the equipment required to change the oil on a modern Jaguar engine.

[unrepentant]

Terminator X said:

Their profit is calculated after they've spent income on the things you mention above. As others have said the accountants will do what they can to minimize profit as tax is paid on that!

TX.

You've obviously never been a director of a plc. A lot of dealers (Lookers for instance) are plc's or subsidiaries of plc's. Those companies are under pressure to increase profitability on a 6 monthly (quarterly in the US) basis. Directors LTIP's are based on profitability and the share price and their options are all based on increasing share prices. There is no question whatsoever of "minimizing profits" as that does nothing for either the shareholders or the directors. In fact the opposite is true and auditors are looking for areas where the profits may have been padded (see Tesco). When I was on a plc board half my income was based on increasing profitability and a big chunk of wealth was generated by increasing the share price so that my options were worth more.

[PositronicRay]

unrepentant said:

PositronicRay said:

I think this "Eric can't do an oil change" thing a bit far fetched.

Software updates are always main dealer only.

Eric doesn't have the equipment required to change the oil on a modern Jaguar engine.

I'm fascinated now what special equipment is needed? How can JLR make something so simple so complicated?

[TA14]

DonkeyApple said:

daemon said:

hora said:

daemon said:

The glam and glitz is forced upon them by the manufacturer to maintain the manufacturers "image".

As has been said, new car sales is basically to support the areas where they do make money - servicing, parts, finance, extra warranties, supaguard, RTI insurance, tyre insurance, warranty work, repairs, bodywork, etc, etc.

Even then, they're not making a fortune overall.

Sytner Group - £3 billion turnover, £66 million pre tax profit (cant even think to work that out as a percentage)

http://www.am-online.com/news/2013/2/18/record-sal...

Lookers Group - £2.464 billion turner, £43.90 million pre tax profit.

http://investors.lookersplc.com/financial-summary

And many companies also declare a loss to avoid taxes. Good Accountants.


How can dividing one figure by the other back up £100 in each vehicle?

Plenty of sales people are told this and regurgitate on here but until a Dealer Principle or Accountant from a big main group says this I'll treat it as 'tell the troops this'. Agree?

Oh and OP (semi OT)alot of Merc dealers are Merc family owned...

So they're really making a billion a year but they're hiding it under their mattresses?

I've been in or around the motor trade for approx 25 years. I know various Dealer Principals and i know various sales managers.

Trust me on this - theres next to no profit on new cars.

Edited by daemon on Saturday 6th December 15:27

Hora has a very relevant point. Both Merc shops and Sytners in the UK are specifically designed to not turn a profit as that is taxable and hugely inefficient.

In the case of the German dealers the rel profit is booked via the offshore banking structures so not tax is paid and the dealership units flow enough revenue to cover operations.

Same with Sytner which funnels all key cash via offshore groups to Penske in the US.

The real problem for dealership owners was when they started being bought out by the manufacturers. I know one Merc dealer in London who's deal was structured based on the income declared through his business. As such he took an absolutely enormous drop in real income

There isn't much money at all in selling new cars when you look just sales as the production profit is booked at the point the car is sold from the Group to the dealership but true income is from selling debt.

The debt side is a wonderful wheeze. You get to sell money to people with good credit ratings at the price of a bad rating, plus it is secured against an asset. It is hugely lucrative. Dealerships are fundamentally debt vendors where unlike a bank which might throw in travel insurance to sweaten the deal, they can loan you a car.

Plus, with quite lax regulation around retail debt vending you can package some very entertaining deals via basic obscuring and complexity and rape the shot out of the average man in the street as almost no one really understands debt, including most of those who sell it.

The other really big flaw with the figures that deamon quotes each month is what one usually calls profit. If you or I bought a car for £10K, spent £1K on it and sold it for £15K we'd call it £4K profit but in those big groups you knock off the salesman's wages and bonus and all of a sudden that £15K sale only made £200.

[DonkeyApple]

TA14 said:

The other really big flaw with the figures that deamon quotes each month is what one usually calls profit. If you or I bought a car for £10K, spent £1K on it and sold it for £15K we'd call it £4K profit but in those big groups you knock off the salesman's wages and bonus and all of a sudden that £15K sale only made £200.

And the work wouldn't have cost £1k but £3k and be booked via an management facility registered offshore this allowing a loss to be booked to UK accounts.

Definitely dealer principals are earning less but that has more to do with their accounts being formally audited as much as anything but the take home of a principle shouldn't be confused with the real profit.

[TA14]

DonkeyApple said:

TA14 said:

The other really big flaw with the figures that deamon quotes each month is what one usually calls profit. If you or I bought a car for £10K, spent £1K on it and sold it for £15K we'd call it £4K profit but in those big groups you knock off the salesman's wages and bonus and all of a sudden that £15K sale only made £200.

And the work wouldn't have cost £1k but £3k and be booked via an management facility registered offshore this allowing a loss to be booked to UK accounts.

Definitely dealer principals are earning less but that has more to do with their accounts being formally audited as much as anything but the take home of a principle shouldn't be confused with the real profit.

Ah yes, the good old 'not for profit' approach; just like Hollywood.

[ExPat2B]

PositronicRay said:

unrepentant said:

PositronicRay said:

I think this "Eric can't do an oil change" thing a bit far fetched.

Software updates are always main dealer only.

Eric doesn't have the equipment required to change the oil on a modern Jaguar engine.

I'm fascinated now what special equipment is needed? How can JLR make something so simple so complicated?

You may be fascinated, but my bullst alarm is flashing like crazy.

[PositronicRay]

ExPat2B said:

PositronicRay said:

unrepentant said:

PositronicRay said:

I think this "Eric can't do an oil change" thing a bit far fetched.

Software updates are always main dealer only.

Eric doesn't have the equipment required to change the oil on a modern Jaguar engine.

I'm fascinated now what special equipment is needed? How can JLR make something so simple so complicated?

You may be fascinated, but my bullst alarm is flashing like crazy.

TIC

[Sheepshanks]

daemon said:

You contradict yourself BTW, because you say they must be making a fortune selling new cars, then you're just after saying you cant imagine how the showroom makes money.

I said a straightforward way.

They must make money, or the model as it is now would collapse. It's just not obvious in any everyday business sense how it's done, but it's clear there's a got to be a lot more than a couple of hundred pounds in selling a new car. I don't have a problem with this, but dealers claiming they're basically a charity are lying.

[Sheepshanks]

ExPat2B said:

You may be fascinated, but my bullst alarm is flashing like crazy.

Of course it's bullst, he's a car salesman.

[V8RX7]

unrepentant said:

I wouldn't trust a new car to anyone other than a factory trained expert.

You clearly haven't met the monkeys working in a Dealership.

You'll be lucky to have one mechanic who knows what he's doing - the rest haven't got a clue

[AW111]

unrepentant said:

You drive an old beater though. You are obviously going to use a cheap back street garage to look after it. I wouldn't trust a new car to anyone other than a factory trained expert.

Going to a dealer is not a guarantee of that though, is it?
I doubt that every Merc / BMW / Audi "technician" in the UK has been sent to Germany for a training course, and I am sure that is not the case in Aus.

I have found that at least some dealerships are great at by-the-book stuff, and crap at actual fault finding if the diagnostic kit doesn't tell them which module to replace.




Tell me more about the magic Jag oil fill please. If you are correct that oil changes must be done at a dealership then Jaguar is sailing very close to the wind. I am pretty sure that would be illegal restraint of trade in both Australia and the US.

The manufacturers have already been to court and lost over requiring dealer services as a condition of warranty.

[TA14]

PositronicRay said:

ExPat2B said:

PositronicRay said:

unrepentant said:

PositronicRay said:

I think this "Eric can't do an oil change" thing a bit far fetched.

Software updates are always main dealer only.

Eric doesn't have the equipment required to change the oil on a modern Jaguar engine.

I'm fascinated now what special equipment is needed? How can JLR make something so simple so complicated?

You may be fascinated, but my bullst alarm is flashing like crazy.

TIC

http://www.honestjohn.co.uk/askhj/answer/36231/oil... £169?? + VAT?

[V8RX7]

AW111 said:

unrepentant said:

You drive an old beater though. You are obviously going to use a cheap back street garage to look after it. I wouldn't trust a new car to anyone other than a factory trained expert.

Going to a dealer is not a guarantee of that though, is it?
I doubt that every Merc / BMW / Audi "technician" in the UK has been sent to Germany for a training course, and I am sure that is not the case in Aus.

I have found that at least some dealerships are great at by-the-book stuff, and crap at actual fault finding if the diagnostic kit doesn't tell them which module to replace.


Tell me more about the magic Jag oil fill please. If you are correct that oil changes must be done at a dealership then Jaguar is sailing very close to the wind. I am pretty sure that would be illegal restraint of trade in both Australia and the US.

The manufacturers have already been to court and lost over requiring dealer services as a condition of warranty.

I'm sure others can explain better but basically - he's wrong but soon he'll be right.

Specialists generally have previously worked for M Dealers and they either buy the electronic readers etc required or they "borrow" it at lunchtimes / weekends.

To stop this some Manufacturers are now keeping the info at their headquarters and the Dealers have to log into that system.

The Manufacturers do have to sell the rights to this service but can charge an extortionate amount so most specialists can't afford to access it.

This is the beginning of the end of the back street garages as the stock of cars they can service will get smaller and smaller. I suspect Specialists will have to get bigger to survive and get economies of scale.

[Andy665]

Its comical how people who heard that the friend of a second cousins aunt used to work in a dealership 30 years ago believes this makes them an expert on the mechanics of how dealerships run

There are opinions (lots of them) and informed views (sadly the real rarity)

[Mastiff]

silentbrown said:

Sytner figure means about 2.2% profit.

So a £100K car makes them £2,200 profit.

BUT, remember that's after all their costs including rent, salaries, free coffees, courtesy cars, bank interest payments, etc. Each car they sell has to contribute to all that, somehow.

Sytner are, in turn owned by Penske Automotive. Penske Automotive are a listed on NASDAQ. They are audited under the Sarbennes Oxley Act designed to protect shareholders and prevent accounting fraud. I don't think I'd be too quick to suggest that they are "hiding money under the mattress" online. Not that you were Silentbrown but others were heading that way!

FWIW, Sytner dealers are NOT targeted to make a trade profit as part of their profit/loss accounts. In fact under the "treating customers fairly" rules within Sytner - if a dealer starts to make too much profit from his trade-ins (retail aside), questions are asked.

[ralphrj]

Sheepshanks said:

They must make money, or the model as it is now would collapse.

Dealers do make money but the profit is less than a lot of people think. Particularly as a percentage of their turnover. The vast majority of a dealerships turnover comes from new car sales but little if any of the profit.

Sheepshanks said:

It's just not obvious in any everyday business sense how it's done, but it's clear there's a got to be a lot more than a couple of hundred pounds in selling a new car. I don't have a problem with this, but dealers claiming they're basically a charity are lying.

They aren't charities but at the same time that does not mean there are huge profits in new car sales. How much they make per car depends on the point you choose to measure the profit.

When I worked at MB the dealer margin was 8+2. The dealer bought the car at an 8% discount on list price. For example a £30k car list price is £25k + VAT. The dealer would pay £23k and at the end of the quarter they would receive a further £500 of 'holdback'. If you gave the customer a £2k discount (inc VAT) then the gross profit per unit on the sale would be £333. Including the 'holdback' this would rise to £833.

Sometimes manufacturers would offer additional margin in order to help sell models that are struggling. This could be a straightforward extra £1,000 per unit sold or it could be in the form of a discounted finance package. Often the discounted finance package is via the manufacturers finance arm but is only partially funded - the cost of providing the package is split between the finance arm and the dealer (out of their 8% margin). These kind of deals don't usually result in a bigger profit per unit for the dealer as the extra margin is given to the customer as discount.

Out of the gross profit per unit the dealer has to cover the cost of the salesmens salaries, sales adminstrators salaries, depreciation of the demo fleet, petrol for demonstrators, advertising, etc.

In general we were aiming for the sales department to breakeven after these costs.

Then there is a dealership bonus payable by the manufacturer if the dealer hits their registration target. This would typically be a further 1% if all new cars sold. Therefore if the dealership hits the target there is a good profit (small as a percentage but potentially a few £100k for a big dealer.

Aftersales is a much smaller element of the dealerships turnover but has much higher margins and it is where the dealer makes their money.

Typically we would aim to make enough profit on aftersales to cover the overhead costs of the dealership. Within the industry there was a common KPI called overheads absorption ratio and is aftersales profit divided by overheads. A 100% ratio meant that the cost of the building, Dealer Principal, Dealer Accountant etc were all paid for by the aftersales profit.

Finally there was a dealer standards bonus. This was payable based on lots of different criteria including providing financial performance information to the manufacturer (called composites), having a dealership building that met the current corporate image requirements of the manufacturer, customer satisfaction survey results, mystery shopper results, using an approved accounting package, achieving the manufacturers requirements for sending staff on training etc. This could be 1 to 1.5% of new car sales turnover.


So, a well run dealership may have results that look like:

Vehicle sales: £20m turnover. £0 profit before target bonus, £200k profit after target bonus.

Aftersales: £5m turnover. £1m profit.

Overheads: £1m cost

Profit before dealer standards bonus: £200k

Dealer standards bonus: £300k

Profit: £500k

Return on sales (profit as percentage of turnover): 2.0%


However, return on sales is perhaps not the most meaningful measure of a dealership performance. If you were the owner of a dealership you would be more interested in how much money you were making on your investment.

If the example dealership above cost £5m to set up then the return on investment (profit over investment) is 10.0%.

[daemon]

TA14 said:

The other really big flaw with the figures that deamon quotes each month is what one usually calls profit. If you or I bought a car for £10K, spent £1K on it and sold it for £15K we'd call it £4K profit but in those big groups you knock off the salesman's wages and bonus and all of a sudden that £15K sale only made £200.

Uh huh.

And the really big flaw in what you have just said is that you havent included all the indirect costs that need to be included like rent, rates, electric, wages, advertising, VAT, etc.

If you had shares in a business and they told you their profit margin was 40%, but they hadnt included all their direct costs and were really making 2%, you'd be fairly miffed.

[daemon]

Sheepshanks said:

daemon said:

You contradict yourself BTW, because you say they must be making a fortune selling new cars, then you're just after saying you cant imagine how the showroom makes money.

I said a straightforward way.

They must make money, or the model as it is now would collapse. It's just not obvious in any everyday business sense how it's done, but it's clear there's a got to be a lot more than a couple of hundred pounds in selling a new car. I don't have a problem with this, but dealers claiming they're basically a charity are lying.

Uh huh. So as opposed to what we who have actual trade experience and have no reason to lie to you are saying - that theres extremely little profit in new cars, but the profit is in reselling the trade ins, finance, servicing, warranty, maintenance, parts, repairs, etc - you "think" they're making a fortune and theres some big conspiracy to lie about it all that we're all in on and not telling you?

And no dealer has claimed they're a charity, just that theres no fortune in new car sales.

[daemon]

Andy665 said:

Its comical how people who heard that the friend of a second cousins aunt used to work in a dealership 30 years ago believes this makes them an expert on the mechanics of how dealerships run

There are opinions (lots of them) and informed views (sadly the real rarity)

+1