Is this taking the michael?

[Sheepshanks]

daemon said:

So say on a 320i BMW with a list price of $32,750 (approx £19,500 in pounds sterling) and here with a list price of £26,565 here, by the time you take into account the higher discounts available here AND the 8% sales tax to be added AND the fact we pay 20% VAT in our prices, theres probably not a big hill of beans difference in the raw price?

£26,565 - 10% discount = approx £24,000.

£19,500 + 8% sales tax = approx £21,500.

The difference looks an awful lot like the 12% extra we are paying in VAT...

The US one will be better equipped (it'll be auto as standard) and will include service. 3 Series would be discounted in the US too, but most will be acquired on lease.

320 is pretty new there, the entry level used to be 328 (still 3L engine, of course) and was a popular college grads car which BMW knocked out for $299/mth on lease. MB did the same with C300.

[daemon]

Sheepshanks said:

The US one will be better equipped (it'll be auto as standard) and will include service. 3 Series would be discounted in the US too, but most will be acquired on lease.

320 is pretty new there, the entry level used to be 328 (still 3L engine, of course) and was a popular college grads car which BMW knocked out for $299/mth on lease. MB did the same with C300.

The 328i in the states is the 2.0i turbo variant.

Still not the "we're getting raped here" difference you had led us to believe, given a service pack is maybe £500 here.

And also, in terms of getting "raped", you're implying we have no choice in the matter. Noone forces any of us to (a) use a main dealer and (b) buy new. I bought a 9 month old Golf diesel for 38% off list price.

Edited by daemon on Sunday 31st August 16:55

[Sheepshanks]

daemon said:

The 328i in the states is the 2.0i turbo variant.

I didn't know that had changed form 6cyl to 4. In that case the price difference between the 320 and 328 there looks pretty big.

daemon said:

Still not the "we're getting raped here" difference you had led us to believe, given a service pack is maybe £500 here.

Well, quick look at the highlights and the US 320i is auto, has xenon lights and colour HUD, so that's got to be another few K.

[daemon]

Sheepshanks said:

daemon said:

The 328i in the states is the 2.0i turbo variant.

I didn't know that had changed form 6cyl to 4. In that case the price difference between the 320 and 328 there looks pretty big.

daemon said:

Still not the "we're getting raped here" difference you had led us to believe, given a service pack is maybe £500 here.

Well, quick look at the highlights and the US 320i is auto, has xenon lights and colour HUD, so that's got to be another few K.

From reading it seems BMW are cutting prices to the bone for market share over there. Something they dont have to do so much over here, given their popularity.

Irrespective, you said initially that main dealers were making a fortune on new cars, and that has been countered with real life experience to say that they dont, and its as little as a couple of percent net.

And as i said, none of us are being forced to use main dealers OR buy new, so if you have a strong grievance then dont.

[Sheepshanks]

daemon said:

Irrespective, you said initially that main dealers were making a fortune on new cars, and that has been countered with real life experience to say that they dont, and its as little as a couple of percent net.

I don't think I said that - but it's clear that selling cars at "wafer thin margins" and at the same time building glass palace dealerships to sell them from doesn't quite add up.

What I do think is that someone in the chain - either manufacturer or importer or both - is doing pretty well out of the UK.

[ralphrj]

Sheepshanks said:

What I do think is that someone in the chain - either manufacturer or importer or both - is doing pretty well out of the UK.

The majority of the profit will be at the manufacturer as this is the only part of the chain that they will definitely own.

The importer will probably (but not necessarily) be owned by the manufacturer depending on the size of the territory. For example, Mercedes-Benz UK is owned by Daimler AG but the distributor in Ireland is a 3rd party. The margins offered to both importers will be the same so surplus profit at the importer stage will be lost to 3rd parties if importer margins are too high.

The transfer price for cars from the manufacturer to the importer will be (as far as possible) standard across Europe. The UK does pay a premium to account for currency fluctuation and the additional cost of RHD production (due to lower volumes).

[daemon]

Sheepshanks said:

I don't think I said that - but it's clear that selling cars at "wafer thin margins" and at the same time building glass palace dealerships to sell them from doesn't quite add up.

You're right. It doesnt add up. There is pressure put on dealers to build big glass palaces as you call them by the manufacturer / importer and keep them up to the latest corporate standard. Yet the profit margins at the other end dont warrant it.

Thats why we're seeing fewer but larger super sites owned by massive dealer chains instead of smaller independents who simply cant afford it any more.

The customer wants the cheapest price but wants the best service. Thus you get laughable scenarios whereby ANY profit is wrung out of the deal and then the customer takes the hump because on top of all that they "expect" a full tank of petrol.

Then in the used market the phone doesnt ring unless your car is the cheapest and everyone knows "their rights" under the SOGA so go screaming when that car that was the cheapest in the UK didnt come with a cast iron warranty.

If i had £10 mil in the bank and someone said start a business with it, the LAST place i'd be putting it would be into a car franchise.

Sheepshanks said:

What I do think is that someone in the chain - either manufacturer or importer or both - is doing pretty well out of the UK.

I would say there are a small number of the predominantly german brands who are making decent profit at manufacturer level, but the bulk arent. Vauxhall havent made money in Europe in years. And i think Ford only break even.

And the joke of it is, people would be better going out and buying a Mondeo or an Insignia as its probably 95/100ths as good as its german equivalent, is going to be rarer and costs £10,000 less.

It is all just one big merry go round at the minute and at some point its going to stop, because the figures just dont add up any more.

[daemon]

ralphrj said:

The majority of the profit will be at the manufacturer as this is the only part of the chain that they will definitely own.

The importer will probably (but not necessarily) be owned by the manufacturer depending on the size of the territory. For example, Mercedes-Benz UK is owned by Daimler AG but the distributor in Ireland is a 3rd party. The margins offered to both importers will be the same so surplus profit at the importer stage will be lost to 3rd parties if importer margins are too high.

The transfer price for cars from the manufacturer to the importer will be (as far as possible) standard across Europe. The UK does pay a premium to account for currency fluctuation and the additional cost of RHD production (due to lower volumes).

+1

And its worth remembering that the likes of Ford, Vauxhall, etc ARENT making money. They're a loss making business in Europe.

[daemon]

Sheepshanks said:

I don't think I said that - but it's clear that selling cars at "wafer thin margins" and at the same time building glass palace dealerships to sell them from doesn't quite add up.

What I do think is that someone in the chain - either manufacturer or importer or both - is doing pretty well out of the UK.

If you dont believe us about margins, have a look at Lookers PLC

http://www.lookersplc.com/

Turnover for the first 6 months of this year = £1,600,000,000, profit = £40,000,000.

Thats 2.5%

Thats an awful lot of effort to make 2.5%

[daemon]

Sheepshanks said:

daemon said:

Irrespective, you said initially that main dealers were making a fortune on new cars, and that has been countered with real life experience to say that they dont, and its as little as a couple of percent net.

I don't think I said that - but it's clear that selling cars at "wafer thin margins" and at the same time building glass palace dealerships to sell them from doesn't quite add up.

What I do think is that someone in the chain - either manufacturer or importer or both - is doing pretty well out of the UK.

And heres Sytners - MASSIVE premium brand group focused mainly around BMW.

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

Turnover = £3 billion. Net profit = £66 million.

2.2%

[fwaggie]

Zwolf said:

If overall profit were a Victoria sponge, parts is one half of th esponge, servicing and bodyshop the other, the jam and cream are the used car sales (inc F&I and add-ons), new cars are the icing sugar sprinkled on top.

Going with your Victoria sponge analogy (nice choice of cake there by the way!), I'll guess at the thicknesses as follows:-

icing : 1 "unit"
top and bottom sponge : 100 units
used cars : 50 units

If a fictional dealership had a new car turnover of £100,000,000, profit at 1% is £1,000,000. Avg car cost £30,000, # cars sold = £100,000,000 / £30,000 = 3333.

Profit from the parts would be £1,000,000 * 100 = £100,000,000.

Profit from servicing / bodyshop £1,000,000 * 100 = £100,000,000.

Assuming the servicing / bodyshop is the main customer of parts, and assuming they repair 5 x the annual volume of cars sold per year in a year, 5 * 3333 = 16,666 cars per year. Combined profit of £200,000,000 between 16,666 cars = £12,000 average cost per repair/service?

Seems extremely high? Just below the 50/50 write off split, so the maximum damage per vehicle that comes in for repair?

(I've overestimated the repair shop capacity and the new car price to favour my guesses in favour of a lowest repair cost per car)

I could work out better guesses for the likelyhood of someone repairing a vehicle based on age and get a better figure for "5 x the number of new cars sold", but I suspect that would reduce it, making the cost per car even higher.

What have I done wrong?

[Zwolf]

Sheepshanks said:

It's clear that selling cars at "wafer thin margins" and at the same time building glass palace dealerships to sell them from doesn't quite add up.

It doesn't ad dup because you've omitted to tak einto account that selling new cars i snot what pays for dealerships to be built and run in the main.

• Used cars are a fair bit more profitable.
• F&I income on new and used produces more revenue than new cars alone does.

...and the single biggest factor:

• Those glass palaces service and repair not only the cars they sell in a year, but most of the ones up to 3/4 years old in their catchment area, plus a few more, plus some non-franchise stuff - usually customer's other vehicles.

Aftersales contribution to dealership profitability dwarfs everything new and used sales contributes does. Sales departments are essentially only there to keep the local market supplied with vehicles to maintain.

There's also the factor that a share of sales costs is service and parts profit...

[ralphrj]

Zwolf said:

Aftersales contribution to dealership profitability dwarfs everything new and used sales contributes does. Sales departments are essentially only there to keep the local market supplied with vehicles to maintain.

^This.

In the dealer group I worked at we were probably happy for the Vehicle Sales Department to just break even. The big (departmental) profit came from After Sales. We aimed for an overheads absorption ratio of 100% (that is the profit on After Sales to cover in full the overhead costs of the whole dealership).

If we could achieve that then the dealership would be break even. We then had the Dealer Standards bonus at the bottom of the P&L and it would be this bonus that determined how profitable the dealership was.

[Fast Bug]

Zwolf said:

It doesn't ad dup because you've omitted to tak einto account that selling new cars i snot what pays for dealerships to be built and run in the main.

• Used cars are a fair bit more profitable.
• F&I income on new and used produces more revenue than new cars alone does.

...and the single biggest factor:

• Those glass palaces service and repair not only the cars they sell in a year, but most of the ones up to 3/4 years old in their catchment area, plus a few more, plus some non-franchise stuff - usually customer's other vehicles.

Aftersales contribution to dealership profitability dwarfs everything new and used sales contributes does. Sales departments are essentially only there to keep the local market supplied with vehicles to maintain.

There's also the factor that a share of sales costs is service and parts profit...

^^ This in a nut shell.

Also, parts make more than 1% margin as do bodyshops. The sales side of things is really just there to keep aftersales supplied with vehicles to service/repair

[Butter Face]

fwaggie said:

Going with your Victoria sponge analogy (nice choice of cake there by the way!), I'll guess at the thicknesses as follows:-

icing : 1 "unit"
top and bottom sponge : 100 units
used cars : 50 units

If a fictional dealership had a new car turnover of £100,000,000, profit at 1% is £1,000,000. Avg car cost £30,000, # cars sold = £100,000,000 / £30,000 = 3333.

Profit from the parts would be £1,000,000 * 100 = £100,000,000.

Profit from servicing / bodyshop £1,000,000 * 100 = £100,000,000.

Assuming the servicing / bodyshop is the main customer of parts, and assuming they repair 5 x the annual volume of cars sold per year in a year, 5 * 3333 = 16,666 cars per year. Combined profit of £200,000,000 between 16,666 cars = £12,000 average cost per repair/service?

Seems extremely high? Just below the 50/50 write off split, so the maximum damage per vehicle that comes in for repair?

(I've overestimated the repair shop capacity and the new car price to favour my guesses in favour of a lowest repair cost per car)

I could work out better guesses for the likelyhood of someone repairing a vehicle based on age and get a better figure for "5 x the number of new cars sold", but I suspect that would reduce it, making the cost per car even higher.

[B]What have I done wrong?

You've worked it out that the car section alone is making £1m from £100m whereas it's actually the whole business including the parts and service departments.

New cars are a means to an end, they generate used cars, service work etc etc. There is hardly any profit in the car itself. Sad but true. Roughly £500 per vehicle is a decent profit on a new car.

[Sheepshanks]

Zwolf said:

...and the single biggest factor:

• Those glass palaces service and repair not only the cars they sell in a year, but most of the ones up to 3/4 years old in their catchment area, plus a few more, plus some non-franchise stuff - usually customer's other vehicles.

I know that used to be the case, but surely dealerships have been murdered by cheap servicing packages?

I took daughter's Golf for its first service and the service advisor gave me a copy of the invoice they send to VWFS - £68 inc parts labour and VAT.

Speaking to the Service Manager of the Mitsubishi dealer we use, he told me that very few people use franchise dealers once their car is out of warranty, and that had been his experience with several marques.

[v12ets]

To get slightly back on topic, I have just collected my 64 plate Range Rover Vogue SE and it came with a full tank (80l I think)and heavy duty Range Rover mats.

[ralphrj]

Sheepshanks said:

I know that used to be the case, but surely dealerships have been murdered by cheap servicing packages?

I took daughter's Golf for its first service and the service advisor gave me a copy of the invoice they send to VWFS - £68 inc parts labour and VAT.

It all comes down to vehicle parc penetration (what percentage of the VWs in the dealers territory are being serviced by the dealer).

You and I might always take a new car to the main dealer for a service but a surprising number of people do not - either opting to have them serviced elsewhere or not bothering to service them at all.

Upfront service packages reduce the dealers revenue for a service (as it will be done at a discounted rate and charged to the Manufacturer) but it ties the car to the dealer network for the duration of the service package. The end result is the dealer earns less money per job but has more jobs to do. I suspect that this is particularly the case when the service package is longer than the warranty.

Sheepshanks said:

Speaking to the Service Manager of the Mitsubishi dealer we use, he told me that very few people use franchise dealers once their car is out of warranty, and that had been his experience with several marques.

The penetration rate declines with the age of the car. As well as upfront service packages dealers can try to minimise this by offering discounted servicing for older cars (3+, 6+ etc).

[Zwolf]

The cheap (because they are subsidised by the manufacturer from their profit margin) service packages serve a couple of purposes - they may not be big earners themselves, but what they do do is to tie the customer to the dealer and get them used to the dealership experience.

Often when the warranty expires there is still a service or two to have, so they keep coming in and by then a relationship has been established. In our case thi shas seen customers bringing in vehicles from their household that aren't franchise and are over three years old for MoTs and tyre replacement instead of going to Kwik Fit et al.

Also, the packages only tend to cover routine/predictable maintenance - there's also plenty of additional work to be done replacing wear and tear stuff that's different for everybody. The ancillary work is of course billed at normal rates.

[Sheepshanks]

Zwolf said:

The cheap (because they are subsidised by the manufacturer from their profit margin) service packages serve a couple of purposes - they may not be big earners themselves, but what they do do is to tie the customer to the dealer and get them used to the dealership experience.

It's possible that the dealer gets paid for selling the service package (although that surely gets messy as the car could be serviced at a different dealer) but the VW one on the Golf cost £300. After the first service, subsequent dealer staff I dealt with were mortified that I'd been given the invoice but the typical values are on VW forums and for the 3 services they total quite a bit less than £300. On the face of it, it would be better all round if the dealer offered PAYG servicing at more competitive rates.

And if these things are meant to give the dealers an opportunity to impress, then no-one has communicated that to my local dealer. I watched someone being sold the "Premium" upgrade for £60 which consists of a litre of oil and the key battery being changed, and every time the service advisor was out of earshot he grumbled about it to his wife. I say 'no' but there's no doubt the SA thinks you're being a tightarse which leaves a bad feeling.

I can appreciate that one thing they do, is to keep the dealer and customer in contact with each other.