Dealers only make a little on car sales, I'm not having it!
Discussion
daemon said:
HTP99 said:
Thank you.
I hear it everyday; we are a main dealer however we are rough around the edges and the place is tired but people like us because we aren't flashy, particularly the older generation. I know for a fact that many people find these places intimidating, flashy and ostentatious and think to themselves that they are paying for it all with expensive servicing and repair bills and expensive cars.
When I firsted started in car sales; 12 odd years ago, I was taken on with a view to work in the new dealership that hadn't been built yet, in a new area of the country for us, for two years I worked out of a building that we called "The Bungalow", it was an old brick building that had room for two showroom cars, it had dark wooden stairs and railings and was carpeted, it was nothing fancy, it was homely and relaxing though.
We sold more new cars out of "The Bungalow, then when the £4m gin palace was built and up and running and obviously none of the overheads.
What does your net margin look like on your new cars? What brand do you sell?I hear it everyday; we are a main dealer however we are rough around the edges and the place is tired but people like us because we aren't flashy, particularly the older generation. I know for a fact that many people find these places intimidating, flashy and ostentatious and think to themselves that they are paying for it all with expensive servicing and repair bills and expensive cars.
When I firsted started in car sales; 12 odd years ago, I was taken on with a view to work in the new dealership that hadn't been built yet, in a new area of the country for us, for two years I worked out of a building that we called "The Bungalow", it was an old brick building that had room for two showroom cars, it had dark wooden stairs and railings and was carpeted, it was nothing fancy, it was homely and relaxing though.
We sold more new cars out of "The Bungalow, then when the £4m gin palace was built and up and running and obviously none of the overheads.
As for net margin; I know what the margins are, I know what I can play with and I know roughly what an individual new car that I sell has made; before back end bonus payments, as for what do we make as a whole per unit as an average;, if that is what you are asking, I don't know.
HTP99 said:
Renault m
As for net margin; I know what the margins are, I know what I can play with and I know roughly what an individual new car that I sell has made; before back end bonus payments, as for what do we make as a whole per unit as an average;, if that is what you are asking, I don't know.
If you know roughly what is made on say a clio, against sale price, what does that work out at?As for net margin; I know what the margins are, I know what I can play with and I know roughly what an individual new car that I sell has made; before back end bonus payments, as for what do we make as a whole per unit as an average;, if that is what you are asking, I don't know.
daemon said:
HTP99 said:
Renault m
As for net margin; I know what the margins are, I know what I can play with and I know roughly what an individual new car that I sell has made; before back end bonus payments, as for what do we make as a whole per unit as an average;, if that is what you are asking, I don't know.
If you know roughly what is made on say a clio, against sale price, what does that work out at?As for net margin; I know what the margins are, I know what I can play with and I know roughly what an individual new car that I sell has made; before back end bonus payments, as for what do we make as a whole per unit as an average;, if that is what you are asking, I don't know.
So let's say someone comes and purchases a 1.2 Dynamique using the advertised PCP offer:
7% margin is £742, however we have to contribute £333, so that leaves a margin of £409.
We don't earn anything on the finance if we do it at the advertised rate, anything above the advertised rate we do, however not by using the advertised rate.
So £400 on a £13500 car, not taking into account anything else that people may want thrown in.
Obviously there is back end money, but it all depends on hitting targets.
My colleage has recently sold a number of Masters with a retail of £30k each, we made £200 on each one.
HTP99 said:
A Clio has a 7% margin, currently there is also a nationally advertised £1250 "deposit contribution" if bought on 0% or PCP; £650 from Renault, £200 from RCI and the remaining £400 from the dealer; this comes out of the 7% margin at £333 + VAT, if you purchase the car with "cash" then you still get the £400 from Renault but nothing from RCI.
So let's say someone comes and purchases a 1.2 Dynamique using the advertised PCP offer:
7% margin is £742, however we have to contribute £333, so that leaves a margin of £409.
We don't earn anything on the finance if we do it at the advertised rate, anything above the advertised rate we do, however not by using the advertised rate.
So £400 on a £13500 car, not taking into account anything else that people may want thrown in.
Obviously there is back end money, but it all depends on hitting targets.
My colleage has recently sold a number of Masters with a retail of £30k each, we made £200 on each one.
CheersSo let's say someone comes and purchases a 1.2 Dynamique using the advertised PCP offer:
7% margin is £742, however we have to contribute £333, so that leaves a margin of £409.
We don't earn anything on the finance if we do it at the advertised rate, anything above the advertised rate we do, however not by using the advertised rate.
So £400 on a £13500 car, not taking into account anything else that people may want thrown in.
Obviously there is back end money, but it all depends on hitting targets.
My colleage has recently sold a number of Masters with a retail of £30k each, we made £200 on each one.
Thats very interesting and insightful.
hora said:
No business in the world would go into/stay and sell a 20k core product for £100 profit. Like I said earlier until a DEALER PRINCIPAL or Dealership Accountant spills I wont listen to 'my mates a Sales Manager'. Unless you are privie to the P&L and other accounts you are in a high pressure sales environment that speaks volumes.
I was an Analyst for one of the biggest dealer groups in the country with site of P&Ls for all of our sites. I've already posted earlier in the thread how the numbers stack up.ralphrj said:
hora said:
No business in the world would go into/stay and sell a 20k core product for £100 profit. Like I said earlier until a DEALER PRINCIPAL or Dealership Accountant spills I wont listen to 'my mates a Sales Manager'. Unless you are privie to the P&L and other accounts you are in a high pressure sales environment that speaks volumes.
I was an Analyst for one of the biggest dealer groups in the country with site of P&Ls for all of our sites. I've already posted earlier in the thread how the numbers stack up.Not as told by a salesman but somebody who had daily visability of P&L for a prestige dealer group.
Fast Bug said:
ralphrj said:
I was an Analyst for one of the biggest dealer groups in the country with site of P&Ls for all of our sites. I've already posted earlier in the thread how the numbers stack up.
How dare you come here with facts and first hand knowledge 
Besides hes not a reliable source. What Hora wants is for the dealer principal of a prestige motor group to come on here and give us all his facts and figures of his P&L and then of course that wont be enough so it will need to be published and signed off by one of the big auditing companies - Price Waterhouse Coopers, someone like that, so we'll need them on here too. AND of course we'll need PROOF its them, so we'll need the custard test of them sitting at their desk in their dealership and a can of custard beside their name plaque and one of their business cards.
Alternatively Hora - and others - could maybe accept what they're f
king being told by the motor trade on here. 
To save you searching:
ralphrj said:
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 ... 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%.
When I worked at ... 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%.
greggy50 said:
daemon said:
Cheers
Thats very interesting and insightful.
Is indeed appear to make pretty much fThats very interesting and insightful.
k all does sound like a hard business to be in! berlintaxi said:
daemon said:
berlintaxi said:
And i would say very little of that made purely off new car sales - which is the point of this thread.Unless of course you have a problem with people making money full stop?
daemon said:
Rincewind209 said:
I agree net profit is low, but that is because of all the money it costs to sell the cars. Pendragon just couldn't manage their debt effectively, their debt costs became higher and they were into a vicious circle. But they still averaged 7.6% profit on new car sales in 2013. So their operating costs were too high, not their profit on new cars too low.
Everyones an analyst of course. If only someone had thought to tell Pendragon that all that was wrong was that their operating costs were too high. 7.6% would equate to £1140 on a £15,000 car.
That doesnt leave an awful lot for all their overheads. Even if they lost 2/3 of that to overheads, then we're back to a net proft of 2.5%, which as i have said, and as everyone who actually knows something about the motor trade has said, isnt really a lot.
Rincewind209 said:
Of course people told them their operating costs were too high, the debt became more expensive. Fairly obviously they needed to increase their profitability or reduce their business costs, which they did. But a large dealership group still published their accounts with a profit margin of 7.6% on new car sales. Yes their net profit was 2% but for new cars they averaged 7.6%. If they had achieved only 2% on new cars their net profit would have been substantially worse.
Just imterested, but do the published accounts you refer to actually split out the gross profit for "new car sales" and the many other income streams all individually or is this the GP across the whole business.If they do perhaps you could provide a link as I'd be interested in having a look.
oldnbold said:
Just imterested, but do the published accounts you refer to actually split out the gross profit for "new car sales" and the many other income streams all individually or is this the GP across the whole business.
If they do perhaps you could provide a link as I'd be interested in having a look.
It is the gross profit figure for new cars only in 2013.If they do perhaps you could provide a link as I'd be interested in having a look.
http://www.pendragonplc.com/main_content/pdf/resul...
You can breakdown that result further between the 3 elements of new car sales.
Stratstone - the premium brands (Aston Martin, BMW, Ferrari, Jaguar, Land Rover, Mercedes-Benz, Porsche etc) 8.9% gross profit
Evans Halshaw - the volume brands (Ford, Vauxhall, Renault, Citroen, Peugeot etc) 6.0% gross profit
California - group of dealerships in Southern California for Aston Martin & JLR - 14.6% gross profit
Take that Clio example and run it vanilla
Renault makes the car, Renault specs the dealership, helps train the staff, does 80% of the marketing, organises finance and most of the logistics and grants dealer geographic exclusivity to some extent
Dealer takes and processes order, with opportunity to sell profitable addons. Punter pays deposit, car arrives, dealer gets paid
Time passes
Dealer pays Renault for car
Dealer should earn a bit from that, but not much
130 is about right IMO for this scenario
Different for stock cars, used, etc, but fine for vanilla
Renault makes the car, Renault specs the dealership, helps train the staff, does 80% of the marketing, organises finance and most of the logistics and grants dealer geographic exclusivity to some extent
Dealer takes and processes order, with opportunity to sell profitable addons. Punter pays deposit, car arrives, dealer gets paid
Time passes
Dealer pays Renault for car
Dealer should earn a bit from that, but not much
130 is about right IMO for this scenario
Different for stock cars, used, etc, but fine for vanilla
VorsprungDirk said:
You really cant see any further than the end of your nose can you, I work at Audi, also in Northampton and we make 0.7% profit against turnover this year, if I was investing in a business it wouldnt be a car dealership.
Thanks for the self analysis, much appreciated.Now, I don't know your role at Audi Northampton but if you made 0.7% profit V turnover, quite clearly that is poor. Well below industry norm.
Haven't seen your accounts, post them up and i'll make some comments and recommendations, I won't even charge for the advice mate.
Thankyou4calling said:
Thanks for the self analysis, much appreciated.
Now, I don't know your role at Audi Northampton but if you made 0.7% profit V turnover, quite clearly that is poor. Well below industry norm.
Haven't seen your accounts, post them up and i'll make some comments and recommendations, I won't even charge for the advice mate.
And then people wonder why the motor traders generally don't bother posting anymore...Now, I don't know your role at Audi Northampton but if you made 0.7% profit V turnover, quite clearly that is poor. Well below industry norm.
Haven't seen your accounts, post them up and i'll make some comments and recommendations, I won't even charge for the advice mate.
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