Dealers only make a little on car sales, I'm not having it!
Discussion
It's an interesting business model. At 1st glance on those margins anyone would be mad to buy into a franchised dealership, the only way they make it work is holding very little stock.
The new stuff is owned by the manufacturers, dealers will do (almost) anything to get it sold before it becomes "fully paid" and they own it. Used and demos are on funding plans from the manufacturer. Most sales depts will show a loss on new cars and demos, margin is made up in volume bonuses paid to HO which the sales dept rarely see.
Indies however have to generate a more traditional way of generating an income.
The new stuff is owned by the manufacturers, dealers will do (almost) anything to get it sold before it becomes "fully paid" and they own it. Used and demos are on funding plans from the manufacturer. Most sales depts will show a loss on new cars and demos, margin is made up in volume bonuses paid to HO which the sales dept rarely see.
Indies however have to generate a more traditional way of generating an income.
Thankyou4calling said:
I went into Mercedes Northampton yesterday.
Many claim main dealers make only a couple of hundred from a new car sale and servicing is only around £250 a year. If anything goes wrong the warranty covers it and there was no oil in sight.
Margins are higher than £250 but no where near typical retail levels, in fact less than half the levels enjoyed by the rest of the retail industry. Margin in used can be better but normally only just better.Many claim main dealers make only a couple of hundred from a new car sale and servicing is only around £250 a year. If anything goes wrong the warranty covers it and there was no oil in sight.
Gross margins on servicing is easier to see, it's net price less cost of labour , plus some for parts.
Thankyou4calling said:
How can they afford to run an operation like this whilst those who work there claim margins are so low?
Not easily...but having a T/O of billions helps.
vikingaero said:
(2) £0 Profit - Corp Tax 20% = £0k [But a new £100k 911 on the drive put onto the business]
Err, no. That would be a capital asset (or stock), so you've still made the profit. (although you can get relief for depreciation of that asset). There *are* things you can do to reduce tax, but they're typically one-offs, and rarely as trivial as that.vikingaero said:
You have a small business called VikingCarSales. What do you do?
(1) £100,000 Profit - Corp Tax 20% = £20k
or
(2) £0 Profit - Corp Tax 20% = £0k [But a new £100k 911 on the drive put onto the business]
Seriously, you need to explain that.(1) £100,000 Profit - Corp Tax 20% = £20k
or
(2) £0 Profit - Corp Tax 20% = £0k [But a new £100k 911 on the drive put onto the business]
What makes you think a "£100k company car" has no costs attached to it? It's more than 10 years since HMRC made flashy company cars a thing of the past - except for people making their money elsewhere.
Our local Jaguar dealer wanted £350 to replace the Pirelli tyre on my Disco 3 when it failed it's MOT. I left and got the same tyre from a guy who did up and serviced old Landrovers for £100 fitted. Such a bargain that I bought 3 more tyres to store for when needed. He even offered to fit them when it was time to replace the others.
Massive profit, especially as I bet Jaguar would not have even paid £100 for the tyre. That's how they could afford to have pretty girls in the surgically clean reception and 'free' bottles of fizzy water and luke warm coffee.
Massive profit, especially as I bet Jaguar would not have even paid £100 for the tyre. That's how they could afford to have pretty girls in the surgically clean reception and 'free' bottles of fizzy water and luke warm coffee.
croyde said:
Our local Jaguar dealer wanted £350 to replace the Pirelli tyre on my Disco 3 when it failed it's MOT. I left and got the same tyre from a guy who did up and serviced old Landrovers for £100 ......
Being new to the industry I've seen this short term tricksy behaviour in practise...equally I've seen this a ford web site said:
Here at %%%%%%% Ford we know our prices are some of the best on the market but we go one step further and offer a Price Match Promise in that we promise to match any like-for-like written quote for a service, maintenance or repair using Ford Genuine Parts including tyres from any garage within a 5 mile radius..
I've seem tyres fitted at fully franchised dealers cheaper than the local "fast tyre centre" 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.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
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...
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
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.
DonkeyApple said:
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.
Good summary - most people in this thread, especially those in the industry, haven't got a fIn 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.
king clue about finance. There's a LOT of profit in new cars. On a new car we bought a few months ago there was an extra discount available but ONLY if we took the 0% APR PCP. Why on earth would any straightforward business do such a thing?
AW111 said:
As everyone says the money is in service rather than sales, why do this? You sell a car once, but services are repeat business.
They don't seem to want to have people come in with older cars, no matter what they say. They're prices frighten the likes of me off. You know if you take a car into a main dealer than needs anything more than basic servicing that you are going to pay through the nose for it. Yes they have overheads to pay, but those overheads would be much lower if they didn't have such ostentatious premises. I can't be the only one that keeps cars for years until they are dead but wants them looking after. The main dealers basically price themselves out of thousands of pounds worth of steady work that they wouldn't need to go looking for over a number of years.
It's much like any other business - the customers who go to the main dealer like to see flashy facilities and good service. There's nothing wrong with that.
My mechanic operates out of a simple industrial unit in a cheap area of town - last time I was there he had my old merc, an e60 M5, a modern jag hearse and plenty of other interesting cars.
It's my preference to pay for his team and not the garage itself! Two different businesses, doesn't mean one makes more than the other though.
My mechanic operates out of a simple industrial unit in a cheap area of town - last time I was there he had my old merc, an e60 M5, a modern jag hearse and plenty of other interesting cars.
It's my preference to pay for his team and not the garage itself! Two different businesses, doesn't mean one makes more than the other though.
0a said:
It's much like any other business - the customers who go to the main dealer like to see flashy facilities and good service. There's nothing wrong with that.
My mechanic operates out of a simple industrial unit in a cheap area of town - last time I was there he had my old merc, an e60 M5, a modern jag hearse and plenty of other interesting cars.
It's my preference to pay for his team and not the garage itself! Two different businesses, doesn't mean one makes more than the other though.
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.My mechanic operates out of a simple industrial unit in a cheap area of town - last time I was there he had my old merc, an e60 M5, a modern jag hearse and plenty of other interesting cars.
It's my preference to pay for his team and not the garage itself! Two different businesses, doesn't mean one makes more than the other though.
Various points,
- Just because cars are expensive doesn't automatically mean they are full of profit.
- Most sections of the motor industry are very, very competitive - which squeezes margins.
- Most people don't have £20-£50k of cash sitting around waiting to buy a car, they need finance.
- Money doesn't come for free. If you're borrowing money you're going to be paying for it.
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