Dealer Margins on Cars
Discussion
I realise that this is a "how long is a piece of string" type question, but I was just wondering what the range of dealer margins are on used cars.
My thinking would be that these SHOULD be broadly self correcting - i.e. if a dealer tries to buy a car too cheap, someone else will outbid them. Likewise, if they try to sell a car for too much money, no-one will buy it.
There was a thread on here recently where someone posted CAP prices for a 5 series BMW - I think it was something like trade = £18K, retail = £21K. So £3K on a £21K car, or ~15%. I am vaguely aware of some convoluted VAT calculation which I think reduces that somewhat, but I am unsure of the details.
Is 15% more or less standard, or would a dealer have a larger % margin in a car that was a slow seller - e.g. an Alfa 4C Spider.
What I'm after trying to figure out is - if I buy a car that is a slow seller, what is the likely dealer margin that I will need to factor in on top of depreciation when I come to sell (assuming I buy from a dealer and sell it to a dealer).
My thinking would be that these SHOULD be broadly self correcting - i.e. if a dealer tries to buy a car too cheap, someone else will outbid them. Likewise, if they try to sell a car for too much money, no-one will buy it.
There was a thread on here recently where someone posted CAP prices for a 5 series BMW - I think it was something like trade = £18K, retail = £21K. So £3K on a £21K car, or ~15%. I am vaguely aware of some convoluted VAT calculation which I think reduces that somewhat, but I am unsure of the details.
Is 15% more or less standard, or would a dealer have a larger % margin in a car that was a slow seller - e.g. an Alfa 4C Spider.
What I'm after trying to figure out is - if I buy a car that is a slow seller, what is the likely dealer margin that I will need to factor in on top of depreciation when I come to sell (assuming I buy from a dealer and sell it to a dealer).
There are an awful lot of variables, and making a standard percentage would be a bit misleading.
I'm not a car dealer, but bear in mind the following from my experience:-
At the lower end of the market it looks like 65% not 15% at first sight. I.e. a friend traded in his car for £3,500 and it was then on the forecourt for £5,795. But that £2,295 isn't all "profit". The dealer has to pay for his site (rent/rates/insurance), finance (bank loan to cover his stock), warranty for the next purchaser (whether that's third party or self-repaired-and-funded), cleaning and sprucing-up repairs, etc etc.
There is also the issue of "over-allowance" for part exchanges coming in, which distorts all the figures, which all have to be reduced to the correct market level for a direct meaningful comparison.
I'm not a car dealer, but bear in mind the following from my experience:-
At the lower end of the market it looks like 65% not 15% at first sight. I.e. a friend traded in his car for £3,500 and it was then on the forecourt for £5,795. But that £2,295 isn't all "profit". The dealer has to pay for his site (rent/rates/insurance), finance (bank loan to cover his stock), warranty for the next purchaser (whether that's third party or self-repaired-and-funded), cleaning and sprucing-up repairs, etc etc.
There is also the issue of "over-allowance" for part exchanges coming in, which distorts all the figures, which all have to be reduced to the correct market level for a direct meaningful comparison.
omniflow said:
I realise that this is a "how long is a piece of string" type question, but I was just wondering what the range of dealer margins are on used cars.
My thinking would be that these SHOULD be broadly self correcting - i.e. if a dealer tries to buy a car too cheap, someone else will outbid them. Likewise, if they try to sell a car for too much money, no-one will buy it.
There was a thread on here recently where someone posted CAP prices for a 5 series BMW - I think it was something like trade = £18K, retail = £21K. So £3K on a £21K car, or ~15%. I am vaguely aware of some convoluted VAT calculation which I think reduces that somewhat, but I am unsure of the details.
Is 15% more or less standard, or would a dealer have a larger % margin in a car that was a slow seller - e.g. an Alfa 4C Spider.
What I'm after trying to figure out is - if I buy a car that is a slow seller, what is the likely dealer margin that I will need to factor in on top of depreciation when I come to sell (assuming I buy from a dealer and sell it to a dealer).
Roughly speaking, a dealer might want to see a £4K margin on a car costing him £18K. On something £5K its probably £1,500 to £2,000.My thinking would be that these SHOULD be broadly self correcting - i.e. if a dealer tries to buy a car too cheap, someone else will outbid them. Likewise, if they try to sell a car for too much money, no-one will buy it.
There was a thread on here recently where someone posted CAP prices for a 5 series BMW - I think it was something like trade = £18K, retail = £21K. So £3K on a £21K car, or ~15%. I am vaguely aware of some convoluted VAT calculation which I think reduces that somewhat, but I am unsure of the details.
Is 15% more or less standard, or would a dealer have a larger % margin in a car that was a slow seller - e.g. an Alfa 4C Spider.
What I'm after trying to figure out is - if I buy a car that is a slow seller, what is the likely dealer margin that I will need to factor in on top of depreciation when I come to sell (assuming I buy from a dealer and sell it to a dealer).
Yes, slow moving stuff, dealers will want a much bigger margin.
The chances are a £4k car will need far more warranty work than a similar model £21k car.
It all depends on the car.
If you're looking for a deal, find 5 cars you like, call the dealers and make them an offer, say you have done the same with 4 other dealers and whoever can do the deal and comes back to you first will get a deposit and you will take it from there.
One of them always does from experience. Someone probably just needs to sell that one extra car this month and will be prepared to take a bit of a hit to hit target.
I have had much more joy in big discounts with main dealers because of this, indis don't tend to have targets, they just need to get metal sold and do so while trying to make a profit.
335i Touring advertised at £38k for £32500 was a good one for me, but best was a 3.2 A6 Avant, up for £19500 and got it for £12500, that was Peterborough Audi.
Get them right down now and depreciation will hurt 'less'.
If you sell back to the trade it depends on age anyway, I always think a new car will be worth around 65% of list after 12 months, 55% after 24 months and around 45% of list after 36 months with 12k miles a year added.
Then take another 10% off for each year after that till you get to year 6 or 7.
Of course some models will do better, some worse, but that is about right for most cars.
It all depends on the car.
If you're looking for a deal, find 5 cars you like, call the dealers and make them an offer, say you have done the same with 4 other dealers and whoever can do the deal and comes back to you first will get a deposit and you will take it from there.
One of them always does from experience. Someone probably just needs to sell that one extra car this month and will be prepared to take a bit of a hit to hit target.
I have had much more joy in big discounts with main dealers because of this, indis don't tend to have targets, they just need to get metal sold and do so while trying to make a profit.
335i Touring advertised at £38k for £32500 was a good one for me, but best was a 3.2 A6 Avant, up for £19500 and got it for £12500, that was Peterborough Audi.
Get them right down now and depreciation will hurt 'less'.
If you sell back to the trade it depends on age anyway, I always think a new car will be worth around 65% of list after 12 months, 55% after 24 months and around 45% of list after 36 months with 12k miles a year added.
Then take another 10% off for each year after that till you get to year 6 or 7.
Of course some models will do better, some worse, but that is about right for most cars.
I had an uncle who was quite successful in the trade. I worked for him during summers when at Uni in his dealership, quite a few years ago. He got out and built houses very successfully a few years back. I used to valet, drive cars to MOT etc and help with sales. It was great fun
We were having a chat a while ago about margins and he was saying he used to need c £4.5k in a £20 odd k car and at times lucky to net £1.2k pre tax per unit when all costs considered. He used to stock about 50 cars and turn them quite quick based on reputation. Mix was hot hatch, 3 year old bmw and merc etc.
Overheads - premises costs, advertising (eye watering), staff wages etc, VAT (currently 1/6 of the gross margin goes straight to VAT), PAYE / NI
Variable - car servicing, prep, money in pot for warranty returns, commission to sales guy etc
If all the planets aligned he would net pre tax £1.2k from the metal and take off corp tax at 20% left a grand in the car......that was then. we used to turn stock in about 32 days from memory. He told me industry average was c 8 stock turns a year. He had good repeat business based on a
professional prep and he had good contacts at main dealers for trade ins
Nowadays his old trading mates are facing into very expensive acquisition costs at auction and very tight margins. Look at accounts of some dealerships on companies house there is quite a bit of -ve net worth.
Main dealers - some of them are on a race to the bottom...buying used cars with small margins and hoping for finance commission to make the money up.
The guys who seem to do really well are those who specialise - rsj 911v, paragon Porsche, rs direct etc
There's a lad who worked for the uncle as a salesman started his own unit and did well with cars between £10 and £20k and good finance comms. Now his lease is up in 18 months and as a growing sideline he is selling used watches, rolex, omega etc on chrono 24 and with a serviced office. He says its easier money so dealership will go
We were having a chat a while ago about margins and he was saying he used to need c £4.5k in a £20 odd k car and at times lucky to net £1.2k pre tax per unit when all costs considered. He used to stock about 50 cars and turn them quite quick based on reputation. Mix was hot hatch, 3 year old bmw and merc etc.
Overheads - premises costs, advertising (eye watering), staff wages etc, VAT (currently 1/6 of the gross margin goes straight to VAT), PAYE / NI
Variable - car servicing, prep, money in pot for warranty returns, commission to sales guy etc
If all the planets aligned he would net pre tax £1.2k from the metal and take off corp tax at 20% left a grand in the car......that was then. we used to turn stock in about 32 days from memory. He told me industry average was c 8 stock turns a year. He had good repeat business based on a
professional prep and he had good contacts at main dealers for trade ins
Nowadays his old trading mates are facing into very expensive acquisition costs at auction and very tight margins. Look at accounts of some dealerships on companies house there is quite a bit of -ve net worth.
Main dealers - some of them are on a race to the bottom...buying used cars with small margins and hoping for finance commission to make the money up.
The guys who seem to do really well are those who specialise - rsj 911v, paragon Porsche, rs direct etc
There's a lad who worked for the uncle as a salesman started his own unit and did well with cars between £10 and £20k and good finance comms. Now his lease is up in 18 months and as a growing sideline he is selling used watches, rolex, omega etc on chrono 24 and with a serviced office. He says its easier money so dealership will go
Roo said:
Deep Thought said:
Roughly speaking, a dealer might want to see a £4K margin on a car costing him £18K. On something £5K its probably £1,500 to £2,000.
.
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celticstevie said:
We were having a chat a while ago about margins and he was saying he used to need c £4.5k in a £20 odd k car and at times lucky to net £1.2k pre tax per unit when all costs considered. He used to stock about 50 cars and turn them quite quick based on reputation. Mix was hot hatch, 3 year old bmw and merc etc.
So bang on what i was saying, yet it still yielded a from Roo. 
I need a new pair of shoes ( pointy ones obviously ) .
The ones I've been looking at are about £80 but I've seen the same brand at TK Maxx for £50 albeit in a slightly different style. I was just wondering what kind of margin shoe shops work on, as I need to make sure I get the best deal.
Anyone have any ideas?
The ones I've been looking at are about £80 but I've seen the same brand at TK Maxx for £50 albeit in a slightly different style. I was just wondering what kind of margin shoe shops work on, as I need to make sure I get the best deal.
Anyone have any ideas?
Deep Thought said:
So bang on what i was saying, yet it still yielded a from Roo.
Yes.....profit is not a dirty word and net margins are quite low in that business. from Roo. Next year I think will be challenging for car trade, sticky stock, no confidence, finance challenges etc.
A business with a director plus 2 staff and with good stock levels could be looking at 8k a month overheads quite easily. That's a lot of metal to break even.
celticstevie said:
Deep Thought said:
So bang on what i was saying, yet it still yielded a from Roo.
Yes.....profit is not a dirty word and net margins are quite low in that business. from Roo. Next year I think will be challenging for car trade, sticky stock, no confidence, finance challenges etc.
A business with a director plus 2 staff and with good stock levels could be looking at 8k a month overheads quite easily. That's a lot of metal to break even.
That was 5+ years ago now. So glad to be out of it.
Roger Irrelevant said:
On the 'Ask a car dealer anything' thread recently one of the salesmen was moaning about customers wanting things on cars they'd bought off him to be fixed - he gave the example of a £5k Vauxhall on which they had to spend £2k fixing things because of the customer complaining. He said that as a result they'd only made a tiny profit. Rather than sympathising I was amazed they still made a profit as every time I've looked at buying a second hand car from a dealer I always get 'Sorry mate can't reduce the price I've had to replace a tyre and put a new air freshener in it so I won't make any money as it is', yet here was a car dealer talking about expecting £2k profit from a £5k motor!
Incorrect....We were expecting a profit, obviously, to the tune of around £700, as we were aware the vehicle in question needed a fair amount of recon work to make it nice.
What we were not expecting is the other massive expenditure once it was up in the air on the ramps and this and that required replacing as well as a £700 air conditioning overhaul.
So no, to correct you, we were not expecting 2k profit
We were not expecting to make £12.50p profit either, which is about what we ended up making or thereabouts.
Total waste of time selling it in the end, but as an uneducated punter, this is something you will never understand.
Edited by Mexman on Thursday 12th September 12:21
A private to private sale is an at cost transaction. No profit is necessary or deserved because no value has been added to the transaction from the seller.
In a commercial sale a buyer expects some value to be added to the transaction. This may be a high level of customer service, a warranty, a series of repairs to restore a car's condition.
Too many trade sales have not added any value whatsoever. They take a car in at trade price, maybe give it a clean, offer a 3rd party warranty thats not worth the paper its written on, and then expect to turn a profit on it. Sorry but thats not good value for the buyer.
The example above was not the buyers fault it was a misjudgement from the seller in the extent of work needed. It would appear the buyer got a good deal in that example, having picked up a car after repairs for at cost price. It may be that the seller paid too much for the car initially and thats why there was no margin.
I have no problem with profit being made if value has been added. Its when no value is added then thats not a good deal for the consumer.
In a commercial sale a buyer expects some value to be added to the transaction. This may be a high level of customer service, a warranty, a series of repairs to restore a car's condition.
Too many trade sales have not added any value whatsoever. They take a car in at trade price, maybe give it a clean, offer a 3rd party warranty thats not worth the paper its written on, and then expect to turn a profit on it. Sorry but thats not good value for the buyer.
The example above was not the buyers fault it was a misjudgement from the seller in the extent of work needed. It would appear the buyer got a good deal in that example, having picked up a car after repairs for at cost price. It may be that the seller paid too much for the car initially and thats why there was no margin.
I have no problem with profit being made if value has been added. Its when no value is added then thats not a good deal for the consumer.
going from my own recent experiences over a few years seems like the dealers who trade in say £30k+ cars look to make larger margins e.g. retail value of car £36k bid £28k, retail value of car £82k bid £68k, retail value £39k bid £30k. All cars were straight with full history etc and very little if anything needed to retail.
BlackR8 said:
going from my own recent experiences over a few years seems like the dealers who trade in say £30k+ cars look to make larger margins e.g. retail value of car £36k bid £28k, retail value of car £82k bid £68k, retail value £39k bid £30k. All cars were straight with full history etc and very little if anything needed to retail.
They will have to factor in heavy book drops if the car has potential to stick around, they won't be selling in the volume that lower priced cars sell at and no matter how often someone say that the car they are trading in is "straight" and "very little if anything needed to retail", invariably that is not the case. HTP99 said:
BlackR8 said:
going from my own recent experiences over a few years seems like the dealers who trade in say £30k+ cars look to make larger margins e.g. retail value of car £36k bid £28k, retail value of car £82k bid £68k, retail value £39k bid £30k. All cars were straight with full history etc and very little if anything needed to retail.
They will have to factor in heavy book drops if the car has potential to stick around, they won't be selling in the volume that lower priced cars sell at and no matter how often someone say that the car they are trading in is "straight" and "very little if anything needed to retail", invariably that is not the case. Gassing Station | Car Buying | Top of Page | What's New | My Stuff