20% off a new car? Really?
Discussion
Sheepshanks said:
unrepentant said:
thelawnet said:
Car list prices have a lot of margin in. For some brands its normal to inflate the price by 25%.
Really? Can you name those brands because I'm looking for a new car and I'd really like to know which ones are inflated by 25% so that I can do the best deal for myself. You sound like you're a well informed individual so help a brother out and give me the inside scoop on these brands. Breath well and truly baited in anticipation.
unrepentant said:
For clarity for others, the issue is that the margin isn't all in the dealers hands, it's shared amongst several parties. But it can be made available if necessary. Hence discounts of 25% are possible yet the poor dealers allegedly make single figure margins.
Sheepshanks said:
You know better than many that it's true.
For clarity for others, the issue is that the margin isn't all in the dealers hands, it's shared amongst several parties. But it can be made available if necessary. Hence discounts of 25% are possible yet the poor dealers allegedly make single figure margins.
Put the crack pipe away dude For clarity for others, the issue is that the margin isn't all in the dealers hands, it's shared amongst several parties. But it can be made available if necessary. Hence discounts of 25% are possible yet the poor dealers allegedly make single figure margins.
Sheepshanks said:
There's typically slightly more than 50% gross margin in a car.
The production cost of a car is typically 50% of the retail price, but this excludes manufacturers and dealers overheads as well as their profits. The profits of quoted dealers are not very high relative to their sales; take away the profit on GAP insurance and they are probably selling cars at a loss 
.The local Mercedes emporium has a C class with 18% off written on the doors, bit i expect that this is the old model.
CarlT said:
There is a big difference between inflating a price and having a margin. 25% is very rare to have on cars. You can be assured that Tesco and the like have lots more than 25% margin in tins of beans etc.
Well Tesco have been known to sell beans at a fraction of the cost of production. http://articles.philly.com/1996-05-15/business/256...Snollygoster said:
Utter nonsense. The actual metal production of the car will be close to that, and that's without factoring the small elements of research and development, transportation, advertising, staff wages and benefits, shareholder profits, dealer margin, import margin etc.
For BMW AG last year, 1,963,798 cars delivered to customers, with a revenue of €76,058,000,000. So on average €38,730 a car. The gross profit of that is just 20.1%, and that also includes BMW Financial Services revenue and profit which will increase the percentage as is more profitable rate of return.
BMW's material costs (inclusive of freight, insurance, customs duties) came to 55.2% of sales. That's before finance cost, wages, etc.For BMW AG last year, 1,963,798 cars delivered to customers, with a revenue of €76,058,000,000. So on average €38,730 a car. The gross profit of that is just 20.1%, and that also includes BMW Financial Services revenue and profit which will increase the percentage as is more profitable rate of return.
Fast Bug said:
Sheepshanks said:
You know better than many that it's true.
For clarity for others, the issue is that the margin isn't all in the dealers hands, it's shared amongst several parties. But it can be made available if necessary. Hence discounts of 25% are possible yet the poor dealers allegedly make single figure margins.
Put the crack pipe away dude For clarity for others, the issue is that the margin isn't all in the dealers hands, it's shared amongst several parties. But it can be made available if necessary. Hence discounts of 25% are possible yet the poor dealers allegedly make single figure margins.
Some customers are willing to pay more than others for the same goods or services. That's why airlines charge different prices for seats on the same plane. If a flight is half full of full fare paying passengers the airline may drop the price of tickets in order to fill the plane. The reasoning being that they'll make more money than if they'd kept the price high and flown empty seats.
With cars the trick is to hold onto your full price paying customers whilst still bringing in extra revenue from discount customers.
Make sure you're one of the discount customers and let someone else pay the car industry's profits.
Ari said:
john banks said:
£20k off a new big Audi is quite easy. I bought one at 6 months old for £25k off and a year old for £35k off list.
That the six month old one was then traded in for £1k less at 12 months was gratifying given the bath it could have been.
I'm perhaps missing something here, but aren't those examples both secondhand cars ? That the six month old one was then traded in for £1k less at 12 months was gratifying given the bath it could have been.
Edited by john banks on Monday 10th November 22:15
BMW seem to on a big discount drive on new cars recently though, 15-20% discounts all over the place.
Roo said:
Righto.
Normal dealer margin is roughly 9% with 4-5% back end bonus.
If a manufacturer decides to offer a deal on a car to move some stock it is expected that the dealers will pass all that bonus on. Leaving them with only their margin, most of which they will have to give away in order to do the deal.
To suggest that the list price has 25% margin in it is laughable.
I wasn't particularly referring to the dealer's margins, but the list price, which is set by the manufacturer at an inflated level in many cases, in order to offer discounts/finance/incentives. Here's Ford's list prices and then the price on Drive The Deal Normal dealer margin is roughly 9% with 4-5% back end bonus.
If a manufacturer decides to offer a deal on a car to move some stock it is expected that the dealers will pass all that bonus on. Leaving them with only their margin, most of which they will have to give away in order to do the deal.
To suggest that the list price has 25% margin in it is laughable.
B-Max £15,394 list, DTD £12,048.59 (save 22%)
C-MAX £18,149 list DTD £12679.02 (save 30%)
Eco Sport £15994 list DTD £13,248.59 (save 17%)
Fiesta £13,344 list DTD £10,160.59 (save 24%)
Focus £17,294 list DTD £12894.59 (save 25%)
Grand C-Max £19,744 list DTD £14,296.73 (save 28%)
Ka £8944 list DTD £7483.49 (save 16%)
Kuga £20994 list DTD £16772.34 (save 20%)
Mondeo £21,044 list DTD £17236.62 (save 18%)
For Mercedes discounts are: A-Class 12%, C-Class 12%, E-Class 21%, ML 15%, S-class 8%.
The discounts will vary as the models age, or if sales are weak. In 2010 the E Class was selling at a much lower discount, as it was a relatively new model. http://www.honestjohn.co.uk/news/deals/2010-01/up-... In 2008 they were flogging off A-Classes. http://www.honestjohn.co.uk/news/deals/2008-08/mor...
I'm sure that late-cycle discounts are part of their business plan - the actual cost of building a car is going to be pretty much bang on half of list price, and given that they've got unionised staff that they aren't going to lay off, the money spent on building factories, tools, moulds, etc. is already spent, so for Mercedes it's going to make more sense to knock another £4k off the price than to stick with a higher price and be left with unsold cars. If you add up R+D, fabrication costs, materials, labour, and a pro rate portion of advertising and other group costs etc., it's quite possible that they are selling them 'below cost', but that's not really a problem over a life cycle of seven years - if they spend 3 years making £3k net profit per E Class, 2 years making £1k per E-class, and then 2 years losing £1k per E-Class, then it's still profitable overall, and the product lifecycle length reflects the costs of R+D/fabrication costs, etc. so it's still profitable to 'lose money' by discounting these (and they must be being sold even cheaper into some of the cheap leases now available).
The manufacturers set their own list prices, and they will plan to sell cheaper than these in almost every case, but clearly different marques play the discount game differently.
Whatever way you look at it, it's very confusing for new/used buyers. 'That new car lost 50% in 3 years' 'But I got 25% off to start with'. And then there are the options, metallic paint, etc., cunning ways of trying to claw back some of the discount by selling high-profit options.
Claudia Skies said:
....or as others might put it, on the wrong car.
Broadly speaking the discounts are biggest on the cars that people least want to buy. So get ready for some hefty depreciation to snatch back that initial "saving".
Correct the list price is a too narrow measure to compare the cost of a car, you have to look at Purchase Price - Sale Price to get an overall idea. I'd rather buy a £70k car that's in demand and sell for £50k than a £30k car and sell for £3k. On the whole though, in the UK, finding new cars with those depreciation profiles is highly unlikely!Broadly speaking the discounts are biggest on the cars that people least want to buy. So get ready for some hefty depreciation to snatch back that initial "saving".
This may be difficult to grasp, but not all cars have the same discounts. Even within a manufacturer, a 5 series may well have more margin than a 3 series, but less than a 1 series. Audi will have a different pricing structure than Mercedes. So whilst yes, some vehicles it is possible to get 25% off, others you'll be lucky to get 10% off.
When a vehicle is nearing the end of its production, the manufacturer can, and indeed do put more support behind it. It keeps the current model production up, and they can do it as the vehciel has covered its R&D costs etc.
You can't make a sweeping generalisation that all vehicles have 25% in them.
And 50% just shows that there really are some clueless loons who try and sound like they know something when really, they know the square root of f
k all 
When a vehicle is nearing the end of its production, the manufacturer can, and indeed do put more support behind it. It keeps the current model production up, and they can do it as the vehciel has covered its R&D costs etc.
You can't make a sweeping generalisation that all vehicles have 25% in them.
And 50% just shows that there really are some clueless loons who try and sound like they know something when really, they know the square root of f
k all What most people struggle with is the often complex supply chain.
Manufacturer who actually sets the RRP - NMSC (National Sales and Marketing Company) that may or may not be owned by the manufacturer - Dealer Group (that may or may not be owned by either the manufacturer or NMSC) and finally the dealer
Deals will be getting done up and down the supply chain dependant on time of year, stock, new model introduction / old model run outs etc
Taking a broad brush view that all cars have x, y or z % margin in them is laughable
I have certainly known dealers to sell cars at a front end loss in an attempt to hit target so that the back end bonus money more than compensates for the loss making sales
There are a huge amount of variables at play behind the scene, working with manufacturers, NMSCs and dealer groups I get to see first hand how the money flows and its mind blowing at times
Manufacturer who actually sets the RRP - NMSC (National Sales and Marketing Company) that may or may not be owned by the manufacturer - Dealer Group (that may or may not be owned by either the manufacturer or NMSC) and finally the dealer
Deals will be getting done up and down the supply chain dependant on time of year, stock, new model introduction / old model run outs etc
Taking a broad brush view that all cars have x, y or z % margin in them is laughable
I have certainly known dealers to sell cars at a front end loss in an attempt to hit target so that the back end bonus money more than compensates for the loss making sales
There are a huge amount of variables at play behind the scene, working with manufacturers, NMSCs and dealer groups I get to see first hand how the money flows and its mind blowing at times
As our company (Orangewheels.co.uk) is the subject of this post hopefully I can shine some light on this subject without breaking any forum advertising rules, and answer any questions going.
Firstly, yes, the discounts are real (we've been around for about 8 years and supply 2-3000 cars a year) we wouldn't spend thousands of pounds advertising them otherwise.
Secondly regarding the margins in cars - I'll use the E-Class saloon in the OP's query as an example to give you a rough idea of how the discount is reached and what the profit margins are:
Mercedes dealers have typically 8% "front end" profit margin in a car such as this, and that's their usual dealing money, most dealers will try and retain as much as possible and salesmen are usually paid a percentage of the amount they retain as commission so it's in their interests to charge you as much as possible.
Mercedes dealers also have around 6% "back end" money in the car, which is paid at a later date and is only paid if they hit a series of performance targets usually based around their CSI scores - customer service scores that they get when Mercedes UK sends you out a survey on how well the dealer did shortly after you've taken delivery of the new car. As series of bad scores from customer can reduce that 6% back end down by 1-2% across every new car they sell, so the back end money isn't guaranteed and a lot of dealers don't dip into it when discounting.
Mercedes UK also has a current national offer for Oct - Dec 2014 where if you buy an E-Class Saloon or Estate you get an additional £2500 cash support discount straight from the manufacturer, that doesn't come out of the dealers margin. (there is an alternate finance deposit contribution instead of the cash support if you are going down the PCP finance route)
Our discount on this occasion is made up of the front 8% + 4% of the back end money + £2500 cash support, equalling around £6600 on this occasion, roughly 20%. Meaning the dealer makes around 2%, out of which they've got to pay us, pay the salesman, keep the lights on etc.
So why are the dealers doing it that cheaply?
Firstly we are giving them hundreds of orders a year, so we are in a strong bargaining position - you get a lot more discount if you buy hundreds of Mercs rather than just one. It's what we do all day, we're professionals and it's our our job to get discounts, so it's not a surprise that we can get better ones than a private buyer can typically negotiate.
Secondly our orders to the dealer are looked on as additional sales they would not have got anyway so they can still sell all the cars to their showroom walk-ins much closer to list price and make more profit on those.
Finally and most importantly Mercedes like a lot of manufacturers can sometimes pay an additional amount of money per car to the dealer for hitting 100%, 110%, 120% of their target for the quarter, maybe 1 - 1.5% per car for every new car they sell. So If a dealer has sold 80% of it's target, it gets no bonus, but selling the remaining 20% of cars close to cost price and reaching target gets it a bonus for every single one of the cars it has sold, unlocking a big chunk of extra money ,and stopping the dealership from having to pre-register cars and trying to sell them as used cars the month afterwards.
Hope the above info clears this up and I'm happy to answer any sensible questions as long as it doesn't break forum rules.
Firstly, yes, the discounts are real (we've been around for about 8 years and supply 2-3000 cars a year) we wouldn't spend thousands of pounds advertising them otherwise.
Secondly regarding the margins in cars - I'll use the E-Class saloon in the OP's query as an example to give you a rough idea of how the discount is reached and what the profit margins are:
Mercedes dealers have typically 8% "front end" profit margin in a car such as this, and that's their usual dealing money, most dealers will try and retain as much as possible and salesmen are usually paid a percentage of the amount they retain as commission so it's in their interests to charge you as much as possible.
Mercedes dealers also have around 6% "back end" money in the car, which is paid at a later date and is only paid if they hit a series of performance targets usually based around their CSI scores - customer service scores that they get when Mercedes UK sends you out a survey on how well the dealer did shortly after you've taken delivery of the new car. As series of bad scores from customer can reduce that 6% back end down by 1-2% across every new car they sell, so the back end money isn't guaranteed and a lot of dealers don't dip into it when discounting.
Mercedes UK also has a current national offer for Oct - Dec 2014 where if you buy an E-Class Saloon or Estate you get an additional £2500 cash support discount straight from the manufacturer, that doesn't come out of the dealers margin. (there is an alternate finance deposit contribution instead of the cash support if you are going down the PCP finance route)
Our discount on this occasion is made up of the front 8% + 4% of the back end money + £2500 cash support, equalling around £6600 on this occasion, roughly 20%. Meaning the dealer makes around 2%, out of which they've got to pay us, pay the salesman, keep the lights on etc.
So why are the dealers doing it that cheaply?
Firstly we are giving them hundreds of orders a year, so we are in a strong bargaining position - you get a lot more discount if you buy hundreds of Mercs rather than just one. It's what we do all day, we're professionals and it's our our job to get discounts, so it's not a surprise that we can get better ones than a private buyer can typically negotiate.
Secondly our orders to the dealer are looked on as additional sales they would not have got anyway so they can still sell all the cars to their showroom walk-ins much closer to list price and make more profit on those.
Finally and most importantly Mercedes like a lot of manufacturers can sometimes pay an additional amount of money per car to the dealer for hitting 100%, 110%, 120% of their target for the quarter, maybe 1 - 1.5% per car for every new car they sell. So If a dealer has sold 80% of it's target, it gets no bonus, but selling the remaining 20% of cars close to cost price and reaching target gets it a bonus for every single one of the cars it has sold, unlocking a big chunk of extra money ,and stopping the dealership from having to pre-register cars and trying to sell them as used cars the month afterwards.
Hope the above info clears this up and I'm happy to answer any sensible questions as long as it doesn't break forum rules.
Fast Bug said:
And 50% just shows that there really are some clueless loons who try and sound like they know something when really, they know the square root of fk all
I know it suits you to dismiss it, but several people have explained how it works in this thread.k all Most people focus on the dealer margin, which is of course pathetic.
But the importer (ie MB UK) makes a margin, so does the in-house finance arm, and of course there's the manufacturing margin.
So there's a bunch of people taking a cut, all of whom could discount if they wanted / had to.
Orangewheels said:
As our company (Orangewheels.co.uk) is the subject of this post hopefully I can shine some light on this subject without breaking any forum advertising rules, and answer any questions going.
Firstly, yes, the discounts are real (we've been around for about 8 years and supply 2-3000 cars a year) we wouldn't spend thousands of pounds advertising them otherwise.
Secondly regarding the margins in cars - I'll use the E-Class saloon in the OP's query as an example to give you a rough idea of how the discount is reached and what the profit margins are:
Mercedes dealers have typically 8% "front end" profit margin in a car such as this, and that's their usual dealing money, most dealers will try and retain as much as possible and salesmen are usually paid a percentage of the amount they retain as commission so it's in their interests to charge you as much as possible.
Mercedes dealers also have around 6% "back end" money in the car, which is paid at a later date and is only paid if they hit a series of performance targets usually based around their CSI scores - customer service scores that they get when Mercedes UK sends you out a survey on how well the dealer did shortly after you've taken delivery of the new car. As series of bad scores from customer can reduce that 6% back end down by 1-2% across every new car they sell, so the back end money isn't guaranteed and a lot of dealers don't dip into it when discounting.
Mercedes UK also has a current national offer for Oct - Dec 2014 where if you buy an E-Class Saloon or Estate you get an additional £2500 cash support discount straight from the manufacturer, that doesn't come out of the dealers margin. (there is an alternate finance deposit contribution instead of the cash support if you are going down the PCP finance route)
Our discount on this occasion is made up of the front 8% + 4% of the back end money + £2500 cash support, equalling around £6600 on this occasion, roughly 20%. Meaning the dealer makes around 2%, out of which they've got to pay us, pay the salesman, keep the lights on etc.
So why are the dealers doing it that cheaply?
Firstly we are giving them hundreds of orders a year, so we are in a strong bargaining position - you get a lot more discount if you buy hundreds of Mercs rather than just one. It's what we do all day, we're professionals and it's our our job to get discounts, so it's not a surprise that we can get better ones than a private buyer can typically negotiate.
Secondly our orders to the dealer are looked on as additional sales they would not have got anyway so they can still sell all the cars to their showroom walk-ins much closer to list price and make more profit on those.
Finally and most importantly Mercedes like a lot of manufacturers can sometimes pay an additional amount of money per car to the dealer for hitting 100%, 110%, 120% of their target for the quarter, maybe 1 - 1.5% per car for every new car they sell. So If a dealer has sold 80% of it's target, it gets no bonus, but selling the remaining 20% of cars close to cost price and reaching target gets it a bonus for every single one of the cars it has sold, unlocking a big chunk of extra money ,and stopping the dealership from having to pre-register cars and trying to sell them as used cars the month afterwards.
Hope the above info clears this up and I'm happy to answer any sensible questions as long as it doesn't break forum rules.
Thank you for such a detailed explanation. Really shows where the money comes from and where it goes. Firstly, yes, the discounts are real (we've been around for about 8 years and supply 2-3000 cars a year) we wouldn't spend thousands of pounds advertising them otherwise.
Secondly regarding the margins in cars - I'll use the E-Class saloon in the OP's query as an example to give you a rough idea of how the discount is reached and what the profit margins are:
Mercedes dealers have typically 8% "front end" profit margin in a car such as this, and that's their usual dealing money, most dealers will try and retain as much as possible and salesmen are usually paid a percentage of the amount they retain as commission so it's in their interests to charge you as much as possible.
Mercedes dealers also have around 6% "back end" money in the car, which is paid at a later date and is only paid if they hit a series of performance targets usually based around their CSI scores - customer service scores that they get when Mercedes UK sends you out a survey on how well the dealer did shortly after you've taken delivery of the new car. As series of bad scores from customer can reduce that 6% back end down by 1-2% across every new car they sell, so the back end money isn't guaranteed and a lot of dealers don't dip into it when discounting.
Mercedes UK also has a current national offer for Oct - Dec 2014 where if you buy an E-Class Saloon or Estate you get an additional £2500 cash support discount straight from the manufacturer, that doesn't come out of the dealers margin. (there is an alternate finance deposit contribution instead of the cash support if you are going down the PCP finance route)
Our discount on this occasion is made up of the front 8% + 4% of the back end money + £2500 cash support, equalling around £6600 on this occasion, roughly 20%. Meaning the dealer makes around 2%, out of which they've got to pay us, pay the salesman, keep the lights on etc.
So why are the dealers doing it that cheaply?
Firstly we are giving them hundreds of orders a year, so we are in a strong bargaining position - you get a lot more discount if you buy hundreds of Mercs rather than just one. It's what we do all day, we're professionals and it's our our job to get discounts, so it's not a surprise that we can get better ones than a private buyer can typically negotiate.
Secondly our orders to the dealer are looked on as additional sales they would not have got anyway so they can still sell all the cars to their showroom walk-ins much closer to list price and make more profit on those.
Finally and most importantly Mercedes like a lot of manufacturers can sometimes pay an additional amount of money per car to the dealer for hitting 100%, 110%, 120% of their target for the quarter, maybe 1 - 1.5% per car for every new car they sell. So If a dealer has sold 80% of it's target, it gets no bonus, but selling the remaining 20% of cars close to cost price and reaching target gets it a bonus for every single one of the cars it has sold, unlocking a big chunk of extra money ,and stopping the dealership from having to pre-register cars and trying to sell them as used cars the month afterwards.
Hope the above info clears this up and I'm happy to answer any sensible questions as long as it doesn't break forum rules.
Now looking at E classes lol
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