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Old 26th July 2006, 04:48   #1
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Default Can dealerships survive wafer thin profit margins?

Most car buyers believe that dealerships make huge chunks of money selling cars, "xyz dealer ripped me off", how often have we heard this? Truth is there is no money in selling cars today. The car selling business has turned into a business of moving metal and I, personally, blame the big 3 for this situation. Problem is the Japs and Europeans (imports as they are called in North America) have to follow the same line of business. So, how much margin do you think dealers have? For example: A base VW Golf 3 door has a margin of US $261 only! To add to that, customers walk in and demand a better price on that! Do you think dealers in India make lots of money or that dealer margins all over are as thin as in North America (USA in particular)?

Soruce: Business Week.

Last edited by amit : 26th July 2006 at 04:50.
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Old 26th July 2006, 08:38   #2
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This might be for smaller dealerships, i cant imagine it to be a fact..

For one dealerships / steallerships are making a sh!t load of money, what we dont realise is the volumes they sell @. The higher end cars have huge margins..lets say an E class for 55k, the invoice is about 11% less, so that 11% is for the dealer plus they have a dealers hold back which is money given to the dealership for few things, then when you get your car for warranty service, the money is given by the company and it doesnt cost the dealership anything close to it, also once the car is out of warranty, man they start to make the real money...

oil changes, i mean you cant even imagine..have you ever seen a dealership owner's fleet of cars, i have, for a small to mid size dealership owner, owning multiple ferraris, bentleys, rolls etc etc..and this is for a 2-3 nissan dealership's owner, most of the dealerships are owned in a big bunch, like some guy owns 200-300 dealerships across the country to cut costs...

As for india, its evolving and it wouldnt be much time when it gets there..

And btw the VW golf profit margin, where did you get that?? golf is something like a 15k car, the margins would be in the 1500$ range, with some going to the salesman and the money forgone for a good deal and the left over must be 261$, but now count in the number of golfs a good dealership sells? you cant even imagine..

Edit: Did you notice the dealers that posted as comments were all small time rural dealers with small sales and were either ford or chevy..i can tell you mid-lage cities delaers are enjoying themselves..

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Old 26th July 2006, 08:59   #3
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Point is that even the dealer's invoice price would have included his margins. The price the buyer is paying is still above this invoice price.

Any discounts would be from the manufacturer - and that means that the manufacturer still has a cushion. The buyer is still paying for delivery and other charges.

When it comes to servicing, the dealer is buying the parts in bulk, and billing you at retail. He'd have got disounts there too.

So the margins and profits keep adding up. He wouldnt be in the business if he wasnt making the money !
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Old 26th July 2006, 10:09   #4
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i cant imagine it to be a fact..the VW golf profit margin, where did you get that?? golf is something like a 15k car, the margins would be in the 1500$ range
Having worked in a automobile dealership, I can tell you those margins are very real. And I worked in car dealerships in Toronto, not small cities. The Mark IV Golf 2.0 Gas base model had a profit margin of roughly CAD 900 only. So the USD 261 margin is believeable to me. Yes, there are margins on options or packages but what if someone buys a base car? The newer VW's come pretty loaded with features anyway.

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The price the buyer is paying is still above this invoice price.
Not always. I have sold a new Jetta for a profit margin of CAD 200. I got paid a commission of CAD 150 on that. You can imagine what the dealership made on that sale. And things are only getting worse. I know of a VW dealer in Toronto who sells cars at $500 below cost or invoice price. Sure the dealership makes money on servicing cars but what about the sales staff who make money on sales? No wonder the sales staff at dealerships everywhere including Mumbai change so often. I have had the unique oppurtunity to work in automotive sales and I can tell you there is no money in the car selling business. At least, not in North America and definately not in cheap or volume cars. Even with a margin of USD 261, how many cars do you think a dealership has to sell to make money in volumes? And lets not forget, customers will ask for a better price and some dealers will disocunt even that margin. Better to sell stock then to hold onto it. Don't blame them either.

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Any discounts would be from the manufacturer
Manufacturer rebates, cash backs etc etc are all from the big 3. I have seen VW invoices to the dealer and there was not even a cent of discount from them. The Europeans are really bad paymasters and businessmen!

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Old 26th July 2006, 10:32   #5
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Amit, you do have a much better perspective of the business. What you have said brings to mind the margins vs volumes matrix. Most times, it's high volumes, low margins, or- low volumes, high margins.

But the dealer still has to survive, and if he wasnt making that much money, he wouldnt be there in the business. Trade-in's, where the dealer gives much less than a pvt party sale, Certified Used cars, all these add up to his bottom line.

Another point abt servicing is that the customer is charged retail for labor and parts, and there is margin in both to the dealer. And his labor is already paid for in the customer's bill.
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Old 26th July 2006, 10:32   #6
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Its a known fact that dealerships hardly make money on selling cars. If I remember correctly, the Maruti 800 had a puny margin of about Rs. 3000 - 4000.

Butttttttttttttttttttt where they really make their money is:

1. Service centers (HUGE)
2. Body Shop and Repairs (HUGE)
3. Used car sales. Higher margins than new cars. (HUGE)
4. Commissions from Insurance
5. Finance company commissions.
6. Commissions from "Thana" registrations.
7. Accessories.

Some car manufacturers do keep their dealerships extremely happy with margins. Honda, Toyota, Skoda, Mercedes etc. are some that come to mind. In fact, Mercedes dealerships make about 90,000 on each C or E sold (cant remember which one).

Cant comment on dealerships in Canada though.

GTO

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Old 26th July 2006, 15:24   #7
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Its all percentage. More expensive the car, higher the %age and more the dealer gets.
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Old 26th July 2006, 15:50   #8
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Quote:
Originally Posted by GTO
Its a known fact that dealerships hardly make money on selling cars. If I remember correctly, the Maruti 800 had a puny margin of about Rs. 3000 - 4000.

Butttttttttttttttttttt where they really make their money is:

1. Service centers (HUGE)
2. Body Shop and Repairs (HUGE)
3. Used car sales. Higher margins than new cars. (HUGE)
4. Commissions from Insurance
5. Finance company commissions.
6. Commissions from "Thana" registrations.
7. Accessories.

Some car manufacturers do keep their dealerships extremely happy with margins. Honda, Toyota, Skoda, Mercedes etc. are some that come to mind. In fact, Mercedes dealerships make about 90,000 on each C or E sold (cant remember which one).

Cant comment on dealerships in Canada though.

GTO
I couldn't have said it better!!!

The percentage can be anywhere between 0 - 10% tops...

I know this for a fact as one my closest friends owns one of the Maruti dealerships in Bombay (and is among the top 3 Maruti dealers)

The dealers give away their profit margin percentages (to make up revenue and quota) in the form of discounts or accessories, cash, rego, insurance etc...thus the ZERO % figure.

Where the make money is after the car has rolled out of their showroom....as new car owners usually wait for a year or two before seeing a private mechanic as opposed to the "authorised service stations".

The margin depends on the $$$ of the car and the contract that these dealers have with the Carmakers that supply the Car.

Honestly...in his view and his fathers opinion, its the actual Brand that determines what the markup is...Maruti and Telco being the bottom of the pile....
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Old 26th July 2006, 22:39   #9
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Quote:
In fact, Mercedes dealerships make about 90,000 on each C or E sold (cant remember which one).
Very true.Infact more.

The logic is that 'The costlier the car ,the tougher it is to sell it'.
I know a few car salesmen who DRIVE their own cars to work!!
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