Team-BHP - How much profit do they make on each new car sold?

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Originally Posted by GTO (Post 1919096)

Bingo! Small car manufacturers make about 8% net profit per car sold. And we're talking about the Master of cost cutting + market share (i.e. Maruti). Their annual financial report for 2009-2010 revealed a net profit of approx Rs. 25,000 per car sold.

Of course, if we look at the "factory price" less "actual cost of production", the margins will be much greater. But bring in administrative costs (primarily salaries) and marketing budgets (H-U-G-E), you are looking at about 8%.

The higher the car segment, the greater the profits. B segment hatches = easily 10%. C segment sedans fetch 60,000 - 75,000 for most manufacturers, while the C+ is over a 1 lakh rupees. Expectedly, luxo car manufacturers make a killing, yet their volumes are very low (4,000 a year for Mercedes & BMW).

Further, profit margins also depend on volumes (duh?), how old the model is (directly proportional to the profits), what price the brand is able to command and other factors. Note that the selling price of a car is no longer a "cost + profit" approach. Independent of the cost, the manufacturer gauges (atleast tries to) the maximum price that the market is willing to pay.

Was going through this thread and one thing struck me if the dealers are earning 1-2.5% (10k-25k) margin on small cars and 5%(50k) on big ones like suv's how is it a feasible business for a dealer of a company like ford, tata, Chevrolet with the upfront investments they make in infrastructure, securities, inventory stock, prime location land, service infrastructure :Shockked:

I have also have one more question that intrigues me now , typically when does a dealer break even and what does a company offer him as a support credit/loan/infrastructure costs etc?

Can somebody shed a light? please:

Every infrastructure-intensive business requires an upfront investment and necessarily has a breakeven period. So "cost plus" is probably not the right way to look at how a car is priced from a manufacturers or even a dealer's point of view. The business planners and bean counters draw up complex models with a multitude of variables most notably the number of units produced and sold.

There is some confusion in the OP's mind: taxes don't really constitute "profit" for anyone. It is revenue plain and simple. Dealer "margins" are of course profit when seen from a manufacturer's point of view but every dealer will have his own overheads and variable costs, which he will need to recover, so that is also not absolute profit.

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NIVDISDESI:
I agree that most companies make a profit from around 7-10% profit...but lets take maruti suzuki as in example. They sold 10,18,365 cars in the 09-10 financial year and the whole group made around 2,500 crores during the same time. That would mean around 25,000 rupees per car. Marutis over-all sale was 29,623 crores. That means almost an exact profit of 8.5% per vehicle sold by Maruti. That includes after sales and all that blah blah blah

One thing to figure in is the huge depreciation that companies show as net loss in assets value while calculating profits.

So effectively the companies do a lot of physical investment in process, product improvement and claim high percentage of this investment as depreciation. Net to net the profits made look thinner but there is asset building happening behind the scene.

I think as a simple rule, no business is worth chasing if it returns less than prevailing FD rates. Else it is better close the shops, invest in FDs and sit home doin nothing.

So the companies may not be making as less money per car sold as projected / advertized.
Rgds.

Quite a few years back when I was working on a project for Ford, I saw the COGS Material cost of Ikon (basically the costed Bill of Material minus labor and overhead) and that was about 31% of the customer price. Taxes do add up to 35 to 40% of the final price of the car.

Another area where car manufacturers make a killing is from parts sales. So higher the volume of a car, better money they will make from resultant parts sales.