Dealer pricing vs dealer cost???
05-01-2020, 02:24 PM
#61
Burning Brakes
20+ years in business and a CPA ...someone said a good dealership did $60 million in gross sales ....just an exercise by assuming $30K per car and worked backwards...the margins didn't seem to work...$1.8 million would be before paying employees, mortgages ($15 million mortgage on a dealer ship - $500K per year minimum) etc..30 cars a week....im sure thats quite a payroll to prep cars, sales people etc....doesn't seem like a great business model ?....i.e. the profit per car has to be higher then 2-3% .. ...just hypothetically backing into numbers ...instead of insulting me ...tell me where the model is wrong ?....
that being said dealers need to make money so you shouldn't expect to get huge discounts off MSRP ....your not in business to lose money ...theres more then 2-3% built in ...if you know differently post it up.....if not shut up!
that being said dealers need to make money so you shouldn't expect to get huge discounts off MSRP ....your not in business to lose money ...theres more then 2-3% built in ...if you know differently post it up.....if not shut up!
Last edited by Driver_WT; 05-01-2020 at 02:29 PM.
05-01-2020, 02:47 PM
#62
I think people are mixing two different financial metrics. The Gross Profit Margin (GPM) earned per car may be in the 15% range while the Net Income may be in the 2 to 3% range. GPM = Selling Price minus Cost of Goods Sold, while Net Income is equal to total GPM dollars minus all operating expenses. Retailers in North America earn a wide range of GPM from 70% for jewelry to 50% for mattresses to 28% for groceries, etc. However, the Net Income for most retailers in North America is in the range of 1 to 6% depending upon the year and the retailer (and of course, some retailers lose money in some years, so their Net Income may be negative). Grocery retailers like to say they only earn pennies on the dollar, but they are talking about Net Income (Grocery retailers usually earn a Net Income in the 3 to 6% range). Highly likely that car dealers earn Net Income of 2 to 3%, however that does not mean that you cannot negotiate more than 2 to 3% discount on a new car depending upon market conditions and the situation of an individual dealer and individual customer deal.
I agree that a lot of people got lost between the average profit on a new car sale and the overall profit of a dealership. The sad part is that all of these numbers I have stated can be easily verified from reliable sources. Too many of our folks prefer to believe BS by folks who don't have a clue. Other than your profit margin per sale guess, I do think your post to be more accurate than most.
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KGS365 (05-01-2020)
05-01-2020, 03:05 PM
#63
Racer
All in one response, you ask me to not insult YOU but insinuate I am either stupid or a liar and tell me to "shut up".
Congratulations on being an accountant but obviously it was not in the automotive sales dealership business. Your first bad assumption would be that the 60 million in sales came all from selling new cars. A dealership has a minimum of five major profit centers and they all would contribute to the gross sales of the 60 million. Besides new cars you have used cars, parts, service, and finance. Many have body shops and I had an accessory store as well as a tire department.
The second major false assumption would be the fifteen-million dollar mortgage. I have never seen one like that on a store that size and you sure are not going to qualify to buy a store that size with that kind of mortgage going in. I have never seen an accountant who successfully could "work backwards" without having some knowledge of the sources of revenue, expected or normal margins of the whole, and knowledge of expenses and capital utilization.
At no time did I say the dealer makes 2-3% on the sale of a vehicle. I said the average dealer makes 2-3% of total sales of the dealership and on a 60 million dollar year that would be around 1.2-1.8 net profit before taxes. If you go back and read, I also stated the average new car gross profit runs around $2,000 per unit.
I spent many years in the business, successfully. I am retired and have no longer any investment in the business. I simply could care less about how any one dealership operates but I am now and have always been a car enthusiast and own many. When I see obviously totally wrong statements about dealership operations, I do make my comments as I am entitled to do. It would seem in today's world that entitles you to be challenged by people with obviously no knowledge of the business but with a passion to say you are wrong because some guy in a bar once told me something different. An unfortunate symptom of a current climate where nobody any longer seems to tell the truth...and that's acceptable!
Congratulations on being an accountant but obviously it was not in the automotive sales dealership business. Your first bad assumption would be that the 60 million in sales came all from selling new cars. A dealership has a minimum of five major profit centers and they all would contribute to the gross sales of the 60 million. Besides new cars you have used cars, parts, service, and finance. Many have body shops and I had an accessory store as well as a tire department.
The second major false assumption would be the fifteen-million dollar mortgage. I have never seen one like that on a store that size and you sure are not going to qualify to buy a store that size with that kind of mortgage going in. I have never seen an accountant who successfully could "work backwards" without having some knowledge of the sources of revenue, expected or normal margins of the whole, and knowledge of expenses and capital utilization.
At no time did I say the dealer makes 2-3% on the sale of a vehicle. I said the average dealer makes 2-3% of total sales of the dealership and on a 60 million dollar year that would be around 1.2-1.8 net profit before taxes. If you go back and read, I also stated the average new car gross profit runs around $2,000 per unit.
I spent many years in the business, successfully. I am retired and have no longer any investment in the business. I simply could care less about how any one dealership operates but I am now and have always been a car enthusiast and own many. When I see obviously totally wrong statements about dealership operations, I do make my comments as I am entitled to do. It would seem in today's world that entitles you to be challenged by people with obviously no knowledge of the business but with a passion to say you are wrong because some guy in a bar once told me something different. An unfortunate symptom of a current climate where nobody any longer seems to tell the truth...and that's acceptable!
the original tread is dealer pricing vs. dealer cost in a sale ...so the whole dealership makes a 2-3% margin after paying all the bills etc..great seems very low for the work and effort but okay ?...are you going to state there's 2-3% difference between the dealer cost on the car and the MSRP dealer pricing ?...I don't have your experience but I don't see how the car dealership model can work (and maybe the dealership model doesn't work anymore in this age?) with those with crappy margins...
Last edited by KGS365; 05-01-2020 at 03:21 PM.
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05-01-2020, 09:13 PM
#67
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05-02-2020, 11:27 PM
#69
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St. Jude Donor '15
"In honor of jpee"
But didn't you say in a post prior to this one that there are 5 profit centers (or more) at a dealership, not just the NEW cars sold? Which means, as you detailed there are potentially 5 different profit margins for a dealer, right? And some are more profitable than others. Which then means that the overall Net Income for the entire dealer could be_____.
Why don't you fill in the blank since you have the experience. I'd like to see what you write about F&I, Parts, Service, Used, etc. and et al.
Why don't you fill in the blank since you have the experience. I'd like to see what you write about F&I, Parts, Service, Used, etc. and et al.
The whole discussion went off the rails back in post #4 where a Gentleman stated the dealer made 15% on a sales transaction, gross. Here we are at post #6? and we are still talking about a 15% profit on a new car sale? The average new car sale in the U.S. is currently about $37,000. A fifteen percent gross margin profit would be $5550. Does anyone really think the dealer is making that kind of money on loaded Accord that they sell discounted?
I agree that a lot of people got lost between the average profit on a new car sale and the overall profit of a dealership. The sad part is that all of these numbers I have stated can be easily verified from reliable sources. Too many of our folks prefer to believe BS by folks who don't have a clue. Other than your profit margin per sale guess, I do think your post to be more accurate than most.
I agree that a lot of people got lost between the average profit on a new car sale and the overall profit of a dealership. The sad part is that all of these numbers I have stated can be easily verified from reliable sources. Too many of our folks prefer to believe BS by folks who don't have a clue. Other than your profit margin per sale guess, I do think your post to be more accurate than most.
Last edited by AORoads; 05-02-2020 at 11:30 PM.
05-03-2020, 10:01 AM
#70
But didn't you say in a post prior to this one that there are 5 profit centers (or more) at a dealership, not just the NEW cars sold? Which means, as you detailed there are potentially 5 different profit margins for a dealer, right? And some are more profitable than others. Which then means that the overall Net Income for the entire dealer could be_____.
Why don't you fill in the blank since you have the experience. I'd like to see what you write about F&I, Parts, Service, Used, etc. and et al.
Why don't you fill in the blank since you have the experience. I'd like to see what you write about F&I, Parts, Service, Used, etc. and et al.
Individual dealerships are unique and have unique markets. Some of them do a great new car business while others do a great used car business and pay less attention to new. There are dealers who do a huge parts business and others do a very aggressive service business. There are a number of high volume dealers selling less expensive vehicles who actually make the majority of their profit on Finance profits while some even show a loss on the actual vehicle after paying a commission.
The total absurdity and naive belief in insidious dealership profit plots is simply stupid in this thread. People with lines like nobody but GOD knows and with absolutely no experience claim dealers have to make more to exist are ridiculous. There are tens of thousands of people who have to know how the process works and what dealers pay and make. To think all those folks are never going to tell and are better at keeping secrets than our intelligence services is laughable. All one really has to do is google NADA dealership profiles and know how to read and comprehend, can find all the answers they need.
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AORoads (05-03-2020)