I have been posting car features for over a year here at Hooniverse, and every time I post a car that is showcased by a dealer, there is the inevitable comment that says something like: “Wow, great car, but its really overpriced”. The term “Stealership” has been tossed about on this and other sites as well, so I have to ask the collective commentariant a very simple question, but only after the jump….
There are countless new and used car dealerships set up all across the country to sell you your next new or used car. They have expensive buildings set up to sell vehicles, sell parts, and provide service. The inherent costs of running one of these businesses is enormous, and they wouldn’t be in business if they didn’t sell vehicles to begin with. I will try and be as brief as possible in describing the associated costs in running a new car franchise, and I may leave a few things out….. so here goes.
You are doing business in a major metro area, and you are selling Brand “Y” cars and trucks. Brand “Y”, in granting a franchise to you has stated that your facility has to look like they want it, which includes Showroom, Parts Display, and Service Greeting areas and Garage Space. There is a minimum level of Stocking you will have to undertake to keep said franchise, from the number of cars you keep on hand, to the number of parts you have to stock. In service, you are required to have a set number of service writers, the right quantity of mechanics, and they all have to be trained on the latest electronics. Speaking of electronics, you have to provide the required number of diagnostic computers for each of the models Brand “Y” sells and has sold in the past.
Now that you have your showroom stocked with the latest literature, banners, and give-aways (all of which you have to pay for through the Brand, by the way) you have to have a staff. Let’s go down the list, from the top, shall we?
– Dealer Principal (President)
– General Manager
– Sales Manager (Could be more than one of these)
– Service Manager (Could also be more than one)
– Parts Manager
– Chief Financial Officer (for everything)
– Business Manager (Finance Office) and could be more than one
– Used Car Manager
– Service Floor Manager (or shop Foreman if you will)
– Mechanics (Let’s say 10 at the very least)
– Parts Counter Personnel (Let’s say 3 for now)
– Parts Driver (to deliver to Body Shops and independent repair shops)
– Sales Representatives (We’ll keep this down to 8 for now)
– Office Clerical (make this 3 for DMV forms, Finance Forms, Payroll, A/P, A/R, and other duties)
– Maintenance (Janitorial and such)
– Detailers (2 maybe more)
– Internet Specialist (Handles all the incoming e-mail, and sales inquiries)
– Courtesy Van Driver (Part time, but it could be 2 or 3)
– Total Personnel in this example: 41
And I know I’m missing a few. This is an average dealership that sells maybe 100 cars a month. If they sell any more, you add more personnel. Now add in all the fixed costs like utilities, heat, A/C, Property Maintenance, and of course Property Taxes. Other costs include all those pretty brochures (they are no longer free from the manufacturer), posters, banners, and such for sales. For service, all those repair manuals (even though they are on CD or DVD now), special tooling, training manuals, handbooks, and service literature also add up as far as costs. Same in the parts department.
Hidden costs from the manufacturer include anywhere from $500 to $1,500 per month just to access their portal to order vehicles, parts, record warranty information, report a sale, or anything dealing with a car from this manufacturer. There are per month fees to maintain the dealerships computer network, to connect to the respective states Motor Vehicle Department, to collect sales tax information, to initiate financial contracts, as well as fees for the regional advertising account, dealer council fees, and on and on and on.
We will now deal with the profit potential of new or used cars. Markup on a new car is limited, except if the vehicle is in high demand. Luxury makes have more of a profit potential than economy makes, and trucks used to be a great profit potential, but it is a lot harder to make money on new vehicles since the summer of 2005 when GM, Ford, and Chrysler initiated “Employee Pricing for Everyone”, exposing the pricing matrix to the general public. There are still ways of making money on new vehicles for the dealer, including Hold Backs, and Performance Bonus Plans, but you have to make your quota to realize any of this extra money.
So why would you want to be a New Car Dealer? Because with this franchise, you have access to Parts that your independent can’t get, authorization to perform warranty work, and best of all, access to used vehicles available only to this franchise which come from *Captive Finance Sources, *Daily Rental and Lease Fleets, *Executive Units, Other Dealers Stock (of the same franchise). Used cars are the real profit potential for car dealers, especially “Certified Used” cars. The Manufacturer pays the dealer to get said used car up to “Standards”, and the dealer can make from as little as a 25% markup to a 100% markup or more. You really don’t know what they paid for a used car, and they can sell it at or over Kelly Blue Book (as an example).
Now here is the Question for Saturday: How much do you think the dealer should make on each new or used car? There is a lot of overhead when running a dealership, and some of the new cars are sold for little to no markup, just to get to the bonus level. Used Cars, Service, and Parts pays the Bills at almost all Dealers.
Saturday Question – How Much Do You Think a Car Dealer Should Make Selling a Car?
50 responses to “Saturday Question – How Much Do You Think a Car Dealer Should Make Selling a Car?”
Not sure about new cars (I really don't want to pay more than MSRP), but used cars can go for a little more assuming there's some kind of vetting process (yeah, I'm dreaming). I'm also more than willing to pay well for a shop that treats me well. I have had really good experiences with many Subaru shops, so I don't care that they cost a little more.Loading…
How much should a car dealer make selling a car? As much as they can. That doesn't mean that I'll be the guy paying them.
If someone is willing to pay it, the dealer should be able to charge it. Add to that, that a dealer often has financing that can beat what you can get from a bank on your own, plus an added convenience of not having to secure your own financing is actually worth a small premium over a private seller to me. And that's not to say that I haven't found multiple instances where a dealer will undercut the private sellers on overall price of a particular vehicle.
Bottom line: Don't automatically assume that a dealer is ripping you off, just because they are a dealer. Do your research, and if you feel that they are asking too much, offer them less. If they won't come down to what you feel the car should sell for, don't buy it.
It really is that simple.Loading…
Exactly. This is the free market and there is no guarantee of profit to the seller or of a good deal to the buyer. If you are not very bright and lack the ability to negotiate or are too lazy to do research when you go to buy a car then you deserve to get ripped off. After all, the dealer does not hold all the cards because you, the consumer still hold the ability to walk away. In the end then, it is a battle of wits and the best deal goes to the one who negotiates the best. If the dealer fails to make a profit off my sale well then that's his problem-not mine. I'll cut his throat however I can because I know he'll do the same to me.Loading…
Whoo boy! Talk about a loaded question.Loading…
For new cars? Absolutely nothing.
At least as it stands in the US, the dealership-franchise system is a racket that exists to enrich dealership owners, keep down competition, prop up businesses that don't need to exist (look at every time the Detroit 2.2 try to cull extra dealers — it's basically impossible to do so), inflate prices, and produce really irritating, poor-quality advertising. The fact that OEMs can't sell cars directly to consumers baffles me. We, as a society have, in this segment, gone to such great lengths to protect businesses from themselves that it's a positively anti-capitalist system.
..and not to mention the dealers' efforts to keep down independent repair shops by lobbying to limit access to diagnostic equipment, documentation, and tools.Loading…
It's funny that people will defend dealers as part of our capitalist system. Yet the legal lengths taken to protect them and their business practices is anything but capitalism. In a true free market, independent dealer franchises would have disappeared decades ago.Loading…
Some of the planned franchise culling was downright asinine, though. GM's plan for Cadillac, for example. They were going to can about 2/3rds of Cadillac franchises and focus only on selling Caddys in places where other premium brands were sold, and expect the rest of us in flyover country to be content with Buicks.Loading…
While all that info is interesting and educational, as a buyer it matters little to me. What I care about is, if I'm going to pay more for a used car at your place vs. a private party, what do I get in return? I think there are several things.
– Convenience – Many cars in one spot and DMV & finance on site.
– Better cars – In theory they will have inspected the car and wouldn't put it on the lot if it didn't meet their standards. In theory.
– Accountability – If I have an issue, I have someone to go back to. I can often get some kind of warranty as well.
If the dealer gives me some or all of that, it's worth a bit more than buying from a private owner.
As far as new cars, well, that's a different story since there is no 'private party' competition. There is so much that's out of the dealer's control. If the manufacturer delivers a dud of a car, or if they don't advertise it well, or if they don't deliver an attractive brand. Ultimately, I'm price shopping against the dealer of the same brand down the street, and his cost structure may allow him to offer a more favorable deal. Again, if dealer A wants more than dealer B, I don't care about his costs, I care about what I get in return for the extra cash. Will they throw on an extended warranty? How about a better buying experience (i.e. – don't treat me like a moron)? Are they more conveniently located?Loading…
Alright….click any auto parts store (Autozone, Advance etc.) and enter the year of the vehicle as 1969. Compare the number of brands that were available in 1969 to the selection in 2011. The government drove the vast majority of the available vehicles from the marketplace with onerous rules and regs that small companies could not afford to meet. Now the government is again choosing winners and losers based on the availability of cheap taxpayer give-a-ways and loans. Only competition and the free market can decide pricing, anything else is fraudulent.Loading…
Yeah, I know, free market society and all that. And dealers are in business to make money. Fine. But why is it that new vehicles are the only major consumer product you still have to legally buy through a middle man?
Almost every new product can be purchased directly from the manufacturer these days. For a set price. I should be able to do the same from Ford or General Motors, etc. Instead, there's these ridiculous franchising laws that hurt both consumers and manufacturers. And since dealers are typically a strong lobby, they'll never be repealed or improved.
I'm more bothered by the dealership experience as a whole than I am about the actual prices they charge. Buying a vehicle from a dealer is a painful, tedious experience. Some are better than others, but the tactics are usually the same. I'm a polite, fairly-unassuming looking twentysomething, and most of the time I get treated like I'm an ignorant punk kid by some greasy salesman with a high school education. They try to game me during every step of the purchase process. The same goes for women, older folks and just about anybody who is perceived as naive or vulnerable. This is where all the car salesman on this site and others typically jump out of the woodwork to tell me how wrong I am. Sure, maybe you don't operate that way, but most buyers have this stereotype for a reason.
Why do we still negotiate prices on new cars anymore, anyway? That doesn't happen with any other new product.
Saturn made a dent twenty years ago, not because the cars were any good, but because of the buying experience. Supposedly friendly dealers with no-haggle pricing. That's a big deal for a lot of people. Why that can't be the industry standard is beyond me. Have the manufacturer establish a fair price (not padded with thousands in dealer profit, like the MSRP) and be done with it. No haggling, no price competition with other dealers, no nothing. Let the dealers make their money on financing (that's a crooked, economy-killing industry in and of itself), used cars and service…I can always sell my own car and secure my own financing.
Used cars are a different story. Prices on any second-hand good are fair game. And that's fine because vehicle condition drives the prices and there's a lot more competition. In most states you're a shmuck to buy a used car from a dealer anyway, since there's no sales tax on private-party sales.Loading…
Oh, now I see that you posted this as I was typing my comment a couple below. Imagine that my comment is here instead of below as a support of your argument.Loading…
Gunn dealerships in San Antonio have made fixed net pricing on used cars their "thing". It certainly makes the shopping experience easier, and you can see the $2000-3000 of air in other dealerships prices. They'll give you a very hard pitch on all the add-on crap though.Loading…
Yeah, I'll bet. Last time I bought a car, I couldn't believe how many times I had to tell the finance guy I didn't want the extended warranty, or the maintenance plan, or the tire protection plan, etc. It's tiresome. And I bet if they can't ding you on the price of the vehicle, they push that crap even harder.
Of course, it seems like everybody wants to sell me a warranty on everything these days. Computers, cell phones, anything. But I've gone so many years without getting the warranty or "replacement plan" and not having any issues, that if something does break on me, I don't really care that much if I have to pay to get it fixed/replaced myself.Loading…
I went to the Honda dealer today to get some free stuff done to the car and they had TWO free classic arcade consoles there. I got the high score in PacMan and Galaga.
That's the kind of overhead I like to see.Loading…
Car dealerships are a ridiculously outdated sales concept, like electronics stores or traditional department stores where the money necessary to keep the concern going forces up the price of the commodity far higher than other possible sales models. The rise of internet sales managers is a gesture in a new direction, but still reliant on the dealership model and so still carrying much of the same premium. Really, imagine bartering for a television or coffee machine in this era. And yet we still do it for cars.
I foresee a decoupling of sales from service, and probably the slow replacement of dealers with direct sales, mostly online with home delivery. Test drives will be done at citywide test centers run by the marketing departments of the car companies. The dealers will just become marque-specific licensed warranty service centers. If one car company starts to expand direct sales, it will immediately be able to undercut its competitors' prices by a significant percentage. Other things like design and brand status being equal, the competitive advantage will force other companies to follow suit or die off.Loading…
You've pretty much described how Tesla Motors operates: they own their stores (which are not called dealerships). In some cities, due to zoning laws, the showroom floor is in the center of town while the service center is outside in an industrial area. Sure, for now they've only sold 1600 cars worldwide, so only time will tell if this model works once (finger crossed) they start mass producing the upcoming model S.Loading…
Yikes! I had no idea that dealers had all that overhead! I guess I shouldn't be so bitter if I get overcharged…they really need the money more than I do.Loading…
I love the replacement parts pricing… a fan control module for a Mitsubishi has an MSRP of $94. My local dealer was kind enough to offer that to me for $135. So I took the free market into my own hands and contacted a dealership in Dallas who was willing to deliver it to my hands in two days for $85, including UPS ground shipping and sales tax. I need a case of their precious super special "SP-III" spec ATF next. I'm thinking I will give the local guys a chance to price match it before I order it and see if they're willing to play ball.Loading…
Back around 1970, a magazine priced out a $2,000 Ford Maverick if it was assembled from replacement parts ordered from Ford dealers. The final cost (parts alone, not including putting the thing together) was close to $10,000.Loading…
Oh yeah, I don't doubt that the individual parts are going to be that much going by their list prices. My beef was with the fact that I suspect the MSRP had 100% of profit baked into it from the wholesale level. The local dealers didn't feel that that was enough so they went and figured 200% over wholesale was fair enough. They did that me with the touch up paint pen too, MSRP $12 turned into $25 at the parts counter.Loading…
If you want some real headscratchers shop for Japanese motorcycle parts. When I tipped over my KLR650 a few weeks after I got it, I bent the radiator and paid about $300 for the replacement… for a radiator about the size of a heater core for a car. A year later I replaced my T-bird's radiator for $100 less.Loading…
I am also bothered by the government acting as the king maker in the market. If I want a car from a company that does not do business here (like a Tata Nano or Maruti 800), I should be free to import it and drive it. Instead, I am stuck with whatever the government deems worthy for me to buy in our pseudo free market economy. I shouldn't be required to have a car that conforms to any set of safety regulations. If I want to drive a death trap it should be my prerogative to do so. How cool would it be to be able to drive a car built with no regulations that costs less than $5,000? I'd buy one!Loading…
Keep on Preachin' my Hoon brother!Loading…
"No regulations" is hard to manage (must have DOT-approved tires, can't have police markings, etc…) but it's possible to come remarkably close to your ideal with one simple catch: Only buy and/or import cars more than 25 years old. [Yes, yes, fifteen in Canada. Rub it in.] That's how I've filled my driveway with street-legal death-traps at well under $5000 apiece.
<img src="http://farm2.static.flickr.com/1344/4732772437_7a270bdd9d.jpg" width="400">
But to answer the main question: I don't care how much a dealer makes on cars. I've never purchased from a dealer, new or used. If I ever do, I'll pay no more than I'm willing to pay, just like I have for every other car.Loading…
This makes sense – I don't see why any car can't be privately imported so long as a few basic conditions are met (if it meets slightly-looser-than-domestic emissions standards according to a tailpipe sniffer and nothing's falling off). It infuriates me that the First World (the US and Canada, western Europe, Japan and eventually China, Australia/New Zealand…) can't settle on a single set of emissions regulations, even if safety requirements are different.Loading…
I honestly think that a "dealer" should make a set percentage on their product, just like any other business that offers a product for consumption by the public. All this crud about having to have a certain amount of employees with a certain amount of training and all the other things that are involved with being a part of big business is exactly what it is…it's all part of the game. If Joe Businessman wants to open up a franchise business of ANY type, they have to abide by the regulations of the parent company. An owner of a McDonald's franchise has to do all the stuff a dealer has to do in order to own their business(certain amount of employees, certain store layout, etc.), the only difference is that I don't have to haggle with the cashier over the price of a Big Mac, and I don't have to wonder if the guy before me got a better deal on their vanilla milkshake. I don't feel a bit sorry for dealers and their business woes, because we all know someone that has been screwed over by a car dealer. I think they should be bound by a certain profit margin, and the pricing should be cut and dry with none of the b.s.Loading…
I can tell you that the markup on pianos is typically set at around 100 percent.Loading…
Just my opinion, but I think that there should be a Factory Direct option. No mark up, no bullshit, no hassle and especially no lying bastard in a tie trying to tell you that a Chrysler Sebring is "The Peak of Luxury…" And after all this, when you take delivery they show up at your house with your new car. I trust factory way more then I trust a dealer…
One way to get a factory price is buying a Volvo in the US (maybe Canada too, I don't know) using their overseas delivery program. With the basic program, you go to your local dealer, ask to talk to the overseas delivery specialist (if they look at you like you're from another planet, move on to the next dealership). Test drive. Fill in the form with all the options you would like. Add it all up and that's your price. If you are paying "cash" you are done. If financing, well, you know the drill. Once your car is built, Volvo flies you and one other person, for free, to Sweden to pick up and drive your car. You can drive it as little as you want (first night of hotel is free) or as much as six months across Europe. The car is then shipped to your dealership where you pick it up. The downside is that you don't get the instant gratification of the single day buying experience.
I mention Volvo here because I have personal experience with their program (resulting in a V70R). I understand that other European brands offer similar programs.Loading…
No kidding? Kukjavel!Loading…
I think car dealerships as they exist now are an out of date concept.
Order through a web page, catalogue or other method and receive your product. As a prior poster said, have a centralised test drive spot.
Yes, it will take some adjustment for the " I am buried in my car " crowd to dispose of their existing car but pre-arranged financing will cover it.
The jovial guy who passes you off to F&I while the GM rips up your trade does not work when information is available to make smart buying decisions.
Would you rather have your mother, wife, daughter or non car guy brother make a decision on a car from facts or someone giving you the "What will it take to get you to drive home this POS today?" line.?
I don't know; one percent ($200 on a $20,000 car)? Maybe 1.5 percent?
Having worked at dealerships for the last decade I can say that the margins are actually not all that great, especially compared to other retail buisnesses. The current store I work at sells Buick and GMC with a Nissan store two blocks west. On new cars the margins are shockingly small from an average of about $100 dollars on a Versa up to a couple thousand on a loaded Denali. Of course these cars have to be floor plan financed by the dealer but there are financial incentives from the manufactuer for meeting sales targets. Used cars are much more lucrative as dealers are able to get these cars through special auctions for low prices.
In the parts end where I work on most parts the markup is roughly 50% on most parts (less than standard retail markup of 67%). Warranty parts have a markup of 40% and wholesale parts have a markup of 25%. As to the discrepancy on parts prices noted above very large dealers are able to purchase parts on truckload programs for cheaper prices than ordinary dealers who do not have the capital or space for such purchases. Service is one area where profit can be made, our labor rate which is on the low end for the area, is $99 an hour of which only about $30-35 goes to the tech. Of course training and equipment eats up a good portion of that.Loading…
Depends if it's me or you buying the car.
I, too am mystified that we aren't buying cars from "car stores" like every other consumer good out there. I'm of the opinion that, without a number of laws and lobbyists protecting them, they'd be gone, dissolved into some mix of factory stores and service centers.
(this is for new cars only, btw)
How much should they make on a sale? I don't really care. They're not entitled to a given percentage and I'm not entitled to a given price. They should try to get as much as they can for the car (and probably not operate at a loss), and I'm going to try to get it for as little as I can. I will do my homework, call around, and see who's got what I want for what I want.
The funny part to me is how much time dealers will spend with you negotiating on a car, even when they know what their final number is. It really shouldn't take that long, and instead of hours in their tiny sales box, they could be out there snagging another customer.
It does seem the larger the purchase price the more likely you are going to haggle on the price. Homes and cars are the first two that come to mind. Also, haggling is much more common at an independent business than a large chain.Loading…
I don't have a philosophical problem with dealerships, but that may because i'm Ford Z-plan eligible. If i'm buying a new car it'll be a Ford because there is no haggling and i'm going to get pretty much the best possible deal.
Are car dealers sleazy? Sure, i'll bet a lot (most?) are, but it's not like every private seller is honest. I don't buy the markup argument because the markup on stuff we buy all the time is a lot bigger and we don't pay attention to that. I think that Americans are excitable on this issue because we're not a haggling society and it's the one purchase we do haggle over (from a storefront business). It's also a large purchase so it stands out.
Dealerships probably are a relic from a bygone age, but i'm not sure that other systems would work very well either. Sure, you could order from the manufacturer (you're paying for delivery to the dealership anyhow), but where would you test drive? It isn't like ordering a computer off the internet.
Or maybe i'm just currently biased since the last car i bought was used, from a dealership and it went really well. There wasn't much haggling, because i needed a car that day. Combined with the $2000 drag-it-in trade offer (for a car stranded in my driveway that wouldn't get $2000 in perfect condition) on a perfect, one owner Civic that came in below KBB, it wasn't worth it. And when the betterhalf realized that paying bills on time means something when you're getting financing and the CU wouldn't release the funds until the payment posted, the dealership sent us home with the car and we didn't actually buy it until two days later.
You mentioned brand Y. All I can think of is Yugo…
To the people who want "Test Drive Centers" and order direct from the factory, you probably also would vote for Socialized Health Care and other silly concepts that don't work either.
Buying a car is not like buying a laptop, or a shirt, or a pair of shoes. Buying a car requires certain things that are exceptionally important. Who on earth would buy a car without test driving? If you do, your an idiot! And if it's a used car, you need to drive the bloody car your buying period! Centralized Test Drive Centers, that is stupid. How far apart are these centralized test drive centers supposed to be? 100 miles? 200 miles? 500 miles? Please. Who's going to drive that far for a test drive. And 90% of the people out there want to test drive the exact car they are going to take home.
Dealerships are a necessary evil, like a president. If you do your research going in you won't get screwed. Those who get screwed deserve it in a darwinesque setting. The information is out there, if you just look. Margins on new cars virtually non existent! And unlike some of the people on this board 75% of the population doesn't know or give a crap about cars and they need someone who does to lead them in the right direction in getting the car that will fulfill their needs. I've taken in hundreds of cars on trade that just were NOT the right car for the person to buy in the first place. Why did they buy them? Because they didn't know any better and their wasn't a trained professional there to lead them in the right direction.
Are their still dealerships out there that suck the life out of people? Sure! But the only people that get milked are the ones that don't do their homework and go in un prepared!
I'd always heard that dealerships make all their money on service and used cars. And honestly, in this day and age of easily obtainable carfax reports, and people keeping maintenance history, I'd trust a used car from an individual much moreso than from a dealership. While some of their used inventory comes from trade-ins, another good bit of it comes from auction. And I know for a fact (having worked at a body shop that performed some of this work under their specific instructions) that they skimp as hard as they can on getting cars up to their "standards". We were once instructed by a dealership to hook a chain to an Avalanche bumper and pull the bumper back into shape by hooking the other end to a concrete pylon and driving the truck forward, and then spray-painting (ie: with a rattle can) the grey cladding so it would look new. This wasn't for a chevy dealer either.