Zues, I think what might work is a "hypothetical" situation from what Bill has seen in the business. Of course he wouldn't post his personal car business info. But, hypothetical and general info would be quite interesting.
I appreciate all of you who share you info, it's very interesting to me.
Mark
2010 Land Rover LR4, 2013 Honda CR-V, 2009 Bentley GTC, 1990 MB 500SL, 2001 MB S500, 2007 Lincoln TC, 1964 RR Silver Cloud III, 1995 MB E320 Cab., 2015 Prevost Liberty Coach
If Bill wants to post the info, he will. It's just the nature of this board to make wild, uneducated assumptions and then come back with accusations based on those wild, uneducated assumptions.
I wouldn't post anything like that here. Only a very few could understand the numbers, most would pick them apart, and I personally, wouldn't want to fuel a lampoonish debate.
Thanks for the straight shot info. It validates what Mass was saying - negotiating from cost is a fools game. Nobody directly involved in the negotiation knows what that is, LOL.
Zues, I see what you mean. It's a shame because most of us here would learn from it and understand what the cost of running a car dealership really are.
(in very simplistic terms) At the Mercedes dealer that I go to, They have four service guys and a female greeter; maybe fifteen salesman, a receptionist, two cashiers and maybe 20 service guys in the back? All of these employees probably have health insurance and an average salary of $30K-35K min. Then, there are a few administrative positions including the F/I person. So, there a lot of mouths to feed before the first car is even sold.
And, this doesn't even consider the cost of the building, land, taxes, insurance, floor planning costs, maintenance, utilities, etc.
The costs are obviously not cheap. Mark
2010 Land Rover LR4, 2013 Honda CR-V, 2009 Bentley GTC, 1990 MB 500SL, 2001 MB S500, 2007 Lincoln TC, 1964 RR Silver Cloud III, 1995 MB E320 Cab., 2015 Prevost Liberty Coach
My average technician made $50,000 a year. My top guy broke $80,000. Mechanics. $80K.
In F&I, I averaged between $60-100K a year. The average salesman, who knows...$40-50K?
Two of the biggest factors in costs at a dealership is inventory flooring (most think the holdback covers it - what a joke) and insurance. Not health insurance, which is significant at the typical 50 employee dealership, but property insurance. Think about insuring 200 cars, several buildings, etc, under ANY condition - and the type of insurance that covers you in case some lummox wrecks one of your rides on a test drive.
A person a while back was dogging the fact that the dealership owner drive a really nice car.
I laughed at that - if I bankrolled several million dollars of my own money, got in hock up to my eyeballs, and paid flooring (inventory) and insurance costs on 200-300 vehicles, I'll be danged if some guy who posts on Edmunds would have a say in what I drove!
Sorry Landru2, I do know what a dealership makes. I am one of the Finance Managers at my store after being promoted recently from the internet dept. I know exactly what we make on a bottom line. What is amazing how people not even employed at a dealership, or never has, knows how much we make. Thats Amamzing...
As I mentioned previously, New car sales isn't the MAIN focus on income. It is the service, parts, body shop.
Bigorange..No one claimed not to make money. I didn't say we are losing money. I just said if I sell you a car at invoice and there is no rebates or cash money or anything to that sort....I don't make money on THAT deal. Yes, because I sell my trucks at MSRP it helps me to sell the cars cheap but it doesn't take away the fact that on stock number #1234 an 2003 Honda Civic if I sold it at 100.00 below invoice I lost money.....period.
I didn't even say I mind "lieing in the bed I made". It just gets might old to hear people say I and the rest of the car selling world all lie about this and the other when a)we aren't and b) the people that claim to know everything, don't know the truth before they speak.
Yea, go ahead sell em for a higher price huh? LOL..We sell them at invoice now and you sit hear and bury us......
IT manager, at a mid-sized firm make per year? $60K, $80K? I know one personally who makes $95K.
How is that any different from a 15 year Master ASE technician? He deserves every penny, just like the IT guy - we couldn't function without either one, and we pay them for their experience.
To argue in any other fashion is ludicrous, and I'm not talking about the rap singer.
I can't imagine anyone else, anywhere, having their salaries dissected and scoffed at.
Can you imagine someone saying....what $50K a year for a McDonald's manager? All they do is boss people around, and besides, they make 70% profit on fries.
98% of what I see here (and sadly, participate in) are lampoonish debates.
My intent with the request was to try to elevate the discussion beyond "I think" and "you think".
My primary interest is to learn what a store's return on equity actually is. I doubt it is greatly different from similar businesses of similar size facing similar risks (well, maybe returns are a little higher, the manufacturer-franchise-territory element makes the auto-retail business somewhat less than a totally "free market").
Would that $30 Mil buy the entire business as a going enterprise... building, inventory, franchise-agreement, etc.? Or would that be simply land and building? If the latter, what would it cost me to buy the entire business as a going concern?
What are the typical profit centers in this ficticious dealership? You mentioned Parts and Service. These is also, I assume, Body Shop, New Sales and Used Sales. Any others? What might their respective monthly profits (or losses) be (assuming all salaries at market)?
Then what monthly overhead gets applied (beyond direct costs already factored-into departmental profit/loss estimates)? Assume there is no long-term debt-service involved beyond manufacturer-floorplan programs.
Obviously, just trying to hone-in on this ficticious dealer's return on equity.
As an aside, I think 2-3% holdback allowances were (theoretically) instituted to help finance in-stock new car inventory; I've heard the benchmark being for 90 days. With today's lower prevailing interest rates, doesn't that 2-3% cover closer to 180 day's worth of interest expense? And for this dealer doing 120 new a month, how many would they want in-stock at any given time?
Thanks for whatever answers you're willing to provide.
OK, take Brentwoodvolvos numbers, remove the parts and service profit from the overhead. That leaves you with an overhead of $275000 a month (500k minus (75k + 150k)) .
So if you sell 160 cars a month (120 new, 40 used) then you will need to make around $1720 on each car just to break even. Therefore it (again) is clear that not everyone can buy their car at invoice in spite of the holdback. As the numbers show invoice purchasing is just not a sustainable business model.
A better (sustainable) model would be invoice plus overhead ($1720) plus whatever a "fair" profit would be.
$30,000,000 would buy it lock stock and barrell. Assuming, of course,that Lexus OKs the sale of the store. Don't take it personally, but you would, I doubt, ever be approved to buy a store.
Profit centers:
Parts Service New sales Used sales Finance
This is not a fictional store.. just one I won't mention
The $550K or so includes floorplan interest, salaries (Which are a huge expense) figure $20-30K or so a month for insurance, etc...
@ $30 mil financed at 4.5% over 30 years you would have a monthly payment of about $150K/month. This adds another $937.5/car that you would have to make.
This may indeed be true for the ficticious Lexus dealer. I don't have a clue. But Lexus stores probably do get that premium over invoice on-average.
How does the no-haggle Ford mega-dealer, whose one-price stickers are at, or very close to invoice, (before rebates) make ends meet? Are their service (or other profit center) margins higher than the Lexus store to make up for their failure to cover overhead with car-sales?
Thanks for the great info and discussion. I don't have time to read carefully today, so I should shut up. Even so, BO, doesn't Bill include what you're calling 'depreciation' in total overhead? Even so, jasmith52, shouldn't you consider holdback and dealer cash in your number? L/;) to you, Hank and Bill. Great brains at work with good info are a pleasure to see. Thanks for the info and discussion!
Still trying to get to return-on-equity. What might this store's entire annual profit be after ALL expenses (with salaries at market rates)? Give a hi-lo range if that is more comfortable.
Does this profit estimate include long-term-acquisition-debt-expense held in the business or does it assume debt-service costs (if any) held by an owner outside the business's books?
You're right about that. I wouldn't, and shouldn't be approved to own a dealership. That's not where I was going.
I have trouble enough running my software company where the metrics are entirely different (no such thing as inventory... I get $50K for what is on a 30-cent CD). It's more a matter of how many I can sell. Different challenges altogether (support, R&D, marketing costs).
The only similarity between my software business and auto-sales is the bazaar (and bizarre) approach to selling. Like your's, my industry is rampant with price-bombing and "discounts".
I don't engage in it, and it has cost me deals. But if I have 2 customers meet on a plane and ask each other "what did you pay?"; I sleep well knowing both paid the same off the same price list.
The net return that you should see varies. Overall, a well-run mainstream store shouldhave a 2-3% NET post-tax return. A Luxury import store can do a bit better.. but not that much, perhaps 5-10%.
unless long-term-debt interest expense and principal-reduction is included.
Would assume those returns may also include higher-than-market salaries for owner-managers and/or family?
And at what rate might a mainstream dealership, holding its own competitively in its market, appreciate?
Clearly there is money made here, but not the bucketfuls many assume. The business is too competitive and manufacturers too watchful to give dealers too sweet a deal.
Nor do people appreciate what it means to put $30 Mil at risk (even tho much of it may have come from a bank). What I couldn't stand is relying so totally on the competiveness of my manufacturer... that's risk with no control.
thought. I thought maybe I would share to the discussion what the lastest P&L of my store had on it as far as expenses go:
Salary Payroll taxes Employee Benefits Company Vehicles Office Supplies Other Supplies Advertising Data Processing Outside Services/Uniforms Dues and Publications Legal and Audit Interest - Notes pay Training Mort./Rent Deprec/Amort. Repairs Taxes Insurance Heat/Light/Power/Tele.
I took these right off our actual P&L. These are actual expense on a countinual basis. I am being as hones as possible when I say I work for avg to large Honda dealer and these expenses are factual. They totaled last month $684,132.
With the figures givin earlier by Bill, HOPEFULLY you can see, it's not just sit back and make all kinds of money. YES, without a question, we make money. We wouldn't be here if we didn't. I think maybe next time you say how we just make money on top of money and we just flat out screw the public, think twice.
LOL..Or maybe next time the sales guy come back and says "I can't quite do it for that price...I need a little help"....Don't scream and yell and get up and walk out with an attitude....think about it first.
sellin -- i'd be curious...how many cars you sell new vs used. avg "profit" on each over invoice (or amount you paid for the car), new and used. I'm guessing its not the $4k new and $3k used the Lexus dealership sees.
obviously, you make money to stay in business. wouldn't be any dealerships if you didn't. And you guys are absolutely correct. the public has NO idea what it costs to run a dealership. Curious minds want to know...
Whats the typical ratio of revenue between new car sales/used car sales/parts/service/and finance....
I agree with 'Hankr', it would make me nervous as hell to rely on your manufacturer to provide you with competitive cars and competitive prices. Imagine being a Nissan/Infiniti dealer 10 yrs ago, looking at the future and seeing the ship sinking. The future looks much brighter now. Lots and lots of risks you take, most the public never think about.
a nice amount for this size store. I will not say what our grosses were but I will say that everything I said earlier about losing money on cars and making money on trucks and thank god for the service/parts/body shops,,,all stands true.
It is low. Those are about National averages. Low net percentages, but sales dollar volume is not low.. say a Honda store has an average selling price of $23K a copy, x 200 units new..
$4,600,000
Say you do 80 used at $12K a copy..
$960,000
Say service sells $250,000... parts does $175,000...
Zues said “is delivered to the dealer, the manufacturer is paid (through flooring). In fact, the manufacturer doesn't care if the vehicle rots on the lot - they've got their money.”
Then why do manufacturers give rebates? Let me take a stab at this one. The dealer buys cars from the manufacturer. If the dealer buys cars and they rot on the lot, the dealer is not very likely to buy anymore cars from the manufacturer. So the manufacturer is motivated to help the dealer sell slow moving models so they will buy more cars from them. Did I get it right?
A reasonable price point for who? the buyer of course LOL
Sellinhonda I did not mean that anyone else said that there is still a lot of profit. Maybe that was a bad choice of words. What I meant was that Isellhondas implied by his comment that cars are marked up so that they can be marked down, based on what BO had said in the post before his. Since we all know that most buyers buy for invoice (wink) (except at Isell’s store, where everyone pays MSRP..wink) I just extrapolated from the comment that invoice price most be enough of a profit for the store to survive and do well or the store would not sell for invoice.
someone needs to write a good book on the car business from the retailers point of view..I think it would sell a ton given the mystery that shrouds the inner workings of the business as a whole, and especially at the dealer level. The rise of the internet and companies like Cars Direct have had a big impact - good or bad.
In an earlier post about salaries, a good F&I guy can make a lot of money. I know a guy in his early 20's who makes over $130K since he does f&i for subprime customers. (think 24.99%). I dont know if I could do that though.
so 24% is no big deal (sleeping at night). People get what they deserve - if you don't pay your bills, if you stiff your creditors, there's no way you can expect someone to loan you money at the same risk level (loan to value) and interest rate (low cost, low risk, high cost, high risk) as someone who pays their bills like they should.
None of us would write a check to someone (you don't know) if there was only a 20% chance you'd be paid back....why ask a bank to do the same?
Oh, and big rebates sell cars to people who are bad at math and can't read the NADA website.....
"Oh, and big rebates sell cars to people who are bad at math and can't read the NADA website....."
I hadn't thought about it quite like that but cars with big rebates are usually poor quality and that is why they NEED the rebate to sell. That (quality) is also what makes the NADA (depreciation) price what it is.
Fords, Chevrolets (esp cars), DCC products, Hyundais, Kias, etc drop like rocks, some up to 50% within the first year. These products have huge rebates and big warranties.
In fact, Chevrolet just announced a $4,000 rebate (no shell game of mixed rebates) on the Cavalier.
Ford has a $4,500 bounty on the Windstall.
DCC has $3K on Jeeps, $4K on Durango.
Hondas don't have rebates or huge warranties.....they also hold their value stronger.
I want to get a Lexus LX470 in the next few months, and of course, wish to get the best price. When is the best time to buy? Is it better to deal on a '03 at the time the '04 are coming out, or to go for the '04 model? Is it better to wait around the Xmas new year time? Any suggestions to getting a good deal in the Sac/Bay area of CA?
Zueslewis, I wonder if those 32.9% contracts were sold only to potential deadbeats or also "to people who are bad at math and can't read the NADA website....." I try to keep an open mind when dealing with people, but those two comments sure made me sit up and take notice. I guess this is what's meant by caveat emptor.
We purchased a white Honda EX 4 cyl last night and signed all the loan papers. Got our insurance coverage today and then tonight thought we'd write the VIN number in our manual and find out that all the paperwork we signed was for a blue Honda EX 6 cyl (with the different VIN number for the blue v6). We and they didn't notice that the description was for the blue v6 and they obviously didn't double check the VIN number before we signed everything. So we are driving a car that hasn't legally been sold and have papers on a car that is possibly sitting on their lot. Since it is late at night we haven't contacted the dealer yet. What do you think they'll do when we tell them they sent us home in the "wrong car"? We purchased a GAP protection, extended maintenance and our regular insurance all with the blue (or wrong) car's VIN number. Will it be such a nightmare for them that I could offer to pay them a thousand bucks and take the blue v6 or will it be such a financial mistake for them that they will fix all the paperwork and trails? Or do we legally own the blue v6? Thankyou.
to brent, sellinhondas, etc....great discusiion with some facts for a change instead of "I think, or IMHO..."
brent...very good observation about holdback and rebates. I have a question, why would holdback be started in the first place? Shouldn't it be survival of the fittest in business? Or are we back to handouts to subsidize poorly run businesses? If I recall correctly (I was young then) mortgages were in the high teens also, but banks were not giving out programs like holdback to help home buyers. It was here is the rate, take it or leave it.
peeete---The book thing has already been done. All the pros here on edmunds deride the authors as washed up car people that could not sell a thing. If however, you take the opposite approach and assume what they say is true and someone like brent did write a book about a successful car dealership, then all the secrets would really be out. Its a no win situation. Like any successful business, the real trade secrets will be kept close to the vest, otherwise you lose the edge. If a successful car dealer wrote a book and spilled all his secrets for making himself profitable, how long do you think it would be before buyers would be trying to work it to their advantage? I agree with you I would love to read it, but I bet it ain't going to happen.
holdbacks... don't know, just taking a stab, but in the manufacturer's position, THEY probably needed to subsidize the dealer in order for the dealer to stay in business. If the dealer went out of business, both lose. With interest rates as high as they were, it was probably getting hard for the dealer to handle the interest expense associated with keeping the new car inventory available to prospective customers... doesn't mean the business was run poorly, but the manufacturers needed the dealers to stay competitive so the manufacturer can sell cars. holdbacks don't come from the government or a third party...
I think legally you own the V6, but in reality you own the 4 cyl.
If all the dollar figures match what you agreed on for the 4 cyl car, then, ethically speaking, you bought the 4 cyl and someone did your paperwork wrong.
If the numbers don't match... did they put the wrong names to two deals going on at the same time??? If so, someone else got a heck of a deal on a V6 Accord.
Hopefully your dealer is a first class operation and they will make it right.
Lesson learned, check your paperwork very carefully before you sign and drive away, including comparing the VIN on the car with the VIN on the docs.
Those 32.9% contracts were written on a private lender in Medford, Oregon and were designed for people who rarely, if ever paid their bills (except phone - you HAVE to have a phone) and had below a 450-500 beacon score.
The lender required 20 references (confirmed before delivery), copies of your last 3 phone bills (they want numbers for all th epeople you call), copies of your electric bill, gas bill, whatever, copy of your house lease/rental agreement, at least 30% down, a car less than $10K and a contract no longer than 36 months.
32.9% is reserved for very bad credit people - we called them credit crooks, credit criminals, roaches, whatever. We also wondered if we should hold them for the sheriff and do our civic duty.
It isn't like we dropped 32.9% on someone who could have qualified for 12-15%. Doing that is stupid, on the dealer's part, and doesn't do a thing to get a car deal done - in fact, it makes it harder.
Did you check out the paper work on your last vehicle purchase? I've purchased 2 new vehicles recently and I don't have a clue if all the numbers match. You need to match the VIN from the vehicle, the bill of sale, the application for title, the tag application, the temporary tag permit, financing and/or leasing documentation if applicable, the title when it comes, and the vehicle registration when it comes. And most of this has to be done after sales negotiation and then F&I. On one vehicle, we did a factory delivery and did the paperwork several days in advance of pickup. I just have to trust my dealer that all is well.
You simply write the VIN on a piece of paper when you say I want to buy this one, or in my case, I put it in my PDA, and before you sign every document, check the VIN and financials against what was agreed upon.
It doesn't take that long to get it right. But it will probably take a lot longer to correct it if you let it go through wrong.
For the factory delivery, you check the VIN on your paperwork against the VIN on the vehicle. I'm sure there is some sort of delivery document you sign once you pick up your car from the factory, if the VINs don't match, don't take the car.
Especially if you are picking up in Germany, can you imagine the hassle if you were trying to import a car and the VIN doesn't match. I don't want to think about that kind of red tape.
"With interest rates as high as they were, it was probably getting hard for the dealer to handle the interest expense associated with keeping the new car inventory available to prospective customers... doesn't mean the business was run poorly"
No disrespect intended to you, but yes it does mean they were run poorly. They did not anticipate or adjust effectively to a major change that impacted their business. It may not be a govt hand out, but it is B2B corporate welfare. I agree with you that the manufacturers probably saw it as the only way to help keep dealers afloat, which would benefit the manufacturer.
What would have happened if all of the sudden the dealers insurance rates had tripled? These are costs that the dealership has to plan for and adjust accordingly, or go out of business.
Comments
I appreciate all of you who share you info, it's very interesting to me.
Mark
I wouldn't post anything like that here. Only a very few could understand the numbers, most would pick them apart, and I personally, wouldn't want to fuel a lampoonish debate.
(in very simplistic terms)
At the Mercedes dealer that I go to, They have four service guys and a female greeter; maybe fifteen salesman, a receptionist, two cashiers and maybe 20 service guys in the back? All of these employees probably have health insurance and an average salary of $30K-35K min. Then, there are a few administrative positions including the F/I person. So, there a lot of mouths to feed before the first car is even sold.
And, this doesn't even consider the cost of the building, land, taxes, insurance, floor planning costs, maintenance, utilities, etc.
The costs are obviously not cheap. Mark
In F&I, I averaged between $60-100K a year. The average salesman, who knows...$40-50K?
Two of the biggest factors in costs at a dealership is inventory flooring (most think the holdback covers it - what a joke) and insurance. Not health insurance, which is significant at the typical 50 employee dealership, but property insurance. Think about insuring 200 cars, several buildings, etc, under ANY condition - and the type of insurance that covers you in case some lummox wrecks one of your rides on a test drive.
A person a while back was dogging the fact that the dealership owner drive a really nice car.
I laughed at that - if I bankrolled several million dollars of my own money, got in hock up to my eyeballs, and paid flooring (inventory) and insurance costs on 200-300 vehicles, I'll be danged if some guy who posts on Edmunds would have a say in what I drove!
Finally a Owner to back up us.
Sorry Landru2, I do know what a dealership makes. I am one of the Finance Managers at my store after being promoted recently from the internet dept. I know exactly what we make on a bottom line. What is amazing how people not even employed at a dealership, or never has, knows how much we make. Thats Amamzing...
As I mentioned previously, New car sales isn't the MAIN focus on income. It is the service, parts, body shop.
Bigorange..No one claimed not to make money. I didn't say we are losing money. I just said if I sell you a car at invoice and there is no rebates or cash money or anything to that sort....I don't make money on THAT deal. Yes, because I sell my trucks at MSRP it helps me to sell the cars cheap but it doesn't take away the fact that on stock number #1234 an 2003 Honda Civic if I sold it at 100.00 below invoice I lost money.....period.
I didn't even say I mind "lieing in the bed I made". It just gets might old to hear people say I and the rest of the car selling world all lie about this and the other when a)we aren't and b) the people that claim to know everything, don't know the truth before they speak.
Yea, go ahead sell em for a higher price huh? LOL..We sell them at invoice now and you sit hear and bury us......
amazing...simply amazing
How is that any different from a 15 year Master ASE technician? He deserves every penny, just like the IT guy - we couldn't function without either one, and we pay them for their experience.
To argue in any other fashion is ludicrous, and I'm not talking about the rap singer.
We are car guys and go forbid we make their money.
Can you imagine someone saying....what $50K a year for a McDonald's manager? All they do is boss people around, and besides, they make 70% profit on fries.
My intent with the request was to try to elevate the discussion beyond "I think" and "you think".
My primary interest is to learn what a store's return on equity actually is. I doubt it is greatly different from similar businesses of similar size facing similar risks (well, maybe returns are a little higher, the manufacturer-franchise-territory element makes the auto-retail business somewhat less than a totally "free market").
Take a medium-Sized Lexus dealership in the NYC Metro area. Figure they average like 120 new and 30-40 used a month.
Parts will make you about $75K profit, Service about $150K profit a month.
Store, without advertising ($40-50K) will have a net overhead of roughly $500,000 a month and would cost with land, $30,000,000 to buy.
Would that $30 Mil buy the entire business as a going enterprise... building, inventory, franchise-agreement, etc.? Or would that be simply land and building? If the latter, what would it cost me to buy the entire business as a going concern?
What are the typical profit centers in this ficticious dealership? You mentioned Parts and Service. These is also, I assume, Body Shop, New Sales and Used Sales. Any others? What might their respective monthly profits (or losses) be (assuming all salaries at market)?
Then what monthly overhead gets applied (beyond direct costs already factored-into departmental profit/loss estimates)? Assume there is no long-term debt-service involved beyond manufacturer-floorplan programs.
Obviously, just trying to hone-in on this ficticious dealer's return on equity.
As an aside, I think 2-3% holdback allowances were (theoretically) instituted to help finance in-stock new car inventory; I've heard the benchmark being for 90 days. With today's lower prevailing interest rates, doesn't that 2-3% cover closer to 180 day's worth of interest expense? And for this dealer doing 120 new a month, how many would they want in-stock at any given time?
Thanks for whatever answers you're willing to provide.
So if you sell 160 cars a month (120 new, 40 used) then you will need to make around $1720 on each car just to break even. Therefore it (again) is clear that not everyone can buy their car at invoice in spite of the holdback. As the numbers show invoice purchasing is just not a sustainable business model.
A better (sustainable) model would be invoice plus overhead ($1720) plus whatever a "fair" profit would be.
This store is averaging about $4000 a copy new and $3000 a copy used front and back.
$30,000,000 would buy it lock stock and barrell. Assuming, of course,that Lexus OKs the sale of the store. Don't take it personally, but you would, I doubt, ever be approved to buy a store.
Profit centers:
Parts
Service
New sales
Used sales
Finance
This is not a fictional store.. just one I won't mention
The $550K or so includes floorplan interest, salaries (Which are a huge expense) figure $20-30K or so a month for insurance, etc...
Last month it grossed about $800K.
That was a strong month.
How does the no-haggle Ford mega-dealer, whose one-price stickers are at, or very close to invoice, (before rebates) make ends meet? Are their service (or other profit center) margins higher than the Lexus store to make up for their failure to cover overhead with car-sales?
You actually make a profit on cars versus a net loss or breaking even, but you do a lot less in the service dept.
A Ford store willhave FAR weaker new sales but decent used sales and strong parts/service numbers.
Even so, BO, doesn't Bill include what you're calling 'depreciation' in total overhead?
Even so, jasmith52, shouldn't you consider holdback and dealer cash in your number?
L/;) to you, Hank and Bill. Great brains at work with good info are a pleasure to see.
Thanks for the info and discussion!
Still trying to get to return-on-equity. What might this store's entire annual profit be after ALL expenses (with salaries at market rates)? Give a hi-lo range if that is more comfortable.
Does this profit estimate include long-term-acquisition-debt-expense held in the business or does it assume debt-service costs (if any) held by an owner outside the business's books?
continued thanks...
I was going based on the fact that he mentioned the overhead and the purchase of the land separately in assuming that it was not included.
"And" looks like a key word there.
I have trouble enough running my software company where the metrics are entirely different (no such thing as inventory... I get $50K for what is on a 30-cent CD). It's more a matter of how many I can sell. Different challenges altogether (support, R&D, marketing costs).
The only similarity between my software business and auto-sales is the bazaar (and bizarre) approach to selling. Like your's, my industry is rampant with price-bombing and "discounts".
I don't engage in it, and it has cost me deals. But if I have 2 customers meet on a plane and ask each other "what did you pay?"; I sleep well knowing both paid the same off the same price list.
The net return that you should see varies. Overall, a well-run mainstream store shouldhave a 2-3% NET post-tax return. A Luxury import store can do a bit better.. but not that much, perhaps 5-10%.
Would assume those returns may also include higher-than-market salaries for owner-managers and/or family?
And at what rate might a mainstream dealership, holding its own competitively in its market, appreciate?
Clearly there is money made here, but not the bucketfuls many assume. The business is too competitive and manufacturers too watchful to give dealers too sweet a deal.
Nor do people appreciate what it means to put $30 Mil at risk (even tho much of it may have come from a bank). What I couldn't stand is relying so totally on the competiveness of my manufacturer... that's risk with no control.
Salary
Payroll taxes
Employee Benefits
Company Vehicles
Office Supplies
Other Supplies
Advertising
Data Processing
Outside Services/Uniforms
Dues and Publications
Legal and Audit
Interest - Notes pay
Training
Mort./Rent
Deprec/Amort.
Repairs
Taxes
Insurance
Heat/Light/Power/Tele.
I took these right off our actual P&L. These are actual expense on a countinual basis. I am being as hones as possible when I say I work for avg to large Honda dealer and these expenses are factual. They totaled last month $684,132.
With the figures givin earlier by Bill, HOPEFULLY you can see, it's not just sit back and make all kinds of money. YES, without a question, we make money. We wouldn't be here if we didn't. I think maybe next time you say how we just make money on top of money and we just flat out screw the public, think twice.
LOL..Or maybe next time the sales guy come back and says "I can't quite do it for that price...I need a little help"....Don't scream and yell and get up and walk out with an attitude....think about it first.
How many cars your store sells?
obviously, you make money to stay in business. wouldn't be any dealerships if you didn't. And you guys are absolutely correct. the public has NO idea what it costs to run a dealership. Curious minds want to know...
Whats the typical ratio of revenue between new car sales/used car sales/parts/service/and finance....
I agree with 'Hankr', it would make me nervous as hell to rely on your manufacturer to provide you with competitive cars and competitive prices. Imagine being a Nissan/Infiniti dealer 10 yrs ago, looking at the future and seeing the ship sinking. The future looks much brighter now. Lots and lots of risks you take, most the public never think about.
a nice amount for this size store. I will not say what our grosses were but I will say that everything I said earlier about losing money on cars and making money on trucks and thank god for the service/parts/body shops,,,all stands true.
No it's not near 4-5k per copy on new vehicles...
$4,600,000
Say you do 80 used at $12K a copy..
$960,000
Say service sells $250,000... parts does $175,000...
etc...
Zues said “is delivered to the dealer, the manufacturer is paid (through flooring). In fact, the manufacturer doesn't care if the vehicle rots on the lot - they've got their money.”
Then why do manufacturers give rebates? Let me take a stab at this one. The dealer buys cars from the manufacturer. If the dealer buys cars and they rot on the lot, the dealer is not very likely to buy anymore cars from the manufacturer. So the manufacturer is motivated to help the dealer sell slow moving models so they will buy more cars from them. Did I get it right?
A reasonable price point for who? the buyer of course LOL
Sellinhonda I did not mean that anyone else said that there is still a lot of profit. Maybe that was a bad choice of words. What I meant was that Isellhondas implied by his comment that cars are marked up so that they can be marked down, based on what BO had said in the post before his. Since we all know that most buyers buy for invoice (wink) (except at Isell’s store, where everyone pays MSRP..wink) I just extrapolated from the comment that invoice price most be enough of a profit for the store to survive and do well or the store would not sell for invoice.
BO—yeah, what you said in post 4857
Like rebates, the concept did not die out.
In an earlier post about salaries, a good F&I guy can make a lot of money. I know a guy in his early 20's who makes over $130K since he does f&i for subprime customers. (think 24.99%). I dont know if I could do that though.
None of us would write a check to someone (you don't know) if there was only a 20% chance you'd be paid back....why ask a bank to do the same?
Oh, and big rebates sell cars to people who are bad at math and can't read the NADA website.....
I hadn't thought about it quite like that but cars with big rebates are usually poor quality and that is why they NEED the rebate to sell. That (quality) is also what makes the NADA (depreciation) price what it is.
In fact, Chevrolet just announced a $4,000 rebate (no shell game of mixed rebates) on the Cavalier.
Ford has a $4,500 bounty on the Windstall.
DCC has $3K on Jeeps, $4K on Durango.
Hondas don't have rebates or huge warranties.....they also hold their value stronger.
Since it is late at night we haven't contacted the dealer yet.
What do you think they'll do when we tell them they sent us home in the "wrong car"? We purchased a GAP protection, extended maintenance and our regular insurance all with the blue (or wrong) car's VIN number. Will it be such a nightmare for them that I could offer to pay them a thousand bucks and take the blue v6 or will it be such a financial mistake for them that they will fix all the paperwork and trails? Or do we legally own the blue v6? Thankyou.
brent...very good observation about holdback and rebates. I have a question, why would holdback be started in the first place? Shouldn't it be survival of the fittest in business? Or are we back to handouts to subsidize poorly run businesses? If I recall correctly (I was young then) mortgages were in the high teens also, but banks were not giving out programs like holdback to help home buyers. It was here is the rate, take it or leave it.
peeete---The book thing has already been done. All the pros here on edmunds deride the authors as washed up car people that could not sell a thing. If however, you take the opposite approach and assume what they say is true and someone like brent did write a book about a successful car dealership, then all the secrets would really be out. Its a no win situation. Like any successful business, the real trade secrets will be kept close to the vest, otherwise you lose the edge. If a successful car dealer wrote a book and spilled all his secrets for making himself profitable, how long do you think it would be before buyers would be trying to work it to their advantage? I agree with you I would love to read it, but I bet it ain't going to happen.
The 03 base Impala base price has gone from $20465 to $21160 in six steps since August.
Maybe they think no one will notice.
Mikey
Who really pays for these rebates and zero financing?
Why, it's the buyers!
If all the dollar figures match what you agreed on for the 4 cyl car, then, ethically speaking, you bought the 4 cyl and someone did your paperwork wrong.
If the numbers don't match... did they put the wrong names to two deals going on at the same time??? If so, someone else got a heck of a deal on a V6 Accord.
Hopefully your dealer is a first class operation and they will make it right.
Lesson learned, check your paperwork very carefully before you sign and drive away, including comparing the VIN on the car with the VIN on the docs.
TB
The lender required 20 references (confirmed before delivery), copies of your last 3 phone bills (they want numbers for all th epeople you call), copies of your electric bill, gas bill, whatever, copy of your house lease/rental agreement, at least 30% down, a car less than $10K and a contract no longer than 36 months.
32.9% is reserved for very bad credit people - we called them credit crooks, credit criminals, roaches, whatever. We also wondered if we should hold them for the sheriff and do our civic duty.
It isn't like we dropped 32.9% on someone who could have qualified for 12-15%. Doing that is stupid, on the dealer's part, and doesn't do a thing to get a car deal done - in fact, it makes it harder.
Jack
It doesn't take that long to get it right. But it will probably take a lot longer to correct it if you let it go through wrong.
For the factory delivery, you check the VIN on your paperwork against the VIN on the vehicle. I'm sure there is some sort of delivery document you sign once you pick up your car from the factory, if the VINs don't match, don't take the car.
Especially if you are picking up in Germany, can you imagine the hassle if you were trying to import a car and the VIN doesn't match. I don't want to think about that kind of red tape.
TB
No disrespect intended to you, but yes it does mean they were run poorly. They did not anticipate or adjust effectively to a major change that impacted their business. It may not be a govt hand out, but it is B2B corporate welfare. I agree with you that the manufacturers probably saw it as the only way to help keep dealers afloat, which would benefit the manufacturer.
What would have happened if all of the sudden the dealers insurance rates had tripled? These are costs that the dealership has to plan for and adjust accordingly, or go out of business.