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  • butchbr73butchbr73 Member Posts: 325
    I still respectfully disagree that higher interest rates (which are market rates at the time), which put a direct effect on my bottom line, means I am running a business poorly.... yes, there are measures one can take to adjust for the higher rates, ie - lower inventory... but I have a feeling it hurts my business more, hurts the manufacturers business, etc... down the chain.

    there are certain costs of doing business, you got to have an inventory to sell to the consumer.... and I would believe the manufacturer wants the inventory on the lots for the dealer to sell.
  • HankrHankr Member Posts: 100
    From prior info you provided, let's shift to me buying (disregard my complete lack of qualifications) that average Honda store.

    At the end of this post, you'll see all I need to derive return-on-equity is what I can buy this Honda store for, lock-stock-and-barrel.

    First, what are sales? From your posts...
    "Profit centers are:
    Parts
    Service
    New sales
    Used sales
    Finance"

    Now your comments for this Honda store...
    "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... etc."

    This gives a monthly gross sales figure of $5.985 Mil... without F&I. I'm gonna guess F&I gross sales at $550,000 (1% of new+used gross???). So to make round numbers, I'm gonna say this store has monthly gross sales of $6.5 Mil. Now make that $78 Mil annual gross sales. (Please correct me if my F&I guess is way off).

    Then we derive annual post-tax store-profit.
    "Overall, a well-run mainstream store should have a 2-3% NET post-tax return."
    I take this to be return-on-sales, so this store has annual profit (using 2.5% of sales) of $1.95 Mil... let's call it $2 Mil.

    So now I wanna know how much it would cost me to buy this average Honda store (and whether my F&I sales figure was off).

    I want to see how this investment, with its $2M annual "dividend" compares with me taking the same money and just putting it into the stock market, where long-term, I could expect a fairly safe 10% compounded annual return.
  • im_brentwoodim_brentwood Member Posts: 4,883
    What's the store worth?

    Oh boy.

    Where is it? And not just regionally.. what market? How is CSI? Allocation? Shop equipment? What does the showroom look like?

    Does it include the land? Has Wayne Huizenga been running amok buying Honda stores nearby thereby driving prices up?
  • JPhamJPham Member Posts: 148
    "I want to see how this investment, with its $2M annual "dividend" compares with me taking the same money and just putting it into the stock market, where long-term, I could expect a fairly safe 10% compounded annual return. "

    Who cares what the store is worth ... I want to know where I can get a "fairly safe" 10% return in the stock market! ;)
  • landru2landru2 Member Posts: 638
    All due respect, but in so many of your posts you seem to confuse government with private enterprise. How can you claim that a company shifting its own money is "corporate welfare?" How can you possibly equate Ford helping their own dealers sell Fords with a bank helping an individual buy a house?
  • HankrHankr Member Posts: 100
    It's just you and me yakking over coffee. Nobody else'll know.

    Since I'm from New Hampshire, let's say suburbs 20 miles west out of Philadelphia, Valley Forge / King of Prussia area. High-average incomes... country-ish suburbia at its finest. Store has 20-year track record of averageness. They own their 25-year-old store (expanded and remodeled 5 years ago) on 6 acres with 600 feet frontage on a well-travelled route... typical suburban retail-row, auto-row location. Facility-size adequate for current volume with ability to grow another 30% before any new building needed.

    If you have any more qualifying questions, just assume my answer is "average" (cuz I won't know what the questions really mean). CSI-- customer satisfaction??
  • im_brentwoodim_brentwood Member Posts: 4,883
    Assuming they own the land, this is TOTAL guesswork..

    Dunno, Probably about 25,000,000
  • HankrHankr Member Posts: 100
    So I can invest $25Mil for an 8% annual dividend, with some upside principal appreciation likely as the business-value grows. I am subject to many risks (my lousy hired management tanks the business, new freeway cuts my drive-by traffic 40%, my manufacturer has a safety-recall disaster, my manufacturer releases some crappy new models, etc.).

    But on the upside, if I operate the business well, to above-average returns, and my manufacturer doesn't stumble, that 8% yield could become 12%.

    Or I can put that $25 Mil into a broad-based index fund, looking for the market's traditional long-term compounded returns of 10%. Not assured, but with a 20-year investment horizon, fairly likely I'd be close to that.

    Wayne WhateverZinga has nothing to fear from me.

    Of course, if it is my 2.5 Million and the bank's 22.5 million.... Hmmmm...

    Many Thanks Bill, an interesting exercise.

    Hankr
  • zueslewiszueslewis Member Posts: 2,353
    Since I live less than 10 miles from where you're talking about, I'll volunteer to be your GM. My salary won't put too much of a dent in your P&L statement...
  • masspectormasspector Member Posts: 509
    sorry for the confusion, sometimes I cannot say all that I want to in a concise manner on here so I end up half saying things or assuming others understand where I am coming from.

    Corporate welfare may have not been the best term. Ford is free to do what it wants to with its money. I hate to sound the part of the bleeding heart liberal here, but it irks me that businesses can get away with so many things that regular individuals can't because they have lobbied and had laws passed to favor them. Being compensated by some back end money for higher than normal interest rates is just one of them. Another is bankruptcy. if an individual files bankruptcy they cannot just go out change their name and start over again, but businesses do this everyday and it is legal. Worldcomm/mci lied about their books, why is this company even still around? They should be shut down and all of the principles put in jail.

    It is my understanding that the Ford dealer is a totally seperate company from Ford the carmaker. They should have to stand on their own feet, just like us individuals do when times get tough.
  • jasmith52jasmith52 Member Posts: 462
    Hankr:

    Some thoughts for your stock market comparison.

    1) Try to get a bank to lend you anywhere near 80 percent of your stock market portfolio.

    2) Does your stock market portfolio allow you to drive all the new hot cars for a few months and then sell them for just about what you paid for them ?

    3) If you are comparing stocks to car dealers, just compare the stable old-line stocks (some people call these value-stocks). For example General Motors has a price-to-earning of about 6.76 right now. Or another way to look at it they earn a NET dividend (retained and paid out) of 14.8 percent. The reason that General Motors stock is not higher is that people (the market) assumes that General Motors will not be able to sustain their profits long term.

    4) It isn't really fair to compare hot growth stocks with a car dealership. A car dealership is a (relatively) stable business. Their growth (and downside risk) will never compare to that of some of the hot growth companies.

    5) For your broad based stock fund, I'll use the S&P 500 as a baseline. The S&P500 has a price to earnings ratio (trailing earnings) of about 30 ( or NET yield of about 3.3 percent). If you look at predicted earnings for the next year some people predict the price to earnings at about 19 ( or a NET yield of about 5.2 percent).
    Clearly the dealership in your example beats the pants off your stock fund example.
  • HankrHankr Member Posts: 100
    Some years ago, under Nasser I believe, Ford made a small foray into factory owned and operated retail stores. I wanna say Kansas City and/or San Diego, but I'm not sure. Some (many?) states have laws against this, I believe. Why?

    Ford's effort got a fair amount of press, and (understandably) stiff resistance from the dealer community. I think Ford failed and moved the stores back into private ownership. Why did their effort fail?
     
    What are the terms of most auto-manufacturer-retailer franchise agreements? Are they on annual, or 5-year, or 10-year renewable terms? What sort of events would permit either party to terminate the agreement? Does it happen often (excluding outright business failures)? Are stores territorially-protected (can't assign another franchise within x miles)?
  • landru2landru2 Member Posts: 638
    You seem to be missing an important point: Ford dealers sell Ford's products. Therefore Ford has every right to do whatever they can to help their products be sold. This has nothing to do with the individual vs. business. Yes, dealers are separate entities but they still have to sell the manufacturer's product.

    Even from the viewpoint of a "bleeding heart liberal" what could possibly be the benefit of forcing a business into a situation where it would go out of business and drag down its product manufacturer with it?
  • joatmonjoatmon Member Posts: 315
    Sonic Automotive. They own many dealerships. They often buy a dealer group and sell off the units they don't think "fits". Get their 10-k and pour over it. They also will give investors some of their "white papers" that provide many intersting details regarding their strategies.

    Good luck,

    Jack
  • HankrHankr Member Posts: 100
    1. My broker open a margin account for me with that $25 Mil... providing serious leverage but of course, higher risk. The stock I buy is collateral just as the dealership I'd buy with the bank's money is collateral.

    2. My ficticious Honda store sells nothing I get excited about. It's just business.

    3. My point was that I'd not overload in any one or few stocks... reducing potential gain, but spreading risk as well. Simply invest in a diversified fund that tracks the overall market.

    4. I'm not talking about hot growth stocks returning 10%... those are historical averages for the market as-a-whole. If I were to invest in a high-growth technology fund, average long-term returns would probably be more like 12% but with wildly fluctuating yearly performance.

    I see the stock market as less-risk, not more. Is a dealership "stable"... in a big picture, aggregate industry-sense you could say so. But throw all your eggs into any ONE dealership, with ONE manufacturer-partner, at ONE location and your risk increases greatly.

    I wonder what the overall annual failure-rate for dealerships is? Bill??
  • jaserbjaserb Member Posts: 820
    They did that here in Salt Lake City, but shut down the program a couple of years ago. From what I understand all it did was make pretty much everybody upset and it was written off as a failure.

    -Jason
  • jasmith52jasmith52 Member Posts: 462
    Hankr:

    I believe that you are comparing stock market total returns (yield and growth) with the dealerships yield only.
  • landru2landru2 Member Posts: 638
    I don't have failure rate data but I do know that the pre-requisites for buying a dealership are much more rigorous than just having the money. I know of a hand-full of people that have been turned down by Ford because they didn't have what Ford considered to be sufficient experience/knowledge, etc.

    Dealerships do fail, but I think that the failure rate is much less than expected because of the veting process that goes on.
  • rivertownrivertown Member Posts: 928
    Talking about leveraging 2.5 mil in a dealership compared to 25 mil in a stock portfolio?
  • masspectormasspector Member Posts: 509
    Ford dealers do many other things besides sell just new ford cars. They sell all makes of used cars, perform service on many makes of cars and sell parts.

    I was not trying to say that the dealers should be run out of business. i was just trying to point up a fact where one business (manufacturer) came to the back door aid of another totally independent business(dealer). And where individuals were effected by the same problem (high interest rates) but there was no there to help these people out.
  • butchbr73butchbr73 Member Posts: 325
    i'm not sure we are on the same page... Ford Corp is helping our Ford dealer b/c Ford needs dealer to stay in business and competitive. If Ford dealer is not competitive, Ford dealer and Ford corp lose sales... Yes, they are independent, but depended heavily upon each other. Very close business relationship. Without the dealers, the manufacturer wouldn't survive. Without the manufacturer, there would be no dealer.
     
    not sure where you are going with the individual thing...??? yes, interest rates were high at the time, people had to pay high rates to borrow money... so did everyone else, businesses or individuals.
  • landru2landru2 Member Posts: 638
    The manufacturer comes to the aid of the dealer because it is in the manufacturer's business interests to do so. They don't provide holdback so the owner can take a nice holiday. When it is in a business's interests to help you with high interest rates, you will get helped.

    Are you sure your point doesn't just boil down to "It's not fair that people or companies with more money than me can do things I can't do"?
  • HankrHankr Member Posts: 100
    Perhaps it was SLC where the Ford-owned-stores operated.

    Why did they fail?
  • HankrHankr Member Posts: 100
    "I believe that you are comparing stock market total returns (yield and growth) with the dealerships yield only."

    I was, sort of. The 8% is return-on-capital from operations. I acknowledged that there was also a return-on-capital element of the entire business appreciating, but do not know what that might be.

    If annual appreciation-returns were, say, 5%, then total returns of 13% from the dealership investment versus 10% from the stock market... in my view, more reward in exchange for more risk.

    The entire discussion was to illustrate that dealerships, in spite of what many have suggested, do not exactly have a license to "print money". Their investors put big numbers at risk, and receive fair, but not outrageous returns. It is just another competitive business where the successful are rewarded.
  • HankrHankr Member Posts: 100
    sorry... I missed a decimal point.

    I was just trying to illustrate that in the same fashion that I could leverage my 2.5M with a bank loan to buy that dealership, so too could I buy stocks on margin for leverage. The actual amounts were not germane to the point I tried to make.
  • jaserbjaserb Member Posts: 820
    I know a lot of Ford dealership owners were less than happy about being strongarmed into selling their dealerships. Most bought them back when the experiment ended. I think there was a bit of a price fixing flavor, too - since every Ford store looked exactly the same it was hard to feel like there was any competition between dealers.

    -Jason
  • jasmith52jasmith52 Member Posts: 462
    Hankr:

    1) Return on Equity - By law you can only borrow up to 50 percent of a stock market margin account. This has been true since the margin fiasco's preceding The great depression.

    2) Your equity in the dealership is probably only 20 percent or so. Therefore your return on equity is not 8 percent but 40 percent. The interest paid for the dealership is included in the overhead figure.

    3) If the dealership value increases with inflation (say 3 percent), your equity increases by 15 percent due to the leverage of your investment.

    4) Combining the return on equity of the ongoing operation with the return from the investment, I get a return of 55 (40 + 15) percent total return on equity.

    5) This is a great return on your investment, but as you have pointed out there is quite a bit of risk.

    6) Don't try this at home as your mileage may vary.
  • HankrHankr Member Posts: 100
    "it was hard to feel like there was any competition between dealers."

    Which is (I suspect) why so many states have laws against factory-owned stores. They require independently-owned franchises.

    Seems a little "Un-American" to me though. If a manufacturer wants to own all the stores and control pricing, let them. It's their product and their sales at risk.

    It really doesn't stem free competition... IMO, government need not insure there is a competitive marketplace for Fords... only insure that there is a competitive marketplace for cars.
  • HankrHankr Member Posts: 100
    1. right you are.

    2. My basic presumption was that I bankrolled the entire enterprise... no debt. It was also my assumption that the operating returns did not include debt-service (though I was working with Bill's numbers and it wasn't clear).

    3. same comment as 2.

    4 & 5. This is the heart of the matter, and your scenario where debt is part of the picture is probably much more real-life. Bill's estimates of profit-margins relative to sales probably also included some debt-service within the cost-structure (as is more typical in a real-world dealership). So your return figures on MY risk-capital using the business to service debt probably are right.

    Yes... a good, even great return, but still lots of risk.

    Thanks for your insights.
  • afk_xafk_x Member Posts: 393
    If you have a reputation for being able to run a dealership extremely well the manufacturer can hook you up with a sweetheart deal.

    Look at Rydell out here in Southern California
  • jlawrence01jlawrence01 Member Posts: 1,757
    There are a couple of the actual copies of a contract between a dealership and Ford Motor floating around the internet. Look in the Idaho and Montana Bankruptcy Courts filings and you can read tehm at your leisure.
  • rivertownrivertown Member Posts: 928
    "2) Your equity in the dealership is probably only 20 percent or so. Therefore your return on equity is not 8 percent but 40 percent. The interest paid for the dealership is included in the overhead figure."
  • masspectormasspector Member Posts: 509
    Thats exactly how I did not want to come across. I know what I want to say, but I am not doing a very good job of it in these posts. I guess I am kinda saying what you said, but not quite the way you put it.

    I do not begrudge anyone whith more money than I have being able to do more because they have the money to spend. What I am against is those same people doing so because of some "unfair" advantage that they have been able to get passed into law. I think we can all agree that someone stealing is wrong. To try to keep this on topic, to me it is just as wrong when people take advantage of the tax loophole to get the US govt to pay for their huge SUV's. That was not the intent of that law, but people with way more money than I have ( I could not go buy a $50,000 SUV) are able to get a luxury SUV for next to nothing. Am I making any sense? I do not begrudge the guy buying the SUV, more power to him, what is wrong is using the tax code for preferential treatment to get it at nearlty no cost. In this example it applies to people that make more money than me. I am just as much against people that make way less than me getting free handouts that do not really need them.

    I know, life isn't fair. Then why do we teach our kids that it is? My parents did what I think is a pretty good job of trying to teach me about fairness and treating others equally. I think I am a better person because of it. But maybe I would have been better served by being taught from birth that it is a dog eat dog world and you better put everyone else down so you can be at the top.
  • joatmonjoatmon Member Posts: 315
    Well, I may be unpopular, but I disagree. Let me explain:

    1. I think this country has accepted the fact that tax law in many cases is used to drive behavior and spending to where the tax code writers and passers want. We may not all agree that this should be done, but it is.

    2. The cost of an SUV that a business pays is the same as any consumer, so the economy is stimulated. You just don't get them for nothing.

    3. The depreciation is not avoided, but accelerated. When the SUV is sold, the total depreciation and tax consequences will be the same except for the "cost of money".

    4. All sales and usage taxes and fees are the same.

    The net result of this unpopular law is that many SUVs are purchased that would not be otherwise.

    Finally, this effect is similar to a mortgage deduction. I've heard dozens of cases where people "stretch" to buy and finance all they can because "Uncle Sam" help pay for it. Now, if we could simplify the tax code and eliminate all deductions, I'd be happy, but it's not going to happen.

    Boom... (noise from big guy jumping off soap box)

    Jack
  • zueslewiszueslewis Member Posts: 2,353
    Someone bought a vehicle and didn't pay tax on it?
  • masspectormasspector Member Posts: 509
    I do not know the exact tax code or the numbers involved, but from articles that I read it sounds like you can buy a $50,000 SUV for like $10,000 total output. Sounds like a pretty good deal to me. Of course you have to have the $50,000 upfront, which is where I would be left out of the equation.

    jack..I agree with you about the simplified tax code. We should go to a national sales tax with no exemptions. Like you, I doubt it will ever happen.
  • mark156mark156 Member Posts: 1,915
    Have you guys seen the new Rolls Royce Phantom? I peeked in our local showroom and was shocked on how ugly the car was. I've been observing it in my car mags for a couple of months and thought maybe it's not too bad looking but, let me tell you, it looks like a descendant of the Mack truck family. The tires are enormous. It had a MSRP of $324K.

    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
  • joatmonjoatmon Member Posts: 315
    Jim,

    I was responding to a masspector's post regarding SUVs and the tax code. The tone of his post was that the government bought or subsidized SUVs for the rich business owner. I was merely pointing out that the purchase transaction was the same as any other SUV including sales prices and the payment of sales taxes and fees. Also, it's seldom pointed out that the SUV tax law is not tax avoidance, but accelerated depreciation.

    BTW, it's not a tax "loophole". Section 179 was clearly put in the tax code on purpose and is having the intended consequences.

    Happy 13th to all,

    Jack
  • zueslewiszueslewis Member Posts: 2,353
    No more subsidized than if you own a Cavalier, use it for work, and claim the .32 per mile on your taxes....

    If you lease or purchase a vehicle for your business and deduct the cost or depreciation on your taxes as a business expense, that's just the way it was all designed, as far as I can tell.

    In a business transaction, it doesn't matter to the IRS whether you're deducting money on a truck or an air ratchet - it's all business expense.
  • HankrHankr Member Posts: 100
    that SUVs, as a class of vehicles, get different business-use tax-treatment than passenger cars? Are depreciation schedules different for SUVs -vs- passenger cars?

    If so, I was unaware.
  • michaellnomichaellno Member Posts: 4,120
    ...in California had a sweet early 70's MB SL (the pagoda roof model). When the business he owned started to do well, he traded it in on a brand new (in 1986) MB 560 SEL. I think the sticker on it was around $70-80K. No way he could afford that on his own; we all suspected that the "business" bought it and he got the depreciation benefits.
  • joatmonjoatmon Member Posts: 315
    Well, were using SUVs becuase of masspector's characterization, while in fact it is a "truck" with over 6000 lbs. gross weight. A lot of larger pickups and SUVs qualify under Section 179, see http://www.insideoffice.com/insideoffice-20-20030523TheShockingTa- xBenefitsOfSection179.html for more info. So, the depreciation is the same for all passenger vehicles, except for the portion you elect for Section 179. Section 179 only allows vehicles that are "trucks" over 6000 lbs. GVW.

    As a small business owner, I can elect to buy what I want, but it must still be paid for. If I buy a $50k whatever, I'm denying myself the opportunity of spending that money on other items, including my salary.

    Again, the US Congress has decided to put in this provision. They want people to invest in capital (including SUVs) and they attempt to increase the normal demand for capital spending by use of the tax code.

    Cheers,

    Jack
  • landru2landru2 Member Posts: 638
    I thought your original point was about the "unfairness" of a car manufacturer providing holdback money to a dealer. Now it seems to have morphed into an argument about tax loopholes, etc. Just to clarify, my comments were regarding the former.
  • xccoachlouxccoachlou Member Posts: 245
    Dont know if this has been asked before, but why is there a delay in getting new plates on a brand new car purchased from a dealer?

    It used to be, many years ago, if memory serves right, that you went, picked out that nice shiny new car, paid and drove off (maybe the next day) with plates.

    Now, with the advent of computers and the information age, you would think it would be much easier. Instead, a paper is affixed to the back window of the new car (or front if it is a jeep, with the attendant consequences for visibility) and then 5-10 days later, one has to return to the dealer to have plates put on.

    Why can't it be simple?

    - Lou
  • joatmonjoatmon Member Posts: 315
    Well, that's good. I took 45 days on one and 50 days on another before I got my plates.
  • tiredofmanualtiredofmanual Member Posts: 338
    Perhaps in times gone by, dealerships used to keep stacks of unused plates so they were ready, or perhaps the low volume at the DMV allowed them prompt service. These days, the state has probably instituted more steps to prevent theft and fraud as well as processing many times more plate requests per day.
  • kyfdxkyfdx Moderator Posts: 265,813
    I get my plate within 30 minutes of when I go down there...every time. 95% of the time its either disorganization or just plain poor customer service from the title department at the dealer. Or they don't want to pay someone to go down to the DMV more than twice per month.

    regards,
    kyfdx

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  • rerenov8rrerenov8r Member Posts: 380
    I dunno IF the laws have changes in IL (& elsewhere) but I 100% agree that in the not-at-all-distant past dealers had PLENTEEEE of plates available and/or the "porters" wouls husssle themselves down to the DMV office and be back with the plates FOR YOU.

    Now we have the same STOOOPID paper "temp tags" on vehicles for MONTHS!

    When I've bought vehicles from a private party and needed new plates I was in & out of the State office in under 30 minutes and they weren't even trying to move fast...
  • rivertownrivertown Member Posts: 928
    If the dealer registers the car before all the elements (finance, trade-in, etc.) are nailed down tight and then wants to rescind the deal, he takes possession of a 'used' car.
  • sellinhondasellinhonda Member Posts: 35
    keep a full stock of plates assigned to us from the DMV. You buy a car, you get new plates on the car when you drive it off. A deal shouldn't have a problems to question anyway. If a deal has any potential problems a dealer with a strong reputation won't let deals that are shaky hit the street anyway.
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