First up we need to clarify something here. All figures here are speculated, educated assumptions or references from external sources. Motor Vehicle manufacturers have never officially released the figures on this topic.
The first thing consumers should be informed of is that the dealership where you purchase the vehicle is not the manufacturer. They are a middle man so to speak. They have deals in place with manufacturers and buy the vehicles off them. For example.
Toyota the company will sell a motor vehicle to Toyota Australia, who will sell it to the dealership who will sell it to you, the end user. Some companies do it differently and remove some of the middlemen style businesses and simply employ staff to manage the national representative of the company. The point remains the same, many people between point A and point B need paying either in the form of a salary or a profit share of the sale of the vehicle.
Several years ago the research company B and D carried out research on the profits made by vehicle producers in Germany. They reported that high-end producers such as Porsche and BMW were making between $30K and $40K profit per vehicle down to the claim that Volkswagon was making a measly $500 profit per vehicle. However, it did not specify several factors in the research.
– Were they comparing vehicles of equal retail value?
– Was this profit gross or Net?
-Did these figures include vehicles exported internationally or just those sold within Germany?
-Do these figures include tax?
– Was this research done on entry-level vehicles or top line ones? ie: Was this done with the Golf, 1 Series BMW and Audi A1s or was this research done on the sales of the Toureg, the R8 and the M5 BMW?
-Do these figures include the on-road costs (something dealers make a profit on)?
-Do these figures include the after sales upsell of accessories?
Our suspicions suggest that these numbers reflect net profit after all expenses including R&D, marketing, engineering, shipping, tariffs and taxes and all other overheads involved in producing and distributing motor vehicles across the globe. If it were not substantially profitable these companies would not only be bankrupt, they would not be pouring funding into research and development.
Research across this subject also suggests that the cut that the dealers (the Col Crawfords and Bill Buckles of the world) are significantly less. Again the numbers depend on the vehicle sold but a dealer will make anywhere between two and ten percent of the total sale price. Our research also concludes that for most no luxury vehicles it is closer to between 2 and 5 percent. This translates to an average of around $2000 profit for the dealership on any vehicle sold. It’s not the dealer making a fortune, its the manufacturer that profits the most.
These figures are all for new vehicles purchased. Used and second-hand vehicles generate far greater profits as the dealership is now operating as a private used car yard and have no kickback going back to the manufacturer. These numbers for used vehicles can be up to fifty percent profit.
The theory is that for these cheaper, consumer vehicles (cars such as the Mazda 3, Hyundai i30 and alike) the maximum profit is gained for both the dealer and the manufacturer by selling large quantities of these vehicles.
The more luxurious vehicles such as the BMW and the Mercedes Benz have a greater cut for the dealers as the quantity sold is not going to be as high. This is why the supercars become so expensive. It explains the price tag on a Mercedes Bens SLS being in the hundreds of thousands, a dealer may only sell one or two a year and make a much larger chunk of profit on an item sold less frequently.
This does bring forth the tactics that the dealers are using to try and maximize this profit. Upsells (overpriced window tints, and roof racks) capped price servicing and aftermarket warranties). These are all ethically average tactics that dealers use to try and make more money, but now you understand why they do it.
We have discussed all of these dealer tactics in various articles you can find below.
Why Capped price Servicing is destroying your car.
Why you shouldn’t Service your vehicle at the dealership
Should I buy a new car (this article looks at upsells)
Profits made within one vehicle brand This article compares two vehicles from the same brand, one more than twice the price of the other. Whats the margins on the dearer vehicle
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