Never feel sorry for a car dealer

I have often wondered how much the big chain car dealers make on a used car, my curiosity has now been satisfied.

I recently sold a BMW to a big chain, its not sour grapes I did ok on the car I bought. they haven't turned off the connected stuff so I know where the car ended up.
they moved it 100 miles to a main BMW dealer and are asking £38995, they paid £33500, it has a years factory warranty to go and a service pack, so all they have to do is wash it. so potentially £5500 for doing nothing and anything they might get out of selling finance.

So now I know.

and if the buyer finances it they will make £14000

Hahaha if only life was so simple [emoji51]

Were you aware of the 20% VAT payable by the dealer on the profit ?
In my experience, it is highly unusual for a customer to offer to pay the asking price, I would expect a negotiating margin of at least £1,000 on a £40k vehicle , so both those elements rather reduce the retained profit for the dealer.

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Originally Posted by adrianw

I have often wondered how much the big chain car dealers make on a used car, my curiosity has now been satisfied.

I recently sold a BMW to a big chain, its not sour grapes I did ok on the car I bought. they haven't turned off the connected stuff so I know where the car ended up.
they moved it 100 miles to a main BMW dealer and are asking £38995, they paid £33500, it has a years factory warranty to go and a service pack, so all they have to do is wash it. so potentially £5500 for doing nothing and anything they might get out of selling finance.

So now I know.

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No doubt there are many that are chancers out there but, remember they will have to pay VAT on any margin so, £5,500 is immediately knocked down to £4,583. They will then have the next potential buyer walk in and either demand £1 or 2K off or, ask for way more than their car is actually worth in the real world. I don't know the car but, there's a chance with many cars they could sit there for two months or more and so you have stocking charges. Also, you say you did well on the car you bought - some dealers will sell a car at very little profit, hoping to balance things up with the money they make on the desirable p/ex. Little consolation, I'm sure.

I suppose I’m not surprised
Something has to pay for the fluffers on reception and the “free” coffee!
Glad you feel like you did ok on the deal though

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Originally Posted by notnowkato

Were you aware of the 20% VAT payable by the dealer on the profit ?
In my experience, it is highly unusual for a customer to offer to pay the asking price, I would expect a negotiating margin of at least £1,000 on a £40k vehicle , so both those elements rather reduce the retained profit for the dealer.

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Of course I am, and that's 20% on the declared margin after they pile in some preparation costs. in this case it's all margin as I wrote all they have is wash it.

I'm not bleating, as I said my curiosity has been satisfied,

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Originally Posted by adrianw

Of course I am, and that's 20% on the declared margin after they pile in some preparation costs. in this case it all margin as I wrote all they have is wash it.

As I said my curiosity has been satisfied,

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I've had the exact same discussion with my dad so many times, he also seems to know more than people within the industry do, sorry I'm not aiming to appear arrogant it's just very rarely so straightforward.

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Originally Posted by number2

I've had the exact same discussion with my dad so many times, he also seems to know more than people within the industry do, sorry I'm not aiming to appear arrogant it's just very rarely so straightforward.

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I would be curios to know the overhead structure and any costs directly apportioned to that vehicle, as there is some inter company trading I am sure the buying dealer takes something, it would be interesting to see, how they declare it in their consolidation.

Just curios.

I dont feel sorry for car dealers, that £5.5k would get seriously whittled down once all is said and done.

If you have ever owned a business that requires overheads only then will you get a respect for other businesses charging what they do.
With most businesses the more money you make the bigger the overheads you need to take on, employees, equipment and maintenance, premises locked into 3/5 year agreements + the stress that comes with this responsibility.
When you do see the nice profit at the end of all that the government sticks its hand out for a sizeable chunk, those over heads are always there needing to be paid every month, but unfortunately the income money is not guaranteed.

I honestly can’t see what the car dealer has done wrong.

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Originally Posted by CaptainSlow

I honestly can’t see what the car dealer has done wrong.

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Absolutely nothing, as I said I was curious, as others might be.

Do you have any idea on the costs involved in running and maintaining a dealership?..rent,wages,insurances,adverstising,le gal costs etc etc..the list is endless and the post doesn't even come close to having an understanding of the risks and costs involved,so pretty pointless to start with:dontknow:

after all costs ,roughly 10% - Not a huge amount.

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Originally Posted by thorpey69

Do you have any idea on the costs involved in running and maintaining a dealership?..rent,wages,insurances,adverstising,le gal costs etc etc..the list is endless and the post doesn't even come close to having an understanding of the risks and costs involved,so pretty pointless to start with:dontknow:

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I think that I have a fair idea, as they don't actually make anything there overheads are fairly low compared to the technology or manufacturing sectors who have all of those overheads plus large capex requirements.

:eagerness:

Thanks OP

I love finding out how people make money.........and even corporations too - fascinating stuff.

B

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Originally Posted by thorpey69

Do you have any idea on the costs involved in running and maintaining a dealership?..rent,wages,insurances,adverstising,le gal costs etc etc..the list is endless and the post doesn't even come close to having an understanding of the risks and costs involved,so pretty pointless to start with:dontknow:

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This, my Son-In-Law was a director of Toyota and always said margins for profit were very small.

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Originally Posted by adrianw

I would be curios to know the overhead structure and any costs directly apportioned to that vehicle, as there is some inter company trading I am sure the buying dealer takes something, it would be interesting to see, how they declare it in their consolidation.

Just curios.

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Your purchase price is everything which you had to pay for the vehicle, it will mirror the rules for the selling price described in paragraph 3.1.
You must not include any cost to you of bringing the vehicle to sale. Your purchase price does not include the cost of any repairs, refurbishment, accessories or your business overheads.
For example, if you purchase new parts and fit them to a car, you must not add the cost of those parts to the purchase price of the car. You must use the original price you paid for the car when you calculate the margin for the purposes of the scheme.
The Margin Scheme taxes the difference between what you paid for the vehicle and what you sold it for, not the overall profit you have made on it.

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Originally Posted by notnowkato

Your purchase price is everything which you had to pay for the vehicle, it will mirror the rules for the selling price described in paragraph 3.1.
You must not include any cost to you of bringing the vehicle to sale. Your purchase price does not include the cost of any repairs, refurbishment, accessories or your business overheads.
For example, if you purchase new parts and fit them to a car, you must not add the cost of those parts to the purchase price of the car. You must use the original price you paid for the car when you calculate the margin for the purposes of the scheme.
The Margin Scheme taxes the difference between what you paid for the vehicle and what you sold it for, not the overall profit you have made on it.

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Thanks, that does seem very unfair

I go back to the days of Glass's guide or Parker's guide as was available in newsagents and the realisation that the whole of the car trade runs on the difference between the Trade (buy) price stated and the Fair, Good etc (sell) price. Where those figures were set and specifically how far apart they were, determined the fate of the whole s/h car retail industry.

On this last one that I'm still running I popped along to a private sale, took a massive punt and saved thousands, literally.

I'm a car dealer. I make money on most cars I sell. Because it's a business. Sorry about that.

Not a car dealer, but I am self employed. If you think it’s easy, why not do it yourself?

You handed over the car for £33.5k so clearly that was the highest best offer you had. You accepted a fair offer from a Car Dealer who has advertised at a fair price and as many have said that margin will very quickly diminish.

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Originally Posted by Dave O'Sullivan

I'm a car dealer. I make money on most cars I sell. Because it's a business. Sorry about that.

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As you are a car dealer, what is a reasonable gross margin to make? Just so I know what my car is really worth

These Facebook and social media algorithms are scary! A advert for a accountant firm specialising in VAT margin schemes for vehicles has just popped up on my FB page!

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Originally Posted by 100thmonkey

You handed over the car for £33.5k so clearly that was the highest best offer you had. You accepted a fair offer from a Car Dealer who has advertised at a fair price and as many have said that margin will very quickly diminish.

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It wasn’t but I wanted the car they had, I am not complaining or unhappy in any way I’m just curious, and yes I could have tried to sell privately.

But as a manufacturer of automotive components I know exactly what margin they will let us make.

They will pay Auto Trader.
They will probably have to reduce it at some point.
Have about 8/10 people turn up and drink the free coffee before someone buys it.
The person that turns up to buy it will have a little haggle.
They have to pay VAT on their profit.
That is before you factor in the cost of the showroom, staff, accountant, and other overheads, etc.
There is the risk that something will go wrong with it that BMW won't cover under their own warranty and this may fall on to the showroom.

I suspect this margin is much smaller than those they would have had in the past when information was less freely available!

Also I think they will make more off the finance in this situation than the car.

Also remember the dealer is going to have to drop His pants for the new owner of Your car under the warranty.This could mean repairing any thing the new owner decides He is not happy with.

I’m struggling to see the point of your post, as it appears do the majority of others from the replies. Running a business is expensive and buying for A and selling for B and the difference is profit is never the case. As mentioned numerous times, overheads etc but more to the point the risk is all with them. They’ve had to pay you the money and you get to walk away with it. They’ve then got it tied up in stock. Maybe you should ace sold it privately but my guess is selling a car for over 30k to a private buyer isn’t that easy.

The price on the screen can no relation to what the car is sold for, some cars will get a mark up of a couple of grand, other more expensive cars may have, say 4 grand added, I occasionally had people come back and remark on the price on their old car, “were you happy with the price you got” usually yes was the answer, nobody puts a gun to the sellers head to do a deal. Overheads are present in a sales business regardless of wether car are actually selling or not, rates, gas/leccy, wages, tax, stocking fees all need to be paid before profit hits the bank.
How much profit does the dealer make when you buy a watch?

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I have often wondered how much the big chain car dealers make on a used car, my curiosity has now been satisfied.

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It's title's 'sorry for' phrase that puts some people off, I suppose.

5K margin as an asking price is not unfair - as others said. That price is a 'Lego brick tower' of various small costs. Overhead is mentioned. But consider detailing, perhaps a small dent repair as well. 10% margin - mentioned as well- is hopefully what the dealer gets. His biggest hope is the difference between this car and the one he's about to P/X for this BMW. E.g.: Is it an older BMW? That's easier to sell again than a 'foreign' brand at a BMW dealership etc.

Not a market in the UK, but certainly here: cars from Germany are likely to be better equipped with accessories than cars that are originally sold in Holland. That has to do with the draconian taxes on new cars here. So a lot of people import their secondhand 'new' car from Germany, that messes up the Dutch secondhand car market for older cars. Dealers and car traders suffer from that with unsold stock, lower prices etc. Those guys don't make much money anymore!

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Originally Posted by Devonian

I’m struggling to see the point of your post, as it appears do the majority of others from the replies. Running a business is expensive and buying for A and selling for B and the difference is profit is never the case. As mentioned numerous times, overheads etc but more to the point the risk is all with them. They’ve had to pay you the money and you get to walk away with it. They’ve then got it tied up in stock. Maybe you should ace sold it privately but my guess is selling a car for over 30k to a private buyer isn’t that easy.

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I thought the point of the post was a bit of general information to everyone about the size of markup on his car??? Nothing more. As interesting as some other posts in this part of the forum and less interesting than others :0)

I have known some ADs go bust over the years so its not all roses by a long way.

Dealers not only deal with customers, but with the importer or the factory as well: "You need to sell at least xxxx of these cars before the end of the year or you will lose your dealership!" And look at the palaces of glass, steel and LEDs most dealers have nowadays. Mandatory A+ look-and-feel as stated by the factory! E.g.: Porsche insists that even their classic car enthusiasts clubs use the same look-and-feel for their websites as well. Guess what: Porsche charges a big sum for that.

Menno

My Dad talked to BMW about them taking in his 540i. They had one on the forecourt that same age and spec with similar miles for £32995.

They offered him £18000.

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Originally Posted by adrianw

I think that I have a fair idea, as they don't actually make anything there overheads are fairly low compared to the technology or manufacturing sectors who have all of those overheads plus large capex requirements.

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A modern car retailer sells new cars, used cars, parts and hours (labour).
You might be surprised at how large the overheads are that are associated to being a premium franchised main dealer.

Agree with most of the comments above, my best mate ran a second-hand dealership and the overheads were huge (rent and rates were eye watering). Very simplistic to just look at the part-ex and retail price and say the difference is pure profit. A lot of capital tied up on the forecourt too which has to be funded somehow!

Funnily enough he’s moved into car finance now, a lot less investment required to make a profit on PCP deals, gap insurance, loans etc ... and less risk.

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Originally Posted by number2

Hahaha if only life was so simple [emoji51]

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You only as good as you’re last deal, or the last deposit you pocketed ;)

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Originally Posted by VDG

You only as good as you’re last deal, or the last deposit you pocketed ;)

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You've remembered :smug:

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Originally Posted by TaketheCannoli

My Dad talked to BMW about them taking in his 540i. They had one on the forecourt that same age and spec with similar miles for £32995.

They offered him £18000.

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What was he planning to buy? That's important as well! Let's say he's buying a brand-new, full specs 5 series again. Then the chances of getting a better deal are higher. I don't know how UK's car financing works, but for a dealer here in Holland, there's profit to be made in selling a car on a 'loan' or 'private lease' and sometimes leads to a bonus for the salesperson.

Menno

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Originally Posted by number2

You've remembered :smug:

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I wouldn’t be worth my salt if I didn’t :smug:

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Originally Posted by adrianw

As you are a car dealer, what is a reasonable gross margin to make? Just so I know what my car is really worth

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It's a very open question but I'll try to keep it as simple as possible. A car of that value from a main dealer, I would expect to see about that markup; 4-5K from actual buy in price to retail price.

From an independant, smaller garage with the same value cars, they'll probably offer you 500 more and sell for 500 less so between 3-4K.

I deal with cars far below that and my set up is different. I'm a repair garage primarily so I don't need to 'find the rent' on car sales. Also, as I don't do finance, I keep to the lower end of the market, maybe 1-3K retail. Therefore, I don't make anything like these sorts of markups.

I think there are a couple of factors that need to be considered here. Firstly, due to the leasing culture these days, there is a glut of newer second hand cars available so it's a buyer's market as far as the dealers are concerned. Also with WBAC hitting sellers in the nuts price wise, people are expecting less so it's a bit easier for the dealers to offer lower amounts.

Secondly, cars are bloody expensive to fix these days. When I first started selling cars 20 years ago, as long as it drove in a straight line and didn't pump smoke out, you were ok. These days however, even the most innocuous niggle can cost thousands to sort. This means that the potential risks are higher so the larger margins are to compensate for the occasional crapper that a dealership get stung with.
Add to this the genreral rise in costs to businesses and they are getting squeezed in every direction.

Also, the general prep with a car adds up. Scratches, dents and wheel refurbishments will add another 300 or so. Then a proper valet, inspection costs and keeping it clean and advertised until it sells. That's a 500 pound hit straight away.

One thing I will say though is this, every car I buy, I always tell the seller what I'll buy it for, what I envisage spending on it and what I'll try to sell it for. This is mainly because I tend to buy from customers and then sell on the forecourt. I wouldn't want them to think I had made a quick grand profit out of them. You've seen the markup and felt strongly enough about it to post here. I would rather my customers knew the situation from the start!

Also apologies for the lack of any pound signs, I'm using a keyboard without the option of one!

Thanks Dave,

Great response Dave. Do you specialise in any particular type/genre of car or just a wide range?

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Originally Posted by Irish boy

Great response Dave. Do you specialise in any particular type/genre of car or just a wide range?

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As said, normally cheaper stuff, up to £3K. I don't go looking for cars, it's just what I'm offered and I'm VERY selective. Even at that end of the market there is quality and poop.
Small cars suitable for first time buyers are the cream. Things like Corsas and Fiestas are always sold on the same day they are put up for sale. However, I'll buy anything that is decent. Sold everything from M3's to Motorhomes.

I'm not sure how long I'll stay involved. The £3K market is now in the 2005-2008 range and that is bringing a whole host of issues. Cars simply aren't made like they used to be and this is the first generation that has all the pitfalls of failing BCM's or ABS ECU's etc.. The list of cars I'll avoid is growing larger than the list of those I'll buy :(

Its a good job the OP never got me in to do some plastering, never mind 5k on a 30k plus car, my margins were 100% of costs....And I was considered cheap!!!

The other mans grass is always greener whatever the business i was in the funeral business for 50 yrs prior to retiring and got the “ well it’s all right for you never short of trade “ etc well mate try it
Vehicles a jaguar hearse and lim when i got out 250K ,premises, staff and on and on but i don’t feel sorry for car dealers they are all shiny suits and pointy shoes:smiley: