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Selling New Cars Proves Unprofitable For Most Auto Dealers


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From NADA and Automotive News .https://www.autonews.com/nada/auto-dealers-losing-money-operations-nada-says

 

OPERATING LOSS
The average U.S. light-vehicle dealership reported an operating loss last year for the first time in at least a decade. Net pretax profit remained in the black, showing dealers' dependence on factory incentives.
  2018 2017 2016
Operating profit/loss ($13,338) $91,774 $275,662
As a % of total sales 0% 0.20% 0.50%
Net profit before tax $1,358,240 $1,394,756 $1,466,799
As a % of total sales 2.20% 2.30% 2.50%
Source: NADA Data 2018
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Plain & simple, there's too damn many dealerships, especially in an urban area. I don't need 17 Ford dealerships within a 20 mile radius to buy a new vehicle at. If they want to create smaller service centers, great. Heck, my last 4 new vehicle purchases have all been at dealers at least 50 miles away. They need to adapt and change, having one on every corner is unnecessary.

 

HRG

ford dealer radius.JPG

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4 hours ago, jpd80 said:

Dealers normally don’t make all that much selling cars, it’s the servicing and parts sales that they are after.

 

It still adds up the same thing,

Too many dealers equals not enough business to survive let alone prosper.  

Fast food hamburger joints are similar. They barely break even on the burger, and make most of their profits on fries and drinks

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Been like this forever. Why you have to practically yell "No!" when the F&I Manager tries to push "extra profit items" at closing.

 

601xx ZIP is Chicago area. We used to have even more Ford dealers. Some only 3-4 miles apart.

Edited by 630land
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17 minutes ago, Deanh said:

double edged sword....the more dealers the more competitive they have to be....

 

Still, it's hard to feel sorry for these guys, based on a 1.3 MILLION pre-tax profit average per dealership.  I'm sure the Dealers would have preferred that part of the report had been left out.

 

HRG

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7 minutes ago, HotRunrGuy said:

 

Still, it's hard to feel sorry for these guys, based on a 1.3 MILLION pre-tax profit average per dealership.  I'm sure the Dealers would have preferred that part of the report had been left out.

 

That $1.3 million net profit represents just over 2% of sales. Like most other retail businesses, new car dealerships are inherently low profit operations. That's a fact that both consumers and dealership owners know very well.

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On 8/27/2019 at 6:44 PM, jpd80 said:

Dealers normally don’t make all that much selling cars, it’s the servicing and parts sales that they are after.

 

It still adds up the same thing,

Too many dealers equals not enough business to survive let alone prosper.  

The Metro Detroit market has way to many domestic dealers (Ford, Chevy, etc).  The EU imports still very light (I think there is only 2 Mini dealers and one should not count because it is in Ann Arbor).

 

The next Recession, will kill off a lot of them if they are already loosing money on each sale.

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With all due respect to the ones who work hard in this business - the whole thing needs to be re-invented.  Auto Dealers are the only thing I can think of that do things the same as they did 50 or more years ago.  I know there are obsolete laws on the books of many states that say it can only be done this way.  The rest of the world is moving on, and everything, and every way of doing business is changing rapidly - Car dealers are stuck in the past.  They have worked so hard to keep it that way that it has come back to bite them in the ass.  Again guys - I know you work hard, but I don't feel that sorry for you, as a Software Business Analyst I have had to completely re-invent the way I work at least 5 times  in the past 20 years.  Nothing I do even remotely resembles how I made my living in 1999 - It has not been easy keeping up.  I didn't create this hyper-fast changing world, I only try to keep up with it as best as I can.

 

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I can assure you...the car business has changed as dramatically as yours has over the same time period....problem is people want to be treated like kings, have the vehicle delivered to their doors for test drives, then delivered once the decision has been made, not read the manual, yet every question answered at their heed and beckon, do it all from in front of a computer screen ( including approval with ethe best possible rates ) AND pay absolutely nothing for the pleasure of dealing with them....and you wonder why when you walk into a dealer you know more than the guy getting paid $11 an hour. Heres my advice to detractors...go do it for a month and get back to us. To say the "profession"it is viewed in a distasteful manner is an understatement.....

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20 hours ago, HotRunrGuy said:

 

Still, it's hard to feel sorry for these guys, based on a 1.3 MILLION pre-tax profit average per dealership.  I'm sure the Dealers would have preferred that part of the report had been left out.

 

HRG

really...you realize a Chic Fil-A makes several times more than that correct?....perspective, ...perspective...and I can assure you, their overheads are a pittance in comparison... 

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13 minutes ago, Deanh said:

really...you realize a Chic Fil-A makes several times more than that correct?....perspective, ...perspective...and I can assure you, their overheads are a pittance in comparison... 

 

so, riddle me this,,,,,,  What MAKES these dealership owners continue to build dealerships, if the investment potential is so poor?  Why not take their $$$ and invest it elsewhere?  Of course, some of these dealerships are loaded with family as employee's, so there's that.

 

HRG

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2 minutes ago, HotRunrGuy said:

 

so, riddle me this,,,,,,  What MAKES these dealership owners continue to build dealerships, if the investment potential is so poor?  Why not take their $$$ and invest it elsewhere?  Of course, some of these dealerships are loaded with family as employee's, so there's that.

 

HRG

That's their own choice, and in the case of the huge conglomerates, if you monopolize the business, competitors go under by being unable to compete, just like Amazon is doing to small mum and pop stores and basically closing their doors...if I was investing money it would NOT be in a dealership. So, riddle you back...what would you change ?...use Teslas business case?...Amazons?...

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no offence, but its always fascinated me how everyone is an expert in the business barring those that actually participate in it...and it reflects todays entitlement attitude...I can assure you, any one that deals with the general public in a day to day fashion, and face to face, garners a hell of a lot more respect from me than someone stuck in an office or using a keypad....classic is my Wife working for the DMV...want to talk about what she puts up with?....yet all you will ever read is the other side...how bad THAT experience is. Customers always right though correct?... 

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14 minutes ago, Deanh said:

 So, riddle you back...what would you change ?...use Teslas business case?...Amazons?...

 

Deanh,

    I'm not in the automotive business (directly), I've been in 1 Tesla showroom, and I purchase a fair amount from Amazon.  As I've mentioned before, none of my recent vehicles have come from a "local" dealer, I've researched and found the vehicle I want, and go get it. I think the current trend of building these huge dealerships, with all that inventory sitting there, makes little sense. But,,, maybe most people are a lot more impulsive than I am, they wake up Saturday morning and decide to go buy a new car.  I do think that new car sales can be served by "Tesla" boutiques, and more service-orientated facilities.

 

Like others have mentioned, the dealership dynamic has changed over the decades. Before, dealers owned all the information, now many people walk in knowing more about a particular model than the sales person who greets them. Like many other businesses, they need to change and adapt.

 

HRG

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Teslas business case is a miserable failure....absolutely asinine...when cars don't have convenient service drives the nightmares begin....and 99% of his issues cab be laid at the feet of not franchaising...1 profitable quarter in 14 underlines that fact. And theres a reason dealerships have to carry all that inventory...case in point...theres 172 different configurations of full size Transits...The F-150 ordering guide is 43 pages long...The business model is what it is and it may have its warts, but until something comes out proven to be superior, rather than fail miserably ( Tesla ) I doubt it will change much, there will always be a multitude of outside sources charging money for advising you how to buy a car.....funny how they feast off of pre-conceptions and peoples fear of actual interaction, but ironically half of their published expertise is in-accurate...makes for some wonderful interaction when an outside entity apparently knows more than those actually in it...because it MUST be true if its on the internet right?....that and making an effort to actually go into a dealership is a major inconvenience. I don't know how many idiots Ive heard stating they would like to buy cars Amazon style...hilarious...    

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There are ways to change the buying experience and make it easier for both customers and dealers but most dealers either have no clue how to do it or have no desire to do it.   The mfrs also have to make the user interfaces more intuitive and provide in vehicle help (some are doing that) and change allocation rules.  

 

Lincoln is doing some of that with Black Label.  Home shopping and ordering, home pickup and delivery for service, etc.

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12 minutes ago, akirby said:

There are ways to change the buying experience and make it easier for both customers and dealers but most dealers either have no clue how to do it or have no desire to do it.   The mfrs also have to make the user interfaces more intuitive and provide in vehicle help (some are doing that) and change allocation rules.  

 

Lincoln is doing some of that with Black Label.  Home shopping and ordering, home pickup and delivery for service, etc.

Its really not hard at all to buy a car, misperception...people just equate it with drama because the ONLY people that publicly voice their opinion are the complainers, ( think about that...you only hear people bitching ) I  like what Lincolns doing...but keep in mind...it also negates an awful lot of your negotiation leverage...which a lot of people are obviously fixated on. My rule of thumb is treat the people as you would like to be treated yourself...and realize theres a happy medium....not a "its my way or the highway"....thank god 99% of my customers are previous clients and referrals….I don't tolerate the yelling , screaming all about me customer too well...Like I said, the business model may have its warts, what business doesn't, but Ive yet to see anything that improves its core fundementals…..to me the way to improve is nothing more than good employees. And they are getting harder to keep LONG TERM due to pay levels...especially given what one has to tolerate from the public sometimes....Note to all reading this....you are not doing anyone a HUGE favor by giving them the honor of selling them a car.....ahem.

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13 minutes ago, Deanh said:

..Note to all reading this....you are not doing anyone a HUGE favor by giving them the honor of selling them a car.....ahem.

 

From a customer point of view, thank you for pointing this out.

 

Short story, during our last vehicle purchase a couple of months ago, my wife & I were so impressed with a young man at a local dealership, that even though we did not ultimately purchase from him, we gave him a $100 gift card to a great Italian restaurant we enjoy, as a thank you for the time he spent, and the level of respect he showed us.

 

No doubt, he has earned the chance to try again in the future.

 

HRG

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2 hours ago, Deanh said:

So, riddle you back...what would you change ?...use Teslas business case?...Amazons?...

 

Probably a combination of both. The whole culture of car buying in the U.S. market is crazy. It's not dealerships' fault though. Dealerships adjust their business model to what customers want. Sadly, customers in the U.S. expect they should be able to buy a new car meeting their exact preferences from dealership stock and take the car home the same day. Impulse buying to the extreme. This business model is not good for car dealerships or for automakers. 

 

Like with Tesla worldwide and with most car brands in the European market, new car sales should be mostly customer orders. If someone wants a car right away from retailer stock, it should be a used car, demonstrator, or new car that another customer returned or did not take delivery on.

 

Automotive News 3 years ago said this. https://www.autonews.com/article/20160606/RETAIL/306069951/why-americans-reject-build-to-order-cars

 

"Forget the high cost of meeting new fuel economy standards or those massive investments needed for autonomous vehicles.The biggest drain on automaker profitability in the U.S. may be the legendary impatience of American car buyers.

 

In 2015, less than 5 percent of new vehicles sold in the U.S. were built to customer order, according to the National Automobile Dealers Association. In Europe, the number was about 50 percent.

 

For U.S. dealers, that means thousands of dollars in extra floorplan expenses. For automakers, it means huge advertising and incentive costs for each unsold vehicle sitting in inventory, waiting for a buyer.

 

"Selling almost entirely from stock in the U.S. generates both higher stocking costs and more lost revenues," said Ben Waller, associate director of ICDP, an automotive distribution research group in the United Kingdom.

 

Waller estimates that 11 to 12 percent of the sticker price of a vehicle sold in the U.S. is needed to cover the cost of stocking and selling the vehicle. And he says the cost of selling it includes discounts to attract a customer who isn't getting exactly what he wants and revenue lost when a customer won't settle for a different spec."

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54 minutes ago, HotRunrGuy said:

 

From a customer point of view, thank you for pointing this out.

 

Short story, during our last vehicle purchase a couple of months ago, my wife & I were so impressed with a young man at a local dealership, that even though we did not ultimately purchase from him, we gave him a $100 gift card to a great Italian restaurant we enjoy, as a thank you for the time he spent, and the level of respect he showed us.

 

No doubt, he has earned the chance to try again in the future.

 

HRG

well done...thats extremely classy, and Im quite sure he appreciated it, unfortunately most sales personnel are discarded like used tissues...lol......question, what made you buy elsewhere...

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9 minutes ago, rperez817 said:

 

Probably a combination of both. The whole culture of car buying in the U.S. market is crazy. It's not dealerships' fault though. Dealerships adjust their business model to what customers want. Sadly, customers in the U.S. expect they should be able to buy a new car meeting their exact preferences from dealership stock and take the car home the same day. Impulse buying to the extreme. This business model is not good for car dealerships or for automakers. 

 

Like with Tesla worldwide and with most car brands in the European market, new car sales should be mostly customer orders. If someone wants a car right away from retailer stock, it should be a used car, demonstrator, or new car that another customer returned or did not take delivery on.

 

Automotive News 3 years ago said this. https://www.autonews.com/article/20160606/RETAIL/306069951/why-americans-reject-build-to-order-cars

 

 

 

truth be told, most dealerships are actually handcuffed by the manufacturer. And due to ever shrinking margins...ie $180 between MSRP and invoice on a Fiesta, actual savings are conrtrolled by said manufacturer in the way of rebates. Ordering makes zero difference price wise barring changes in said incentives...the only benefit is you get the car EXACTLY as you wish without paying for ityems deemed un-necessary. On the flip side...if cars were order only then one wouldnt be able to look, feel, touch and test drive, compare features etc etc ....so, its a double edged sword. Also, individuals circumstances can change between order date and delivery date...so then what happens to said ordered vehicle?....

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