Dealership Margins Starting to Fall

[HotRunrGuy]

https://www.yahoo.com/news/us-auto-retailers-falling-vehicle-175218499.html

 

After years of reduced inventory and ADM's, the tide is turning.

 

HRG

[ice-capades]

19 minutes ago, HotRunrGuy said:

https://www.yahoo.com/news/us-auto-retailers-falling-vehicle-175218499.html

 

After years of reduced inventory and ADM's, the tide is turning.

 

HRG

 

The manufacturers didn't learn much in managing their inventory at the lower levels caused by the supply chain and other related issues. They've now just gone back to maximizing inventory levels and putting themselves back in the position of being dependent on incentives to move inventory. It's not a critical factor for most vehicles now but headed back in that direction. When inventory was lower, dealerships didn't hesitate to take advantage of the situation by inflating sales prices beyond MSRP with the use of ADM's. The excuse was that they had no choice but to do so to compensate for the reduced inventory for sale. It'll force customers that financed to keep their vehicles longer as a result of the inflated sales prices and monthly obligations. There have been recent media reports about the large increase in the default rates for customers that can no longer afford the high monthly payments. The high vehicle costs including financing are not the only factors as inflation, cost of living and other factors are also part of the equation. 

 

Selling vehicles at MSRP or higher affects Ford the least and benefits dealerships the most. Ford's direct customers are the dealerships that order and buy their inventory from Ford. Ford sells the inventory to dealerships at the Dealer Invoice price noted on the vehicle invoice. The dealerships profit from their sales price to the customer at any amount above their Dealer Invoice cost, including the margin at MSRP if applicable, plus any ADM fees and the Holdback paid to the dealership after the vehicle is sold. In simple terms, Ford makes the same profit regardless of what profit the dealership makes or doesn't make depending on the sales price the customer agrees to pay. Ford incentives, implemented to increase sales and/or reduce in-stock inventory, are a cost to Ford which reduce profits but directly benefit the customer.     

[ice-capades]

Related... https://blueovalforums.com/forums/index.php?/topic/75877-new-ford-inventory-at-over-100-days-supply-in-january-2024/

[Chrisgb]

3 hours ago, ice-capades said:

 

The manufacturers didn't learn much in managing their inventory at the lower levels caused by the supply chain and other related issues. They've now just gone back to maximizing inventory levels and putting themselves back in the position of being dependent on incentives to move inventory. It's not a critical factor for most vehicles now but headed back in that direction. When inventory was lower, dealerships didn't hesitate to take advantage of the situation by inflating sales prices beyond MSRP with the use of ADM's. The excuse was that they had no choice but to do so to compensate for the reduced inventory for sale. It'll force customers that financed to keep their vehicles longer as a result of the inflated sales prices and monthly obligations. There have been recent media reports about the large increase in the default rates for customers that can no longer afford the high monthly payments. The high vehicle costs including financing are not the only factors as inflation, cost of living and other factors are also part of the equation. 

 

Selling vehicles at MSRP or higher affects Ford the least and benefits dealerships the most. Ford's direct customers are the dealerships that order and buy their inventory from Ford. Ford sells the inventory to dealerships at the Dealer Invoice price noted on the vehicle invoice. The dealerships profit from their sales price to the customer at any amount above their Dealer Invoice cost, including the margin at MSRP if applicable, plus any ADM fees and the Holdback paid to the dealership after the vehicle is sold. In simple terms, Ford makes the same profit regardless of what profit the dealership makes or doesn't make depending on the sales price the customer agrees to pay. Ford incentives, implemented to increase sales and/or reduce in-stock inventory, are a cost to Ford which reduce profits but directly benefit the customer.     

Dealers buy from the factory at their retail and sell to the consumer wholesale. Thirty-five years ago, the margin on a Ranger S:(Reg cab short box 2.0L Mazda 4, 5sp? manual, crank windows manual locks, steering vinyl seat and floor) was about $800 on a $7900 MSRP. a 2024 Ranger XL costs about five times that and has about the same margin. The fact that it now comes only in SuperCrew and has a plethora of standard features and safety tech nor available then increases its value, but not its margin.

 

[ice-capades]

1 hour ago, Chrisgb said:

Dealers buy from the factory at their retail and sell to the consumer wholesale. Thirty-five years ago, the margin on a Ranger S:(Reg cab short box 2.0L Mazda 4, 5sp? manual, crank windows manual locks, steering vinyl seat and floor) was about $800 on a $7900 MSRP. a 2024 Ranger XL costs about five times that and has about the same margin. The fact that it now comes only in SuperCrew and has a plethora of standard features and safety tech nor available then increases its value, but not its margin.

 

 

Incorrect! As I thought I explained, Dealers pay the "Dealer Invoice" price which is the "wholesale" price, and all Dealers pay the same prices for vehicles. The Dealers normally sell vehicles to customers at retail prices that are usually negotiated and agreed to between the two parties. The margin or mark up between the Dealer Invoice and MSRP is a different subject.  

[Deanh]

7 hours ago, HotRunrGuy said:

https://www.yahoo.com/news/us-auto-retailers-falling-vehicle-175218499.html

 

After years of reduced inventory and ADM's, the tide is turning.

 

HRG

only on specific models, theres still a furor on certain models but I definitely sense a slow down...could be whats happening around the world ( wars etc ) right now, combo'ed with the usual Election year attack modes the Media embraces  ( more so than usual ) every 4 years...NOTHING you watch or read about now is positive... 

[jpd80]

While F Series remains well below 200,000 (168k?), I think Ford will be OK

because those end of year model $8,000 discounts will remain well contained.

In fact, any time incentives remain subdued, Ford’s profits should be consistent.

 

Explorer is a concern with +30,000 inventory but that could also be an advantage

if sales increase going into spring and summer. Readily available stock has been

something that galls dealerships, now they have some stock  to push….

Edited February 16 by jpd80

[Chrisgb]

2 hours ago, ice-capades said:

 

Incorrect! As I thought I explained, Dealers pay the "Dealer Invoice" price which is the "wholesale" price, and all Dealers pay the same prices for vehicles. The Dealers normally sell vehicles to customers at retail prices that are usually negotiated and agreed to between the two parties. The margin or mark up between the Dealer Invoice and MSRP is a different subject.  

You explained it well, I was being cynical. Generally, Ford and others set a non-negotiable price to their dealers on all new vehicles, then the dealer sells often at a price that is below the MSRP, rebates notwithstanding.

[jpd80]

34 minutes ago, Chrisgb said:

You explained it well, I was being cynical. Generally, Ford and others set a non-negotiable price to their dealers on all new vehicles, then the dealer sells often at a price that is below the MSRP, rebates notwithstanding.

Not meaning to argue your point

As I understand it, all Ford vehicles come with MSRP set by Ford but includes incentives,

be that 0% financing or varying degrees of cash incentive. In good times, neither of those 

incentives are applied and in fact we’ve just exited a nasty period of dealer mark ups.

Normally, there’s no incentives on a new Model Year while the previous MY is being cleared,

I know that like duh but sometimes needs repeating, especially when run out stock is actually 

extremely low or nonexistent, there’s no need for Ford to push any incentives….

 

Where dealers get stuck with stock that just won’t sell, Ford will eventually offer dealers 

a final payment, a specific incentive amount that normally guarantees quick sale.

 

So that lower non-negotiable price you mentioned has a whole bunch of caveats attached

and is exactly why dealers don’t normally make much on new vehicle sales save for ADMs.

It would help at ton if Ford actually did what you advise and set a “fixed lower non-negotiable 

price” guaranteeing dealers a better margin on sales but unfortunately Ford doesn’t do that…

Edited February 16 by jpd80

[Chrisgb]

14 hours ago, jpd80 said:

Not meaning to argue your point

As I understand it, all Ford vehicles come with MSRP set by Ford but includes incentives,

be that 0% financing or varying degrees of cash incentive. In good times, neither of those 

incentives are applied and in fact we’ve just exited a nasty period of dealer mark ups.

Normally, there’s no incentives on a new Model Year while the previous MY is being cleared,

I know that like duh but sometimes needs repeating, especially when run out stock is actually 

extremely low or nonexistent, there’s no need for Ford to push any incentives….

 

Where dealers get stuck with stock that just won’t sell, Ford will eventually offer dealers 

a final payment, a specific incentive amount that normally guarantees quick sale.

 

So that lower non-negotiable price you mentioned has a whole bunch of caveats attached

and is exactly why dealers don’t normally make much on new vehicle sales save for ADMs.

It would help at ton if Ford actually did what you advise and set a “fixed lower non-negotiable 

price” guaranteeing dealers a better margin on sales but unfortunately Ford doesn’t do that…

We are pretty much back to normal. Inventories are climbing, used car prices are coming down. Sometimes a dealer can sell a commodity vehicle at MSRP less factory incentives, but often a dealer will cut into their margin to absorb negative equity in a trade or to keep allocation."Put it over the curb. Now." We had a dealer in my day that was affectionately referred to as "Hundred Over Ford." 

[ice-capades]

17 hours ago, jpd80 said:

Not meaning to argue your point

As I understand it, all Ford vehicles come with MSRP set by Ford but includes incentives,

be that 0% financing or varying degrees of cash incentive. In good times, neither of those 

incentives are applied and in fact we’ve just exited a nasty period of dealer mark ups.

Normally, there’s no incentives on a new Model Year while the previous MY is being cleared,

I know that like duh but sometimes needs repeating, especially when run out stock is actually 

extremely low or nonexistent, there’s no need for Ford to push any incentives….

 

Where dealers get stuck with stock that just won’t sell, Ford will eventually offer dealers 

a final payment, a specific incentive amount that normally guarantees quick sale.

 

So that lower non-negotiable price you mentioned has a whole bunch of caveats attached

and is exactly why dealers don’t normally make much on new vehicle sales save for ADMs.

It would help at ton if Ford actually did what you advise and set a “fixed lower non-negotiable 

price” guaranteeing dealers a better margin on sales but unfortunately Ford doesn’t do that…

 

The vehicle MSRP DOES NOT reflect rebates or any retail incentives. If it did, Ford would be sending out replacement Window Stickers constantly! Rebates and other incentives all have conditions such as customer location, creditworthiness, etc. which cannot be reflected in the Window Sticker's content. 

 

Dealers are responsible for the stock inventory they order from Ford. The "Final Pay" incentive is the final incentive and isn't an "offer" to Dealers. When the Final Pay" incentive is implemented, it's well after the new model year becomes available, and replaces all consumer rebates. 

 

ADMs became commonplace in the past few years due to low inventory, supply chain and commodity issues, vehicle quality holds, etc. but are not part of the regular sales process in normal times for most Dealers, with the exception of select, limited production vehicles. 

Edited February 17 by ice-capades

[jpd80]

5 hours ago, ice-capades said:

 

The vehicle MSRP DOES NOT reflect rebates or any retail incentives. 
 

Sorry, my fault that you misunderstood my post, because I phrased that poorly.

What I meant was that the costs with any future incentives is at least partially 

baked into that MSRP, not that the MSRP label changes…..although Deanh 

mentioned previously an example of different sets of window stickers turning up

for vehicles already at the dealership

 

The poster I was responding to was talking about Manufacturers setting a 

non-negotiable price…….as far as I know, manufacturers cannot dictate prices.

 

Quote

Dealers are responsible for the stock inventory they order from Ford. The "Final Pay" incentive is the final incentive and isn't an "offer" to Dealers. When the Final Pay" incentive is implemented, it's well after the new model year becomes available, and replaces all consumer rebates. 

Again, please forgive my imprecise wording

 

Quote

ADMs became commonplace in the past few years due to low inventory, supply chain and commodity issues, vehicle quality holds, etc. but are not part of the regular sales process in normal times for most Dealers, with the exception of select, limited production vehicles. 

And boy, dealers learned a lot about buyers from that, they could jack up prices, knowing that some buyers would pay that with perhaps the intention of flipping it for even more cash. We’ve just seen that in my location with tons of Ranger Raptor orders at inflated prices, when Ford freed up supplies late last year, many cancellations started pouring in, to the point of those buyers walking away from deposits but others picking up the same vehicles at MSRP. Work that one out….

Edited February 17 by jpd80

[iamweasel]

On 2/16/2024 at 6:30 PM, jpd80 said:

Not meaning to argue your point

As I understand it, all Ford vehicles come with MSRP set by Ford but includes incentives,

be that 0% financing or varying degrees of cash incentive. In good times, neither of those 

incentives are applied and in fact we’ve just exited a nasty period of dealer mark ups.

Normally, there’s no incentives on a new Model Year while the previous MY is being cleared,

I know that like duh but sometimes needs repeating, especially when run out stock is actually 

extremely low or nonexistent, there’s no need for Ford to push any incentives….

 

Where dealers get stuck with stock that just won’t sell, Ford will eventually offer dealers 

a final payment, a specific incentive amount that normally guarantees quick sale.

 

So that lower non-negotiable price you mentioned has a whole bunch of caveats attached

and is exactly why dealers don’t normally make much on new vehicle sales save for ADMs.

It would help at ton if Ford actually did what you advise and set a “fixed lower non-negotiable 

price” guaranteeing dealers a better margin on sales but unfortunately Ford doesn’t do that…

 

Regarding the "Final Pay" - that never used to be some special incentive amount that guaranteed a quick sale.  They would just give you a similar amount to what was offered at the time.  We just did it so that we could stop managing incentives for a certain model year.

 

For instance, right now 24MY's and 25MY's are being sold.  When 26MY's come out, we'd do a flat pay on all remaining 24MY's and from that point going forward we'd only manage 25MY and 26MY.  

 

For about a year and a half I was on the team of 5 people who managed all the C&I programs.  It was pure chaos because we had to manage not only the national programs but all the regional programs which made it complicated.   (Also all the lease programs which was a nightmare.)   

 

The other big issue impacting the dealer margins is the spread between dealer cost and retail has been slowly getting squeezed over time.  Dealer cost is going up at a faster rate than retail prices over the past 10-20 years so dealers make less per unit than before.  Especially with the Big 3, there are too many dealerships close together in many areas which makes it easier for the customer to find that "Hundred Over Ford" dealer noted earlier.   The COVID-era supply chain issues lowering factory output stopped that for a while, and even increased margins, but as things normalize again the dealer per unit margins will continue to fall when comparing apples-to-apples on a given unit IMO.