DC_insider
Active Member
- Joined
- Jul 23, 2005
- Messages
- 259
Re: discounting
The Dealer wasn't lying about the 8% margin. They are invoiced for the whole value of the car less an 8% discount. However, it is not the full margin they can make on the car.
For example:
A150 Classic SE 5 door
Vehicle list price (including VAT) £14,192
Vehicle list price (excluding VAT) £12,078
Vehicle cost to Dealer £11,112
So, if a customer were to pay full list price a Dealer would make a gross profit (i.e. before any other costs) of £966.
However, the Dealer will receive an additional 2% credit in the quarter following the sale. This is called 'holdback' and is used by several manufacturers to discourage excessive discounting.
In addition to this there are Dealer Standards. Dealer Standards are bonuses paid to Dealers by the Manufacturer to encourage the Dealer to do what the Manufacturer wants over and above the franchise agreement. This can be a further 1% discount for hitting a volume target or for renovating your dealership to the latest corporate standard or for taking part in mystery shop exercises but will almost always include an element of customer satisfaction (in the form of "percentage of customers completely satisfied" score).
DCUK is offering an additional 4.5% to it's Dealers this year based on target, customer satisfaction and other criteria. Few Dealers (if any) will receive the full amount and DCUK pays on average 2.9% with a guaranteed minimum of 2%.
Returning to our example and assuming an average Dealer Standard payout from DCUK the Dealer will make a further £592 on the sale of this car. Therefore the total margin is £1,558 - if the customer pays full list price. Any discount comes out of the Dealer's margin*.
However, in the example given earlier drivethedeal were offering discounts of 12.5%. This is because a Dealer has offered cars for sale via drivethedeal at very heavy discounts in order to achieve their sales target. The Dealer is funding the discount by giving away almost the entire margin on the car. This is a very short term measure as in the current market Dealers are not making money selling cars. Most Dealers only make enough money on car sales to cover the cost of employing Salesmen, paying them commission, national insurance, running a fleet of demonstrator cars etc. The profit from the service and parts departments is used to cover the cost of the building and the Dealer Standard is the profit for the Dealer. Currently the average car dealership makes a profit of just 0.5%.
* There are exceptions. DCUK may provide additional support on individual models through supported finance deals or simply a bonus for every car sold. In the example of the SL there is currently an additional £5,000 bonus for each car sold - hence the £11,000 discounts being quoted. In my opinion DCUK are very poor at providing these additional bonuses. The bonuses are sometimes too much too late which results in sudden, heavy discounting and a knock on effect on residual values. Other manufacturers manage this process much better.
Sorry for the very long post but it is a bit complicated. Hopefully it will make sense to those who manage to get to the bottom!
The Dealer wasn't lying about the 8% margin. They are invoiced for the whole value of the car less an 8% discount. However, it is not the full margin they can make on the car.
For example:
A150 Classic SE 5 door
Vehicle list price (including VAT) £14,192
Vehicle list price (excluding VAT) £12,078
Vehicle cost to Dealer £11,112
So, if a customer were to pay full list price a Dealer would make a gross profit (i.e. before any other costs) of £966.
However, the Dealer will receive an additional 2% credit in the quarter following the sale. This is called 'holdback' and is used by several manufacturers to discourage excessive discounting.
In addition to this there are Dealer Standards. Dealer Standards are bonuses paid to Dealers by the Manufacturer to encourage the Dealer to do what the Manufacturer wants over and above the franchise agreement. This can be a further 1% discount for hitting a volume target or for renovating your dealership to the latest corporate standard or for taking part in mystery shop exercises but will almost always include an element of customer satisfaction (in the form of "percentage of customers completely satisfied" score).
DCUK is offering an additional 4.5% to it's Dealers this year based on target, customer satisfaction and other criteria. Few Dealers (if any) will receive the full amount and DCUK pays on average 2.9% with a guaranteed minimum of 2%.
Returning to our example and assuming an average Dealer Standard payout from DCUK the Dealer will make a further £592 on the sale of this car. Therefore the total margin is £1,558 - if the customer pays full list price. Any discount comes out of the Dealer's margin*.
However, in the example given earlier drivethedeal were offering discounts of 12.5%. This is because a Dealer has offered cars for sale via drivethedeal at very heavy discounts in order to achieve their sales target. The Dealer is funding the discount by giving away almost the entire margin on the car. This is a very short term measure as in the current market Dealers are not making money selling cars. Most Dealers only make enough money on car sales to cover the cost of employing Salesmen, paying them commission, national insurance, running a fleet of demonstrator cars etc. The profit from the service and parts departments is used to cover the cost of the building and the Dealer Standard is the profit for the Dealer. Currently the average car dealership makes a profit of just 0.5%.
* There are exceptions. DCUK may provide additional support on individual models through supported finance deals or simply a bonus for every car sold. In the example of the SL there is currently an additional £5,000 bonus for each car sold - hence the £11,000 discounts being quoted. In my opinion DCUK are very poor at providing these additional bonuses. The bonuses are sometimes too much too late which results in sudden, heavy discounting and a knock on effect on residual values. Other manufacturers manage this process much better.
Sorry for the very long post but it is a bit complicated. Hopefully it will make sense to those who manage to get to the bottom!
