Dealers' Commission

jayok

With all the thread's going around about price fixing and limited profit margins for dealers, etc. Can someone explain to me how commission, trade-in, etc works out? This might seem like an obvious question, but it seems no-one I've asked knows for sure.

Ok, take the scenario about buying a new car say RRP €20,000. Dealer buys for €18k and as a cash buyer I offer say €19,500 then profit = €1,500. Straight-forward enough. But now, does the sales rep work on a percentage of this, or a flat rate?

More complicated scenario, new car worth €20k, trade-in work €10k. Give €10k to dealer. Next week traded in car is on the forecourt for €14k! Please explain?

The reason I ask is I recently traded in an 03 Civic and got €12,950 for it against a CR-V that was listed as €24,950. it was basically €12k to upgrade. Next week the same Civic was on the forecourt for €15,950. So he's gonna make €3k on the Civic and probably made €3k on the CR-V, doesn't that mean he made €6k on my transaction? (the Civic was sold after 5 days on the forecourt, and to think I spent 2 months trying to sell it! )

€6K for 1 hours transactional work, not bad I suppose.

Big Balls

I dunno but the last car I traded - Belgard motors offered me around 30k for it and Grange Motors gave me 34K for it.

Strange indeed.

Seth Brundle

Seemingly dealers work on tight margins averaging about €300 per new car and need used cars, servicing, etc. to keep profits up. This is according to Cyril McHugh of the SIMI who was on the radio the other evening.
Also the fact that your old motor is on sale now for €15,950 doesn't mean it will sell for that. Did you haggle when you bought either your CRV or civic?
Also in order to sell you the CRV the dealer now also has to sell your civic which basically means more work.
Anyhow, were you happy with the deal you got?

drdre

man belgard motors are scammers. i bought a 05 golf 1.4 from them in june. i am hearing weird noises from the car and i rang them and i think its serious as i heard the same noise about 2 months ago.its like a sweeky noise from brakes but im not sure.i rang them and they said they are too busy to have a look and they are not free till end of jan 2006.and then she said if i think its serious then go to any garage to get it checked.she is one cow i spent 25k on a new car and theres no aftersales service,
guys its my 1st new car what should i do.should i go in and give out to them and speak to a manager.

unkel

drdre wrote:

i bought a 05 golf 1.4 from them in june

drdre wrote:

i spent 25k on a new car

Dude, €25k for a 1.4 Golf? :eek:

Why? If I had a budget of €25k, I might go something like as S500 or 740 as a daily driver and a classic Porsche 911 for fun

Big Balls

Have to agree.. the last GTI started at €27,000 and you paid 25K for a 1.4??

I always shop around before trading in but I always end up in Grange again as I find them the best MSL garage in Dublin. Even aftersales has been fantastic in my experiences.

Ring MDL (Motor Distributors Limited) on the Long Mile Rd and tell them about Belgard. Number should be in phonebook.

el tel

I know a guy who is an accountant and he did an audit in one of N.Ireland's major VW dealers and he wouldn't tell me what their average make on a sale
would be. I onced helped this same guy get a really good deal on a car before and so now I have vowed never to speak to him again.

jayok

Seemingly dealers work on tight margins averaging about €300 per new car and need used cars, servicing, etc. to keep profits up. This is according to Cyril McHugh of the SIMI who was on the radio the other evening.
Also the fact that your old motor is on sale now for €15,950 doesn't mean it will sell for that. Did you haggle when you bought either your CRV or civic?
Also in order to sell you the CRV the dealer now also has to sell your civic which basically means more work.
Anyhow, were you happy with the deal you got?

Yes - I am not complaining about the deal that I got. I am just curious about the margins that they are actually making. FYI the Civic I traded in was sold a few days later, so I have a feeling it wasn't a whole lot of work.

As for make only €300 per new car, do you really believe them? For example, the metallic paint rip-off is incredible! It should be included in the cost of the car. Consider this:

Dealer: "It's 20k plus €500 for the metallic paint."
Me: "Really, well I'd like black without the metallic"
Dealer: "It doesn't come without metallic"
Me: "The why is it an option?"

Imagine the scenaio:

Dealer: "It's 20k plus €500 for wheels"
Me: "But I need wheels to move"
Dealer: "That's why it doesn't come without them"
Me: "The why is it an option?"

You get the idea.

Anyhow, like the response to this thread, no one seems to know how these deals work. When working with the trade in for the Civic for CR-V I rang all the Honda dealers at the time and it was pretty much the same upgrade cost from all the dealers. So they must all be working to some forumula. This the the margin calculations I would like to know. Somehow I just don't think it's just €300.

I know Susuki Liana (saloons) Cost the garages around 10k.

They retail for around €18,000

tapest

ronoc wrote:

I know Susuki Liana (saloons) Cost the garages around 10k.

They retail for around €18,000

Hi Recently told by someone who's being cars and specialised heavy vehicles for large fleet that the main dealers have an advantage in make money. Firstly theris the mark up on the new car + whatever profit they make on your trade -in(less the discount they would have given you for cash) + If they meet their sales quota they get bonus from manufacturer ( maybe a couple of grand per vehicle). So I was advised the best time to haggle with main dealer is near end of year when he's trying to make his quota. Tkeis also giving much less than the "BOOK Price" on trade -ins as market is flooded with them, everybody wants new.
Last month i went to trade-in for new car, but first rang up dealers to find out "Book Value" for "insurance purposes". So when they offered me low trade-in price ,I mentioned " what it was worth on the books"( the actual figure) , he went scrambling for his "bible" and upped the price by 1500€, immediately. This book of second hand values is closely guarded and not available to anyone outside the trade. Even large companies,buying in bulk can't get a squint at this bible
hope you can understand this post....apologies for rambling....byproduct of night shift
t

Guy:Incognito

tapest wrote:

. This book of second hand values is closely guarded and not available to anyone outside the trade. Even large companies,buying in bulk can't get a squint at this bible

I find it hard to believe that some 20 year old saleman in a forecourt can leaf through it at his leisure, but a large company can't find it within their means to get even a slight look. Surely it'd be in their interest even if the had to bung him a few hundred quid.

milltown

Bear in mind that all those shiny new cars on the forecourt are financed and costing money to have there. Most dealers will have >=€0.5million worth of stock. Very few, if any, would risk half a million of their own money on cars that may or may not sell quickly.

The salesman's comission is a percentage (3 to 10 I think) of the net profit on a sale. In the case of your trade in, he may have taken another car in against your Civic and made a few hundred quid on that deal but now he has to sell another car to get his next few bob from the deal. As the value of what he's left with on the forecourt decreases, if he's a main dealer at least, at some stage he will stop the chain and sell the car to one of the Arthur Daley types in the trade for pretty close to what it stands him.

As said previously, profit on a new car is usually a lot less than you would think. If they can talk you into a finance deal though, woo hoo! That's where garages are making most of their money nowadays. The kickback from the finance company is very tasty for garage and salesman alike.

jimmycrackcorm

some finance companies give the dealers money up front in anticipation of getting finance deals their way.

tapest

Hi
I'm led to believe that most of the new cars on the forecourt ( dont forget most cars, if not all are ordered two months in advance) are already "owned "by the finance company....Garage can't risk that kind of money being tied up that long.....garage is happy to pay "interest" for want of a better word. In effect the display models on forecourt are rented from finance company.
Unless anybody out there knows any different
t

MercMad

Okay this is the way it works...............basically,

Invoice price from distributor = 10,000+delivery 350 = 10350
+ Vat (lets say 21%) = 12,523

VRT (based on Open Market selling price.........usually not known by the public) again assume a percentage of 30% = 16280

Dealer adds 5% profit = 17095
Advertising overheads= 300

Now we are at 17395.............ok ? Call this the cash price !

The Recommended Retail Price which is NOT set by the dealer buy IS set by the distributor/manufacturer for example 19250

So you roll up in your car which you see advertised everywhere (Buy& Sell, CBG, dealer lots...whatever) and expect its worth 8,000.

The guy looks up his trade book and sure enough 8,000 is pretty much what the public will pay for it, SO...........the figure work like this. He has to valet it, make a profit, service it ( doesn't matter if it was done 1,000 miles ago by someone else because this guy needs to stand over it so he wants his workshop to do it over again) and he will have to either buy a warranty or usually keep some money aside in case of comebacks.Therefore if he expects to get 8,000 back for it he would we will assume drop at least 250 for cash ( at least right ? ) spend 500 on the service and valet, make 350 profit and hold 250 for advertising.

Now we are at 6650 standing cost.

So take the new vehicle cash price of 17395 - 6650 = 10745

Take the retail price of 19250 -10745 = 8505 !!

Therefore if he offers you 7750.................you say "How about 8500 or whatever and you settle somewhere in the middle....................everyones happy..................RIGHT ?

Yeah well he's made about 800 on the new car, but he's thrown in mats, mudflaps, 1st service or whatever.

Now he has your trade in on his forecourt and he needs to get about 7750 for it for cash, otherwise he's eating into his profit margin.

Remember now the salesmans commision, and the fact that there will be 3, 4, 5 or whatever salesamen all trying to sell ANY car in stock. The dealership needs to ensure that the original salesman who sold the car has his deal locked so as to ensure his commision cant be reduced by another salesmans "bum" deal. Also at this stage the car is "in stock" and therefore the salesmen can access a stock list which tells them the "cash price" (i.e in this case 7750) and they will know there is a 5% approximately , profit margin there for them. The managers will generally be the only ones who see what the car actually stands them i.e without service, advertising, warranty etc. The salesman cannot accept less than 7750 for this car unless its been sitting, in which case the managers will highlight the cost and reduce it weekly or monthly as neccesary. This is why sometimes a salesman will say "I'll need to talk to XYX about that............"

They may decide to cut their losses and make whatever they can, usually only if its one of many similar models or its a slow selling model like a Daewoo Nubris or some POS !

So they advertise it for 8750 and use the 1000 as trade in allowance, or simply as a discount for cash, where someone may get the car for 8000 and feel happy.

Anyway...........someone rolls in with their 15 year old Escort with 140,000 miles and damage all over the place and its basically worth 500 in the auctions, but they think its worth at least twice that and they arent giving it away for less than 1000. The salesman knows a few boyos who buy this stuff and they have a good rapport with these fellahs, so they describe the car as accuratley as possible while you fall in love with the other car. The guy says 500 and he comes back to you and makes the deal by eventually giving you your 1000 off 8750 and realising the 7750 he needs !

They generally dont make any money on the trade stuff of that value, its just worth clearing the forecourt asap so its viewed as cash.

So salesman A who sold the new car makes his 15-20% Commision on the 800 odd profit ( about 140-150 quid taxable) and salesman B makes the same rate (or sometimes lower) on the 350 from the used car deal !

Obviously the more expensive the car the better for the salesman and the garage, particularly where there is a new model in short supply, not enough to meet the demand etc, so they dont need to drop from the list price AND if its a prestigeous marque then the profit margins are much higher so the established salesmen make loads of money.

There again these guys have probably been around a long time and ARE actually deal closers instead of order takers that most places employ in the current boom times !

Hope that explains some of it.................sorry it went on so long !

prospect

tapest wrote:

This book of second hand values is closely guarded and not available to anyone outside the trade. Even large companies,buying in bulk can't get a squint at this bible

I have the book sitting here on my desk. I don't work in the motor trade.

prospect

prospect wrote:

I have the book sitting here on my desk. I don't work in the motor trade.

You mean this thing

https://us.v-cdn.net/6034073/uploads/attachments/6849/14716.jpg

Its full of warnings, copyright notices and warnings of impending doom if contents are shared.

prospect

That could well be one of them, maybe,


Are you talking to me on a cell phone,

I don't know you,

CRANK CALL CRANK CALL.......

el tel

ronoc wrote:

You mean this thing

https://us.v-cdn.net/6034073/uploads/attachments/6849/14716.jpg

Its full of warnings, copyright notices and warnings of impending doom if contents are shared.

I thought anyone can buy that, it's publicly available.

jayok

MercMad,

Thank you so much for the explanation - it really set the scene clear in my head. As mentioned previously, I didn't have the problem with my trade in prices, I would just like to understand how prices, profits, etc are calculated.

Cheers.

knifey_spoonie

The book is not ment to be seen by anyone outside of the trade.Your subscription can be revoked.Its around 500 per year.

As regards to stock most garages would have 500,000 worth of second hand and at this time of year have 1,500,000 in new car sock.

Most dealers will be happy if they can turn a new car and trade in into full retail.

As to a deal the deal is never closed on till the last car in the chain has sold E.G. Trade in which is bought and another car is traded in and the that car is sold straight.That is when the deal is closed.

Comission can vary hugly between saleperson They could be on very low basic with up to 30% commision<Some could have a high basic and be on low comission.A good salesman should earn the bones of 50,000-100,000 INC. Car petrol ECT

unkel

Thanks MercMad - maybe your contribution will open some peoples eyes

Moral of the story for anyone buying a new car:

1. Sell your own vehicle privately

MercMad wrote:

Now we are at 17395.............ok ? Call this the cash price !

The Recommended Retail Price which is NOT set by the dealer buy IS set by the distributor/manufacturer for example 19250

2. On a typical new car, buy cash and aim for at least 10% discount, higher if you go for any optional extras. Don't let the dealer fool you, he will still make a profit

MercMad

unkel wrote:

Thanks MercMad - maybe your contribution will open some peoples eyes

Moral of the story for anyone buying a new car:

1. Sell your own vehicle privately



2. On a typical new car, buy cash and aim for at least 10% discount, higher if you go for any optional extras. Don't let the dealer fool you, he will still make a profit

........yeah selling your car and buying for cash is the best way, along with buying new outside of Dublin. Some folk couldn't be arsed with all of that on a cheaper car !

As far as extras go, that can be a tricky one. Believe it or not a lot of extras are sold at prtty close to cost. A new car supplied from the factory with extras is liable for VRT on the extras too. The distributors and manufactures in Ireland set quite a low mark up purely to get better specced vehicles into the marketplace. I recall at one stage selling BMW wheels to a customer for 2,000 whilst we actually made something like 85 profit on them !! Obviously BMW made quite a bit more but the Gov. took a huge chunk out of it. Just haggle but when you reach a wall its probably because you HAVE reached the lowest point !

However on dealer options like alarms/stereos and aftermarket wheels you may have more room and dont be inclined to add these into the finance amount. Thats when your 29.99/week goes to a low looking 31.99 a week and you end up paying 528 over 5 years for something that can be bought for 250, all for the sake of handiness !!

Finance is the other area to be aware of. Its much clearer nowdays with "Terms & Conditions apply" and the Consumer Credit Act where they have to advertise or display the percentages or cost /1000. That wasn't always the case and I've heard of cars being sold at 17% rates, where the salesman pocketed more from the finance company than the garage did for the whole deal ! The customer still thought he got a fantastic deal because his payments stayed the same, he never twigged that he originally was paying over 3 years but now over 5 !!

Just get the dealer to supply the figures then go to your bank. A personal loan is always cheaper and you can end the loan earlier or sell your car if you need to !

knifey_spoonie

@ unkel There aint a 10% profit in a car so you cant expect a 10% discount.

unkel

knife_fighter wrote:

@ unkel There aint a 10% profit in a car so you cant expect a 10% discount.

On a typical car, yes there is. Re-read MercMad's post for the figures which look very realistic to me. I'd hazard a guess that MercMad is in the trade himself or very close to somebody that is

The margin the dealer has to play with in above example is €815 (built in 5% as in €17095 - €16280). Then there is the band between the cost to the garage including a generous €300 budget for advertising and the RRP of €1855 (€19250 - €17395)

So total negotiating band is €2670 which is 14%

Obviously this needs to pay the overheads as well, but those are fixed

Note, in certain circumstances the dealer will be prepared to give you even more than that when kick-back bonusses are involved, but lets not complicate the simple sum above

MercMad

On a typical car, yes there is. Re-read MercMad's post for the figures which look very realistic to me. I'd hazard a guess that MercMad is in the trade himself or very close to somebody that is

...........WAS, in the trade..............for 10 years !

..........and you are correct in your last post, however as I mentioned earlier most of the salesmen will not have access to the exact standing costs, then as the commision is "locked" they dont have this 14% band to play inside !

There's no harm in trying though !