Whats a fair dealer profit margin ??

New to these forums and just bought a 2013 TRD Sport myself. Lots of good info here. Cant help but wonder about some of the pricing threads.

I work for Toyota, so I sell Tacomas. When I read these "how much did you pay" threads, I see some totally real numbers, and some totally bogus numbers.

Just a question: Lets just use 30,000 dollars for a new Tacoma double cab TRD off road as an example. If thats the number... what amount of that would a consumer feel is a fair amount for the dealership to make ??

Its odd that a consumer would go to R.C Willey... pay 2000 dollars for a nice fridge.. and have no problem knowing that the store just made 800.00 profit on a 2000.00 dollar item, yet buy a 30,000 dollar truck and somehow think that Toyota wants to actually lose money on it.

Whats a fair amount ?? Its a valid question, and not meant to rile anyone in any way.

 

A fair amount, in my view, is whatever a free market will support. That could be below or above actual cost by any amount.

ON EDIT: I don't believe that Toyota and the dealership profit are tied hand in hand on individual unit sales and maybe not even specific dealership performance on the dealerships overall sales. Does the manufacture charge the dealership a different invoice for each unit based on the final selling price? I understand in the long term final selling price may affect factory to dealer / buyer / salesperson incentives which may drive manufacture cost but...

Margin is a factor every for profit business deals with...I believe the free market provides incentive to build a better mouse trap rather it's the product, the sales staff or anything inbetween.

History is full of economies that have underperformed over the long term due to artificial manipulation of "value" and products offered reflect that fact.

I'm anxious to see your response.

 

That is a good question. One which needs exploring. Now on a $30,000.00 vehicle how much hold back is there and then are there any dealer commisions or special deals to sell? Then take off the flooring charges from the profit.
Now in your position you are more able to give us a true number of what a dealer actually makes on each $30,000.00 truck that they sell.
Are you willing to educate us?

vince

 

I just negotiated a 2012 double cab Off Road, with a few extras, down to just over $28k 2 weeks ago. This is lower than I have seen most people pay but I still believe they made a profit on it. Was the profit margin fair? Can't say as I don't really know exactly how much they made off it. If not, that is the dealers fault.

 

Once they include all their overhead cost if they can clear $1,500 per unit they are doing OK. They have more cost in the truck than what they paid for it. They have to pay for sales staff, advertising, the facility, etc.

 

If there wasn't money to be made the sale wouldn't be approved.

 

Pretty generous I think...

For the first 6 months of 2012 there were a little over 45,000 Tacomas sold in the US. There are a little over 1,200 Toyota dealerships in the US so, on average that's about 6 units a month per dealership. If the invoice was 90% of list (using the OPs hypothetical $30,000 list) invoice would be $27,000 & using your $1,500 number that equates to about a 5.5% return on each unit sold. On a crude annualized basis that's a 66% ROI. I think every dealership would jump on $1,500 over invoice if my calculations and assumptions are correct.

Initial investment for 6 units = $162,000...continue investing that same $162,000 month after month and sell the average 6 per month and you've profited $108,000 over 12 months. Sign me up!

 

If it is fair to the dealership then it's not fair to customer. If it is fair to customer then it's not fair to dealership.

 

And yet buyers buy and sellers continue selling...

 

Hahahahahahaha 700 on each vehicle? You must be kidding. Lots of times the dealership makes $700 then the salesmen gets 25% after costs are reduced like washing, interest paid sitting on the lot, pdi, any other fee the sales manager throws at the salesmen.

Average commission 200-350. People are unreasonable negotiating at dealerships. Gross on new vehicles is thin compared to the price. I worked for Ford, I know..

 

It's called acceptable compromise by both parties. Dealer can profit margin himself out of a sale just like a customer can discount theirself out of a purchase. Doesn't mean either one is actually fair.

 

Right, I just used average numbers...actual numbers are out there and are as follows (for the US) for first half of 2012. Units sold = 45,111 number of dealerships = 1,234.

As far as commission in most cases I believe it's a graduated percentage based on units sold during a given month. One exception (or so) may be the Taco where TM does something like a lotto (maybe called a truck pull internally) in addition to the dealership commission. But, I'd bet my next months salary the average salesperson selling a Taco is not make $700 per unit sold.

 

Toyota dealers are the most profitable in the industry.

 

Realistically, dealers have a lot of employees to pay. Excluding the service/parts departments hen I bought my truck, I spoke to the salesman, the salesman's team leader, the manager who approved the sale and worked up the Final Numbers, a financial advisor, and a finance manager that completed all the paperwork.

That's five people that must be paid by the sale of my vehicle. On top of that they have to pay for electricity, water, business class Internet, paper and office supplies and whatever other utilities/products it takes to run the business. I would guess with all the lights, and computers running, a $10,000 overhead is about right.

Don't forget a leased space...maybe rented, maybe owned with a mortgage...we'll say $20,000 for a decent size dealership...

So $30,000 in overhead a month for a decent size dealership...plus cost to pay employees.

A friend that's a salesman said that his goal is to sell one car every day. Some days are better than others, and he sells 13-15 a month. Just guessing from what I see there, there are 10-12 salesman at that dealership. If they all did that, that's about 150 cars a month. That has to make up for the $30,000 overhead and commission. If they average $25,000 per sale at a 10% mark up, they will average $375,000 per month to pay employees and overhead. That to me is acceptable. There still has to be advertising, wiggle room, perks from sales, bonuses, and stuff like that.

What we are told is dealer invoice never is. I'd say that a dealer that has a car listed for $32k will work down to $30k and have paid $25-27k. Invoice and actual invoice are clearly very far apart. They would have to beef you expected any dealer to make a profit and sustain it self. Many people that think that a dealer would sell a vehicle for a loss are blinded by that sales tactic. If you think you're getting a killer deal, you are more likely to pull the trigger right then and there.

 

This question has some negative connotation because of the games dealerships play, like turn over men, predatory loans and all those dealer "add on's". All this makes it more difficult for the honest dealer to make a fair profit without potential buyers feeling ripped off. Lets face it dealers are in business to make profit and wouldn't last long without profit. What's a fair profit? It has to be enough to pay all overhead and a fair return to the owners of the dealership. I think 5% above overhead would be fair. That gives the investors (owners) a little more than if they put their money into investment accounts which in turn keeps the dealers in business. JMHO

 

This is a good train of thought but it excludes the cost of running the dealership, paying the staff etc. So in reality, there are a lot of things that would get taken out of the 108,000 figure over 12 months etc. You do have some good points however !!

I cant provide the exact number a dealership pays for a Tacoma, but can say that the 28,000 Dollar number for a TRD OFFROAD DOUBLE CAB V6 above would never have happened at this dealership or any in this state or surrounding states. Its one of the reasons Toyota has been successfull as a company ( staying close to actual retail pricing) It protects you as a consumer ( and me for that matter as I own one ) One issue we deal with everyday is that failing Companys.. Dodge.. G.M for example, prices are so overinflated to actual purchase price that they are hard to value down the road. One of the things that keeps Toyota in a good position now and later is that they dont sell Trucks for thousands and thousands off the MSRP.. let alone invoice, and the markups are not as high as most people would imagine.

Oh... and having just read the statement... no salesman makes 700.00 on selling a Tacoma. Not even close.

 

A dealer's profit margin one way or the other is realistically something they need to focus on with the company more than trying to make up for how much they think the company is screwing them by overcharging customers. When the inventory sits on the lot because customers think it's overpriced for whatever reason then the company is the one left holding the bag on unsold inventory backing up the flow out of the factory so in the end, the demand or lack of will dictate.

 

Just to throw a question out, why are vehicles negotiable? Why not just have the price be what it is, and either you can afford the truck or you can't. Have a mark-up built in just like every other business, and if they don't sell, the market will naturally lower the price of that vehicle.

I know Carmax essentially works this way, but because there are other options, Carmax isn't always (or ever) your best bet

 

Even if the dealer sells the truck at invoice, they are still making money. There are sooooo many kick backs that the dealer get from the manufacturer, it's not even funny. It's almost a crime that they pay you guys on only the front end gross profit.

Alot of dealer will also make $1500-$2,000 per copy just on the aftermarket products and financing, that the salesperson doesnt ever see. The fact of the matter is, dealers make a ton of money on service, parts and used vehicles.

Dont feel bad for them because they are selling the new cars at close to invoice, they dont have any problems feeding their family.

Edit - i spent 5 years, training sales people on the models (2007 Tundra etc etc) and i sold cars for 3 years while finishing college. I've been out for 3 years now, and will never look back. The kool-aid they feed the sales people is sickening.