Thinking about selling cars for a living? Want to open a dealership for fun and profit? Before you make the move, consider some numbers.
According to J.D. Power and Associates’ Power Information Network (PIN), Canadian car dealers earn an average front-end gross profit of $1,161 per new vehicle sold – $1,105 per new car, $1,180 per new light truck. And used vehicles? For cars, the gross profit averages $1,355, while trucks do slightly better at $1,631.
So let’s say you’re a dealer selling 50 0 new cars a year. That means your gross profit is, on average, $580,500. Not bad, right?
“As any dealer will say, their list of total costs is much more comprehensive,” points out J.D. Power in a research note. “Sales commissions, floor planning and advertising are all costs that have to be recovered by the profit margins on the sale of new and used vehicles, so the difference between actual and perceived profits may be even larger.”
Ah, perception. The public at large does, in fact, think dealers are really raking in the dough. A J.D. Power online survey found that more than one third (36 per cent) of respondents estimated dealers turned a profit of more than $3,000 per vehicle, while another 26 per cent estimated dealer profit per vehicle at between $1,500 and $3,000.
“Undoubtedly, the largest problem for dealers in terms of these findings is that Canadian vehicle owners have an extremely inflated view of retailer per-vehicle gross profit, with one third holding the opinion that gross profit rates are almost triple the actual average,” says J.D. Power.
Not surprisingly, J.D. Power found that “between one-fifth and one-quarter of owners perceive they overpaid for their vehicle.” This comes at a time when the marketplace in Canada is awash in rich sales incentives.
PIN’s Incentive Spending Report estimates that manufacturers will spend a total of $6-billion in purchase incentives this year. Six billion dollars!
“Should that [incentive] belt eventually be tightened, Canadian shoppers – many of whom already feel like they are being gouged – will be asked to pay more for their vehicle, while dealer profitability remains under significant downward pressure,” notes J.D. Power.
The squeeze isn’t on yet, though. There are still good deals to be had. But buyers negotiating a purchase should know that there is a limit to how low a dealer can go. Sure, dealers make a profit in selling cars, but it is not entirely as enriching a business as many think.
That said, Audi has slapped on a new $1,500 factory-to-dealer rebate for cash buyers of the A3 quattro. If you’re an existing owner of a 2005 or new Audi, there’s an additional $500 available in loyalty cash too.
Perhaps a convertible is in your future. If so, the Infiniti G37 hardtop convertible is being pushed with a $3,500 factory incentive on cash purchases.
Meanwhile, a $16,450 Toyota Corolla is a sweeter deal, with a $2,000 factory-to-consumer rebate. Finally, the midsize Chrysler 200 LX sedan is in play with a $3,600 factory-to-dealer discount – that on a car with a relatively modest $19,995 sticker price.
As usual, Deals of the Week obtained pricing information from www.carcostcanada.com, among other sources. Consult your dealer for all the details. In the meantime, here are the numbers.
2012 Audi A3 2.0T quattro
- MSRP: $37,500
- Freight, dealer prep, air conditioning tax: $2,095
- Dealer discount (estimated): $1,500
- Factory discount: $1,500 (alternative cash factory-to-dealer rebate)
- Taxable subtotal: $36,595
- Total price with 13 per cent HST: $41,352.35
- Factory discount: $500 (loyalty cash factory-to-dealer rebate)
- Final price: $40,852.35
2012 Infiniti G37 Premium convertible
- MSRP: $61,700
- Freight, dealer prep and air conditioning tax: $2,095
- Dealer discount (estimated): $3,000
- Factory discount: $3,500 (non-stackable merchandising dollars factory-to-dealer rebate)
- Taxable subtotal: $57,295
- Total price with 13 per cent HST: $64,743.35
2012 Toyota Corolla CE automatic
- MSRP: $16,450
- Freight, dealer prep, AC tax: $1,565
- Dealer discount (estimated): $500
- Taxable subtotal: $17,515
- Total price with 13 per cent HST: $19,791.95
- Factory discount: $2,000 (non-stackable cash discount factory-to-consumer rebate)
- Final price: $17,791.95
2012 Chrysler 200 LX
- MSRP: $19,995
- Freight, dealer prep, AC tax: $1,600
- Dealer discount (estimated): $350
- Factory discount: $3,600 (consumer cash factory-to-dealer rebate)
- Taxable subtotal: $17,645
- Total price with 13% HST: $19,938.85
Pricing information source:www.carcostcanada.com. Calculations based on Ontario customers. Please note that while the information above is accurate at the time of publication, incentives are given at the discretion of individual dealers, and may be changed or discontinued at any time. Dealer discounts are negotiated with the customer on a case-by-case basis.
Correction: An earlier online version of this story contained incorrect information about the 2012 Chrysler 200 LX. This has been amended.