feralc

So if you are a dealer and give a discount in the new car then give less credit for the used one, but if you are not giving any discount then you should give a fair credit, not auction prices, they are assuming the worst and not taking any risks, and maybe because I am a financial advisor (broker) I have always see that risk equals return, and you could say I am in some kind of retail too.
Even if I could charge a client when buying and selling a security, most of the time (because of the high competition) you should discount or waive one of them, I am not a registered charity either but you focus on what's best for the client, you keep double dipping a client and you lose that client eventually.

I love watches too, Tourneau is a business that will sell you a watch and if in the future you decide to buy a nicer and more expensive watch, they will take your watch for the same price they sold it to you, they are taking the risk of not selling that watch but at the end they have a happy (and captive) customer.

snagitseven

Watches and jewelry in general, have much higher margins than cars. I guess a watch manf. could offer a full trade refund against a new one when the GM% is over 70%. And I'd bet there's a not a lot of take on the offer in any case. Regardless, it ain't gonna happen on a car and customers wouldn't expect it.

This discussion is probably now about dead as the premise of changing the entire automobile retailer industry, which is the result of what you are proposing, is not going to happen, at least in the foreseeable future (niche Tesla notwithstanding with their mall store fronts). Even the one price fits all "different kind of car company" GM/Saturn brand failed to capture the car buying public and is now defunct.

"Double dipping" in the auto landscape, as you characterize it, is here to stay.

feralc

And I don't think it is fair, just my opinion, not trying to change the whole world.

NVThs1

+1. I do agree that profits dealerships make can be insane. However like Snag said it is a free market. You can play with them or get creative. The reality is the new car market has changed with the evolution of the internet and data. New car margins are not what they used to be. Used car margins are great as the pricing between two identical cars are all subjective. I ignore the idea that people are getting rich off of me trading in and buying new. I just set my target price of purchase and trade and if I get close, I stay happy. In the end I think the better pricing comes from having strong relationships with the dealerships (or stealerships)

Example 1 My C7
I did a horrible job of negotiating the price of my car. I know I did. I saw that car after 6 months of waiting and just wanted to sign and drive. I got some money off, but not what I could have. The kicker was the trade in. I wanted 5-6k for my C5. They offered me $4200. I told them to pound sand and sold it for $9500+/- a week later. In this case the dealership only got the profit out of my purchase.

Example 2 My wifes Pathfinder
My buddy owns a Nissan dealership. I bought an 08 Pathfinder new during the fuel bump and economoic downturn. They had crazy dealer cash. My buddy gave me $10k off a $40k truck. However the trade off was he gave me crap for my wifes car. She was upside down. However even with that, I always had equity in the Pathfinder and still do.

Point of the stories. We already know the dealerships are going to win. We really just need to arrive to a desired purchase and trade in price and if we hit the numbers, you don't look back. Someone might always get a better deal then you and the dealership will always profit, but it is important to stay happy. Also maintain a good relationship with your dealership. The deals should get better as you show loyalty.

snagitseven

Overall car dealer margins of 10-15% or so really aren't that insane (including used cars; it's half that for new cars only). Jewelry and clothing at 60-75% margins, for example, are insane. So, for example, are A/V cables (70-80%), home loudspeakers (50-65%), furniture (50-65%) and Apple Store products (God knows %) but not including non-Apple stores which are a miserable 7-12% to those retailers).

Most people don't balk too much at these high margins when they shop at the mall (or begrudge Macy's or Barnes & Noble from making a profit, although the internet can be another story). The difference with car dealers is that the public expects a tough negotiation as they assume the dealers are getting rich from selling cars (as evidenced by the oft seen term, "stealerships"). They actually make more from their service and parts departments.

That's not to say a car buyer shouldn't take advantage of the cultural ability to negotiate for the best price - they absolutely should because they usually can. But good luck on trying to negotiate your next tank at the gas station.

NVThs1

I agree when looking at the percentages and not the raw dollars, dealerships are not making insane money. People tend to think dealerships make a ton of money as they compare dollars. So a car that brings them $5k in profit sounds like a lot of profit. I would love to make that kind of profit in my business. However when you apply a percentage, and compare it to other retail items, it is not so bad. I think jewelry has higher mark ups. I used to get 50% off of my gold at Service Merchandise. I would have to think they were not giving me a price below cost. Unless they were which is what helped them become extinct. That is another thread though.

One thing I personally don't agree with you on is the 10-15% margins on used cars. Unless you are talking net profit or avarage profit accross all sales. I personally think gross profits are higher overall on used cars. Take my C5 scenario. Had I given them my car for $4500, they would have dumped what, maybe $1k in cleaning up the car to put it on the lot. Listed it at $9995. Settle around $8500-$9k. That is 35% gross. There are of course many other variables that only the ones behind the curtain know. I do agree that new cars have lower margins though, hence the importance of maxamizing trade ins, and like you noted, having a strong service department and keeping those bays filled with cars. Having volume sales numbers helps also obviously.

To piggy back off your comment. I too think the car buying experience has always been a battle between good and evil. Nothing will change. That is why I personally go in there numbers in my mind and if I hit those numbers, I tell myself I will be happy and not regret the purchase. So far so good, well except a bad lease I signed up for once. Still gives me nightmares.

snagitseven

NV, my 10-15% margin was an overall average and as I had stated, new cars are about half that. Used cars are definitely higher but the average aggregate feels about right.

While your observation of the dollars is certainly valid, it's all relative.

Just for fun, let's compare an imaginary car dealer to another actual retailer. If a medium/smaller dealer sells, let's say, 4 cars a day, every day for 300 selling days per year at $5K average gross profit each that would equal $6M gross profit annually before expenses ($5K x 4 x 300 = $6M). At 15% profit margin (not including service or parts for this comparison), sales would be $40M annually against $6M GP ($6M / 15% = $40M).

Another retailer say, Kohl's, shows recent annual average store sales at $17.5M at 31.6% gross margin or $5.5M gross profit before expenses. Comparing the two, Kohl's sales generate almost the same gross profit dollars as the car dealer at over twice the average gross profit margin at less than half the annual sales.

Of course, this simplistic comparison doesn't take into account each retailer's variable expenses, fixed costs of doing business or net profits but it does illustrate that even at $5K profit per sale, at the lower profit margin, the car dealer has to sell lots more car dollars ($40M vs. $17.5M) to roughly equal the same gross profit as the relatively inexpensive clothing and such of the more "profitable" Kohl's.

So, to sum up, while $5K profit per vehicle may sound like a lot, at the lower margin than many other retailers enjoy, it doesn't make it more profitable or easier for an auto dealer to make a buck selling cars than it is to sell underwear and pillow cases.

(My 42 year career involved with retail has me bouncing all these numbers around in my head...sigh).

5tglad

Thank you all for your responses. The dealership is sending a "manager" from the service department to look at the car tomorrow morning. They had set up a time earlier in the week but it was raining on Tuesday so I cancelled the visit. Let me see how this evolves.

It just totally blows my mind that they did a shoddy job. Perhaps my reaction would be different if it had been repaired with an indistinguishable level of quality.

tashakes

Two months ago I drove 8 hrs from San Diego to San Jose with my friend to pick up his Tesla after waiting 2 years for delivery. We were 45 minutes from SJ when we get a call from the factory saying that they were sorry and the car was not going to be ready. Too late, we said. We're here already and spending the night and going to the factory to pick up the car in the morning. We went to the factory in the morning, and they treated us like royalty, full tour, lunch, use of an early production car with the performance package (that thing is FAST) and booked us a flight home.

The car was delivered in SD 5 days later and I noticed a horribly painted quarter panel. They never said what the delay was, just that the car was "not ready for delivery to their standards". Well, it was not ready even after delivery.

He called them and calmly explained that the paint was bad in that spot, and they had the car picked up and seen by a detailer who of course, was not able to fix the problem. They sent the car to a premium body shop (high $$ cars) and they took care of the issue.

The reason for this long story is to show what a responsible car company will do to satisfy the customer when the customer is absolutely right. I doubt Audi will turn away from your problem.

Be assertive and polite, but firm, I am sure you will get the results you want. As for what happened to my friend's car, who knows, but now that it looks like new (as it should) he just forgot about it and is enjoying it.

Best of luck.

5tglad

(Posted on both this forum and AZ)

All -- an update. After the dealers rep visited and looked at the car they initially suggested and tried to do more paint correction. They left an A8 loaner while they worked on the car. I did not feel the remedy was sufficient. So I continued to insist on a replacement car as the factory finish on my car had been tampered. I felt they had sold car that had been in some sort of accident which was poorly reconditioned and therefore was not a new car from the factory. To me this was a fraudulent transaction. I consulted a prominent lawyer in Northern VA who reviewed with me the details I had gathered. His advice was that this was a winnable case and the dealer would have had to pay treble damages and possibly punitive as well; however this would take time, cost, and energy. Meanwhile the dealer called back and said a near identical car in the same color had arrived and they would like to swap the bumper and the hood from the new one to switch with mine. This development just completely changed my resolve. After a short discussion with the GM at the dealership they relented and replaced the car. The new car arrived this past Monday and I unwrapped and inspected it before taking delivery! I did pay a small cash payment to cover the five months of use on the original car. I still believe this has left a very bad experience in my mind and this dealer is lucky that I just didn't want to pursue the legal remedy. All new car dealers (especially luxury brands) need and should have codes of conduct and ethics compliance programs in place. Through this ordeal I had called Audi's customer experience/relations department and did not get anyone who understood the gravity of this situation (the call center personnel have no way to escalate quickly to regional or local management a situation that harms the brand reputation). In the end I handled it and am ok with the final outcome. All future car buying will now be different. Caveat emptor.