$94,000 Profit On Each Car

Thanks. Auction data is really interesting vs advertised prices on Ferrari.com. Looks like at least 10-15%+ built into dealer asks

 

What do you guys mean by front end and back end?

Is front end, I walk in with $50k cash and walk out with a new BMW and is back end, I walk in and finance and get an extended warranty and service plan with my $50k bmw purchase?

 

No problem! It isn't an easy business thats for sure. Tons of overhead, client negotiation, and reconditioning costs make it a difficult business to be profitable in (as a non franchised store).

 

Front end is commissionable gross profit. Back end is dealer holdback.

Example, you want to purchase a $155,000 Range Rover Autobiography.

There's approximately 4.5% in front end gross profit. This is the difference from what the dealers invoice amount to MSRP is.

In this case that amount is $6,975.

Now there's holdback which is separate. If I sell you that vehicle the holdback gets paid to the dealership at the end of the month. At Land Rover holdback is 7% of invoice amount. So $155,000-$6,975=$148,025*.07=$10,361.75 in holdback (back end money).

In this case this sale at full MSRP would net the following.

$6,975 Front End Gross
$10,361.75 Back End Gross
+
Any reserve from marked up interest or money factor and profit from product sold. This is also referred to as back end and often gets grouped together with holdback.

 

Plus the volume kickback. Say your LR dealer sells 400 new units for the year, the check from corporate might look like 400 x $15,000= $6,000,000. Or it could be paid quarterly. And the kickback is tiered (e.g. each unit over the average-units-sold-per-dealer sold might net an additional $3000 to $5000 per car). That's true for Mercedes and others, and has to apply to LR, too, otherwise who'd want to shell out millions for a franchise for half the gross. No chance a $155,000 car has an 11% profit on front & back.

 

This statement is completely incorrect.

I don't understand why you are trying to tell me (someone who has worked for Jaguar Land Rover for 2 years) how the brand works. I'm not over here telling you how much it costs to repair an elevator (obviously you should stick to that).

Here's a breakdown since you clearly don't understand.

-----------------------------
Sales Department

We average ~ $4,600 PVR (Profit per vehicle retailed, includes all gross profit from front end gross, holdback, and F&I profit.)

We also average about 250 units per month

$4,600 * 250 = $1,150,000 / month

--------------------------------
Service + Parts Department

15,000 Hours billed at door rate of equates to about $2,250,000 / monthly profit

--------------------------------

Total Monthly Gross Profit - $3,400,000

Total Annual Gross Profit - $40,800,000

Total Annual Net Profit - $7,000,000 - $8,000,000

--------------------------------

We recently sold for a hair over $40,000,000

That is what we call a "blue sky multiple" of about 5x.

That equates to a 20% - ish cap rate which by commercial real estate standards would be considered an unimaginable return on investment.

Automotive dealerships sell off of "blue sky multiples" which is a form of net profit multiplier. The Blue Sky Multiple depends on the franchise as some are less valuable than others. Cadillac, Infiniti, and Mazda sell at low multipliers compared to Audi, BMW, Jaguar Land Rover, Mercedes, and Porsche.

But please, continue to try and tell someone who works in the automotive industry that you know how it works more than I do.

 

If we got $15,000 per unit, I would be driving a F12 TDF to work every morning.

 

I agree with this, but back can't help but laugh bc Ferrari has an amusement park

 

Let me clarify -- $15,000 back per each $155,000 LR, of which comprise a small amount of your total new sales. There's certainly not a $15K kickback on a $45,000 vehicle.

So tell me, out of all the small business owners I know none of them shares their own/company's income with their staff, so what makes you so privileged? Is the parent company who owns your dealership publicly traded?

 

Any idea what the average Ferrari dealer makes on a car on top of the factory so we can add those two numbers?

 

No, we actually only get 11% total on a $155,000 vehicle. That's it.

I'm considered higher management, most people (including most staff) have no idea how much the store makes. And yes, we are publicly traded.

 

No idea. I have a good idea what other luxury manufacturers make but not exotics. Whole different ballpark.

 

And it's not as glamorous of a business as the ROI may indicate. They are extremely complex (and expensive) to run, and get hit the hardest in recessions. Most private owned dealerships are getting smashed with the current situation regarding COVID-19. It can be profitable if you know what you are doing but generally only when the economy is on the upswing.

 

You’re right. Every new car sold represents a service/parts annuity. Sales is good to cover overhead. F&I is the juice, particularly since most “sales” are leases.


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Yeah, the dealers make twice that!


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Which is exactly what I said about service making about 3 times the amount new car does.

Without service. Every store would be out of business. Just like a gas station only selling gas.

 

Every time I drive by a high-end dealership, I just shake my head. I’m a CPA, and my hobby is figuring out how much businesses make. Forget about an ROI on your investment. Just think about your overhead costs. I’m gonna guess a well-run BHPH lot make more money net/net given the difference in up front investment.


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Lol.

It's hilarious how absolutely stubborn you are when two people are trying to educate you on how this works and are giving you first hand knowledge.

There is not any 15k kickbacks on 155k cars at the end of the year.

Is there trunk money/rebates on cars yes... But those are almost always given to the customer in full.

The new car market is so so competitive that margins are razor thin.

Also think of what the jlr manager is telling you 4500 bucks total front and back... I bet his average sales price is 80k... They are making the majority of their profit in finance and "fees" and if course window tint or other small aftermarkets.

If you have a half intelligent customer there is incredibly low margin. If you have a smart guy or a grinder... There is next to nothing or a loss and you are moving a unit... Because these things don't go up in value and you will get penalized for not turning the inventory.

I can't tell you how many times we have sold a car just to get the trade.

 

Absolutely. Drive time kills it.

 

Whats BHPH?

 

Stands for Buy Here, Pay Here. They are small lots that act as the bank and finance people with extreme subprime credit.

Essentially the profit driver of the business is buying extremely cheap inventory, getting as much money out of the client as down payment, and repo-ing the car and holding the down payment when they eventually default. That or they collect the insane interest (usually 15-20%) and sell the paper to someone who collects profits.

 

Curious what Ferrari Dealership you think sells 500 new Ferrari a year?
I'm not sure I know of one that sells 500 New & Pre Owned Ferrari a year...

And New Ferrari sell for MSRP, but you may have been talking about a pre-owned Ferrari, which do often sell above MSRP.
One must take into consideration that the Dealership may have paid the owner over MSRP as well to secure it..
There are a lot of moving parts in this discussion.

Auction data is helpful, but without actual reconditioning cost per example provided, it doesn't consider all factors in the equation.
Also, I am not aware of any auction seller that reconditions a Ferrari in order to send it to auction to sell. Why do Ferrari get sent to an auction in the first place?
That may be an entirely different thread.

On the other hand I have personally worked with Ferrari that were purchased at auction come in to my department needing as little as $5,000.00 in reconditioning costs
while another well over $20,000.00 in reconditioning costs...

S

 

We are talking about Ferrari here...
I would wager there is not a Ferrari Service department that makes more ( much less 3 x more ) than the Ferrari sales department does.
( Talking about a Dealership Service department , independent shops on the other hand... )

S

 

As a side note, I've always thought it was funny how retail buyers want wholesale prices when they shop a Ferrari. How long does it take you to sell a Ferrari to a real wholesaler? 10 minutes? Does the wholesaler have to ask his mommy if he can buy a car? Does a wholesaler want you to add Daytona seats at no charge?

 

that's been my "math" for my local dealer.

There are three "main revenue/profit drivers"

1) new car sales at MSRP - not that many, but a healthy amount per car
2) used car sales - 3-5x as many cars, with nice margins (albeit not like the new cars - yes there are a small number of "over MSRP" used cars each year, but the monthly bread and butter is not those)
3) service (guys, just take the number of technicians and multiply by their hours and rate and then add some parts...its not as much as you expect in these shops as they don't have 10-20 techs. Then factor out their direct department overhead, wages, etc)

If I had to try to do the math on most profit, I'd say 2 then 1 then 3.