Dealer profit margins

[ronk]

I was browsing Auto Trader and saw a car very similar to mine.
ie a 2016 35is - It has 29714 miles on the clock and they want £29000 for it
Auto Trader also say "Great Price"

On previous browsing I had added my car details
ie 2016 35is - It has 16285 miles on the clock - Their offer price as a trade in £22660

Now I realise they are in business to turn a profit - but is 28% - is that the usual mark up/sale?

 

[Nictrix]

A friend just sold his Merc C43 for 28k to a dealer, a week later its up for sale at 36k

 

[TitanTim]

Hi Ron,

From my experience with BMW when trading in early half way through a PCP they were making round 4k on the forecourt price, however the last time would have been in 2016 when I bought the M140i. Factor in the demand for good low mileage second hand cars due to long new car lead production times, shortage of silicone chips, parts, pandemic etc then that sounds not too far off the mark.

I thought second hand value had dropped recently though. 12 months ago I had my M140 valued the likes of Motorway were offering around 18k which by early this year peaked at 23k and with values dropping again by March this year. Could be that second hand values might be creeping up again.

Tim.

 

[Ole gits rule]

Most business make 20% margin but then take our O/H etc and the actual profit will drop to 10%.

My guess is they will drop 2k off the asking price and then they take off O/H etc plus all the stuff they have done to the car plus a warranty etc they wont be making a massive profit.

 

[ronk]

A friend just sold his Merc C43 for 28k to a dealer, a week later its up for sale at 36k

28% again

 

[Ian J]

My guess is they will drop 2k off the asking price and then they take off O/H etc plus all the stuff they have done to the car plus a warranty etc they wont be making a massive profit.

And don't forget Vat will be included in the selling price

 

[PerryGunn]

My guess is they will drop 2k off the asking price and then they take off O/H etc plus all the stuff they have done to the car plus a warranty etc they wont be making a massive profit.

And don't forget Vat will be included in the selling price

The rules are slightly different for used cars though as VAT is paid on the dealers profit not the total sale price

 

[Dave1971]

My guess is they will drop 2k off the asking price and then they take off O/H etc plus all the stuff they have done to the car plus a warranty etc they wont be making a massive profit.

And don't forget Vat will be included in the selling price

The rules are slightly different for used cars though as VAT is paid on the dealers profit not the total sale price

That's not quite correct. The dealer pays 20% vat on the difference between the buying price and the selling price.

For example a dealer buys a car from auction for £16k and sells it for £20k so a nice 20% mark up. The vat is £800.

But out of the £3200 left the dealer now needs to pay all the other business overheads like gas, electric, phones, building maintenance, business rates.

Then you need to fix anything that is wrong with the car. The different departments in a main dealer act like separate businesses so when the sales person puts the car into the workshop they don't get any special benefits, they pay through the nose just like we do.

Then there is the sales persons commission, probably only a couple of hundred quid but it all comes out of the pot. There's also the none productive staff like the dolly bird on reception, the guy who washes all the cars, the sales manager, dealer principal and maybe even a share holder or two.

Suddenly that £3200 is spread very thin indeed, the "profit"
is probably very small. In fact if the car turns out to need a bit too much work in the workshop then it's quite easy to make a loss because no matter what the tax man still wants his £800.

 

[Ole gits rule]

My guess is they will drop 2k off the asking price and then they take off O/H etc plus all the stuff they have done to the car plus a warranty etc they wont be making a massive profit.

And don't forget Vat will be included in the selling price

Vat is only applicable to the profit but will be a chunk for certain

 

[Dave1971]

My guess is they will drop 2k off the asking price and then they take off O/H etc plus all the stuff they have done to the car plus a warranty etc they wont be making a massive profit.

And don't forget Vat will be included in the selling price

Vat is only applicable to the profit but will be a chunk for certain

This is not true. Vat is paid on the difference between the buying price and the selling price not the profit.

The difference between the buying price and the selling price maybe several thousand but the profit (after costs) may only be in the hundreds. It makes a huge difference to how much is paid in VAT.

 

[PerryGunn]

And don't forget Vat will be included in the selling price

The rules are slightly different for used cars though as VAT is paid on the dealers profit not the total sale price

That's not quite correct. The dealer pays 20% vat on the difference between the buying price and the selling price.

For example a dealer buys a car from auction for £16k and sells it for £20k so a nice 20% mark up. The vat is £800.

But out of the £3200 left the dealer now needs to pay all the other business overheads like gas, electric, phones, building maintenance, business rates.

Then you need to fix anything that is wrong with the car. The different departments in a main dealer act like separate businesses so when the sales person puts the car into the workshop they don't get any special benefits, they pay through the nose just like we do.

Then there is the sales persons commission, probably only a couple of hundred quid but it all comes out of the pot. There's also the none productive staff like the dolly bird on reception, the guy who washes all the cars, the sales manager, dealer principal and maybe even a share holder or two.

Suddenly that £3200 is spread very thin indeed, the "profit"
is probably very small. In fact if the car turns out to need a bit too much work in the workshop then it's quite easy to make a loss because no matter what the tax man still wants his £800.

All I missed out was the word gross i.e. 'VAT is paid on the dealers gross profit not the total sale price', what you have done is explain how gross profit becomes net profit.

 

[Rockhopper]

Plus he might have car sitting there for a few months before it gets sold.

 

[MikeyH]

I thought only second hand vans had VAT put on them and only then if they were previously owned by a business that paid VAT.

 

[Ole gits rule]

I thought only second hand vans had VAT put on them and only then if they were previously owned by a business that paid VAT.

No I think there is VAT due on the profit - VAT is added to second hand vans as companies will not have paid VAT originally.

 

[Pondy]

Used car dealers don't really work on percentages in my experience. It's more about the amount of money they can make or 'need' to make.

Also good luck getting a dealer to accept an 'offer' on their price. It's been a seller's market for the last 18 months. I have made offers on a few cars in the last year, all have been refused. It has been full asking price or nothing IME. Then after 3 months they have dropped the price if they haven't sold.

The ONLY car I got even a few hundred quid off was my Alpina and that was only because I knew what the dealer bought it for (it was discussed on another forum) and he knew it. He wanted to make £5,500 profit on a car he bought for £12,000.

The VAT thing can be quite complicated when it comes to vehicles, so not getting involved.

 

[Dave1971]

The rules are slightly different for used cars though as VAT is paid on the dealers profit not the total sale price

That's not quite correct. The dealer pays 20% vat on the difference between the buying price and the selling price.

For example a dealer buys a car from auction for £16k and sells it for £20k so a nice 20% mark up. The vat is £800.

But out of the £3200 left the dealer now needs to pay all the other business overheads like gas, electric, phones, building maintenance, business rates.

Then you need to fix anything that is wrong with the car. The different departments in a main dealer act like separate businesses so when the sales person puts the car into the workshop they don't get any special benefits, they pay through the nose just like we do.

Then there is the sales persons commission, probably only a couple of hundred quid but it all comes out of the pot. There's also the none productive staff like the dolly bird on reception, the guy who washes all the cars, the sales manager, dealer principal and maybe even a share holder or two.

Suddenly that £3200 is spread very thin indeed, the "profit"
is probably very small. In fact if the car turns out to need a bit too much work in the workshop then it's quite easy to make a loss because no matter what the tax man still wants his £800.

All I missed out was the word gross i.e. 'VAT is paid on the dealers gross profit not the total sale price', what you have done is explain how gross profit becomes net profit.

That's true but it's an important distinction that had not been made up until that point. The vat on the gross profit of £4k is £800, the vat on the net profit of say £400 is £80.

The guy actually getting the biggest slice of the (gross) profit is very probably the tax man.

 

[Rockhopper]

I used to work in a shop where we bought items in to sell on. We paid VAT on the difference between the buy in price and the selling price. Used cars are the same. It’s up to the dealer if he chooses to pass that cost onto the buyer.
VAT on vans is different, as it depends on if the original purchaser was VAT registered or not and claimed the VAT back. This could also apply to cars bought by a business. VAT in this instance is paid by the buyer, not the dealer. The dealer still has to pay his VAT on the margin though as above.

 

[MikeyH]

Money for old rope :thumbsdown:

 

[ronk]

Out of curiosity I did a check of the identical car to mine - I looked at its MOT history - All I can say is that it has had a very hard life!

Bent wheels, Cracked wheels, shockers, bald tyres. split tyres !

The MOT history page is an excellent tool for a buyer.

 

[Jasperlenin]

I’m a dealer, and on used cars we only pay VAT on the profit, not the whole selling price. When you’re buying, check if the price already includes VAT or if it’s extra, it can change the total a lot. vatcalc