Margins are tight but a car dealer still has to make money

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MarginCar dealers are constantly trying to establish alternative income streams, and during the last few years the industry has adapted well to the changing face of the market and the increased competition. It is widely accepted that there is not really a bad car made today, although that is still open to debate of course, but even the new kids on the block have some great value for money models in their range which more buyers are turning to.

Looking at the top end of the range, innovation has married with dynamic design and fantastic aesthetics to provide the car buyer with more choice than at any time in the history of car sales.

Back to the point then, the fact that dealers now have so many products and accessories to offer is really helping take the pressure off generating margins from the car itself and spreading the load if you like onto f&i products like pcp’s, paint work protection, warranties, tyre and alloy protection insurance, gap insurance to name a few. These are all big profit generators for the modern car dealers which if required, are all useful products for many customers. The perceived value of these add-ons is open to debate and what price they are sold at does wildly differ from one dealer to another based on the value of the car in question, so there is clearly a debate to be had.

For example if a buyer has bought a Ford Fiesta and wants to invest in paintwork and fabric protection he can expect to pay around £200 but if he buys an Audi A5 it may cost him £500 for the same paintwork protection which has the same base cost to the dealer but the buyer may be happier to pay the £500 because of the increased price of the car itself.

It is up to each individual car buyer whether they believe that any add-on product is worth the asking price. It’s no good after all negotiating hard on the price of the car when you pay “full up” for all the add-ons.

Certainly in the last decade these products have generated huge profits for dealers as they have had to cope with declining profit margins on the metal.

In current trading conditions there is even more pressure on dealers to establish alternative profit streams with fewer buyers and demanding manufacturers who are pushing for a bigger slice of the market. This is why buyers can expect aftersales advisors to be more like sales execs in their approach to up-selling on service work. They are being targeted to sell service plans and extended warranties, which used to be the sole responsibility of the sales exec.

Also we can’t help but notice that at virtually every disused petrol station in every town you are likely to see a drive through car wash with various different prices for types of valet, and although most good car dealers will always endeavour to give all cars a service wash as part of the experience, it is more likely than ever that drivers will be offered the opportunity to upgrade at an extra cost to a more detailed valet which will provide another potential revenue stream to the dealer.

It is refreshing to see that car dealers are recognising that to continue being competitive they still need to be offering a “special” experience and a range of products and services whilst at the same time remain profitable. Those who pull this off demonstrate the resilience of the industry and despite the bad press over the years could provide a great example to other businesses in how to adapt their business to increased competition and changing market dynamics.