Realistic dealers have to cut their losses

In recent weeks people have still been out buying cars despite the dramatic headlines about the economy, especially used cars as the deals and savings have been second to none. However it seems that this has not been enough for some customers who have been finding the cheapest cars on the internet and then going to dealers to try and knock them down further. This is all well and good and the general doom and gloom around the trade is well founded but there is only so much a dealer can do before he loses too much money.
When this downturn startedand consumers started to lose confidence because of house price decreases and potential job losses, new car registrations and sales went into sharp decline as a result. The knock-on effect of this was that customers could get themselves a 6 month to year old example of almost any car, but particularly the high end models, for thousands of pounds less than new, and if they were trading up (i.e. had a part-exchange that was low in tax, insurance and maintenance) could walk away like that cat who got the cream.

The downside for dealers is that as a result of manufacturers driving them to hit new car targets they are left with many ex-demos, adopted new cars and pre-registered cars (sometimes more than 10 of the same model). These can be very expensive examples compared to similar models that the dealers can buy for far less on the trade market and still sell cheaply to a customer and turn a profit.

To free up stocking limits and keep losses to a minimum, dealers who are realistic have to market these cars at a loss from day one just to get any interest in them. This is, at best soul destroying, knowing that you won’t make a penny from the sale. Sadly if dealers are to survive this has to be necessary in order to take advantage when the prices eventually bottom out. It is reckoned that most franchised dealers across the country will incur losses of at least £50k on this kind of stock and that’s if they sell it straight away, if they bury their heads in the sand and hope the problem goes away the losses can and will be much worse.

The good news is that with the relaxing of the increases in road tax and the new VAT rate at least there is hope. perhaps the best news however is that as VAT is charged on used car profit the dealer can now save £18 on every £1,000 he makes on a used car from Dec 1st. On the face of this seems like nothing much seeing as he is not likely to sell too many cars that make £1,000 but if a fair sized operation could make say £500 per car next year and sell 600 cars that will bring another £5,400 in profit to the company.

With every dealer potentially benefiting the potential bonus to the trade could be huge, in the meantime however cars have never been so cheap and coming up to Christmas with manufacturers looking to clear old stock it could be a great time to make someone’s Christmas with a new car!

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3 Responses to Realistic dealers have to cut their losses

  1. mARK rOBBINS November 29, 2008 at 4:16 pm #

    Every bit of the above article is true except one thing, show me a dealer, ANY Dealer, that thinks they will sell 600 cars next year! thats Fifty cars a month!

    My local Honda dealership sold three, yes three cars this month, my local Ford agent sold seven (and he thought that was brilliant in the current trading conditions)
    and a Seat dealer i spoke to last week had sold just Two new cars this November, saying it was the worst he had known it for nearly Twenty years and he was concerned in no small way about his job.

    We are miles away from doing those sort of numbers and even when I worked for a Ford Dealership in the good old days i never remember volumes being that good. I think it is far far worse than many of us realise out there and the casualties in the trade will be huge, a sad fact but a true one.

  2. Tony Fox November 30, 2008 at 11:03 am #

    There are many dealers out there that are doing no new cars but plenty of used, it obviously depends what region and what franchises you represent. I know of lots of VW dealers that are selling cars and taking advantage of the fact that a nearly new Golf is a few thousand pounds less than brand new and are selling well on that basis.

  3. Will December 1, 2008 at 6:12 am #

    What will be the silver lining to come out of this mess? How will car dealers, faced with this stark reality, respond? Necessity is the mother of all inventions after all…

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