There’s no money in the metal

The continued push for dealers to sell more finance and insurance is ultimately replacing profitability from falling chassis margins. One dealer told us that he now makes more from finance per unit than he does from selling the car, an amazing course of events considering just how large the investment can be in buying cars.

Being somewhat from the old school I have tended to look on quite jealously at the sheer range of products available in the market for sales execs to sell, when all we had “back in the day” was a bit of HP and a warranty upgrade to increase commissions.

We have often highlighted what customers can have “added on” to their new or used car purchase which will give them all kinds of insurance protection both for themselves and their vehicles, but which can also be big profit generators for dealers looking to replace lost revenue from dwindling chassis profits.

This could go some way to explaining why there is sometimes such a large price swing when searching the classifieds and comparing similar models. More and more dealers are packing their inventories with ‘sure sellers’ which are not necessarily going to make large chassis returns but are guaranteed to sell and give them an opportunity to upsell knowing they have the desirable models.

Whilst standing at auction we often scratch our heads in amazement when we notice fellow car dealers seemingly paying ‘retail’ for trade cars. We try to work out how they will create a margin when all the indicators and pricing tools say there is not one. Clearly, as we also often point out, a car with a unique selling proposition is likely to have a clutch of trade buyers bidding on it, and it is often a case of who blinks first (it’s quite easy when using someone else’s money). However the fact that these particular models are almost certainly highly desirable means that the dealer can mark the car up with hardly any money safe in the knowledge that there are enough add-on products he can negotiate with the customer to ensure the deal, as a whole, is a profitable one. If not he just holds out for the screen price until he finds the right buyer.

With the added confidence of knowing how competitive dealer finance now is against a backdrop of reluctant lending on the high street, it is no surprise that over a million cars were sold last year with dealer backed finance and with PCP’s now the preferred choice of the car buyer – and incidentally the most profitable finance option for the dealer – the trend looks set to continue this year.

No great surprise then that with such potential profits on offer that dealers are heavily reliant on finance and insurance products to ensure they can remain profitable.

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7 Responses to There’s no money in the metal

  1. Stuart Masson April 13, 2012 at 2:15 pm #

    One of the reasons I got fed up in car sales was because the dealers were more interested in finance and add-ons than in the cars themselves. Selling a car without add-ons was literally almost not worth it, as the commissions were tiny and it also affected your percentages of finance and add-ons, which also affected future commissions. I didn’t sign up to be an insurance and car polish salesman and didn’t enjoy it. Now I enjoy telling dealers where they can stick their £500 car polish packs and £600 GAP insurance.

    • Patrick Stone April 13, 2012 at 4:34 pm #

      Someone sounds rather bitter that they couldn’t cut it in the retail motor industry!

      • Stuart Masson April 13, 2012 at 5:16 pm #

        Not at all, I did it for years and made plenty of money out of it. But as each year went on it became less about serving customers and building long-term relationships, and more about fleecing them for every penny at every opportunity. And that’s not how I wanted to treat other people.

        As far as I’m concerned, the whole retail motor industry could do with a complete overhaul to bring it into the 21st century. I don’t feel bad for rubbish dealers that close down, but I do feel bad for good people who get caught out as a result. I’m glad I chose to leave and do my own thing.

  2. Mark April 15, 2012 at 4:10 pm #

    Another ex car sales and finance manager here. I must admit the PCP was a stroke of genius by whoever, developed it, ultimately standard hire purchase is comparable to direct lenders personal loans, but high street banks are never going to interested in PCP style agreements. PCP always generated good, solid profit, and good customer retention. The world evolves, and so does the motor industry

    I now work in the ‘aftermarket’ field, and I do believe this will change for the motor trade too. There is little doubt that some of the products sold may come into scrutiny from the ambulance chasing solicitors who are looking for the next easy target after PPI. If the price of these products were lower from the dealer, the chances are the solicitors will pass them by.

    The problem falls not with the dealer, but with the companies who supply them. I know how much we were charges at dealer level for these products, and how much an we can get them for now. It is ridiculous the difference. Dealers are royally ripped off.

    If dealers got these products at the right money, they could still sell at a fair price, make a fair profit and not have any problems in the future.

    Just my two penneth!

  3. Mark R April 16, 2012 at 6:06 pm #

    I literally get four or five calls a month from Finance Companies wanting us to use, sell, promote, their products, and guess what, after 30 odd years in the business ( a very profitable business i might add ) we don’t want them ! I don’t want my staff to “upsell” their products, i want then to sell cars, G.A.P. protection? don’t make me laugh! a total rip off for the customer in many cases and at worse not even needed, PCP, another rip off but this time to the dealer, thus those costs have to be passed on to the consumer, and don’t even get me started on “Documentaion Fees’ just who is having a laugh here?

    No, we have not offered Finance for a very long time ( years to be precise) and that’s exactly how we like it and so do our customers, at the end of three years they actually still own the car AND it still has a value that hasn’t been eaten up in interest payments, I realise some consumers need a Finance product, and there is nothing wrong with that as a rule, it’s the pushy commission hungry Companies and unscrupulous salespeople i can’t stand, this garage will never be one of them……………………..

  4. maximile April 16, 2012 at 7:20 pm #

    then how do we explain the massive rise in pcp cases at least it gives the customer a choice between straight hp and a lease purchase option and in fairness the interest rates from what i have seen are very competetive,but its clearly a main dealer initiative funded by the manufacturers.

  5. Mark R April 19, 2012 at 8:07 am #

    Exactly, I’m talking about medium to large independents, not Main Agents who have no choice but to be submissive to their masters the manufacturers……….

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