I realise that I may be opening a can of worms here but this week I had to take my Scenic back to the dealer for a minor fault to be repaired (see Technical forum if interested).
I was able to book it in within 2 days of my phone call and this made me think - how is the income of dealers / manufacturers structured just now?
For example, several years ago, cars had 6000 mile intervals, one year warranties and quite unreliable vehicles at times.
Nowadays, cars have 3 year warranties, my car has 18,000 mile service intervals and is much more reliable. With the industry average of 12,000 miles a year, in theory the garage will get 2 services out of me over the warranty period before I would go to an independent. Any other works will, in theory be covered by warranty so the cost will be met by the manufacturer (or dealer in year 3).
So is income now more weighted towards car sales commission, accessories income, or is that why hourly rates at service depts are so high?
In a way, to me it seems like Turkeys voting for Christmas, you have part of your division that exists to service and repair cars, but then you make them much more reliable, extend their service intervals, and underwrite the costs of any "abnormal" repairs? Or am I missing something here?
Anybody in the trade shed some light on this?
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to be honest extended service intervals have not always been introduced because "cars are more reliable" or whatever
most often they have been introduced because of pressure from the large fleets that want to cut down on their service costs
issues arising from long oil change interval will often appear after the typical fleet has sold their car, and they just want the manufacturer to endorse a totally inadequate service regime
you may find sometimes service intervals are specified at 20,000 miles (what the fleets will do), with an advisory 10,000 mile oil change (which private individuals will be told they have to do, but the fleets will not do)
also same car in different country sometimes has different intervals largely because of company car culture here
some cars (Ford Ka as previously discussed) have a service regime laid out which is totally inadequate, but again issues arising will be after fleet disposal and manufacturer warranty has run out
as to how dealers make money, well on private sales they will be hoping to make money on selling part ex, finance commission etc - but im sure others are better qualified to speak
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i know it costs jaguar around 8,500 including all the design costs, materials and labour to produce an x type.
add to that dealers cut
governments cut
and your looking at a healthy profit margin if you get £18,000 for it.
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But the dealer will only get a very small slice of that margin (>10% usually).
If the X-Type was really that profitable why would Jaguar be making such large losses and considering not replacing it?
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Used car sales are about five to six times the level of new car sales which is where dealers have to make most of their money.
Longer service intervals are due to improved manufacturing and quality techniques, complemented by superior oils and fuels and associated replacement items such as oil filters.
The Japanese led the way 40 years ago towards greater reliability through superior engineering and quality control, philosophies also adopted in such areas as electronics goods, photographic products and others of similar ilk.
Their outside suppliers were also directed to encompass such quality standards, which is why Sony's Bridgend TV plant in the UK eventually encouraged/cajoled its suppliers to reach and maintain minimum standards of just one or less component failure in more than a million.
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What\'s for you won\'t pass you by
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A long standing member of staff at my local Peugeot dealer recently told me that the service department covers all of the garages fixed costs. They asserted that's typical of how your average independent dealer is structured. They make next to nothing on car sales, and anything they do get is a bonus.
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"French car co UK" add a 36% (varies by model) mark up on each car sold in the UK supplied by the parent in France - That is the List price. Of this the Dealer is working on about 10% (it varies by model) plus any "French car co UK" paid bonuses and incentives. Most dealers will haggle down their profit margin to zero if they get money from bonuses, incentives, finance, and part ex.
Your average large fleet can easily negotiate a large chunk of the UK parents mark up away.
"French Car Co Uk" - a wholly owned subsiduary of "French Car co"
Dont forget large chunks of the Dealer network are wholly owned by the Car company. Certainly applies to "French car co uk" and "American Car Co UK"
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i know it costs jaguar around 8,500 including all the design costs, materials and labour to produce an x type. add to that dealers cut governments cut and your looking at a healthy profit margin if you get £18,000 for it.
Jaguar makes a loss so (surely) it actually 'costs' them more to make each car that they sell thme for. I realise this is not just X-Type, but they make up a big proportion.
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>>Jaguar makes a loss so (surely) it actually 'costs' them more to make each car that they sell thme for.
Actually that isn't the issue. The issue will be all those costs not directly related to the cost of manufacturing.
Services such as HR, Finance, IS and the like; costs such as depreciation, interest and maintenance; labour costs for labour not directly connected to production - cleaners, canteen and similar; the expense and effort involved in correcting individual failings, the cost and investment involved in a spares inventory, cost and investment in marketing and communication etc. etc. I could go on and frequently do.
These types of costs would usually not be allocated to the cost of production, but will represent a significant proportion of the companies costs and is usually what causes bankruptcy or collapse, much more often than the cost of making the product involved.
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Having worked (and still working a bit ;-)) in the industry I can tell you that its a pretty complicated situation. Indeed I have worked for VM's who didn't really know how much it was costing to build a car in a given year until some years later!
As a 'rule of thumb' you can reckon that to make a car costs about 1/3 its retail price.
The snag is that costs are pretty much fixed, but sales and retail prices go up and down depending on the market. Whether or not the company makes money depends on how close to 'capacity' the prod. line is running.
For a given selling price, 'breakeven' might come at say 80% of production capacity. If sales are good then production might be running at 95%. Result is bumper profits.
If sales are running at 70% then result is big losses.
If prices are cut then production may rise, but so does breakeven point because there is less profit on each car.
As regards service depts. - let me assure you they still make plenty of money - especially on the prestige stuff!
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I'm not in the trade but I have seen many of the longer term maintenance items like clutches and cam belts changes become more complex and expensive. I know for example a clutch change for a Mondeo requires the engine out, rather than dropping the gearbox. Also the shift from rear wheel to front wheel drive makes the engine compartment more difficult to work in. Re cently I changed the glow plugs on my diesel car and what a pig of a job to do. The fuel filter and another electrical component had to be moved aside to reach two of the plugs, the rest were just plain difficult with hoses and pipes to work arround. Perhaps this is another route to earn some of their income.
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