Profit Margin on New Cars

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Thu 5 Mar 2009 08:51
Profit Margin on New Cars - Armitage Shanks {p}
At the top of this thread is an advert offering new Citroens up to 45% off. This can't all be coming out of the dealer's margin so where is it coming from? Are the cars being sold at cost of manufacture, or even at a loss, to shift them?
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Thu 5 Mar 2009 09:20
Profit Margin on New Cars - L'escargot
There's probably more to it than meets the eye. Out-of-date variants, not UK specification etc etc. Who knows?
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Thu 5 Mar 2009 09:49
Profit Margin on New Cars - andyfr
Citroens are overpriced in the first place, so they discount anyway. We bought a new Citroen C3 (aarrrggghhh) and the advertised discount was £2,000 before any haggling, the salesman made an error when giving us a price including our trade in and took off the discount again. We double checked after the test drive and he did the calculations again and confirmed the price so we thought we must be wrong. We paid the deposit, got the sales contract and a few weeks later collected the car from the dealer, but not after them trying to get the additional money. That is a very long story for another day. :)

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Thu 5 Mar 2009 11:12
Profit Margin on New Cars - MVP
Several years ago I remember hearing the actual cost of manufacture of a Mondeo was about £2k - the rest was design, tooling, sales & admin, advertising, tax etc etc

So in the short term a manufacturer could slash prices , and would still cover their cost of manufacture, but this wouldn't be enough to keep the company profitable (if that makes sense)

MVP
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Thu 5 Mar 2009 11:39
Profit Margin on New Cars - Andrew-T
The actual cost of manufacture of a Mondeo


So the first car off the line costs millions, and all the others incur the marginal cost of about £2K. It's an interesting way to look at it, but only for theoretical accountants.
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Thu 5 Mar 2009 11:47
Profit Margin on New Cars - commerdriver
Accountancy time
Development costs obviously need to be recouped as do all the other general overhead costs so they are spread across the price of the cars sold. However that element of the price is more correctly defined as a contribution to fixed costs and overheads.
The actual cost of building the car, parts materials and direct labour is probably very low.
Given the cost of debt for most motor manufacturers selling cars way below normal price makes a lot of short term sense although it obviously cannot continue long term as all the fixed costs are not being met.
Now I know why I left accountancy, I feel a bit bored even talking like this.
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Thu 5 Mar 2009 11:49
Profit Margin on New Cars - MVP
It's an interesting way to look at it but only
for theoretical accountants.


Not realy

If you have designed a car, built a factory, employed your workers, and you can't reduce these fixed costs in the short term, you will loose less money if you sell cars at greater than their incremental cost to produce.

MVP
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Thu 5 Mar 2009 12:00
Profit Margin on New Cars - Hamsafar
Goods which cost a lot to develop and tool for are then given a projected cost for their life-span. Now that car sales have plummeted, the cost of the R&D and tooling is shared over fewer items, and so the cost to make must have soared, notwithstanding the fact that the cost of operating the factory does not reduce in proportion to cuts in output.
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Thu 5 Mar 2009 21:39
Profit Margin on New Cars - daveyK_UK
Ford dealer offering me a brand new 09 ford fiesta style 82bhp 3 door solid colour for £7700 and reckons he is still making 10% on it.

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Fri 6 Mar 2009 12:31
Profit Margin on New Cars - Optimist
You wonder where all the high design and development costs come from when all new small cars look like clones of all other new small cars.

New Fiesta? Haven't I seen that look somewhere before?

Maybe not these days, but I imagine car companies used to make a fair bit through their finance arms lending the punter the money to buy the car.
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Fri 6 Mar 2009 13:15
Profit Margin on New Cars - colinh
Ford list prices are still high in UK. According to the last EU price comparison the Fiesta was 23% dearer pre-tax in UK compared to Denmark. Only difference 2yr warranty and no a/c in DK, plus currency flutuations, maybe. So probably 15% to "play with" in UK
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Fri 6 Mar 2009 13:25
Profit Margin on New Cars - rjr
Ford list prices are still high in UK. According to the last EU price comparison
the Fiesta was 23% dearer pre-tax in UK compared to Denmark. Only difference 2yr warranty
and no a/c in DK plus currency flutuations maybe. So probably 15% to "play with"
in UK


Danish prices aren't always a fair comparison as cars are subject to extremely high purchase taxes and manufacturers deliberately lower the price to offset this.

How did the price of a Fiesta compare to France or Germany?
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Fri 6 Mar 2009 13:50
Profit Margin on New Cars - colinh
Even if they are selling them at cost in Denmark (doubtful), it seems a large difference.
France about 10% dearer than DK; Germany about 25% dearer! Focus 30% dearer in UK than DK, but Mondeo only 4% dearer.
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