‘Net margin for a car dealer is only 1,89%’
Twenty years ago there were 6.000 garage owners in Belgium, today only 1.800. A lot of dealers merged or scaled up to keep up their profitability because margins are constantly shrinking. According to garage and car service federation Traxio the net margin for a car dealer is 1,89% today.
“Cars are becoming more complex and complex cars need better trained salesmen and technicians. Also clients are demanding: they want nice showrooms and demand substantial reductions. Car manufacturers and importers are the first to gain money so profit margins for the dealer at the end of the day don’t exactly make a fortune.”, Traxio says.
1.200 euro profit
A few years ago the University of Duisburg-Essen (Germany) and the German car magazine ‘Autozeitung’ tried to estimate how much money car manufacturers make on a car. A conservative estimate showed some 1.200 euro on a car with listed value of 22.500 euro. The more expensive the car, the higher the profit, with Porsche, Ferrari and Maserati in the expected top 3.
Margins are much smaller though for mass brands, with Toyota, Hyundai, Kia and Volkswagen still doing okay, but with loss-making Opel on the other end. Those brands have more difficulties to win back the costs for production, marketing and distribution because clients expect substantial reductions and competition is tough.
Also production costs increase because the production is becoming more complex. Whereas you used to have a petrol or a diesel engine, today you also have gas, hybrid and electric motors. All this technology requires investments – in development and factories – but also in the knowledge and experience of technical staff.
The annual report of the biggest importer in Belgium, Volkswagen importer D’Ieteren, mentions 122.000 imported cars in 2016, a turnover of 3,1 billion euro. Operating profit: 75,8 million euro, which means a poor 540 euro for a car with listed value of 22.500 euro. “There is really not much to be left or sometimes even nothing at all”, confirms VW spokesman Jean-Marc Ponteville.
Knowing these numbers you can only wonder what is left for the dealer/garage manager. According to sector federation TRAXIO the net margin for a car dealer is 1,89%. “So they earn 1,89 euro for every 100 euro, all activities included”, explains TRAXIO spokesman Philippe Decrock.
“The selling of the car itself even brings in the least, sometimes scarcely 50 to 100 euro, because dealers have to respect the margins the dealers impose and clients bargain on the price. Dealers can only hope clients will return for maintenance or change tyres”, Decrock adds.
Hardly maintenance needed
According to federal agency for economy, FOD Economie, car sales bring in a gross 2,4 euro for each 100 euro, 4,3 euro for maintenance and repairing.
“But also these numbers will probably decrease: cars are becoming better and don’t often break down and thanks to all new technology and safety systems fewer accidents happen. When, on top of that, the electric car will be commonly used there still will be a smaller return because they hardly need any maintenance, except for wearing out pieces”, Philippe Decrock concludes.
According to TRAXIO dealers and garage manager should therefore better prepare themselves for the future and focus on other opportunities. Why not focusing on becoming the local expert in car sharing instead of leaving this to start-ups?