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Wednesday 23 August 2017
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Why A Dealer’s Profit Does Not Matter

Why A Dealer’s Profit Does Not Matter

Occasionally, you decide to write on a subject that you know is not going to be popular. This is one of those topics that have been batted around for decades, and the odds are good that the question will remain forever. As a car dealership owner turned radio talk show host, I often wonder why this is so important to people. When you go to buy that big screen TV, you are only concerned with getting the best price possible, not what Best Buy paid for it. It is true of every other item you purchase, except cars.

It seems to me that there are several very obvious points here. Number one, is it really any of your business what the owner of any company pays for the product he or she sells? Second, is profit a dirty word, and aren’t profits necessary for a business to stay open? Lastly, do people think profits are necessary for your dealer to take care of you down the road?

I get it that people want the best price they can possibly get, especially on a big-ticket item. I am the same way, but I can honestly say that when I purchase something, I want that business to make a profit, it is just the American way.

We covered a story recently in our weekly newsletter about Chrysler jumping on dealers for the way they are handling sales of the 707-horse Hellcat, a car I reviewed not too long ago.  One issue Chrysler had, rightly so, was dealers accepting orders on the car, knowing the odds are low at best that they will be able to deliver the car. As of early March, 2200 of these cars have been delivered, over 9000 orders are on record and only a fraction of those will ever be produced. The majority of dealers will not even get one per month.

Chrysler is also miffed that some dealers are charging over MSRP for the Hellcat. I consider myself to be a consumer advocate, but I have no problem with the open market setting the price on a highly allocated vehicle. If a buyer is willing to pay $25,000 over sticker price for a car, should a dealer say “no thanks, please just pay the sticker price?”

Here is my logic: if a Dodge Chrysler Jeep Ram dealer has 500 vehicles in stock with no Hellcats in inventory, there is not a single vehicle in its inventory that anybody will pay MSRP for. The whole car-buying world refuses to pay MSRP for 99.9% of the cars sold in America, but it is criminal to charge more than window sticker. Remember, MSRP stands for Manufacturer’s SUGGESTED Retail Price. That is all well and good, except for the fact that the manufacturer doesn’t own the car, the dealer does. He or she bought it from the factory, paid the price for the car, and is now charged with the responsibility of selling it and trying to make a profit.

You just can’t have it both ways. You can’t expect a big discount from sticker on common cars, then balk at paying over sticker price for the few cars per year that come along and can command a higher price.

A little over a month ago, the cheapest face value of a Super Bowl ticket was $800 for the worst seats, $1900 for the very best seats.  The average asking price the week of the game, remember this is the average. was $10,919.  That was the market price people paid. Is it any different with a car, except the car will last a lot longer?

In 2002, Ford brought back the Thunderbird. At the time, I owned a Ford dealership in a suburb of Dallas. In the first year, I bought over 100 Thunderbirds from other Ford dealers all over the country. I paid from $5000 to $10,000 over MSRP, plus I had to pay the shipping, just to have cars to sell and my customers were very appreciative, and yes, I turned a profit on every one of them, generally around $2500 per car.

So what is a fair profit for a dealer to make on a car? It is whatever the market bears, even if it is a loss to the dealer. All that matters as a consumer is that you got a fair deal.

Photo Credit: Pavel L Photo and Video / Shutterstock.com