amschind
Well-known member
I really appreciate all of the effort, and I will add that the last chart is my favorite. That last chart lumps F&I and gross profit in together, which was one of my big points (and the one that has the most practical utility for a truck buyers forum): F&I income is the real profit center for new vehicles, not "sell a vehicle for cost + x%". Put another way, Ford is happy to sell you a vehicle at or even slightly below their cost IF they get to finance said vehicle at terms favorable to them.Like just about everything, it depends on what time interval you look at.
Conventional/rule-of-thumb wisdom the industry tells us: new car sales 1-3% profit margin, used car sales 5-10% profit margin, service and parts 20-50% profit margin. That 1-3% on new vehicles sales is VERY suspect based on info I've found.
The Profit Game: Unveiling Car Dealership Profit Margins - MotorLot (bingj.com)
2007-2019 period - dealerships experiencing 'profit margin compression' (less money!). But still, "The SEC accounting data show volatility within a small range during the recession and shortly after—from 2007 to 2011—followed by a rapid decline thereafter.9 The average new-vehicle margin based on SEC data declined 25.6 percent from 2007 through 2019, mirroring the 34.3-percent decline posted by the PPI for new-vehicle sales over the same period. The margin on a new-vehicle sale for the publicly traded companies in 2019 averaged 5.2 percent, with one company’s margin reported as low as 4.1 percent."
4 to 5% is NOT 1-3%.
Automotive dealerships 2007–19: profit-margin compression and product innovation : Monthly Labor Review: U.S. Bureau of Labor Statistics (bls.gov)
2019 - 2022 period - party time! "Similarly to the PPI for dealership markups, the estimated markup index grew sharply from December 2019 to December 2022, rising by 255.1 percent. And similarly to the official price measures, the estimated markup index did not begin rapidly increasing until 2021. Under the assumption of an average markup of 5.0 percent in January 2019, the PPI for dealership markups would suggest that the markup would have peaked at 14.7 percent in June 2022, and under the same assumption, the estimated markup index would suggest that the markup would have peaked at 17.7 percent in September 2022. By December 2022, these estimated markups would have fallen to 11.9 and 16.6 percent, respectively. Both of these estimates are largely corroborated by SEC financial data, which show that average new-vehicle markups increased by 146.0 percent from the first quarter of 2019 to the third quarter of 2022, reaching 13.1 percent before falling to 10.9 percent in the fourth quarter of 2022.13"
Automotive dealerships 2019–22: dealer markup increases drive new-vehicle consumer inflation : Monthly Labor Review: U.S. Bureau of Labor Statistics (bls.gov)
And from 1 year ago - still making $ on new sales.
Mid-Year 2023 Review of the Auto Dealer Industry by Metrics - Mercer Capital (bingj.com)
The two take aways for buyers are 1) the financing terms are where a buyer can make of break the margins they PAY on the vehicle and 2) dealers don't get a slice of the Ford Motor Credit et c pie, so they have to make that up somewhere; often that somewhere is "markups on trade-ins and service". Therefore, for a buyer whose goal is to maximize value for price paid, the old strategy of "buy a 2-5 year old GOOD CONDITION vehicle from a private seller" has a ton of merit. I myself broke this rule in 2021, but I regard that as the exception that proves the rule (astronomical used vehicle prices coupled with a 6 year 0%, $0 down note and a need to replace a wrecked vehicle). Finding a private seller where you can verify maintenance and have a mechanic look over the vehicle with whom you can then split the markup that the dealer would've otherwise charged (i.e. you both come out ahead) is tough to beat.
You can get fancy with "interest rate vs expected rate of return on capital", but I think of this in a different way. Your vehicle is a depreciating asset that has a finite life span and fulfills a need. Ideally, the purchase price is sufficiently low that paying for it up front is NOT a major investment decision. Thus, instead of looking at purchase price in terms of interest rate on an investment, I believe that it is wiser to look at a vehicle's price in terms of a nice dinner: it meets a need, but don't overspend beyond what you're comfortable throwing away for a good time. I have known rich folks who drove VERY nice cars, but I have known more who drove beaters.
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