I also think that dealers and actually any business can do some thing in loss just to keep business going. If they keep a car in lot hoping it will be sold in profit they actually generate even bigger loss. Unfortunately land isn't free here. If you sell wrist watches you can less bother.

 

Define clean cut. When did you buy the vehicle? Which month and day? Did you pay cash or brought your own financing or you used the dealer to source you money? Did you buy anything from the F&I office such as tire protection, dent coverage, extended warranty etc.? Did you have a trade-in? Did you have a lease return or did you actually lease the new vehicle?

Until you provide answers to these questions there is no telling how "clean cut" your 20% was.

But let's assume that it was indeed a 20% off MSRP deal where you walked in, paid cash for a new car with no trade-in and no shopping in the F&I office. The dealer's goal is to maximize profit and that seldom includes selling a car at a loss.

The E-class has about 10% dealer profit on it including holdback. So every time they sell it for less than that the money has to come from somewhere else. So in your case the other 10% had to come from either circumstances you didn't disclose (financing, trade, F&I sales etc) or from the manufacturer. Dealers can have multiple incentives that obviously the general public is not privy to. It can be cash incentive on the entire model line, tiered bonus program that makes it more lucrative for the dealer to push volumes or select dealer coupons and rebates to help clear inventory just to name a few.

As for the margin on the E-class? Well it depends on which margin you're asking about. Dealer margin is 10%. Manufacturer's margin is higher than that on the E-class even if it's substantially less here than in Europe.

Sure, sometimes you just have to cut your losses and move on. But dealers will seldom sell a car only to move it off their lot. They usually carry a good size inventory and they have no problem fronting the cost of flooring it. This is how used dealers work. They buy a car cheap then sit on it until the right buyer comes along. If I had time, inclination and room to store my BMW I would have kept it for 2 more months and sold it to a private party direct for the right price instead of selling it to a dealer who will do the same thing and make a profit in the process. My BMW had an MSRP of $45K and I sold it for $21K. The dealer who bought it has a CPOd car similar to mine with a $37k MSRP listed for over $26K with 3k miles more. And I can bet you money that they will sell that one and mine as well for a sweet profit. There is actually more money in used car sales than new car sales because the margins can be so much higher.

As much as you'd like to think that dealers or any other industry prefers to cut their losses on a product it's more the exception than the rule. Did you know that real estate agents have their own houses on the market longer than their clients'? Why would that be if not because they know how the system works and they don't care if they have to sit on a property for an extra two weeks on average?

 

Greg, bought during Winter clearance event in late november, clean deal $60k car at 20% off, no upsells, no finance straight cash, no trade in, no lease deal, NOTHING hidden, not dealer friend or relative or anything. What was the dealer profit?

When you state 10% dealer profit including holdback is that calculated off MSRP?

 

I'm sure there had to be some incentive for the dealer to sell the car to you. Again, no dealer will sell at a loss, not in the long term, not on every unit. The 10% is off MSRP, yes. The other 10% must have come from MBUSA or some other incentive the dealer had to reduce the price by that much.

I asked for a quote on a car On Thanksgiving week from a dealer in CA and got offered 20% off in the first e-mail response. The weird part was she also quoted me 20% off for a wagon. She had it wrong. And when I called her she said they could do 5 cars at this price which indicated to me that there had to be some special cash rebates from MBUSA being sent around that the dealer could apply to move some cars. Each dealer will get stuff like this around the end of the year and end of model year to move some old stock.

I don't know what point you're trying to make or answer you're looking for, yes you did great, yes 20% off an E-class is an awesome deal, even in CA.

 

Here is another little number that may be of interest. As of the end of November the following are the total sales for the German manufacturers.

MB 298,509 +12.8%

BMW 271,891 +11.4%

Audi 141,048 +13.3%


MB outsold BMW in cars and light trucks. With the new CLA and a few other models scheduled for the US, you can expect the gap between MB and BMW to widen.

reference for sales data: WSJ

 

Another thing that's important to remember is that, if my salesperson is to be believed, the dealerships actually have to *purchase* the cars from MB. And since the dealerships presumably don't have millions of dollars of excess cash lying around, they have to take out bank loans. Dealers are *very* eager to get rid of the cars by the end of the month and especially by the end of the year for accounting reasons. Selling an individual car at a loss is still better than not selling the car at all....

Anonymous posters w/ a hidden agenda??? No....

 

Lots of wrinkles out there. Starts with DAG in Germany, then MBUSA, then dealership. Who really knows all the incentives coming down?
One factor is that dealerships (all makes) make more profit from service than from new car sales. So, more cars sold, more cars serviced, more profits. In fact, make more profit from used cars than from new cars.
Regardless, 20% off MSRP is a good deal.
But we are talking about a make that has a large profit margin to start with. More expensive the car, more the profit margin to play with.

 

Dealers do not "have to buy" what they are offered. In fact, that is why you see manufacturers offer both consumer and dealer incentives so as to sell more vehicles retail and open the dealers to purchase more inventory.

There are no "accounting" reasons for a dealer to sell a new vehicle at a loss at the end of the month or the end of a year. Some states do have an inventory tax but it is relatively minor and usually based on average yearly inventory.

As a dealer, I would usually find sufficient reason to sell a new car at a loss less than a handful of times a year. Never as a consistent policy. A loss leader would be something sold at a reduced margin and those were seldom if ever used.

 

Ladies and gentlemen, straight from the horse's mouth. I've been saying this all along simply because it's common sense. Anyone (K-A) who thinks otherwise is delusional.

 

Good point and it is why MB prefer to do not reduce price on their cars. I completely agree with the strategy.

 

Again, common sense. If there was a better strategy who if not the automakers would utilize it. It's laughable how little credit forum regulars give to these large corporations. They all think they could do better yet I don't see any one of them starting up an automaking business.

If anyone is inclined to get a inside glimpse at the industry I highly recommend subscribing to Automotive News for a year. You'll see what dealers and automakers really concern themselves with and it's not a handful of yahoos on a message board...

 

My comment was directed more at the eagerness to sell a car at the end of the month or end of the yr rather than commenting on whether the car is sold at a loss. I put the "sold at a loss" part only b/c that was what came up in the thread.

Still, I assume the dealer must pay interest for the bank loans it took out to purchase the cars. Wouldn't wanting to avoid addt'l interest payments provide *some* motivation to move a car that had been sitting on the lot for a few months (regardless of whether its sold at a loss or not)?

As for as the "accounting" part goes, my salesperson told me that I had to pick up my car by the 2nd day of the month b/c it would otherwise foul up their accounting/inventory. I didn't ask further questions, so I don't know what he was referring to.

 

Dealers may not have to buy the cars outright, but they can't send them back either. Once on the lot they might as well have purchased them and typically pay interest while the car is on the lot. Once the car is sold the manufacturer is paid off.

 

The manufacturer allows one or two days lag time to report late sales in many instances where incentives are involved. This would be especially pertinent when the month ends on the weekend or a Holiday. Likewise, the dealer usually does not "close" his books untill a couple of days after month end for commission reasons. All dealerships have different rules but one would imagine a commission was involved when pushing delivery with a dead-line.

Yes, a dealer does pay floorplan interest from the day the car goes on the floorplan until the day it is paid for. But, what represents a profit to the dealer is different from what the consumer might consider a profit. A dealer can sell a car for more than he paid but still be losing money. There is a fixed cost to the sale of a vehicle when expenses are considered such as sales commissions. When a dealer sells a vehicle at a loss, it is generally not going to be an appreciable one that radically changes the transaction to the consumer.

 

The manufacturer is paid the moment the vehicle is on the truck to the dealer. It is paid by the floorplan source and the dealer did buy the car outright and you are correct that he cannot send it back, ever, in 99.99% of the cases.

 

Yes, and this was my point (that profit/loss at a dealer level is probably beyond the understanding of most of us, who don't have insider knowledge into how these things work). And, to a certain, who cares? Do you like the car? Do you feel you paid a fair price that you can afford? That's all that really matters in the end, IMO....

Thanks, as usual, for your insight. =)