AD #2300 – Hyundai Reveals Kona EV, Dealers Lose Hundreds on Every New Car Sold, Volvo XC40 Highlights
February 28th, 2018 at 11:32am
Runtime: 6:54
0:29 UAW May Lose Seat on GM’s Board
1:01 Dealers Lose Hundreds on Every New Car Sold
2:11 Volvo XC40 Highlights
3:41 Ford & Domino’s Test Self-Driving Service in Miami
4:57 Continental Creates Connectivity for Rural Areas
5:42 Hyundai Reveals Kona EV
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On today’s show…Ford expands its experiment with autonomous pizza delivery…U.S. car dealers lose money on every car they sell…and the UAW will probably lose its board seat at General Motors. All that and more coming right up on Autoline Daily.
This is Autoline Daily the show for enthusiasts of the automotive industry.
UAW MAY LOSE SEAT ON GM’S BOARD
The UAW VEBA trust fund is going to sell 40 million shares it owns in General Motors. And it could lose its seat on GM’s board of directors as a result. The trust fund is GM’s largest shareholder, with over 140 million shares. The trust fund was created by GM, Ford and Chrysler to cover the cost of retiree health care. Each automaker gave the UAW nearly $60 billion in stock to fund the trust, and its done a reasonably good job of managing the money.
DEALERS LOSE HUNDREDS ON EVERY NEW CAR SOLD
Here are some alarming statistics for car dealers. The National Auto Dealers Association reports that the average dealer lost $421 on every new vehicle it sold at retail last year in the American market. They lost an average of $2 on every used car they sold. Dealers made up that loss by selling financing and servicing cars, but this is an alarming trend in automotive retail. They call it margin compression, and it should be sending off alarm bells throughout the industry. If a car dealer can’t make money selling cars when the market and economy are healthy, what’s going to happen at the first sight of a downturn?
Ford is experimenting with delivering pizzas using autonomous cars and it must be going pretty well. We’ll tell you why right after this.
VOLVO XC40 HIGHLIGHTS
In a world that’s going crazy over compact crossovers, Volvo’s XC40 is an important entry to the segment. It’s built on an all-new platform, what Volvo calls its CMA, or compact modular architecture. It’s a handsome CUV that’s packed with all of Volvo’s safety technology, which all comes as standard equipment, unlike most of its competitors. In the U.S. market, it’s launching with the 248 horsepower, 2-liter, all wheel drive combination that starts just over $36,000. Later this summer there will be a 187 horsepower, 2-liter, front drive version that starts just over $34,000. The horsepower differences are due to two different turbochargers. As we’re seeing on other cars such as the Toyota Camry and Jeep Compass there are two-tone paint jobs, that in this case, offer black or white roofs. All together there are 16 exterior paint combinations and 6 interior ones. The interior layout is centered around a 9-inch display screen that’s so much in vogue today. Speaking of the interior, one of the ways that Volvo created a lot of storage space was moving the speakers out of the doors, which creates huge door pockets, large enough to accommodate a laptop. Volvo’s sales actually dropped slightly last year in the U.S. market, but with the addition of the XC40 we think that’s going to turn around.
FORD & DOMINO’S TEST SELF-DRIVING SERVICE IN MIAMI
Last August Ford and Domino’s Pizza started testing an autonomous pizza delivery vehicle in Ann Arbor and now they’re taking the operation to Miami. They’re working out all the logistics, like how the vehicle gets loaded with pizzas, and how customers interact with the service. But the real story here is that the two companies have learned enough in the first test to start expanding to other markets. Ford says it will use what it learns from this test, and others, and apply it to the design of its purpose-built self-driving vehicle that it plans to launch in 2021.
Be sure to tune in to Autolne After Hours this Thursday when we go live at 3 pm eastern time. Join John and Gary for some for the best insights into what’s going on behind the scenes in the automotive industry.
Continental developed new technology to make sure your cell phone never drops a call, but it’s actually all about making autonomous cars better. And that’s coming up next.
CONTINENTAL CREATES CONNECTIVITY FOR RURAL AREAS
Connected vehicles have the potential to drastically reduce traffic accidents and congestion as long as there is a good network for the cars to communicate. But in rural areas, network reception can be poor. No doubt you’ve experienced losing a phone call where service is weak. So to make sure vehicles stay connected in all situations, Continental developed what it calls the Predictive Connectivity Manager, which is able to “look” ahead to determine network availability and reception along the vehicle’s route. It collects data from vehicles travelling along the same route, which is then processed and analyzed by the Continental cloud. The company is demonstrating the technology at the Mobility World Congress that’s currently underway in Barcelona.
HYUNDAI REVEALS KONA EV
Hyundai just introduced the electric version of the Kona, so let’s look at the highlights. The automaker’s signature grille has been filled in with a patterned panel because, as you know, EVs don’t need the same amount of cooling power, and the cladding over the wheel arches no longer extend into the lower lighting on the front bumper. Changes to the rear fascia are minimal. There are two battery options, the larger provides 470-kilometers or over 290-miles of range and a 38-kWh pack that yields 300-kilometers or about 185-miles on a single charge. Both of those figures are based on the European test cycle, so it will likely be less when it gets rated by the U.S. EPA which has a tougher, but more realistic, test cycle. The Kona EV will first launch in Europe.
With that we wrap up today’s report, thank you for watching.
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Comments (31)
February 28th, 2018 at 12:01 pm
BS dealers lose money on cars sold. NO ONE sells a car for a loss. Who told you that lie, a dealer?
February 28th, 2018 at 12:04 pm
Sean,
Concerning the article of dealers losing money on each car sale, who all is included in this data? Is the just about the Detroit 3 or all the automotive industry?
February 28th, 2018 at 12:22 pm
The NADA data needs a lot more explanation… It suggest luxury car dealers loose even more per new car and imports also loose more that domestic dealers. And depending if the losses are fixed or variable, to answer your question Sean, in a market downturn, it might mean they lose less.
I have witnessed “margin compression” recently. I ordered a new GM vehicle using retiree pricing. When the vehicle came in, the MSRP was the same, but the employee/retiree price had increased $100 from when it was ordered.
February 28th, 2018 at 12:22 pm
Looking at the chart for dealer profit I see almost 2000 gross profit and the 421 (stated) loss; were does this 2500 dollars go. I know they aren’t going to get the ‘gross’ number but that seems an awful lot of overhead (on each vehicle) that they can’t make anything to get “into the black”. (and does this include manufacturer holdback and other various incentives)
February 28th, 2018 at 12:25 pm
New car dealers have been crying poverty for as long as I can remember. We just put $64,000 worth of exotic stone surfaces into the local dealer’s riverside mansion. He bought two lots and tore down the homes there to build it.
Poor guy. Life is hard.
February 28th, 2018 at 12:36 pm
Losing money on new car sales? Bunk! Yes the margin is less on the sale of a new car vs used, but they aren’t losing money. Dealer cost or invoice is not what most people think it is. Once the unit is sold there are other dollars that the dealer gets. If they losing money how are they not going bankrupt? I know other things such as repairs and add ons contribute but a well run dealership never loses money on the sale of a new car. It just them whining. When buying are car, go in and bargain hard…they are. Just look how they try to steal your trade in car. If you don’t play hardball, they won’t respect you.
February 28th, 2018 at 12:41 pm
The “floor plan” interest paid on the millions of dollars worth of cars sitting on the lot probably is the reason for the dealers’ loss on new cars.
February 28th, 2018 at 12:59 pm
I buy new vehicles,and the only time I take mine to the dealers service dept is when I get the free oil change,or for recalls. Other than that,they never see me until I buy another new vehicle. Dealers crying that they lose money on new car sales is a fresh steaming pile.
February 28th, 2018 at 1:03 pm
So if I owned a dealership and after selling 1000 new cars and 1000 used cars for the year and paying all my employees and SG&A and realized that if I gave myself a $500,000 bonus as general manager, the dealership would show and actual loss and lower my taxes. Hum I just wonder if that is closer to reality.
I would be good to see what dealership owners make because if they are loosing money on each car it shouldn’t be much.
February 28th, 2018 at 1:11 pm
#1 & 2 – We always link to our sources in the transcript when possible. Just click “show transcript,” then click on the title of the particular story you’re interested in.
February 28th, 2018 at 1:18 pm
My guess is that the calculations don’t include the entire picture. Manufacturer incentive programs now play a big role in the overall profitability of vehicle sales at dealerships. Most GM dealers will tell you that their incentive programs determine whether they make money or lose money in their new car departments. How dealers could be losing money on used car sales is a head scratcher. There has to be more to this story.
February 28th, 2018 at 1:39 pm
Several dealerships came up for sale in my area and other dealers fought over who was going to buy them. Why if they are losing money.
February 28th, 2018 at 1:42 pm
It’s nice to see the perceptions of all those that really don’t know how dealerships operate. The numbers disclosed by the NADA are pretty accurate. The average new GM car has about $700-1100 in profit between the list price and dealer invoice and who pays list price? There is hold back that is 3% of the list price which is on average $900-1600. Dealers have no respect for each other and basically they compete to see who can go the deepest into the holdback to advertise the lowest price. When dealers sell cars for the advertised price, it is indeed a loss. And then there’s the internet. I’ve had customers drive 3-4 hours because our car was $40 less than one in their home town. I just shake my head.
As far as the financing and the services that are offered, that’s a tough one to make a profit on too. People won’t think twice to buy a $50 extended warranty on a $200 TV. Put in that perspective, that means a $20,000 car’s extended warranty should set you back $5000 rather than $1600. Nobody buys rustproofing any more, and paint treatments are worthless given the quality of today’s paints. Dealers who charge $100-200 for “nitrogen” in tires are wasting your money. The air we breathe is nearly 80% oxygen and I doubt dealers have a vacuum chamber to make sure there is no residual atmosphere in the tire and it’s now only pure nitrogen.
The there’s the demands of the manufacturer. Remember when dealerships looked different? A dealer wanted a unique appearance as their form of brand identity. Now they all look the same as the others of the same brand. All the fixtures, wall coverings, desks, flooring, and furniture HAVE to be purchased from a single GM sourced vendor. No shopping around, this is the price, and you have to pay what they want. We had to install $150,000 in lighting in the service lane because we had the incorrect (but approved) lighting. Your local contractor, the one who buys 10 trucks a year from you can’t build your dealership. It has to be one on GM’s approved list, usually not a local guy.
There are some factory incentives but they are not guaranteed, plus dealers have to pay a healthy yearly sum to participate. They are given objectives (that change monthly) so you don’t have a fixed goal until you’ve paid your money. Most of the programs are “all or nothing”. Miss by one car and you might as well have missed by 20.
Dealers have to insure all the cars on the lots and with all the inventory, it’s a burglars paradise. Losing 10 sets of wheels on a weekend wasn’t an uncommon event. You don’t dare turn it in on your insurance, that’s for your catastrophic losses. So you eat it.
The day to day operating expenses are incredible and staff turnover is pretty high. Most salespeople work 60 hours a week and at the end of a month they make about $2000 a month?
An average dealership has about $7-12 million invested in building, land, parts inventory, shop tools, computer systems, & misc. This doesn’t include the car and truck inventory on the lot.
As for Brett commenting on the $64,000 in stone, I’m inclined to believe you made far more on that one job than the dealer did selling 10 cars.
It’s nice to read the comments and I’m sure I’ll get blown up big time, but I just wanted to tell “the rest of the story”
February 28th, 2018 at 2:21 pm
Lisk, I’m not challenging your numbers, however; you’re in the car business, WHY? So where does the profit come in; I don’t believe you mentioned where that break-even/profit finally rears its head.
February 28th, 2018 at 2:39 pm
Wow… Guess we can help the automobile sector of the economy by not buying cars since it is sooo hard on the dealers when we buy a car from them!?! It would just be wrong to destroy their businesses by buying from them!! They are full of BS in pretty much everything they say both in and out of the closing room!! I love cars and have purchased many cars during my lifetime, but too often the dealers actions kind of ruin the experience and their credibility with their pressure, rudeness, and dishonesty.. This stuff about loss just seems like more of the reasons consumers dislike and distrust dealers…
February 28th, 2018 at 2:43 pm
#13 Lisk I’m not saying that those costs dont exist or that I know how the inner workings of a dealership but it reminds me of Government regulations.
If GM or Ford etc want their dealerships to look the same then they should use their buying power and get a good deal on lights, decorative rock or whatever, Buy in large quantities and then sell that to the dealers at cost or get a negotiated set price that lets all dealers buy at a good price.
Even still with all the overhead and limited margins on vehicles and other stuff you mentioned, I still find it hard to believe they make all their money on service and percentage of financing. Enough to cover the losses on car sales. (Their main business)
To me it sounds about as believable as affordable health care, or WMD in Iraq, or the stripper who really likes you.
Sorry for the skepticism but seems there is more to this story.
February 28th, 2018 at 2:44 pm
14) Used car sales generally pays the bills for the store. No two used cars are the same so it’s hard to get a true comparison between to similar cars. The parts department is a large profit center, because on some parts the dealer is the only source for the part. The money financial institutions pay dealers for doing the paperwork is a part but with interest rates being so low, that part of the income stream has fallen. If the bank only generates 3% on a declining balance, the consumer may only $1500-2000 in interest charges so dealers may only get $250-350 in commissions from the bank.
Few dealer operators pay themselves any more than a modest salary, instead like most small businessmen, they keep putting profits back into the business.
A break even point is hard to establish or forecast. They have the fixed operations (service & parts) which is pretty consistent but the sales operation (variable) is harder to predict because it is so dependent on market, availability, and what the manufacturer is doing to boost sales. One month there may be a large rebate on say Silverados, so you sell a lot of them. The following it goes in half so your sales plummet. That is the hardest part of the sales game, the lack of consistency.
February 28th, 2018 at 3:23 pm
I understand car buying is frustrating and people seem to hate the car buying model and think that operations like Tesla are the way to go. Even though dealers are part of the manufacture’s collective, you as an individual matter. The dealer’s reputation is on the line. One bad customer experience can cost the dealer 10′s of sales. Dealers spend thousands on advertising to get you in the door and if you don’t take care of the customer, all that money is thrown down the toilet.
Dealers don’t want to keep you captive, 2,3,5, 8 hours. They want you in and out. Grinding on a person benefits no one, and one sale by pressuring a buyer is not worth a customer’s disappointment with the car buying process at your store. One of the most time consuming processes is the explanation of all the technology on today’s cars. Setting radio stations can take several walk throughs before a customer is comfortable.
I’m aware not all dealers nor their sales/service staff ascribe to this ideal, but the good ones do. We know you can go anywhere and buy the same new car, so we have to make the experience memorable so hopefully you’ll be back for all of your next cars.
Now my thoughts on the Tesla business model. I disapprove. For the people running the stores, they don’t have a vested interest in the operation. They are nothing more than a manager with limited powers. Got a hard question? They have to talk to someone (who knows who that is). Traditional dealers on the other hand have one person with the ultimate say so; it’s where the buck stops. Tesla stores don’t have a traditional used car operation. They wholesale nearly all the trade ins so now you have a broker they are selling your trade to. The broker is going to make money when he sells your trade to another dealer so you actually received less money that what a traditional dealer would have given you. If you have an undesirable trade in, a dealer will still take it in on trade, if a wholesaler knows it’s a hard car to move, he may not even make a reasonable offer for the car.
The new car franchise systems in states were put in place to keeping manufacturers from competing directly with their dealer and creating on a more open market. Would it be fair for the people who own the company to sell directly against their resellers? They could offer their own stores back door deals or preferential treatment to their own company stores? If Tesla is allowed to have company stores, what’s to stop Ford, GM, Honda, ect. from doing the same.
February 28th, 2018 at 3:25 pm
Maybe I’m just ultra think in the brainpan,but in my valley we have what I would call humongous dealerships,all brand new. If they are not making much of a profit,or moving the metal because of the economy,how the heck do they stay in business?
February 28th, 2018 at 4:04 pm
Ahhh! So that is why Tesla is losing money. Selling direct, Tesla lacks a dealer network to absorb the losses.
February 28th, 2018 at 4:10 pm
The dealers make profit from all facits of their business. Unless you are near the top management of a dealer you probably don’t know the exact figures. One area is parts, dealer margins on parts is crazy high. Good for them when the sell to someone who doesn’t shop price or an item you can’t get elsewhere. As far as repair outside of warranty, I’ll never get a repair at a delaership. They in most cases stick it to you and or sell you a repair you don’t need. They know this very well and hate to have the independent repair shops have access to repair data. There have been court cases on this issue. A dealer is good for one thing, buying a new car. The used car market is being entered and improved by companies such as Car Sense and CarMax. The car lease business will keep the lots full of off lease vehicles. I feel sorry for some people that don’t haggle when buying. Soemtimes they will do alright with their price but most will over pay and the dealers love it!
February 28th, 2018 at 4:25 pm
Back when I was in the biz years ago the margin was about 5% overall. Was not surprised at the numbers reported here. There was nice profit on the more expensive jobs but the “base” cars were slim to none. Hence, all the options available. It has always been a low margin business in my experience. Have never owned automotive stock. Knew too much.
February 28th, 2018 at 4:42 pm
Chevrolet loses about $6-9,000 on every Bolt EV they sell, this can jump to $12-15K once their Federal tax credit dries up this summer or GM can try selling the Bolt EV for $45-47K which is how much it cost to build.
It’ll be interesting to see how consumers live with the sticker shock of a $55-60K Chevy Cruze EV replacement.
February 28th, 2018 at 6:13 pm
@ Omegatalon:
“It’ll be interesting to see how consumers live with the sticker shock of a $55-60K Chevy Cruze EV replacement.”
That’s easy,they won’t buy them.
February 28th, 2018 at 8:31 pm
20 You mention CarMax. They are a positive thing, even for people who trade in cars at dealers. You negotiate a price for the new car, without a trade. Then, get a “buy” quote from CarMax. Then, ask the dealer what they will give in trade for your car, and it will nearly always be less than the CarMax quote. From my limited experience, the dealer will match the CarMax quote.
February 28th, 2018 at 8:33 pm
22, 23 Are they going to downgrade the Bolt from a hatch to a sedan, or will this Cruze EV be the hatch? Yeah, either way, it won’t sell at $55-60K.
February 28th, 2018 at 8:59 pm
24 My experience was at CarSense, PA/NJ area. CarSense is a no haggle price for the car, you bargain on the trade in value if you think the car you want to buy is priced well. I did just that and the final price was under anything a “Certified factory used car” dealer could offer. Warranty was the balance of the new car warranty. Was easy and the selection of all makes and models was large. A good purchase experience.
February 28th, 2018 at 10:43 pm
Every GM and Ford dealer has spent upwards of a million reimagining their dealership since the dark days of 2009. And one of the local FCA dealers just moved into a new facility that is over $10 million. So it’s quite apparent that car dealers are all profitable.
At one time at a dealer there was a calculation that the profit in the service dept,parts department and body shop would cover the expenses and then the new car and used car sales is where the profit would be.
I believed this calculation as a local GM dealer just built a million dollar cottage. I don’t think he would set out to tell anyone that his dealership is not profitable
March 1st, 2018 at 10:12 am
From the few sales guys I know they hate the internet. Most dealers use sites that price their used vehicles for them on a fluctuating market price. I’ve even called and they had no idea what their car was advertised for because it changed daily. They had to log-on and see for themselves. Which also meant very little haggling.
Same goes for that Dealer only parts. There are a few dealers that have focused on volume and internet sales and offer dealer only parts shipped for free at a much lower cost than your local dealer might sell for. Which I prefer to support local business but my local dealer in Ohio wanted $365 for LS7 water pump I was able to get from a dealer in NJ for $185. Was Genuine GM part direct replacement. So I’m sure dealers hate the quick access people have to information and pricing that is now national and no longer global.
March 1st, 2018 at 10:13 am
I meant local not global
March 1st, 2018 at 5:53 pm
In regards to the losses on the sale of new and used cars at dealers, it reminds me of what one of my math teachers told me “Figures don’t lie, but liars can figure.” Given the facts that Warren Buffet, and other very knowledgeable investors are moving into buying dealerships, not selling there must still be profit and wealth to be gained there. If you are truly losing money owning a dealership then you are doing it wrong. Someone just built and opened a palacial, expansive, modern Lexus dealership in Orlando. That team apparently didn’t get the report.