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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31 Comments to “AD #2300 – Hyundai Reveals Kona EV, Dealers Lose Hundreds on Every New Car Sold, Volvo XC40 Highlights”

  1. Dan Says:

    BS dealers lose money on cars sold. NO ONE sells a car for a loss. Who told you that lie, a dealer?

  2. Barry Rector Says:


    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?

  3. BobD Says:

    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.

  4. Chuck Grenci Says:

    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)

  5. Brett Cammack Says:

    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.

  6. Frederick Schmidt Says:

    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.

  7. Kit Gerhart Says:

    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.

  8. G.A.Branigan Says:

    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.

  9. Lambo2015 Says:

    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.

  10. Sean McElroy Says:

    #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.

  11. GM Veteran Says:

    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.

  12. gary susie Says:

    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.

  13. Lisk Says:

    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”

  14. Chuck Grenci Says:

    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.

  15. aliisdad Says:

    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…

  16. Lambo2015 Says:

    #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.

  17. Lisk Says:

    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.

  18. Lisk Says:

    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.

  19. G.A.Branigan Says:

    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?

  20. Bob Wilson Says:

    Ahhh! So that is why Tesla is losing money. Selling direct, Tesla lacks a dealer network to absorb the losses.

  21. Frederick Schmidt Says:

    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!

  22. jmann Says:

    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.

  23. omegatalon Says:

    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.

  24. G.A.Branigan Says:

    @ 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.

  25. Kit Gerhart Says:

    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.

  26. Kit Gerhart Says:

    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.

  27. Frederick Schmidt Says:

    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.

  28. Earl Says:

    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

  29. Lambo2015 Says:

    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.

  30. Lambo2015 Says:

    I meant local not global

  31. Ctech Says:

    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.