Oil Change. You be the judge

Same thing applies, any time you visit the parts department. It's at the back, just weave your way through those shiny new cars, and all the sales folk standing around.

 

Ed,

You're starting to come across as prejudiced and ignorant - I'm sure you didn't intend do.

For the Sales department, the sale of a new car is equivalent to an oil change for the Service department.

What do I mean by that? As I mentioned in another post, an oil change is a loss-leader. Same goes for the sale of a new car.

The bulk of the profits don't come from the actual sales transaction. They come from two other sources: (1) manufacturer to dealer bonuses for hitting a sales quota and (2) the opportunity to sell your trade-in. Having worked at dealerships for over eleven years, I can speak from actual experience and tell you that the used car and service departments are what keep the lights on, not the new car sales department.

 

Sale of a new car is a loss leader? That's really stupid.

 

The average dealer has an absorption cost of 125%. Absorption cost is the amount of profit that they make in the parts and service department to cover the dealers overhead. That means 100% of the dealers costs are made up in parts and service including a additional 25% profit. Everything sold off the used car lot and the showroom is total profit. Those who are running a 90% or more absorption rate usually survive deep resessions.

I change my oil twice a year every six months at about 4K to 4.5K miles. The only reason I change it that often is I come under sever duty as in very short trips multiple times a day. My Volvo is once a year or 10K since it is used on the highway exclusively.

 

In the grand scheme of things, it's a means to an end.

 

After all cost and expenses, a car dealer is fortunate to make a margin of five cents on every dollar it takes in.

Large corporations make maybe 62 cents for each shareholder's stock on an annual basis.

 

Is capitalization included in the 'absorption cost' ?
How about one-time costs ?
Recurring costs that are less frequent than monthly ?
Intermittent renovations and plant repairs ?
Equipment upgrades ?
etc, etc, etc.

Frankly, I suspect the only two people that *really* know the finances of a car dealership are the owner and his/her accountant.