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Originally Posted by JonW

I've been around the car business all my life, so I'll throw in my .02 here.

Let's do some basic math. Let's assume that ABC Dodge has 200 new vehicles in stock at an average price of $25K each (and that might be low). At 8% interest, ABC is paying over $33,000 a month in interest expense. Let's say ABC sells 40 new cars a month at an average profit of $1000 each (doubtful). That's $40,000 a month in gross profit.

The holdback on those 40 cars will barely cover the floorplan expense, so that's pretty much a wash. From the $40,000 gross profit, ABC needs to subract a portion of the phone and light bill for the new car department, salesmen's commissions, sales manager's commission, a portion of the utility bill, and a portion of the dealer's salary. Also, the expense of a title clerk and lot porters need to be deducted. Not to mention any benefits such as health insurance for the above named employees.

That $40,000 gross profit doesn't go very far, does it? And we're only talking about the new car sales department. Hopefully the used car department, service, parts, and F&I will turn a profit as well. If not, then ABC is even further in the hole.

If ABC is lucky, they might have $10,000 net profit from the sale of 40 vehicles out of a $5 million dollar inventory. Most any financial guru would tell you that a $10,000 return on a $5,000,000 investment is not very good.

Given this scenario, it's easy to understand why a dealer would try to make a little money on a hot product. I'm not saying that I am condoing price gouging, but maybe a little understanding of what goes on will keep some of the whining at bay.

Bump. Your correct Total Dealership Net return on Sales is crap, less than 2% by most MFG, less than 1% for CDJ dealers. 0.2% Net return on sales in your case is what a lot of dealers saw last year for 2007. Although there are quite a few CDJ dealers posting profits so far this year. Service and Parts is where the money is at, so imagine what that means sales is at. BTW May was the first time in recorded NADA history that avg net on new cars was negative. Deals are skinny.