We love to hack dealers but how does the business really work?
People who have deep insight into the operations of a dealer or have underwritten loans for dealerships. Could you perhaps explain the business?
How does a car dealer buy a $140mm home in Palm beach?
My understanding is quite rudimentary.
Dealer uses a credit line for a delivery of cars from manufacturer. Pays interest on the loan till car is sold
Sells car and makes money on the front end and backend
That’s all I know
A normal one doesn’t. They either owned a lot of stores and sold them or are the CEO of one of the mega groups.
So do you know the gross margins and net margins of an average dealer?
Brokers on LH sell 50-100 cars each month – maybe more – thats $5MM at $50k a pop in sales just via the one broker.
people shit on the food business all the time however once you have your margins ironed out its a recurring revenue business – grow by adding more locations
People have gotten so enamored with these tech VC funded startups they have forgotten the old school businesses
Autonation 2022 financials
$5B gross profit on $27B revenue – 20% gross profit lol
~$6k of profit on each car sold
those pink plate brackets aren’t cheap i guess
Setting aside the inflammatory nature of the question (stealership robber barons would make the point more economically): what research have you already done, starting here? There is 7 years of collected information from brokers, dealers, insiders, and people who took the time to educate themselves. You’ve been on here for six years, so you’re not coming in cold. How much substance is under that 22 days of read time, because there is plenty of answers to find here.
I appreciate you are trying to educate yourself, asking someone to “explain global auto manufacturing, sold through franchises auto dealerships across 50 different states, financed through a mismatched collection of captive lenders” is trying to reduce all this to a lemonade stand. The answers may not satisfy you, or need more context.
I’d suggest you start by reading (here and the auto trades) and research, and follow up by asking more specific questions. if you want to understand the current state of things, I would avoid venturing too much into the history, because each sub-topic has 100 years of twists and turns.
Such a kinder version of my answer!!!
The draft marinated longer than most of my posts.
Both of you took it the wrong way - it was more a question of how the P&L works - nothing inflammatory
I pulled out autonations annual report
Being nice is easy……
Legit question. Trying to sound smart by not answering the question is not smart and also does not provide an answer.
Whose? You seem to looking for the leverage when leasing one hypothetical car, if you want to take the P&L into account you need to take all of them into account (no less than 3 on a lease from a franchise dealer), along with everything state-specific.
Which is why I was nice, and also didn’t point out how silly this makes you sound
I’m almost certain I’ve shared links here on LH to case studies, and most of those even start with a preface about presenting all the data but only presenting a slice to make it understandable. I don’t see many people successfully hacking deals under the assumption that an entity on Sand Hill Rd funded the loss on their unicorn, they did the work to understand where the leverage was on that specific unit at that specific point in time.
So: what’s your actual question? And what do you already understand, what don’t your understand, and how open minded are you to understanding the answer without judging it?
It appears the point is lost on you - has nothing to do with hacking a car
Was interested in a high level view of the business model
I ended up pulling the annual results of autonation and learned quite a bit
What I wanted to know was transaction level detail - the process - receiving a car to the sale
Understanding the store unit economics
You came in over the top - guns blazing - without any pertinent information
Guys like @Samaudibh , @ethanrs cam almost certainly provide some good information
We are all here to learn - this platform could be car business insight network like GLG
But we would have to mute your account
LH Poster: “I have a question related to cars and how things work”
LH RESPONSES: “ARE YOU DUMB? ARE YOU UNABLE TO READ OR RESEARCH?”
What is the actual point of a forum if all people do is chastise others for asking relevant questions. I swear if it wasn’t for the marketplace, this place would be worthless for most people given the tone/nature of responses solicited.
First off, I wouldn’t look at the P&L of any dealer from 2020-2022 and take it seriously. Covid seriously fucked with them. Look at 2019 FY results or maybe 2023 Q2 as things are finally starting to get back to normal.
I do not know the gross and net margins of an average dealer. These will vary so widely it’s basically useless. Historically, net profit on selling a new car has been in the 2% range IIRC.
New car dealerships typically make money through service and parts, lose money on the front end selling the car, and (try to with varying levels of success) make it up via F&I.
Used car dealerships make should make money on every transaction.
I own a small used car dealership, but I specifically focus on margins over gross. I also don’t do any scummy/scammy things like a lot of dealers do, with weird fees at the last minute and other shit.
I’ve hacked many cars throughout the years and can confirm that although a broker might be bringing a lot of business in terms of gross revenue, the dealership is most likely losing money on every unit at most LH worthy deals with the exception of special cars. Now, the manufacturer sometimes give bonuses to dealers for meeting certain goals which is why they do this in the first place, and those bonuses can be quite significant. (like 6 figures per quarter). Between that and the hopefully recurring service revenue, that’s why the dealers sell cars for a loss.
You don’t even need to read entire annual reports. The highlights and KPI tell the story.
In descending order, you have the four main segments:
Service
Used car sales
Parts
New car sales.
New car sales by itself is the lowest profit margin business. But that’s where the consumer lifecycle starts, generating service & parts revenue along the way before trade-ins create the inventory for the used car business.
And if F&I product can be sold at any or every touch point in that lifecycle then that’s the most profitable of all. Which is why F&I sold per vehicle is now one of the top KPI.
This - thank you man - he owns a dealership and took time to provide some color to the numbers
This person read the annual report and couldn’t grok these toplines. They are not sending their best.
Accurate. Very few of my units gross on the front end.
Quite a few actually are near triple net before you take consumer or stairstep type bonuses into account. Be warned, that money isn’t guaranteed and if you bring it up our conversation will be very short.
This only works when you know how and where to leverage and what’s paying out. If there’s a special that seems unusual it’s likely because I have too many of a model and we’ve been encouraged to get every VIN gone.
page 5 is telling-
almost 80% of revenue from car sales
but 63%+ of gross profit is derived from parts/service and F&I
I was surprised to see GP on new vehicles to be so much higher than used-- imagine that was much different pre-2020