- First Name
- Sep 15, 2020
- Reaction score
- Broomfield, Colorado, USA
- First Name
- Mazda CX-5
- Sales Analysis
Here is my take on dealers:
What many people fail to realize is that the MSRP of a vehicle is what Tesla charges all customers. They do not discount their price. They charge you the highest price possible for their vehicles. You in fact, are not getting a better deal buying direct. Why? How? Let me explain.
What Ford Motor Company does is give their dealers a wholesale price. What is wholesale? Wholesale pricing takes out all the true sales and support expenses needed to properly satisfy a customer. When you buy a vehicle, there is a lot of expenses that go into it:
The dealerships purchase directly from the manufacturer at a cost that disregards those expenses. Ford Motor company for example has a Gross Margin of 14%. That is PUINY! On top of that the average upcharge margin on new vehicles are 5% from the dealer. Combined, you're looking at 19% profit of your purchase split 14% to the manufacturer and 5% to the dealer. So this is how that looks:
- Land to store inventory, banks to finance inventory with interest expense, sales teams that are paid, managers that oversee those employees. Finance staff on site to help with customer financing, trade in staff that properly value and purchase your trade in, detailers that will detail your vehicle. There are different state and local laws that drive the cost of the product up. A building that all this can be done in. All of which add a sizeable cost to the price of a product.
- $40,000 Ford - $5,600 profit for Ford, $2,000 profit for the dealer. Total profit is $7,600. (Keep in mind these are using ideal averages sourced from friends and internet).
Tesla, on the other hand has a 35% profit margin on the Model 3.
- $40,000 Tesla x 35% = $14,000 profit for Tesla.
Tesla has a high profit margin because they charge customers the MSRP price the dealers never charge the customers (due to competition among local ford dealers for example) & they minimize their sales and after sales support expenses tremendously. They don't really offer test drives, don't have showrooms, don't have a full sales staff calling customers, they deliver vehicles with obvious issues, the limited staff they do have is overwhelmed, delivery centers are removed from service so service related issues can't be handled during delivery, they don't buy trade ins unless its a Tesla, they don't, they don't, they don't. It is honestly one of the most value-less car buying experiences that leave so much to be desired.
Warren Buffet once said Price is what you pay, Value is what you get. Even though I've proven the direct sales model is flawed and valueless when it comes to buying a car, it's all about the value proposition that matters to you.
and this is a large part of the explanation for Tesla's high gross margin.
All of Tesla's selling costs go below the line in SG&A.
Much of Ford's selling costs get absorbed into that difference between wholesale and final selling price, which basically Ford incurs above the gross margin line.