Singapore car dealers -- profit margins don't make sense?

[DriveAllDay]

Dear all

I read with interest the heated exchange on PML profit margins at the post:
http://www.bmw-sg.com/forums/singap...buying-selling-your-bmw/30164-new-520lci.html

Key question here is: are dealers here taking us for a ride?

I would like to offer my humble thoughts on this; not to offend, but perhaps raise an interesting observation. Feel free to disagree; but pls don't flame.

Most forumers used cost + tax + % to figure out a reasonable amount of profit for the dealer. The problem with this approach lies in determining the right %, and on what base is the % calculated on.

A better way is to compare what BMW dealers make in other countries per car vs PML.

Step 1: Choose a non-lifestyle, apples-to-apples car for comparison.
=====================================================

In this case I chose 525.

I couldn't use 320, 520, 523 since US doesn't carry them. 325 coupe is considered a lifestyle car and would skew the comparison.


Step 2: Pick two countries for comparison
================================

I chose US vs. Singapore


Step 3: Assume our OMV is the COGS (cost of good sold)
============================================

We assume OMV as the true price which dealer pays the manufacturer. We assume BMW sells the same car at same cost to a US and a Singapore dealer. The US invoice price is actually much higher, but it also included a lot of rebates, etc, so we shall be conservative and assume the same for both.

OMV = SGD53K


Step 4: Compare sale price for the same car in both countries
================================================

US = MSRP = USD45.5K = SGD68.3K

Singapore = latest quoted price according to forumers = SGD159K


Step 5: Compare Gross margin (sale price - COGS of car)
=============================================

This excludes dealer warranties, sale costs, marketing, and other costs.

US : SGD68.3K - SGD53K = SGD15.3K

Singapore: SGD159K - SGD53K - SGD71.5K (Duty, GST, ARF, COE) = SGD34.5K


CONCLUSION
============

So for the same car, PML makes >2X in profits per car than a US dealer.

If you start doing the same sums for Porsche (Stuggart vs. UK dealers), the GROSS PROFIT OF STUGGART EXCEEDS THE SALE PRICE OF THE WHOLE CAR IN UK.

This is fair comparison since dealers of both countries have the same cash outlay; the Singapore taxes are paid by customers upon registration. The dealers don't have to fund the taxes. Dealers for both countries would still need to advertise, pay their sales guys, build their showroom, etc.

Are we taken for a ride? You be the judge...

 

[jaskin]

Re: Singapore car dealers -- profit margins don't make sense?

I would agree with you. To make things worse service is worse than the US.
The way around it would be to get rich enough to self import your own car. That way you can get by without paying the margins to the dealer.
Even if you go with a PI the margin is still substantial, as you probably could tell with the GTR when it was launched a few months back.

 

[zag]

Re: Singapore car dealers -- profit margins don't make sense?

do US dealers carry stock of cars ready for buyers on most models or pretty much every model is on indent basis? folks in US forum always talked about putting in order and waiting for delivery etc.. in this case US dealers don't put up high capital outlay to keep inventory. maybe in this case could be apple to orange..

also local dealer PML always gives excuses that BMW Asia set the price.. is this ever true?

imho call it snob or what would we .... bimmer is a brand image associated to certain product positioning in the car market.. wrong pricing position can lead to brand dilution.

 

[DriveAllDay]

Re: Singapore car dealers -- profit margins don't make sense?

do US dealers carry stock of cars ready for buyers on most models or pretty much every model is on indent basis? folks in US forum always talked about putting in order and waiting for delivery etc.. in this case US dealers don't put up high capital outlay to keep inventory. maybe in this case could be apple to orange..

also local dealer PML always gives excuses that BMW Asia set the price.. is this ever true?

imho call it snob or what would we .... bimmer is a brand image associated to certain product positioning in the car market.. wrong pricing position can lead to brand dilution.

US dealers carry more stock I think. You can just go to the showroom and drive a car off on the spot Those you see on indent are either European delivery or custom configuration. Mind you pml charges more for indent cars.

Also snob appeals on BMW is just the same in us as it is here

The main difference I think is competition. Pml is the only official dealer.

 

[Ah Lian]

Re: Singapore car dealers -- profit margins don't make sense?

I thought we pay for a "classier" showroom cum workshop i.e. fixed overheads and variable overheads, also.....

US dealers carry more stock I think. You can just go to the showroom and drive a car off on the spot Those you see on indent are either European delivery or custom configuration. Mind you pml charges more for indent cars.

Also snob appeals on BMW is just the same in us as it is here

The main difference I think is competition. Pml is the only official dealer.

 

[wt_know]

Re: Singapore car dealers -- profit margins don't make sense?

my simlpe explanation based on simple rule of business to make the equal amount of profit assuming all things being equal ie: cost of goods sold, gov tax, etc where the buyer know that's the amount that you have to paid before profit margin

a. sell low, high volume (big market like USA)
b. sell high, low volume (small market like SG)

another most important rule of business is demand-supply and competition (competitors like other dealers and alternatives like merc/audi). if pml can survive for so many years and continue to make money, this mean their business model (whatever profit margin) is working for them. they can set profit margin to 200%, if there is no buyer, i'm sure they will figure that out what is the profit margin that buyer will bite.

 

[phil]

Re: Singapore car dealers -- profit margins don't make sense?

You can't compare. Singapore doesn't have the population to warrant lower margins. Less cars, more profit to sustain the business. In almost every country the yards hold minimul stock, in almost every case, for every make, one has to order a car and wait.

 

[DriveAllDay]

Re: Singapore car dealers -- profit margins don't make sense?

You can't compare. Singapore doesn't have the population to warrant lower margins. Less cars, more profit to sustain the business. In almost every country the yards hold minimul stock, in almost every case, for every make, one has to order a car and wait.

It is true that Singapore is (way) smaller as a country, but larger as a regional car dealership footprint. Think say San Francisco or San Diego in California, Boston in Massachussetts -- all smaller, but have many more dealers per city.

I lived in both US and UK -- the dealers that have a good selection of cars in the car park there if you are ok with the colour and specs, you can just pay and drive off.

I think I agree that it all boils down to how much we as consumers allow the dealers to profit. I just think (perhaps wrongly) that they have been operating in a semi-protected environment for too long. Our government's complicated tax-rebate structure also hide the true economics of the car industry and consumer burden. I suspect it is true that their operating cost base is higher -- but surely this, like any business, is where they should be more cost efficient?

 

[totoseow]

Re: Singapore car dealers -- profit margins don't make sense?

singapore got more suckers. akm.

 

[diablo_728]

Re: Singapore car dealers -- profit margins don't make sense?

I think its willing buyer willing seller, as long as pple buy the cars PML will maintan the price. if demand is poor, price will drop. Also need to factor in the cost of maintaining a showrom and workshop and commissions and salary.

 

[DriveAllDay]

Re: Singapore car dealers -- profit margins don't make sense?

I think its willing buyer willing seller, as long as pple buy the cars PML will maintan the price. if demand is poor, price will drop. Also need to factor in the cost of maintaining a showrom and workshop and commissions and salary.

Agree with the willing buyer willing seller part.

As for cost of maintenance & sales commission -- dealers all over the world incur them as well, so this is should not be the justification for >2X higher margins.

 

[hoks]

Re: Singapore car dealers -- profit margins don't make sense?

34k alot? Go calculate margins for the Coupes, Cabrios and Ms, so called lifestyle vehicles.

All along I feel some of the tax reduction since '02 has gone to dealer's pocket instead of ours.

 

[DriveAllDay]

Re: Singapore car dealers -- profit margins don't make sense?

34k alot? Go calculate margins for the Coupes, Cabrios and Ms, so called lifestyle vehicles.

All along I feel some of the tax reduction since '02 has gone to dealer's pocket instead of ours.

When you look at Porsche (stuggart), the margin goes into a completely new dimension.

Take base Boxster for example, moderately configured one has OMV of about SGD = 70K, bringing the COGS to about SGD160K. They sell it in in the region of about SGD260K.

So the gross margin is about SGD100K per vehicle.

SELLING price in US for a base Boxster = USD47K = SGD70K

This means that Stuggart makes more profit on each Boxster than a US dealer's end sale price to a customer.

 

[Terry]

Re: Singapore car dealers -- profit margins don't make sense?

my business got no margin.. somemore current economy... me downgrade from 5 series to honda....

i wanna buy from PML also bor lui

 

[MARK]

Re: Singapore car dealers -- profit margins don't make sense?

Whenever I read a foreign car magazine with car prices listed, I drool at the seemingly low prices asked for those cars. The listed prices seems to approximate the kind of margins that PML pockets.
So that makes me wonder what type of profit margins overseas car dealers rely on. And they don't have just one SE handling the sale, the list goes on.
Example: The last time I bought a car in australia, I was first handled by the sales exec. Next, I was directed to the insurance exec and then I was directed to the finance exec. So each sale of a car requires 2 more employees within that dealership just to complete the car's transaction! Sounds like even thinner margins where overseas are concerned.

 

[check13]

Re: Singapore car dealers -- profit margins don't make sense?

Don't need to sell high end cars to make ridiculous margins. Just go check how much margin is being made for an A4.

Can't blame the AD when there're so many sucker carrot heads in Spore.

 

[golfgti]

Re: Singapore car dealers -- profit margins don't make sense?

fundamental differences are the taxes, fixed/variable costs & multi-dealership

Real estate in US is WAAAYYY cheaper than SG for showroom/warehousing. & since PML is sole distributor we are in LL position. there is nothing we can do.

US has many guys bringing in BMW rite so of cse margins are expected to taper off since BMW Germany i assume doesnt make franchisees not give discounts etc.

so since COGS is mainly real estate lease etc, then even if they own the damn building depreciation hits the bottom line.

So, life is unfair so as Bart Simpson says "Eat my Shorts".

 

[DriveAllDay]

Re: Singapore car dealers -- profit margins don't make sense?

fundamental differences are the taxes, fixed/variable costs & multi-dealership

Real estate in US is WAAAYYY cheaper than SG for showroom/warehousing. & since PML is sole distributor we are in LL position. there is nothing we can do.

US has many guys bringing in BMW rite so of cse margins are expected to taper off since BMW Germany i assume doesnt make franchisees not give discounts etc.

so since COGS is mainly real estate lease etc, then even if they own the damn building depreciation hits the bottom line.

So, life is unfair so as Bart Simpson says "Eat my Shorts".

Actually cogs is strictly the car price a dealer pays to manfacturer. All other costs are termed SG&A (selling, general and administration) costs.

 

[golfgti]

Re: Singapore car dealers -- profit margins don't make sense?

Actually cogs is strictly the car price a dealer pays to manfacturer. All other costs are termed SG&A (selling, general and administration) costs.

strictly yes but my point is the same sga cogs are all above gros so its all factored in to calculate selling price as mentioned after depreciation blah

anyway since its LL here & we have cant do nothin just take it as it is & buy something else if we feel BMWs are overpriced.

Its like sayign Carls Junior is overpriced vs BK... yes maybe but i dont htink anyone cld care abt it coz its just private market pricing which isnt illegal

 

[henry2703]

Re: Singapore car dealers -- profit margins don't make sense?

i think a bit hard to calculate like this.

it would make better sense, if youcan have a look at the total investment by a investor in US, and in Singapore, then work thru the ROI and you will realised that the ROI based on the environment in each country will be reflective on the margin.

I would assume (but i am not sure) that US would be a lower investment, lower margin, higher volume business. However, US generally trades on a higher spread for working capital, therefore their rate of returns will be higher than singapore.

On the other hand, in Singapore, it would be high investment, higher spread but low volume ( in the case of PML anyway). Although the credit spread is lower in Singapore, due to the larger capital size, the margin has to be high.

Not forgeting that Car business in Singapore has a cap on how much you can earn, unlike in the US. the maximum profit is limited by the number of COE Mr Raymond Lim decides to toss in the market.