Profit in a new car

HOW MUCH PROFIT IS IN A NEW CAR?

PROFIT

• AN EXCLUSIVE SURVEY FOR US BY WHAT CAR? REVEALS MORE THAN A QUARTER OF

CONSUMERS THINK THERE’S UPWARDS OF 30 PER CENT PROFIT IN A NEW CAR • SOME OF THE PRESTIGE BRANDS ARE MAKING MORE THAN 20 PER CENT • BUT OTHERS ARE LUCKY TO SCRAPE ONE PER CENT OUT OF A HIGH-VOLUME MODEL

by James Baggott

@CarDealerEd

More than a fifth of car buyers think car manufacturers earn between 10 and 20 per cent on every new car they make.

In an exclusive survey for Car Dealer, What Car? asked 1,500 people what percentage of a new car sale they reckoned was profit.

Some 23 per cent of them said they believed that car manufacturers earned between 10 and 20 per cent, while 21.3 per cent thought it was around five to 10 per cent.

Of those surveyed, more than a quarter (25.8 per cent) thought car makers earned upwards of 30 per cent profit.

In cash terms, the majority of consumers (31.1 per cent) thought manufacturers take a £1,000 to £3,000 slice out of every new car they sell.

The reality is a somewhat mixed picture and varies by manufacturer and model.

While some lucky prestige models can earn the maker upwards of 20 per cent, other mainstream models generate the factory owners margins in the low single digits.

What Car? editorial director Jim Holder says that for the ‘vast majority’ of car manufacturers it is ‘not the licence to print money that many think it is’.

He said: ‘The bottom line is that car manufacturing and car retailing is ridiculously tough, with even best-in-class margins around 20 per cent, very healthy margins around 10 per cent and some operating in the low single-digit zone, after spending billions on research, development, infrastructure and more.

‘While nobody is going to get a violin out for the firms involved, given the sizeable profits they can and often do rack up off the back of the scale of the sales they make despite the margins, it’s worth remembering that many car makers and retailers, especially at the massmarket end, live a knife-edge existence, looking to scrape decent margins while scrapping for sales in an ultra-competitive market, all the while under pressure on material and labour costs, tightening legislation and more.’

Automotive analyst David Leggett, of GlobalData, said margins ‘vary enormously’ on new cars. He told Car Dealer: ‘It depends on what brand and what model you are talking about.

‘The premium brands tend to do very well indeed when you analyse margin per vehicle

5%

Average profit margin for car manufacturers

Nobody is going to get a violin out for the firms involved, given the sizeable profits they can and often do rack up.

24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

11.8%

0-5

Source: What Car?

21.3% 23%

5-10 10-20 18.2%

10.6%

6.3%

5.4%

3.5%

20-30 30-40 40-50 50-75 75-100 How much profit do you think is in a sale on average for a manufacturer?

35%

30%

25%

20%

15% The margins on 10% 9% high-volume cars 5% are much lower, £0-£1,000 £1,000-£3,000 0% Source: What Car? especially small cars such as the Ford Fiesta or £3,000-£5,000 Vauxhall Corsa.

Overall, profit margins ran at around 10 per cent in the first half of 2021.

David Bailey, professor of industrial strategy

35%

30%

25%

20%

15%

31.1% 30.4%

Automotive analyst David Leggett

16.7%

6.3%

10% – even after they have added bells and whistles. 5.4% 3.5% 5% ‘There’s a reason why BMW and Mercedes 0% 30-40 make big profits while the mass-market brands struggle. ‘Porsche is generally considered to be a manufacturer with industry-leading 40-50 50-75 75-100 £0-£1,000 £1,000-£3,000 £3,000-£5,000 £5,000-£10,000 £10,000-£15,000 £15,000+ margins – estimated at 20 per cent or more of the retail price. ‘The margins on high-volume cars are much lower, especially small cars such as the Ford Fiesta or Vauxhall Corsa. ‘They could be under one per cent which, while low, means the car manages to wash its face on volume.’ Of those surveyed by What Car?, 30.4 per cent believed car makers were coining £3,000£5,000 per car, while 16.7 per cent thought it was between £5,000 and £10,000. Holder added: ‘It must be slightly galling to look at the amount of hard work that goes into producing and selling a car and think that so many customers think the rewards are so much greater than they really are.’ David Bailey, professor of industrial strategy at the Birmingham Business School, said the pandemic had actually seen profit margins increase for car manufacturers. He said car manufacturers make an average profit margin of five per cent on new cars. But this year that has improved, he added, thanks to a combination of discounts disappearing and a tendency to produce higher-margin models because of the semiconductor chip shortage. ‘Making fewer cars and not chasing volume has meant, perhaps oddly, that car industry margins in the first half of 2021 were among the highest in decades. ‘Costs have been trimmed in some cases by firms dropping features on some models. ‘Overall, profit margins ran at around 10 per cent in the first half of 2021 – almost double usual figures.’ How much profit do car He explained that a number of car firms – including Ford, Nissan, Stellantis and VW – dealers make on new had posted strong results in recent months and all were aiming to maintain higher margins. and used cars? He highlighted Ferrari as one of the industry’s most profitable car makers. In 2020, it sold around 10,000 cars and made a profit of £1.4bn – not a bad ratio… Click here

9% 7.7% 5.1%

Source: What Car? An Audi working its way through the factory production line