New Car... will the price increase due to Brexit?

[jpaul]

can't see link but issue had come up here before , thought it might have been id3 cash pre-orders, where there was a clause giving liability to increases,

but there is the converse, if a deal is done then the hedging on margiins will diminish so, could be better to wait ?

 

[naefeart]

The prices won’t go up. They have tremendous margins and they’ll just absorb most of the difference. No discount? That’s good for residuals. Can I ask what this car is exactly? The only car I’ve seen recently with little to no discount isn’t German.

Porsche Macan GTS. I’m coming out of a Cayman so they’ve offered me good money trade in. That’s all the ‘discount’ I’ll get in that particular model.

I’ll find out today, but there doesn’t appear to be any appetite by the dealer or manufacturer to even offer to potentially to cover any increases. If they make the margins we think they do, you’d think they’d have come up with a plan, rather than simply telling customers ‘we don’t know what’ll happen’ in my circumstances.

 

[turbot1984]

That’s an amazing deal! Do you know if they’re any others available?

Not sure is the answer but bought from Williams BMW Liverpool. Have got last few cars from there and so has the wife, they always seem to have best deals in NW.

 

[panthro]

The 10% tariff is a killer for big deals. My uncle had a deposit on a 992 Turbo and Porsche added the tariff into the equation that pushed it past £200k so he cancelled it.

 

[Nasher]

The price is what people are willing to pay, is enough pull out or sales numbers drop then they will have to lower it.

 

[jamoor]

The price is what people are willing to pay, is enough pull out or sales numbers drop then they will have to lower it.

If they don’t have the margin I doubt they will just lower the price
I’d say they will just have a take it or leave it attitude.

 

[WJA96]

If they don’t have the margin I doubt they will just lower the price
I’d say they will just have a take it or leave it attitude.

The gross margin on a car is roughly 100% ie if the car costs £25,0000 to build they want to sell it for £50,000. Then you gave to add on taxes etc. but there is plenty of margin for them to play with.

 

[Joe T]

The gross margin on a car is roughly 100% ie if the car costs £25,0000 to build they want to sell it for £50,000. Then you gave to add on taxes etc. but there is plenty of margin for them to play with.

That is absolute rubbish.

Average operating profit across al major OEMs was less than 5% in 2019. If they were making a 100% markup on new vehicles, more than that on aftersales, then they would be making a hell of a lot more than 5% operating profit.

In reality there is very little margin to play with, and if we see a 10% tariff on completed vehicles and a c.3.5% tariff on parts it is very likely indeed that prices will increase.

 

[jpaul]

indeed maybe corgi cars

 

[naefeart]

The 10% tariff is a killer for big deals. My uncle had a deposit on a 992 Turbo and Porsche added the tariff into the equation that pushed it past £200k so he cancelled it.

how recently was this?

I’m pretty sure it will be a like it or lump it situation. If the price goes up 10% and then due to an EU trade deal later on, returns back to what it was, I’ve overpaid and it will hit me come resale. Not somewhere I want to be.

 

[WJA96]

That is absolute rubbish.

Average operating profit across al major OEMs was less than 5% in 2019. If they were making a 100% markup on new vehicles, more than that on aftersales, then they would be making a hell of a lot more than 5% operating profit.

In reality there is very little margin to play with, and if we see a 10% tariff on completed vehicles and a c.3.5% tariff on parts it is very likely indeed that prices will increase.

I think maybe you might want to engage common sense mode and think about gross profit (the number I stated) and net profit (the number you stated).

The dealers target 12-15% on the cars themselves, so how can the overall profit be 5%? Have a look on Carwow or Drivethedeal - how much discount can you get? So either they’re just losing money left, right and centre or their gross margins are ENORMOUS.

And when you look at those operating profit figures bear in mind they include write-downs for plant closures, investment for R&D etc. In VWs case it includes billions in fines for being very naughty. And yet they somehow still manage to keep their head above water financially.

 

[WJA96]

indeed maybe corgi cars

Er - that’s basically backing up what I said. 50% gross margin is 100% markup on cost. And if their margins really were that small they’d blowing money on every car they sold. Look at the discounts you can get on a new car and look at those margins. And they’re all still in business. Something doesn’t add up. Target margin is 100% on every vehicle.

 

[[TW]Fox]

I think its nonsense to suggest prices won't rise if imported cars are subject to a 10% tariff. Consider these two points:

a) When this was last almost an issue many manufacturers literally confirmed they would increase prices - some went as far as to include a clause in new car delivery contracts reserving the right to increase the price if tariffs were introduced prior to delivery
b) It affects virtually every car. We don't make many cars in the UK so unless you really fancy a Nissan, a Mini or want something from JLR then what are you going to do? You're going to pay the 10% because it'll go on finance anyway and all the other choices are similarly affected. A Jaguar XE would need to more a lot more than 10% cheaper than the new 3 Series for it to be worth anything other than use as a short term one way airport rental anyway.

 

[[TW]Fox]

Look at the discounts you can get on a new car and look at those margins. And they’re all still in business.

To be fair whilst you may be right in that list prices don't go up by 10% overnight thats somewhat irrelevant when, as you say, most cars are bought at massive discount. Just because the list price stays the same if you could get 20% off yesterday but only 10% off next year then... its more expensive isn't it.

 

[Joe T]

I think maybe you might want to engage common sense mode and think about gross profit (the number I stated) and net profit (the number you stated).

The dealers target 12-15% on the cars themselves, so how can the overall profit be 5%? Have a look on Carwow or Drivethedeal - how much discount can you get? So either they’re just losing money left, right and centre or their gross margins are ENORMOUS.

And when you look at those operating profit figures bear in mind they include write-downs for plant closures, investment for R&D etc. In VWs case it includes billions in fines for being very naughty. And yet they somehow still manage to keep their head above water financially.

I spent four years working in vehicle pricing for a major OEM. I also spent two years working with dealers on improving their profitability. I have some factual background in this arena; not the assumptions of an outsider. I have also been part of no-FTA scenario planning for a major OEM.

You appear to be mixing up transaction price and list price. Yes, there may be a good profit in the list price of a car, but that's purely an arbitrary number. What matters is transaction price: the price of the car is the transaction price. If the cost of a car goes up 10% the manufacturers will likely up both list price and transaction price. The difference between the list price and transaction price has little to do with FTAs. I think you may be arguing that list prices may stay the same, but discounts reduce? In that case the transaction price of the car goes up - i.e. the consumer pays more.

They cannot afford to keep the prices the same if the vehicle costs goes up 10%, as that will go straight to the bottom line. If operating margins are only 5%, then where does the extra 10% of cost go?

Dealers also make very little money on new cars. Much of it is only from volume bonuses and the like. The rest comes from parts and aftersales - that's why the labour rates are so high. You've also mixed up dealers (independent franchise businesses) and OEMs - who manufacture and sell the vehicle to the dealer to sell on. Any profit the dealer makes does not go into the OEM profit!

Er - that’s basically backing up what I said. 50% gross margin is 100% markup on cost. And if their margins really were that small they’d blowing money on every car they sold. Look at the discounts you can get on a new car and look at those margins. And they’re all still in business. Something doesn’t add up. Target margin is 100% on every vehicle.

You appear to have picked the Ferrari margin of 50% and applied it to the other OEMs that are less than 20%...

 

[panthro]

how recently was this?

I’m pretty sure it will be a like it or lump it situation. If the price goes up 10% and then due to an EU trade deal later on, returns back to what it was, I’ve overpaid and it will hit me come resale. Not somewhere I want to be.

3 weeks ago he cancelled it.

 

[-Ad-]

I remember seeing some posts in the Porsche section over on pH regarding this.

Some were asked to sign that they would pay the 10% increase as the customer if so required.

With a situation like this, why even bother going through the hassle? The Macan is nice and all, but the GTS being this popular and hard to get just leaves the dealer/Porsche holding all the cards. So why not just wait and see what happens, do you really NEED to order a new Macan GTS right now?

 

[naefeart]

No, you are quite right - I don’t ‘need’ to do anything. It was just because a fortunate time/deal/opportunity presented itself.

Anyway, it looks like the decision has been made. I waited days for a call to confirm the situation either way, nothing. I did chase it up once, but I’m not going to force them to take my business, especially with things are they are. They appear happy to bury their heads. Oh well.

Someone else with a physical car seems keen for my business. We’ll see how that goes.

 

[WJA96]

I spent four years working in vehicle pricing for a major OEM. I also spent two years working with dealers on improving their profitability. I have some factual background in this arena; not the assumptions of an outsider. I have also been part of no-FTA scenario planning for a major OEM.

You appear to be mixing up transaction price and list price. Yes, there may be a good profit in the list price of a car, but that's purely an arbitrary number. What matters is transaction price: the price of the car is the transaction price. If the cost of a car goes up 10% the manufacturers will likely up both list price and transaction price. The difference between the list price and transaction price has little to do with FTAs. I think you may be arguing that list prices may stay the same, but discounts reduce? In that case the transaction price of the car goes up - i.e. the consumer pays more.

They cannot afford to keep the prices the same if the vehicle costs goes up 10%, as that will go straight to the bottom line. If operating margins are only 5%, then where does the extra 10% of cost go?

Dealers also make very little money on new cars. Much of it is only from volume bonuses and the like. The rest comes from parts and aftersales - that's why the labour rates are so high. You've also mixed up dealers (independent franchise businesses) and OEMs - who manufacture and sell the vehicle to the dealer to sell on. Any profit the dealer makes does not go into the OEM profit!



You appear to have picked the Ferrari margin of 50% and applied it to the other OEMs that are less than 20%...

My sister is a product manager with MB in Bremerhaven. She has also worked for Fiat/Chrysler and Chrysler when they were Mercedes Benz affiliated. Guess what their target gross margin on a new car is?

Im not conflating dealer and manufacturer margin but there is ultimately only one pot of money and the manufacturer sets the list price so the margins are set by the manufacturer.

 

[[TW]Fox]

My sister is a product manager with MB in Bremerhaven. She has also worked for Fiat/Chrysler and Chrysler when they were Mercedes Benz affiliated. Guess what their target gross margin on a new car is?

Im not conflating dealer and manufacturer margin but there is ultimately only one pot of money and the manufacturer sets the list price so the margins are set by the manufacturer.

I dont see how any of this is relevant though - I dont disagree there is probably a target of 50% margin between cost of goods and list price. But from that 50% margin has to come quite a lot else including allowance for discounts etc. 50% margin or no 50% margin if you can get 30% off list today with a tariff of nil you won't be getting 30% off list with a tariff of 10%.

If there is suddenly an across the board cost pressure of 10% on every product you sell in a market that also affects every single one of your competitors it makes no commercial sense to absorb it in full and make no changes elsewhere.