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Saturday, December 13, 2008

Fair margin for the Dealers?


How lucrative is the auto sales business? You can get the cost of new cars registered in the previous month from the LTA website.

The basic cost that dealers must pay includes:
1. OMV - Open Market Value. OMV is assessed by the Singapore Customs, based on the price actually paid or payable for the goods when sold for export to the country of importation. This price includes purchase price, freight, insurance and all other charges incidental to the sale and delivery of the car to Singapore.
2. Custom Duty - 20% OMV
3. GST - Goods & Services Tax 7% (OMV+Custom Duty)
4. ARF - Additional Registration Fees 100% OMV
5. Registration Fees - $140
6. COE cost

Thus, the difference between the selling price and the basic cost of the car is the margin including Selling, General and Administration Expenses (SG&A). Some of the expenses that I presume are the operating cost of the showroom, basic salary and commission for the sales team, marketing/advertising and the regular overheads of a business.

I checked on a few popular makes and models to see how much margin the authorized dealers make. Here are some interesting statistics for the month of November:

Honda Civic 1.8MT
Average OMV=$22,178
Total Basic Cost=$59,096
Selling Price=$74,000
Margin including SG&A=$14,904

Hyundai Avante 1.6A
Average OMV=$11,911
Total Basic Cost=$37,800
Selling Price=$52,999
Margin including SG&A=$15,199

Mazda 3SP
Average OMV=$15,308
Total Basic Cost=$45,558
Selling Price=$61,188
Margin including SG&A=$15,630

Mitsubishi Lancer 1.5 MIVEC GLS
Average OMV=$17,701
Total Basic Cost=$51,024
Selling Price=$58,588
Margin including SG&A=$7,564

Nissan Latio CVT 1.5L
Average OMV=$17,523
Total Basic Cost=$50,618
Selling Price=$59,500
Margin including SG&A=$8,882

Subaru Impreza 5D 2.0R-S AWD
Average OMV=$15,540
Total Basic Cost=$43,934
Selling Price=$61,388
Margin including SG&A=$17,454

Toyota Altis 1.8 Auto
Average OMV=$18,584
Total Basic Cost=$50,887
Selling Price=$63,988
Margin including SG&A=$13,101

I also scan through the list to see what is the lowest margin - it is just $1,867 for the Chery QQ 0.8L. The margin for the premium makes is even greater but then, the SG&A is proportionally higher. The pricing of cars depends on the business strategy of the dealer. If the dealer has a strong after sales servicing business, lower selling price may be used to increase the population of the make to generate higher revenue for its servicing business. Buyer may opt to purchase from Parallel Importers to save some money with a lower pricing but have to bear the risk of complications dealing with a small business. See the tales of the $2 COE for an example.

So do you think the dealers are making a fair margin? One idea is DIY - maybe our non-profit motoring associations may consider helping members to buy direct from manufacturers and bid for the COE.

5 comments:

Anonymous said...

Hi,

Just curious, so did you manage to get a good car price without COE quoted by the dealers?

skxly said...

Yes, the dealers were pricing very competitively then to secure orders in anticipation of slowing demand in 2009. Although the selling price is just a few $K off the COE-bundled price, it is almost $10K off their previous quoted price. They still make the similar margin from me but I did not suffer the fate of receiving a lower rebate as a result of the freak $2 COE.

Ake said...

Just to nit-pick.

GST is applicable on : OMV, Custom Duty, Local Content and Mark-Up.

Minimum local content would be $150 for the IU and $45 for number plates. Mark-Up needs to be worked backwards.

There is also usually the cost of 6 mths road tax and radio licence to be factored in.

On the other hand, the dealer normally earns a commisson for the loan and insurance in addition to their already healthy margin.

Anonymous said...

motor dealers were pricing too high. COE is their marketing tool to get the order and pricing Strategy without affecting their actual profit margin.

dragnet98 said...

Hi,
Stumbled onto your blog. Am always frustrated premium car dealers are still charging ridiculous margins for their cars. A quick comparison with LTA website giving the basic cost of cars just make me wonder why are we paying so much for the likes of BMWs, Audis, Merc etc. I like the 325 coupe but with the basic cost at 125kish I can't bear to pay the 170kish price. Perhaps it is really time for someone to help to bring in cars by passing these blood sucking distributors. COEs and ARFs have crashed but prices are not. Also they have the cheek to complain that no one is buying. Lower the prices to a reasonable level and I am sure buyers will come back.