The automotive industry is based on two main principles: manufacturing and selling vehicles. But once these preconditions are met, in what ways can dealers start making money?
“The main goal of manufacturers, their financial arm, and car dealerships is to put cars on the road,” said Norman John Hébert, vice-president and chief operating officer at Groupe Park Avenue. To roll over inventories, some manufacturers take advantage of their financial branch to offer more favorable rates than banks to potential customers. The idea is pretty simple: encourage consumers to walk into the dealership and leave behind the wheel of a new car. “They will often use the interest rate or the residual value of the leased car as a marketing tool to attract customers to the dealership,” explains the group’s vice-president of operations at 21 dealerships.
However, there is no magic, warns Sylvie Brunelle, senior director of sales for private automobile financing at the Bank of Montreal. “When a manufacturer offers a rate of 2.99% when the cost of capital varies between 4 and 5%, because at the moment, it is not profitable, he said. The company must earn elsewhere . »
Where the dealer finds out that his income is in everything surrounding the sale of the car, explains Yan Cimon, professor of strategy at the Faculty of Business Administration at Laval University. “The margins are usually not made on the sheet, supports the professor. “Where it becomes interesting for the dealership is in financing and insurance,” he said. There, the margins can be very high. »
A fact confirmed by Jean-Luc Géha, visiting professor at HEC Montréal and director of the institution’s Affiliate Sales Institute. “The role of the car salesman is to close the transaction”, underlines the expert. “Once this step is completed, the client is taken to another office where he meets with the finance director, fresh and available, whose job it is to sell the client, tired of his first meeting, a wide range of related product such as extended warranty. , special paint treatment, lifetime anti-rust, etc. “, explained the researcher who underlined the useful salary of this financing specialists.
This passage to the financial director’s office could be worth it for the concessionaire, believes Jean-Luc Géha. “Take a $25,000 plus tax car, for example. If the financial advisor manages to sell you an extended warranty for $2,500, in addition to other accessories for an equivalent amount, we add 20% to the invoice”, the manager pointed out.
“In a group like ours, the highest profit margin is in after-sales service,” says Norman John Hébert. “Our goal is to build customer loyalty so that they come back to service and repair their vehicle with us,” he said.
“It’s not for nothing that manufacturers ensure that the suggested maintenance of the vehicle includes many visits to the garage,” added Yan Cimon. “It’s to make sure the car is in good working order, of course, but it’s also to get buyers to come to the dealership more often. This helps to generate income and make the industry more interesting”, underlined the researcher.
However, the customer experience suffers from the relative lack of vehicles in the dealerships’ yard. “When the prices are full, they release more profit per sale to make volume. But there, with empty yards, the prices are more solid, there is less haggling,” said Sylvie Brunelle.
“The situation is clearly in the dealers’ advantage,” maintains Jean-Luc Géha. “We even see cases where the purchased car arrived with fewer accessories than expected. I lived the experience myself! he said.
Since there are few new cars due to tensions in the global supply chain, “many customers agree with this”, believes the director. “In my case, I could have refused to take the car because some of the options I requested were missing, but with the waiting lists and the delay in getting exactly what we wanted, we were pretty much stuck and that put to dealers. a very good position vis-à-vis the customer who is ultimately satisfied with what is offered to him. »