We all complain about high car prices and when hard economic times hit us we look for discounts and we continue to buy new cars…. whether we need a new car or not! So how do some car companies continue to stay in business despite heavy discounting and slowing down sales. The answer lies in high margins…..very high margins.
A recent news report published some very interesting margin figures and all these figures presented are based in European selling prices (for Malaysia there are added import and sales tax and local dealer margins to be considered)
The Volkswagen Group’s Porsche brand delivered 238,000 vehicles last year and posted an operating profit of 3.9 billion euros (USD4.1 billion), up 14% from 2015. Put those numbers together and they are on track to take in a hefty USD17,250 or so on each vehicle delivered, up 9%. In short, every time Porsche sells a 911 sports car or a Cayenne SUV, its net profit is enough to be a brand new Honda City.
The other German brands also do really well. Market leader Daimler took in a clean (RM 22,500) or USD5,000 a vehicle last year, roughly the same margin that Munich based BMW has been enjoying. This margins can be enjoyed because of branding. Porsche, Mercedes and BMW have big brand presence and so they can charge a larger margin……just like luxury goods company LV, Chanel and Gucci for example. These fashionable products have an even higher margin and their after sales is almost zero…..yes even easier to sell and walk away.
Porsche do not make cheap cars. Even luxury car brands like Mercedes occasionally offer more middle class motoring at smaller margins to get aspiring buyers into the brand.
The German brands are not alone, Italian supercar manufacturer, Ferrari knows this game well. Its operating profit equates to almost USD90,000 (RM400,000.00) a vehicle. But about 30% of Ferrari’s business comes from engines, key chains, amusement parks, and other things that don’t have wheels. What’s more, the company makes only about 8,000 cars a year, which is keeping supply low and exclusive to keep prices high.
So keep buying luxury cars to keep their owners profits sky high.
