Who Makes The Money In A New vehicle Sale?

It will hardly be news to our readers to say that new car Dealers operate on very slim margins. What’s not fully understood by non-Dealers is who makes the most from the sale of a $20,000 new car.

When a Dealer sells a new car, three parties share the revenue: the Dealer, the manufacturer and the government. On a $20,000 small car, the Federal Government takes 10 per cent as GST built into the price, so about $1800. State governments take between 2.5 per cent and 4 per cent in stamp duty, plus $600 or more in registration fees in just the first year.

All of a sudden, from the sale of our $20,000 car, various governments are taking $3000 between them and Dealers fund the revenue collection mechanisms! This is a net result to the Governments. On that same car Dealers retain on average a selling gross of less than $200 before fixed costs, according to industry statistics printed below.

The government receive 15 per cent net revenue upfront on each new car sale. Compare that with dealers, who make on average about two per cent net profit overall when you include servicing, F&I and after-market sales, and it takes the life time of the product to collect the two per cent.

If it’s a luxury car, the Government’s slice is even larger, thanks to the Luxury Car Tax. A car with a GST-inclusive price greater than $63,184 attracts the 33 per cent LCT on every dollar over that figure in the 2013-14 financial year the government raised $476 million from the LCT, with an estimated take of $500 million in 2014-15.

Australia’s authorised Dealer network generates annual revenue of around $74 billion, adding almost $6.4 billion to the national economy. The industry employs more than 66,000 people, pays over $5.6 billion in wages and has invested $17 billion in facilities. Dealers pay, collect and remit billions of dollars in taxation revenue to the Government every financial year.

Dealers also contribute to the economy through advertising, marketing, and affiliated industries such as insurance. (The Australian motor vehicle insurance market generates $6 billion annually.) Directly and indirectly, the contribution of the Dealer network to the national economy runs into the tens of billions of dollars per year.

The Government also taxes the things that go into cars, primarily fuel. The Federal Government takes 38 cents per litre in fuel excise, on top of which it adds GST, so the real figure is 42 cents per litre.

Now consider that Australians bought 18.7 billion litres of petrol in 2013, plus 22.3 billion litres of diesel.  That’s 41 billion litres of fuel per year, taxed at 42 cents per litre, reaping $17.2 billion per year for the federal coffers – 75 per cent of which goes into consolidated revenue.

Manufacturers’ profits based on 2014 reported results amounted to 6.1 per cent on turnover (i.e. pre-tax net profit). So the manufacturer make around $1200 net on this $20,000 car. Compare that with the $200 gross the dealer makes and the Governments $3000 net and its clear who really makes the money In a New Car Sale?

We’re not saying governments shouldn’t tax – far from it. Or that the manufacturers make too much, we’re just pointing out when accused by some, as being rip off merchants, that ignorant stereotyping is far from real world facts.

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