If you wanted an SUV w/ AWD that seats seven you'd have a choice between at least a dozen models from six or more manufacturers that all have dealerships within 50 miles of you. How many places can you buy a 300b mono amp within a 50 mile radius of your home? How about a tube D/A with balanced outputs? High end audio doesn't offer the variety of choices or the multiplicity of dealers that autos do. Therefore there is not the same market pressure to force more price competition.
Another factor is the luxury nature of high end audio. You cannot buy a maxed out BMW M series at dealer invoice. The people who want a luxury product are not overly price sensitive and dealers knowing this price their luxury products accordingly.
The auto dealer's business model is a lot different from an audio dealer's. They can't compete on sale price because of competitive pressures, as Onhwy61 mentioned, so their profit comes from options, accessories and service, especially service. Ever wonder why the $39 oil change at Jiffy Lube costs $89 at the dealer?
It is also important to recognizr that dealer invoice is not dealer cost. The manufacturer can and does routinely hold back an amount that is then given back to the dealer provided several key data points are adhered to. These can be satisfaction surveys, sales volumes, captive financing, etc. these amounts can exceed $1,000 per unit. Service and used cars are where the money is made. I have several friends who own multiple car dealerships. As long as you manage your money properly and avoid utilizing too much debt, it is a license to print money. One friends dealerships averages 40 cars per day....run those numbers.
If you only sold 10 cars a year , you'd starve to death. If you sell 10 prs of speakers a year on which you clear 30k each, you're dining at a nice French eatery. In Paris.
Auto dealers sell few cars for cash, most of the time it is leasing and financing, not to mention how they get you to buy their insurance. As has been said, 'invoice', 'MSRP' are meaningless, they are just hooks to make you feel better. Also, if you have recently look at the typical car dealer sales order you will find they add about $1,500 of other chargers not including sales tax. Items in the $1,500 are like $400 for 'Documentation/Tile' Fees, Computer fess, Clerical Fees. On and on it goes. These sneaky dealers recently try to charge you twice for 'destination' fees, although you thought they were in the firm price you settled on. So, best to always ask for 'out the door price', that includes sales taxes and any and all other costs and fees. I worked as the personal assistant to a mega dealer years ago. His business model was to make 15% on MSRP, one way or another. Finally, today cars are so complicated that a dealer is going to make serious money on service, since locals have neither the expertise of tools to do the work.
Here in Phoenix, all the most aggressive car dealers will lease or sell you a car at a great rate/price. And when it comes time to sign the papers, they'll charge you a $395.00 documentation fee. That equals 4 months of the "unbelievable" $99.00 lease.
The EU high end brands I was US Service manager for were set in stone as to the price dealers could sell for. They immediately terminated any dealer that sold below that price.
For better or worse, that was the high end of just a few years ago.
Seriously Taters? You've been an Audiogon member for over 10 years and you can't find a dealer who will give you more than 10-15% off of list??? Huh.....they must all be after me. ;)
There is no such thing as a dealer's invoice, if they sell every other car at below dealer's invoice, the auto dealership would be considered non-profit organizations.
When a car sales guy sells you a car, after all the overheads, the dealership owner takes a cut, several levels of managers get their cuts, then the sales guy gets his. Even at the "below invoice price"', they all still get their cuts. Sometimes, the manufacturer would cut their take, allowing the dealerships to either have promotions, or unannounced price cuts.
If you look at the price/cost ratio of a car, it is probably similarly structured as an audio component. It is just that there are less middlemen to get that component from the manufacturer to you than it does a car, and a dealer sells less volume of audio components as cars.
My cousin used to work as a salesman at an Acura dealership. He told me that he's pretty much set for the month financially for selling 4-5 cars.
Mostly has to do with volume. High end audio retailers and manufacturers have to cover there expenses with a much smaller number of sales thus they need to make more profit per item sold to stay in business. Just think how much more expensive an I pad would have to be if their market was a few thousand pieces a year instead of the tens of millions per year that they do sell!
It's amazing the dealers only make 40%. That means the manufacturers are making most of the money. As an example a piece that retails for 1000.00 cost the dealer 600. It probably cost the manufacturer 200.00. That's a 300% markup. It looks like if you want to be in the high end audio business today manufacturing is the way to go.
I do know one dealer that will give me 20% but absolutely no service. Cash and carry only. If the unit is broken you will have to send it back to the manufacturer. If you don't like it to bad. If you need help with it your on your own. On top of that the guys an arrogant prick.
The last time I bought a piece of equipment from my dealer I accidently scraped the spoiler of my Benz as I drove up to the loading area. I guess to make me feel better the salesman told me that the Owner does it to his Maserati all the time.
In the beginning there were many small Mom and Pop hi-fi shops around the country. Usually staffed with a mature, knowledgeable and passionate people but alas the prices were sky high. Next came the specialty retailers such as the Circuit City/Good Guy's types where prices were more discounted but the staff was younger, and less experienced (read lower wages). Lastly, you have the big box chain that discounts heavily. Do not have much staff to help you and is currently in a makeover to be profitable again because they can not sell enough service plans or overpriced cables to make up for selling the TV at cost.
In new car sales they will usually wiggle a lot. Used cars are where the money in cars is. Prices they buy cars at auction are ridiculously low. Even if they discount used for you they make a ton.
Dealer I worked for told me 60% of their profit came from service alone, parts, used then new, contributed to profit, in that order.
And as others have said, do not forget finance, accessories, warranties and the all important "undercoat!" Great comment Isochronism!
It's amazing the dealers only make 40%. That means the manufacturers are making most of the money. As an example a piece that retails for 1000.00 cost the dealer 600. It probably cost the manufacturer 200.00. That's a 300% markup. It looks like if you want to be in the high end audio business today manufacturing is the way to go.
+1 Drubin, that's pretty standard across any industry. A $1000 item cost about $200 to manufacture, $100 goes to R&D, $200 goes to marketing and advertising, $100 goes into retained earnings or gasp profit. After all, there has to some incentive to run a business, doesn't there? The 40% breaks out pretty much like Jea48 describes.
Taters, go to a local Community College and take Business 101.
Taters, I get 30%-50% off list from various internet dealers. Sorry, I don't kiss and tell. Yea, so I have to deal with the manufacturer direct with any warranty issues, I'm a big boy, I can handle that. I don't need to pay a middle man to handle those chores for me. If I did need the middle man, I wouldn't whine about having to pay for his services. Pay the man!
Depending on how picky you are on the brands. And not needing the latest and the greatest new thing. And having great patience at times. Great value may be found on gear from internet retailers like Audio Advisor and Audio Classics. Along with brick and mortar stores.
This happens when they have close out on "old" models, gear from makers that may be going out or have gone out of business. Or the rare overstock.
There are some variables in profit margins for stereo equipment. It's not always 40%, sometimes it is more depending on the product and the arrangement between the manufacturer and dealer. Cables and other accessaries are almost always 50%. Mark up on cartridges are off the charts. I expect a discount when buying new unless I perceive the retail price to be a bargain.
Do you really believe cars are being sold at dealer cost? When buying a car you can't trust the salesman for little things, so why would you believe they are selling you a new car for what they paid for it? I see dealer invoice as just another fictitious figure.
It works the same way on car parts from the dealer. They are charging you double. My mechanic charges me half of what the dealer charges for OEM parts and everybody is still making money.
Some make money in quantity and others want to make it all at once. You can sell thousands of $89 DVD players, two $40,000 amplifiers or one set of $150,000 speakers.
Go check out the book, what car dealers don't want you to know.
It is a serious eye opener for this type of business practice. I actually read the book from cover to cover and went with your significant other to help her purchase a new Tahoe SUV a few years ago. Each and every dealer did basically word for word and action for action what the book said they would try to do. It was amazing to watch. It was like watching a TV show as an outside party. The cheap and dirty things they tried to do was amazing and was laid out exactly in the book. She couldn't believe it either. I imagine that in the high end audio sales industry there are similar games played. Go get the book. you will be amazed at what happens and what you have fallen for in the past without every knowing it.
yes, a dealer does not make a 40 % ptofit on electronics, or a 50 % profit on cables. as has been stated previously, there are fixed and variable costs to consider.
however, a dealer who runs an efficient business can maximize his profit.
let's go back to the car dealer analogy.
if a buyer offers a price that is too "low" but the dealer makes some profit, he is better off selling it unless he thinks he can get more for the car in a short period of time.
an audio dealer is better off making a smaller profit if he can do a volume business, otherwise his money is tied up in inventory, waiting for a customer to buy the product at a higher price.
I've been in the business 30+ years and Jea48 pretty much has it nailed. There would be a shop on every other corner if selling high end audio was as profitable as some of you think it is. Just not enough volume for a local shop to sell at a lesser profit margin.
BTW although most of the comments made about how car dealers make there money is true but you can not compare there high volume/commodity car business model to any type of specialty retailer. Again the difference is in volume. Just like the cell phone business the profit is not in the phone (as you know they pretty much sell them below cost or give them away) it is in having tens of millions of phones with all those airtime minutes. Or computer printers which manufacturers sell below there cost but make it all back and lots more in the the ink. Do you see audio shops with large service centers running full time (labor is very profitable)? Or selling you some monthly subscription so that your new amp will have it's magical sound quality renewed every thirty days?...So when a car dealer sells at or near cost it's because he wants to get your trade in to sell it at a healthy profit, and supply service for both which is very profitable.
You can't always buy a car at invoice. Even if you do, there are hidden profits in there for the dealer, like factory rebates. Cars are high volume business. An audio dealer doesn't sell many $10K amps. He needs to make more than a few dollars from each one to stay in business.
You won't buy a Ferrari, Porsche, Lamborghini automobile at dealer invoice, nor a BMW or Mercedes for that matter. The cars that sell for deep discounts are akin to the discounted electronics at Best Buy and Fry's. I don't expect big discounts on highend cars or electronics I like. Since I'm not rich, I buy mostly used.
Minori, your comments about the auto and audio industry are only partially true. Sadly there are a lot of car dealers whose practices are borderline scam and fraud. But just like not all brick and mortar audio stores are jerks, so it is with the car business. There are decent dealers...you just have to look for them. Same with good audio stores. Same here on Audiogon and on Ebay. Frankly I would rather pay more for a product from some company that is customer oriented. There isn't enough of a saving from a bad sales experience to justify doing business with them.
You can buy Mercedes C class and E class all day long at Invoice. Ferrari you have to pay sticker and Lamborghini you can get a small discount. You can also wheel and deal on Porsche.
I know very few people will believe this, but I have actual experience in both the auto and high end audio industries, and know how they both work. The audio store is mine and the dealership is my families. Its kind of funny how people seem to know what type of profit margins there are on everything.
If there's one single concept that holds true, not only for the 2 industries mentioned here, but for most others as well is: When you are in business, you never tell anyone what you pay for anything. The minute you do that, you loose. Any time a business owner tells you what their cost is, their almost certainly making it up. In a place like a car dealership where there are a lot of employees and departments, none of those people know anything about what the dealership actually pays for anything. And, yes, if you look at their computer screens, cost is listed. Its nothing more than a made up number or some type of code. Only the owners and the accounts know any of the real pricing.
As far as invoice goes, its a false bottom used to start the sale process with. Its a number on a piece of paper and nothing more. As others have correctly stated, things like rebates are given to the dealers that will lower the actual prices they pay for the car. When a car is sold at invoice, they are making a profit.
In audio, the markup varies. There are some overall pricing trends, but in the end, whatever dealer cost and markup is, is spelled out by the contract you have with the equipment manufacturer. Some companies allow you to discount, while others don't. There are other factors, as well, but they can vary from company to company. I can also tell you that most equipment manufactures won't hesitate to revoke your status as a dealer if you don't follow the terms you both agree to.
I remember before the economy went bust the cars dealers were selling cars like the Prius for $5000.00 over sticker so the are no real deals. If anyone can get more money they will.
"You cannot buy a maxed out BMW M series at dealer invoice" I bought one (loaded M3) in late 2011 at under invoice with rebates and incentives. Of course they still made money on it. You won't see Porsches any where near invoice and there is a huge spread between invoice and MSRP. It's not hard to get 5% off though.
Roundmoundofsound; I totally agree with you. There are good dealers out there with good salespeople that are above board. I know they won't give away the farm and they have to make money to stay in business. But there is a difference between making an honest profit and trying hard to totally separate the customer from their money.
I'm also willing to pay more for good service and I absolutely will not pay for bad service. I will walk out. If I need or want something so bad that I would tolerate terrible service, well then there is something wrong with me.
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