As much as customers seem to believe it, dealerships aren’t raking in massive profits on each new bike sold. And some buyers seem to think “add-ons” are there purely for profit. That’s not quite true, either.
Let’s start with something called “dealer prep.” This charge, ranging anywhere from $55 to $150, is a direct result of what it costs a dealer to assemble a motorcycle from its crated form to its “ready for sale” condition. Is this charge negotiable? Sure. But the internal costs remain, so this slice will come out of profits.
“Dealer freight” is an actual charge to the dealership based on how much it costs to have the crated unit shipped from its point of origin to the back door of the shop. (Freight costs, over the past five years, have gone up exponentially.) Why is this passed along to the customer? As with any expense incurred by the dealer, just like the light bill, it has to come from somewhere. Is this fee negotiable? Yes, but this time the dealer is actually losing money—not just shifting costs on paper.
The “unit price,” or MSRP, is a suggested retail price set by the manufacturer. You probably think that no one pays retail. But if we have already negotiated the dealer freight and prep portion out of a $9,000 purchase price and we are asked to take another $500 off MSRP, we are starting to get into marginal profits. Discounting $400 for freight and prep off the $9,000 bike eats about 4 percent of the profit. Taking $500 off the MSRP in addition to these discounts whacks 10 percent of the profit margin.
What started out as a profit margin of around 15 percent is now 5 percent—and it might be even lower if “flooring” costs are factored in. Some models have higher margins and some lower, but it’s the total picture that dealers have to look at. Up-selling accessories and financial products help, but not everyone buys ESP (extended service protection), finances the purchase, or buys accessories from the dealership. Again, some models have a higher profit margin than others—so your dealer may be more flexible on some bikes than others—but as a business we have to look at the overall profitability and make enough on the deal to keep the doors open.
Jeff Maddox is the sales manager for a multi-line dealership in the Midwest. Questions for him? Email us at firstname.lastname@example.org with "Retail Confidential" in the subject line.