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Luxury vehicles aren’t just a means of transportation, they are often a status symbol. They’re a way to signal to the world that you’ve done well for yourself and have the disposable income to afford a quality vehicle.
As a result, luxury vehicles are often more profitable than regular automobiles. But that doesn’t mean all dealerships that sell these high-end cars are going to be able to make a profit. Here is a look at the profit margins on luxury vehicles in case you’re interested in exploring the business.
What is the Retail Price of a Luxury Car?
Like any other product, the retail price of luxury vehicles varies greatly depending on the brand and model. The entry-level retail price for a mid-sized luxury vehicle is around $40,000. But this can go all the way up to $18.7 million for a Bugatti La Voiture Noire, the most expensive car in the world. According to Statistica, the average retail price of a luxury car in 2021 was around $77,000.
What is the Wholesale Price of a Luxury Car?
The wholesale price of a vehicle refers to the amount that the dealer pays to purchase it from the manufacturer or at an auction. To make money, the dealer can’t simply list the vehicle for the same price they bought it. They have to sell it at a markup to cover their own expenses and make a profit. That’s why you can often expect to pay a bit more when purchasing a vehicle from a dealer, compared to a private seller.
Just like the retail price, the wholesale value can range depending on the condition of the vehicle and the overall market. The average car markup is around 3-8%. But this value can vary greatly, especially for hard-to-find luxury vehicles. The markup for in-demand brands like BMW and Porsche can be as much as 16-20% above the wholesale price.
There is no set standard for how much dealers can charge when marketing their vehicles. They may mark up the car as much as 25% if they think they can find a buyer at that price. But with so many resources available to research the true value of a car, it’s getting harder for dealers to get away with charging outrageous prices.
Plus, most dealerships don’t make as much profit off the vehicles themselves as they do off service parts to repair those cars later on. But when it comes to the luxury car market, there is often more room to negotiate because buyers may be willing to pay a higher premium for a certain brand or model that they’ve had their eye on.
Costs to Manufacture a Luxury Car
In addition to markup costs, you also have to consider the costs to actually manufacture the vehicle. Cars are complex machines and require a lot of equipment and manpower to assemble. In addition to these startup costs, manufacturers and dealers also have to account for the administration and marketing that it takes to get the cars sold.
There are two types of costs manufacturers have to consider – fixed costs and variable costs. Fixed costs are those that are constant no matter the type of car or the number of vehicles being produced. These include things like research and development, the costs of maintaining the factory, and purchasing new machines to aid in production.
The variable costs are those that may fluctuate depending on the number of cars you’re producing and the type of vehicle. This includes the labor, materials, and distribution of vehicles to dealerships.
The biggest expense by far is the raw materials. This accounts for about 50% of the cost of manufacturing. Following the raw material, labor is the second largest expense. The cost of labor can often vary. Some car factories are heavily automated, while specialty vehicles may need more direct attention from humans. But, in general, labor accounts for about 20% of the total cost of manufacturing.
An additional 15% of the manufacturing costs then typically go toward advertising and logistics. Then an additional 10% are spent on the administrative costs of maintaining a factory and shipping the vehicles to dealers across the country. The remaining 5% typically goes toward research and development or any miscellaneous expenses that come up. The exact cost will vary depending on the manufacturer, but these figures are what is typical of what is average.
So, take the average luxury vehicle with a sticker price of $77,000. If both the dealer and the manufacturer are making a profit of 10%, that means the vehicle cost $61,600 to manufacture. Out of those manufacturing costs, the materials would account for around $30,800, the labor would cost around $12,320, the logistics and advertising would cost around $9,240 and the administrative costs would be around $6,160. These are just rough figures and will vary greatly depending on the brand and the manufacturer. But that’s a ballpark estimate of how much it costs to manufacture a luxury vehicle.
What are the Profit Margins on Luxury Vehicles?
So bottom line, the profit margins on luxury vehicles vary from brand to brand. But on average, most luxury automakers enjoy a profit margin of between 8-10%. Luxury cars typically enjoy better margins than non-luxury models, which makes them an attractive business model for many dealers. But there are certainly variations across brands.
For instance, Porsche makes about $23,000 per vehicle, giving them a profit margin of 18%. Whereas Lamborghini only makes about $5200 per vehicle.
So, if you are thinking of getting into the luxury car business, it’s important to understand all the associated risks. While these vehicles are in high demand and can net a good profit, they also require a lot of technical knowledge and startup costs to manufacture, which may not be worth the risk.