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So, You Want to be a New Car Dealer? [2]
Last week's column focused on the initial investment required in order to acquire a new car dealership. Continuing with our example of a ?typical mid-sized? dealership (one that would employ between 60-70 individuals), in the Greater Toronto Area (GTA), this week I will outline the costs associated with operating this dealership.
Depending on location, the term of your lease, and how recently your facility was built or renovated, the rent for a 20,000 square foot building would range, from $25,000 to $50,000 per month. This is your ?net figure?. In addition to this, you are responsible for payment of the property taxes, which, depending on the municipality, can vary from $4,000 to $10,000 per month. Insurance costs for your building and its' contents, liability and vehicle inventory will range from $4,000 to $8,000 per month.
For utilities (hydro, gas, water), you'll pay approximately the same from $4,000 to $8,000 per month. Property / building maintenance, which would include building repairs, garbage and snow removal, general maintenance and janitorial services will also cost you $4,000 to $8,000 per month. Telephone expenses including business lines, long distance, toll free lines, cell phones, and internet will range from $3,000 to $5,000 per month. Computers along with required software will cost from $8,000 to $10,000 per month. Office supplies, forms, and data processing, yet another $4000 to $6000 monthly.
A new car dealership's largest expense is its' payroll. Expect a payroll of $2.5 to $3 million annually. Employee vacation pay, at a minimum of 4% of your payroll, will cost over $100,000 per year.
In addition, all dealerships must match employee Canada Pension Plan (CPP) contributions, and contribute up to140% of the employee's contribution to Employment Insurance (EI) premiums. With our typical dealership example, this amounts to approximately $100,000, and $75,000 respectively, on an annual basis. Workmen's Compensation (WSIB) premiums average from $50,000 to $60,000 per year.
Do you remember the old monthly O.H.I.P. premium? Many are not aware that the employer pays a specific tax for hospital care in Ontario. This is done via the Employer Health Tax (EHT), equal to 1.95% of our payroll (the first $400,000, annually, is exempt from this tax). In addition, most new car dealerships offer employee benefits in the form of Group Extended Health Plans (life, dental, prescription drugs, disability), which can cost the dealership another $40,000 to $75,000 a year.
Professional (audit and legal) fees to comply with lender?s and statutory requirements adds another $20,000 to $40,000 to your annual costs.
In order to create some savings, some of the costs outlined above can be monitored and managed however, they cannot be eliminated. They are considered part of a dealerships 'fixed costs'.
Advertising expenses vary significantly even between similar sized dealerships. This expense can be anywhere between $10,000 and $30,000 monthly.
A substantial dealership expense is the interest cost associated with financing vehicle inventory. It is quite common for a dealership (of this size) to carry $5-$8 million in vehicle inventory. Interest carrying costs related to this level of inventory, run from $20,000 to $35,000 per month. (Note that some manufacturers offer interest assistance.)
Many people are surprised to learn that the average new car dealership's net profit (before taxes) is only between 1% and 3% of total sales.
One should now understand the extent of the operating costs of a new car dealership, and appreciate the contributions to the tax structure at all three levels of government (Municipal, Provincial, Federal). With over 330 new car dealerships in the GTA, employing over 20,000 individuals, I think one can appreciate the impact new car dealerships have on our local economy. Your New Car Dealer makes every effort to earn your loyalty and to ensure your satisfaction. When one understands the huge investment in a new car dealership? it all makes sense.
This has been a very basic overview of the costs associated with operating a new car dealership. If you are still interested in becoming a New Car Dealer, or simply curious as to what it takes to own and operate a new car dealership, stay tuned, as next week?s column will outline the experience and the background requirements, and how to get there.
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