A command economy – the franchised dealer sector

What happens after a car leaves the factory is the ‘downstream’ end of the business – it is the process of buying a car, having it serviced and reselling it. Although we tend to think of the purchase of the car itself as the biggest cost item, the downstream sector is a major part of the cost of motoring. It is also the profit engine of the industry. Figure 6.1 shows how significant the downstream sector is for the global automotive industry. It is where the money is made. Everything downstream excluding fuel, the government and the wider social arena, contributes over half of all profits. No wonder it is fought over so strenuously.

Figure 6.2 shows a breakdown of the cost of motoring in Europe, expressed as the lifecycle costs of a vehicle. The owner, or succession of owners, carry the depreciation of the vehicle, of which 70 to 75 per cent is its ex-factory cost and 25 to 30 per cent the costs of marketing and distributing it. Within the 25 to 30 per cent, 10 to 12 per cent is the discount or gross margin given to the dealer who retails the car. Excluding only the financing cost (the cost of the capital tied up in the vehicle during its life), insurance, and taxes and tolls, the downstream sector costs about 60 per cent of the whole.