• Mar 22, 2011
2011 Hyundai Sonata 2.0T – Click above for high-res image gallery

Hyundai is holding a hot hand with its current lineup. Sales are climbing and perception of the brand is swinging strongly in the right direction. Not everyone is singing just yet, however, because Hyundai dealers are apparently lagging behind the competition in one very important area: profits.

In 2010, the industry-wide average dealer profit was 2.1 percent of total sales. Hyundai has seen its average dealer profit rise over the last few years, but according to Automotive News, it's still below industry average; last year, Hyundai dealers earned 1.9 percent. On the flip-side, Honda dealers enjoy an average profit of nearly three percent of total sales.

One area where dealers see hefty profits is from the service bays and parts sales. Ford and Chevrolet dealerships might see 85 percent of their overhead costs taken care of by the service department. A typical Hyundai dealer may earn enough to handle 40 percent.

Hyundai dealers also have to contend with shortages of their popular models and weak used-car sales. Yet as more folks buy Hyundai vehicles, the dealers will increase the speed at which they catch up with the competition. More vehicles on the road will lead to a rise in trips to the service bay and parts sold. More used current-generation vehicles will help turn around used-car sales. Hyundai dealers know this, and 85 percent of the nearly 800-strong network is operating in the black.



Photos copyright ©2011 Zach Bowman / AOL

[Source: Automotive News – sub. req.]


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    • 1 Second Ago
  • 39 Comments
      • 3 Years Ago
      "On the flip-side, Honda dealers enjoy an average profit of nearly three percent of total sales."


      Just more proof that Honda's are overpriced.
        • 3 Years Ago
        They are overpriced. I know some people are willing to pay extra for the brand name, but they don't offer more utility/power/fuel economy/features than their competitors, and they're trading on past reputation at this point. They earned that reputation in the 90's and 00's, but they aren't a leader on content or technology anymore.
        • 3 Years Ago
        No, it's proof that spending decades building a quality product and thus the image of a quality product will command higher profits and customer loyalty in the longer term. Success takes time.
        • 3 Years Ago
        A lot of that higher profit margin is due to more service work (simply due to many more Honda vehicles than Hyundais having been sold over the past decade) and significantly higher used car/CPO sales.
      • 3 Years Ago
      Reminds me of the recent strong indication that Mercedes reliability was starting to come back: Dealers reported significant drops in warranty service revenue.
        • 3 Years Ago
        That's a problem across the board. Dealers generally don't make much (if anything) on sales. It's the warranty work that brings in the money. With cars being significantly more reliable, they can't count on that revenue anymore. It's trashing their ability to make money, regardless of brand.
        • 3 Years Ago
        I think dealers make more from maintenance ($40 oil changes) and older car repairs than they do from warranty work. For warranty work, they get what their corporate overlord gives them. For everything else, they get whatever they can get away with.

        I'm thinking of the fact that Ford's warranty repair costs have gone way down in the last few years (can't remember the exact number, but there was an autoblog article about it a year ago or so). Yet Ford dealers are making 85% of their money from service. It may also be related to the consolidation effots Chevy and Ford made in the last couple of years.
        • 3 Years Ago
        Warranty service rates typically lower than customer shop rates. Warranty work not necessarily a money maker unless the service writers can add on some extras. As many are on bonus, they're quite ready to do that.
        • 3 Years Ago
        Bingo! So, what's the problem then? I say it's greedy stealerships. If your service bays aren't constantly stocked, you've got a good, reliable product on your hands.

        No one is stopping these dealers from getting rid of their Hyundai's and picking up a different brand. Cry me a river.

        GO HYUNDAI!
        • 3 Years Ago
        they should really have a warning before thowing that things front end. I was eating.
        • 3 Years Ago
        If they are gunning for profit from service dept, they should all start selling Chery and Geely cars.
        • 3 Years Ago
        This is Hyundai's secret: they're willing to lose buckets of money to build their US franchise. Somewhere around 2020, watch for them to decontent the cars, raise the prices, and try resting on their laurels the way GM, Toyota and now, it appears Honda, too have done each in their turn.
      • 3 Years Ago
      Hyundai has built a business model around a never ending promotional discount.

      But it doesn't seem like they have not worked out the long term impact of a 10 year, 100k mile warranty and undercutting other the other cars in the same segment by $1-2K, all in an attempt to lure customers from the competition.

      So the natural outcome will be lower commissions for the sale staff, lower revenues from service that you still must perform at no cost to the consumer, and the consumer ends up with an overall lower resale value as the initial price was the 'cheapest' segment.

      And with all the marketing noise about Hyundai Sonata sales, for Feb 2011 Chevrolet Impala outsold it, and the Elantra barely beat the aged and outgoing Ford Focus at #15.

        • 3 Years Ago
        Why are you comparing the Sonata's sales to the Impala's? Yes, the Impala is constantly a top-seller.........to fleets. No one really cross-shops the two, though. Elantra sales are rising, too. Considering the size of Hyundai's dealer network, it's an accomplishment.

        And what do you mean, they haven't thought of the "long-term" effects of their extensive warranties? They've been offering them since the 90s! If they made it through the last decade without being destroyed by repair bills, I think they're in the clear.
        • 3 Years Ago
        Those discounts and 10 year 100k warranties hardly affect the profit made by dealers. Hyundais profit margins for selling stickers and their holdback profits are about the same as a similar priced car in the segment. The real profit killer is their reputation of having inexpensive cars. Just because its known for being inexpensive doesn't mean the buyer will think that off the bat and buy it sticker. Hyundai buyers come in to dealerships to buy cheap cars and they will bargain to be even cheaper because that is what bargain shopping for a new car is all about. Hyundai shoppers only shop Hyundais because they want the best deal, and no Hyundai buyer will buy a Hyundai without haggling.
        • 3 Years Ago
        Just what this site needs, more CLUELESS posters who know little about what they post.

        Taking out fleet sales, Hyundai sold 174,885 Sonatas in 2010; that's higher retail sales than the Fusion (150,885) or Malibu (134,835).

        Putting aside that the Impala is not even in the same segment, the Impala had a whopping 47,173 retail sales in 2010.

        Hyundai also had significantly lower incentives in 2010 than either Toyota or Nissan and for a good part of the year had lower incentive spending than even Honda, and avg. profit dealer has risen from 0.8% of sales in 2008 to 1.2% in 2009 to 1.9% thus far in 2010.

        Also, the rise in avg. dealer profit was probably somewhat limited by the aggressive discounting by Toyota dealerships over the past year or so.
      • 3 Years Ago
      It's a little hard to swallow the argument that they should build crappier cars that break down more so the dealers can make more profit on parts and repairs.

      hahahhahahahaha....

      But seriously, this is just a matter of time and I doubt you see a lot of hyundai dealers complaining about how hyundai is doing the past year or two.

      The used sales will pick up as this current crop of very desirable units ages.
      The same for the parts/repair side of it.
      • 3 Years Ago
      Another good reason why I bought my new Hyundai-reliability. Hyundai sure does make good cars these days.
      • 3 Years Ago
      • 3 Years Ago
      1. Start making good cars and make them popular
      2. Build brand reputation for being a reliable car by selling at a very reasonable price
      3. raise prices ???
      4. profit?

      • 3 Years Ago
      This is overly simplistic - Just because the percentage of profit isn't greater doesn't mean that gross profits arent greater:

      A 1.9% profit of, say for examply, $750,000 in sales/month (@ $15,000/month) is certainly better than 1.9% of $250,000 in sales/month ($4700/month)
      • 3 Years Ago
      I'm not sure increasing average dealer profit in service bays and part sales is a winning model.

        • 3 Years Ago
        Of course not, it's a BI-WINNING model!
        • 3 Years Ago
        Definitely not if 'winning' includes having repeat customers. Bringing more revenue through oil changes and tuneups is another issue, but more service centers would have to be open on weekends to fight that battle.
      • 3 Years Ago
      Good for customers but not so good for dealers.
      • 3 Years Ago
      So this more or less indicates that they have a solid product from the start that doesn't need servicing often, that doesn't need dealer supplied accessories, like roof racks, chrome strips, etc.?

      Basically the *downside* of having a decent reliable car I suppose, but since they're selling so many of them, it probably is more of a profit in volume.
        • 3 Years Ago
        I think a lot of it has to do with the fact that their sales numbers have been climbing pretty quickly in the last few years. Most 1-5 year old cars don't require much of anything these days, so the dealers aren't seeing out-of-warranty repair revenue yet. They will in 5 years, when wear items (brakes, wheel bearings, whatever) start to give out, but in the meantime the US Hyundai fleet is significantly younger than say, the Ford or GM fleet, which had huge sales in the early 2000's.
      Rob
      • 3 Years Ago
      Interesting that Honda has the highest profit margin. With just about every auto maker meeting or exceeding Honda with the products they offer Honda dealers will be forced to negotiate more where in the past they had the luxury of not having too.I think the days of people willing to shell out $2,000 over sticker to get a Honda are pretty much over.
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