SA Roadtests
South Africa
ctjag8
Posted: 11 August 2014
Updated, with professional help, on 7 December 2015
“Wow did you see what those people down at Jim Fish Motors sold our old car for? Three hundred grand! And all they could offer us was a measly two-thirty. That’s seventy gees profit for nothing! They make me so mad I could…”
If you haven’t said something like that, one of your friends or a relative certainly has. But without apologising too much for Mr. Fish, and thousands of his colleagues in the motor business, you need to step back a pace and look closely at the example above. The car was sold to its proud new owner for R299 900; a fair price for its make, model, age, condition and present market circumstances.
The first thing to remember is that, unlike you, Jim Fish Motors is a registered trader. That means the firm had to charge the new owner 14-percent VAT. That little delicacy comes straight off the top and is handed over, untouched, to SARS. Jim Fish Motors has therefore sold the car for a rounded, nett sum of R263 070 – 18, which is as close as anything to the R265 000 you might have got for it on the Internet. But let’s look even closer.
Because it’s a business, Mr. Fish can claim something called Notional Input VAT on the trade-in. That sort-of assumes he paid VAT on it. While he did give you the whole R230 000 by way of trading the car in, it wasn’t split into cost plus VAT. He could not do so because you are not a VAT dealer. Had he bought the car from another trader, we wouldn’t be doing all this to-and-fro would we?
The Notional Input VAT is simply a SARS exercise to give the dealer something to put into his Input VAT column and keep his paperwork tidy. That means Mr. Fish bought the car for, effectively, R201 754 – 39 plus the R28 245 – 61 VAT that goes into his input column.
You, the previous owner, firmly believe that your pride and joy needed no more than a decent wash before placing it on the showroom floor. But let us step into Fish’s shoes and imagine your most critical self as a typical, eagle-eyed buyer looking for imperfections as it stands on the used-car lot.
Knowing what your critical self, or his typical customer, would look for, Mr. Fish noted the tiny parking lot ding, the insignificant brush you had with the gatepost and the few negligible chips in the paintwork. The engine compartment and interior were 90-percent perfect but a couple of tyres looked marginal. Like any wide-awake car dealer, looking for as peaceful a life as possible, he prepared himself for what was to come.
He sent the car out to a body shop to have those little mishaps attended to. Costs differ from place to place because the level of quality sought, and prices charged, varies according to the car and its intended market. Typical charges range between R700 and R1000 per panel. Your old car was intended for an upmarket home, so let’s say that cosmetic refurbishing came to R5000.
You put 60 000 kilometres on the clock and made sure of trading up while there was reasonable life left on the front tyres. But you know as well as I do that your critical personality would demand that they be replaced. Nice car, nice tyres; make that R4000 for the pair.
Now for that decent wash and valet service it needs in order to dazzle prospective new buyers. Charges vary from R500 to R600, so for the sake of easy sums at the end of this exercise, let’s say the dealer wanted a decent job and paid the higher amount. After all that, he couldn’t possibly sell a three-hundred-grand car “as is” could he? Add R400 for the roadworthy certificate, bringing your dealer’s costs to (400 + 600 + 4000 + 5000) R10 000.
Add that to the R201 754 – 39 he gave you against your new car, and it owes him exactly R211 754 - 39. He would say it “stands him in” at that amount, because Fish and his buddies have a language of their own. Then, because has to cover his fixed overheads (rent, lights, phone, cleaning, wages, interest payments, office furniture and what-not) he adds a fixed charge per vehicle that his accountant assures him should cover everything.
This obviously varies from dealership to dealership, but let’s assume that our Jim’s magic figure is R15 000 per vehicle sold. That brings his nett cost before markup and VAT to R226 754 – 39. As we saw in paragraph 3 above, he sold it for R263 070 – 18 Plus VAT, which equals R299 900 – 00. This gives him a markup before sales expenses (commission and advertising, thank-you gift, petrol used for demos etc) of R36 315 – 79.
The business is more complicated than this simple example shows, and there are many variables, but you get the idea. If you hadn’t been in a hurry to buy your new car, if you had been prepared to run the risk of your private buyer not paying you, and you had been okay with carrying the can for any unexpected latent defects that you would have had to fix, you would have split the difference and sold it for R265 000 wouldn’t you? That’s without VAT, new tyres, overheads, cleaning it up, putting it through roadworthy or taking any chances.
I’m not being harsh - because I sympathise – but remember that for every finger pointing forward there are three pointing back …
END
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SA Roadtests
South Africa
ctjag8