Mike in CA

Does anyone have insight as to how the PAG/PCNA/Dealership relationship works? I'm wondering if PCNA simply acts as single point of contact for the dealers with PAG or whether they are a profit center in their own right. Specifically, do dealers pay a premium on cars, parts, and accessories to PCNA or does PCNA pass on the cost of these items from PAG directly, without any additional markup? Inquiring minds need to know....

Fadi1

I think dealers are clueless....PCNA is just a façade....PAG has the secrets of the Gods and has no intention to share it wit anyone.
I was stunned to realize that I had more information than the GM of the San Antonio dealership

Drifting

who do you talk to about your GT3? Do you try to call PAG in europe?

The people at PCNA tell me that they can't do much, talk to your dealer, and my dealer says he can't do much, talk to PCNA

Mike in CA

I was more interested in the business relationship between PCNA and the dealers. PAG has an invoice price on the car which I assume is the price PCNA pays. Then PCNA distributes them to the dealers (at least that's my assumption). Do the dealers pay a premium on the invoice for vehicles and parts to PCNA over and above what PAG charges PCNA for them? I'm assuming that the dealers can't deal directly with PAG and that they must go through PCNA. This may be relevant at some point when discussing the compensation packages, assuming there are compensation packages. I'm just trying to get all the facts I can.

snabbgt3

Mike,
I suspect you are already aware of the following, direct from the PCNA website, but just submitting this on the thread as general information ...

Established in 1984, it is a wholly owned, indirect subsidiary of Dr. Ing. h.c. F. Porsche AG. PCNA employs approximately 275 people who provide Porsche vehicles, parts, service, marketing and training for its 189 dealers.

Porsche Cars North America, Inc. (PCNA), based in Atlanta, Ga., is the exclusive importer of Porsche sports cars and sport utility vehicles for the United States.

It would therefore follow, IMO, that PCNA is spokesperson for parent PAG and is therefore communicating with us in manner directed by PAG. I would think PCNAs pricing structure for vehicles/parts is PAG's own pricing structure ... I don't see a middleman role here

Mike in CA

That is the piece I'm most interested in. Thanks for your insight!

snabbgt3

^^ Welcome!

... hope PAG/PCNA gives news this week we can put to use, so we can plan our year.

Still holding out for possible return of our baby GT3s before the August Porsche down-time. We barely had chance to christen them before they were returned to their nurseries ...

Tacet-Conundrum

I'm not stunned! As enthusiast we seem to be more plugged into the system more-so than 90% of Sales People, especially those from a multiple Marque dealership. Further depending on how well you follow the other cars in the line up you probably know more than half of the sales managers. It seems to me that sales managers job is to keep an eye on their sales folk and whoop them into shape and make sales than it is to know the product and know what's coming down the the pipe.

Let me go off the handle just a little bit here, Peas and Rice, I find it amazing that anyone might buy a new very expensive car off the lot that they did not configure themselves. Sometimes, for instance, when I see a brand new Turbo, Turbo S or GT3 it seems like a monkey was trained to operate a mouse and select items on the configurator. You look at what they have chosen and you think why in the hell did they pick the items they did.

About a year ago I was telling the sales manager at the local dealership that the Real enthusiast who track their cars would rather not have Sport Chrono in their GT3s. He thought I was crazy. Almost got kicked out that day, they just get my money.

Nick

How would Sport Chrono impact how you drive at a track?

Mike, PAG called the shots. However, one would be terribly mistaken to believe the PCNA does not have any influence regarding the North America market. I believe it is still Porsche biggest market and what PCNA advises usually is followed by PAG. Along those lines, I am convinced that PCNA is taking the lead in putting together an attractive compensation package for us.

They understand the US and Canada customer better than PAG. They have insight as to what will makes us happy and will do as much as they can to deliver for us. They are not taking a back seat on this one.

008

Because of tax consequences and currency conversion they may markup items from the import price to pay their overhead. It's interesting that's it's wholly owned but indirect, which typically in my line of work is common membership and percentage ownership but not "downstream" of the parent. This may also be for US tax purposes. If one was so inclined you could probably dig deep enough in VW's fiscal reporting to sort it out of course you may have to do an IFRS to US tax basis or GAAP comparison.

Tacet-Conundrum

Exactly, Sport Chrono won't help you drive faster during driving events and races. Now if you have a Turbo and want launch control, that's a different can of beans.

john weires

Mike,
That's a good question for which I do not have any thing other than speculation for on Porsche. However I do deal with European and Japanese companies who set up American points of distribution for their product in the US. When they own the US companies under their own umbrella, there generally is no additional markup. The cost of the US distribution has already been calculated in the price you see at retail. When foreign companies hire independent companies to distribute their goods in the US, there can be additional markup.

Mike in CA

Thanks john, I appreciate that.

Z356

Mike, I am going to make an attempt to answer your questions to the best of my ability. However, please let us know where you think you are going with all of this...as it applies to your compensation strategy re: 991 gt3. I am curious!

No, that is not necessarily the price PCNA pays. I don't think we actually know what PCNA pays PAG for anything they buy/import from Germany re: Porsche cars, parts, etc.. But let's explore what is going on to allow you to reach a reasonable conclusion as to Porsche's US operations and why I think the invoice PCNA gets from PAG is LOWER than the invoice PCNA presents to its dealers for each vehicle it sells them!

As an example, let's take a MY2014 Carrera 4S Coupe with zero options. That has a base MSRP of $105,630 and a dealer invoice price of $95,067. The latter is what the independent US dealer pays PCNA for that vehicle, plus shipping (destination charges). In reality, that is not the whole story. PCNA also charges the dealer a small 'marketing/national advertising' fee per car (used to be called 'Porsche Dealer Information Services') which used to be approx. $200 per vehicle. On the other hand, it gave dealers a small credit (used to be around $85 per vehicle) for dealer prep for cleaning after vehicle comes off the delivery truck. But let's stick to large round numbers which is approx. $95K in this example as the invoice presented & paid by the US dealer to PCNA for that zero option Carrera 4S coupe. As I said before, we don't really know what PAG invoiced PCNA for that same Carrera 4S coupe...but I doubt it's the same figure. Why? Because PCNA is a very expensive operation to run and those expenses need to be covered!

Porsche business in the US is more than PCNA, a Delaware corporation with headquarters in Atlanta, GA. Besides PCNA, Porsche businesses in the US include Porsche Capital LLC, Porsche Enterprises Inc. & Porsche Liquidity LLC, all of which are also Delaware corporations owned by Porsche through an indirect equity investment and fully consolidated into Porsche financial results. In addition, Porsche Financial Services, Inc., based in Lisle, Illinois, is a wholly-owned subsidiary of Porsche Enterprises, Inc, and therefore also a wholly-owned and consolidated subsidiary of the parent corporation. It has been reported that in fiscal 2008, Porsche Cars North America, Inc., Porsche Liquidity LLC, and Porsche Capital LLC had sales of over $1.5 billion and employed 243 individuals.* Today those sales figures are much higher! As you can imagine, their expenses are also huge! I have to assume that PCNA (& its US sister companies) is making a gross profit between its costs and its sales to cover at minimum its large & growing expenses in the US! In fact, they have very grandiose plans for expansion of their facilities in the US, including a 'Customer Experience Center (with) a 1.6-mile test track and handling road course to showcase the capabilities of Porsche’s industry-leading vehicles'. Plus plans for a similar 'Experience Center' with a test track in the LA area. That will take a lot of money, my friends!

http://press.porsche.com/news/release.php?id=749

Thus, I am going to guess that the invoice presented to PCNA by PAG for that Carrera 4S coupe is lower than the invoice presented by PCNA to its US dealers. That is one of the ways they'll be able to afford to stay in the 'grand style' of business planned for this country! As to whether the difference between PCNA's total revenues vs its total costs generate any significant NET (or taxable) profits in the US...that all depends on applicable US corporate tax laws, Porsche's global tax policy, its accounting methodology and many other factors.

*info taken from 'Viking Global vs Porsche Automobil Holdings SE'

PCNA sells vehicles, parts & services to its US dealers, correct.

Yes, you have to assume US dealers pay a different 'invoice' than the original invoice presented by PAG to PCNA. See above.

Yes, US dealers buy (or deal) with PCNA to purchase product from PAG - they can't buy directly, or import, from PAG in Germany! Yet US dealers are independent businesses. Although they buy from PCNA, the designated US importer of 'Porsche Automobil Holdings SE'/'Dr. Ing. h.c. F. Porsche AG', they have dealer associations of principals (owners) that often send their representatives to Germany to meet with PAG directly (although PCNA staff is also present at these meetings). So there is a free-flow of information between the US dealers, PCNA and PAG on a regular basis.

Re: Getting the Facts

The fact is that we don't know how profitable PCNA is (or is not) because the relationship is not arms-length between PAG and PCNA. The results can be manipulated to suit a variety of purposes including global tax strategy (e.g. tax minimization or avoidance), etc.

It is also a fact that we really don't know how profitable most independent US Porsche dealers are. The difference between PCNA's invoice and MSRP is a small part of 'profitability' for US Porsche dealers. Remember discounting is widely practiced, so those margins are often illusury. And a dealer's biggest cost is the financing expense of his land, physical plant & inventory. That is a huge nut to crack!

As an interesting aside, there are also other forms of compensation that goes the other way - from PCNA to their US dealers. Depending on how many vehicles are sold, what mix of vehicles are sold, what kind of feedback from Porsche customers it gets (via J.D. Power surveys), US dealers might be compensated by PCNA via 'other' monetary means. These are, loosely speaking, a type of 'holdback', which is a well-known practice by American auto manufacturers re: extra compensation for their American dealers which are not accounted in the initial cost of goods (e.g invoicing). European importers don't call it that, but whatever the name, it apparently exists. These secretive cash flows from PCNA to dealers are generally known ONLY to the owner / principals. Most general managers or sales managers of Porsche dealers don't know the amounts of these informal kickbacks. In theory, a dealer might sell all their Porsches at invoice and still make money on each vehicle sold via these back-handed incentives. There might also be 'trunk money' on certain vehicles at Model Year end (left-over vehicles in stock when newest MY vehicles start arriving at the dealership). In practice, a dealer could sell a left-over MY2013 Porsche right now at BELOW invoice cost and still be making a 'profit' on each car. Last but not least, the expensive warranty work which is paid by PCNA under franchise contract to dealer's service departments!

In general, US Porsche dealers today don't make their profits on new car sales. They make their profit on used car sales, warranty work (paid by PCNA), out-of-warranty service and parts...if they make any profits at all! New car sales is often the least profitable part of their business - especially given the competition in the marketplace and the discounts currently available in the luxury segment. In practice, the payoff of a Porsche dealer comes on the day he sells his business...not from running it day to day!

The bottom line, Mike, is that anything you learn about 'invoice' (which is your current line of questioning on this thread) is probably not going to tell you WHAT you think it should tell you re: your 991 gt3 compensation strategy. But you need to tell us more about where you are going with this!

But regardless, best of luck!
See above.

See above.

Saludos,
Eduardo
Still Sleepless in Seattle

.

az audi

Nice post Z356.

The only item you did not mention is a "floor plan". I assume The dealers have one from PNA or PAG... Basically, the dealers are given free (or heavily subsidized) financing for new inventory for the first 1-3 months. So it costs the dealer nothing no additional working capital) to have new inventory as long as they sell it before the financing runs out. In the reverse, if they sell the car early, they have this extra financing available that (if they manipulate it correctly) they can use to finance other activities of the dealer. Once going, a dealer is very profitable with very high IRRs. My equity guys finance a few national dealers... They explain it is like printing money and that new car sales is the driver of the profitability. I always thought it was used car sales and service.