When Mr. Ruggles spoke to us last week I remember one point he made stuck out to me. He explained to us that dealerships only make about 2% profit on their car sales. This to me seemed very low compared to what I assumed dealerships would bring in on sales. One major reason why I was so surprised by the low return on sales that dealerships get is because of Tom Benson. Mr. Benson is the owner of the Saints and Pelicans, but he has one of the best rags to riches stories I know. He started his career as a car salesman and eventually purchased the dealership that he worked at from there he purchased more dealerships and developed wealth which he turned into more wealth and eventually purchased the Saints and Pelicans and is now the wealthiest person in Louisiana. Knowing his story 
made me wonder how this was possible with such small profit margins on cars sold in dealerships. My confusion led me to ask Mr. Ruggles how this would be possible and luckily Mr. Ruggles knows who Tom Benson is. Mr. Ruggles explained to me that since interest rates are low a dealership owner can take loans out on their inventory and if their dealership is successful then they can pay off their loans completely from their business and just generate equity. He explained that by expanding and using this method in multiple dealerships it is easy to amass wealth quickly and because of the success of Benson’s dealerships, he was able to expand into purchasing banks and real estate to gain more wealth.
Ruggles: Equity Building Through Dealerships and Tom Benson
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Along the same lines, today at dinner, David’s uncle explained how some car prices are more negotiable than others. He offered the example of the Jeep Wrangler, which has very little wiggle room for price negotiation. Specifically, he explained that the Wrangler is marked up only about 800-900 dollars because they sell so easily. In contrast, BMWs are marked up significantly more because the business is relatively low volume due to the more luxurious nature of the company. I thought this was particularly interesting in relation to dealer profits because I think many of us were under the impression that cars are usually marked up thousands of dollars and it’s up to the customer to negotiate the price down.
I think a significant point that should be noted is that Mr. Benson knew his market. He knew that dealerships were the customers of auto manufacturers, and the demand for cars was applied to these dealerships. Mr. Benson knew that he could take loans out of his inventory and by being successful, could accumulate equity through these loans. This reminds me of one of Mr. Cosgrove’s eight keys to a successful car company, running scared. I’m sure Mr. Benson knew that, by constantly attempting to improve, if buying loans on his dealerships could produce a successful profit, he could constantly look to improve his dealerships and, in accordance, his profits.
Being a workaholic helps, having weak competitors adds to it – running scared not complacent, and when your cross-town rival makes a mistake…. Plus just being good at watching the numbers.