Hi,

Well, the way how dealers conduct their business is to make the customer to pay the VAT on the RRP in addition to road tax, number plate + etc and after the car is sold the dealer is entitled to claim back the VAT that the dealer paid when the car was bought from the manufacturer (or its representative) and it is included in the dealer invoice. For the case of the Outlander GX4 the dealer paid 23,934 (including VAT which he/she can claim back) for the vehicle. If the dealer sells the car at 28,904 the dealer net profit will be 4,970.

The dealer claims back the VAT paid in the dealer's invoice and it is approximately the manufacturer invoice 19,945 multiplied by 0.2. This is about 4,000. The online (Internet) sale of cars constrains this profit to approximately 1000 instead of 4,000 (a saving of about 3,000). When dealers meet their target of car sales they usually received a bonus, so if they are short of their target they will agree to sell their cars for minimum profit.

Edited by batman29 on 21/06/2011 at 00:15

Could you help with this question?

Not sure what the question is? If it's

How are the online (internet) sales of cars ALLOWED to offer cars to customers at a lower price than dealerships quotations? ......... then without trying to be a smartXXXX, the answer is that anyone can sell a product at whatever they want to.

If you're asking how can the on-line dealers AFFORD to sell at such a discount, there could be any number of reasons (& VAT ain't one of them).

1. They could have little or no overheads compard to a franchised dealer & so they could simply be working for considerably less margins
2. they could be buying the cars from the manufacturer at a much reduced price,
3. they could be pre-reg cars advertised as "NEW" meaning they have only been "owned" by the dealer / manufacturer,
4. they could be imports,
5. the on-line seller could be the manufacturer (check Vauxhall for example)

If you want more accurate suggestions then we would need to know the on-line site in question