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Are Car Dealers a Business Worth Keeping? (vox.com)
schwit1 writes: An opinion piece at Vox argues that "car dealers are awful," and the efforts to protect them against direct sales from Tesla and other manufacturers are misguided. "Buying a car involves going from dealer to dealer, each of whom has his own inventory. One guy only has blue paint. The other guy doesn't have the blue paint, and also only has dark gray seats. And each has his own fake sticker prices and complicated cash-back offers. It's no wonder 83 percent consumers say they would rather skip the haggling, and a third of people say doing taxes is less annoying than working with a car dealer.
But it's not just the hassle. State bans on direct sales turn out to cost consumers an enormous amount of cash. It's an enormous problem, and it warrants a federal solution. Cars are the most expensive consumer product that the typical consumer buys. And while it may seem obvious that cars are expensive due to the material and labor required to build them, the logistics of distributing cars is actually a very expensive part of the process. Research by Eric Marti, Garth Saloner, and Michael Spence has concluded that as much as 30 percent of the cost of a car is the cost of distribution.
But it's not just the hassle. State bans on direct sales turn out to cost consumers an enormous amount of cash. It's an enormous problem, and it warrants a federal solution. Cars are the most expensive consumer product that the typical consumer buys. And while it may seem obvious that cars are expensive due to the material and labor required to build them, the logistics of distributing cars is actually a very expensive part of the process. Research by Eric Marti, Garth Saloner, and Michael Spence has concluded that as much as 30 percent of the cost of a car is the cost of distribution.
from the ./ headline:
Are Car Dealers a Business Worth Keeping?
Remove the prohibitions on direct sales from manufacturers to the public. If the dealers survive, they are worth keeping. If the dealers fail, they were not.
Ceci n'est pas une signature.
Look at the places where people still haggle over crap like a bag of rice or a pair of pants. Their economies are always underdeveloped with a low standard of living. Moreover, look at the most successful retailers: Walmart, Amazon, Target, that Swedish furniture chain, etc. They all have posted prices. They dominate global retail. If haggling was efficient and productive then some Egyptian or Bangladeshi retail chains would dominate global retail. This is not the case. The price tag was one of the most important innovations of capitalism. So why the fuck do we still by cars like some old lady in a 3rd world market haggling over some melons?
The dealers already pay Chevy it's price. The only wiggle room you get is on the dealers profit.
Chevy competes with Ford much better then Joe's Chevy competes with Fred's Chevy.
And then you get the 5 state regions where all Honda/Accura dealers are owned by the same corporation.
Stealerships might have been needed when there were 3 car companies worth considering.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
Lol, I love beating the dealers to pieces. I game the hell out of them and they can't do a thing about it. Here's what I do.....
I start with the best advertised car price and call each dealer near me.
I say, "Here's our best price so far, can you meet it? No, we're not coming in. Just email me your best price and if it's good then we'll come in." I told them exactly what model so the quotes would all be for the exact same vehicle. I also emailed several of them competing quotes from other dealers.
So I did this several times, getting lower and lower quotes each time. :) They complained bitterly about my doing this, but they beat each other senseless trying to shave another hundred or so off the last set of quotes.
They would say, "Well if I give you a price then you'll just go to another dealer and they'll give you a lower quote, wah wah wah".
And I said, "Damn right I will, wouldn't you? I'm just doing my due diligence trying to get a fair price quote. If you don't want to get this sale, don't give me a quote, it's not a problem."
"Wah wah wah" went the dealers. "This is unfair", "You're just taking advantage of us!", "Wah wah wah", and so on. lol
But they kept giving us lower and lower quotes. So fug 'em. It's not like I was putting a gun to their heads. :)
Then I found out something interesting. The dealer physically closest to you is under A LOT of pressure from the car company to sell the car to you, it has to do with their service area and their local sales market. Apparently they get big brownie points for making sales close to their dealership, and they get frowned on if they lose a sale to another dealer farther away. But a dealer farther away will quite happily sell you a car no matter where you live. Hmmmm, let me think about that.... Muwahahahaha. :)
So once they'd beat each other down pretty close to what they claimed was the "lowest price" they could offer, I spoke to the closest dealer to me (Dealer "A") and told them that Dealer "X' (about 25 miles away) had made me a really good offer, so I was probably going to buy from Dealer "X' , and I was just letting Dealer "A" know to be polite. Cuz I'm a polite guy, you know? That's what makes me so fucking loveable.
Whoah baby. I was getting a pretty good discount before, but now, as they say, "shit got real". And Dealer "A" dropped the price considerably and threw in a bunch of extra crap and offered to name their first-born child after me. I told them, "Well, I gotta tell Dealer "X" that I'll probably go with you guys then".
"Oh noes, don't call them!! They'll just offer you a better deal, err, I mean..."
So to make a long story short, I went through this "closest/farther" cycle a few times, and the prices kept getting lower and lower. And I hadn't even left the house yet, this was all by phone and email . :)
We did finally end up going with the dealer closest to us, and although I'm sure they made money on the car, they didn't make nearly as much as they would have liked to. We saved over $5000 from the original "best price". I've tried not to cry myself to sleep over this.
Just cruising through this digital world at 33 1/3 rpm...
most cars sold are sold by dealerships owned by large chains that span counties or states. you might call them regional businesses, but very few of them are small enough to be considered local.
I wouldn't be too concerned about it. Warranty Service is the biggest profit center at most dealerships. Third party repair centers would happily take over that role if given the chance.
As soon as the warranty ended, I never went back. My local shop is much better then the dealer. If yours is not, find another one.
Bullshit. Haggling for car purchases benefits three people:
1. People who are aggressive negotiators. Not everyone has the stomach *or time* to negotiate on a car.
2. People with money. Rich people have choice including the ability to wave a fat stack of cash at the dealership. Poor people have to take what they can get.
3. The dealers who can anchor prices at ridiculous heights. Because of the lack of free information and restrictions on how long people who need cars can go without them before it starts costing big car purchasing is not a free market and thus the invisible hand does not help.
That's not entirely true, because the dealer's pricing isn't that simple, either. They're typically buying the cars from the dealer on credit and get a discount if they pay back faster than the terms of the credit agreement. Manufacturers will also offer incentives to the dealer, like a substantial bonus if they meet a challenging sales target. The net result is that the dealers may sometimes make deals on individual cars that don't appear to make sense given the "dealer price" but that do make sense when you look at all the discounts and incentives they're getting.
There's no point in questioning authority if you aren't going to listen to the answers.
I just markup how much I need an employer to pay me by the amount of the taxes such that it's equivalent to me paying no taxes.
And the employer marks up the costs of the products we sell so that it's equivalent to him not paying me at all.
And the customers of those products simply insist that their employers pay them more to cover the cost of the products, so it's like they're getting those products for free.
Wow, this is awesome. Somehow nobody ever pays for anything in this system. Money doesn't exist! It's all magic! Yippee!
---
OR...maybe all money flows in a loop and we tax it when it changes hands. Oh, that makes a lot more sense. The world makes sense again. I guess I was just temporarily a huge idiot who didn't know how economics works.
This is why you ALWAYS buy a car at the end of the month... because some stealership somewhere is DYING to make their sales goal, and will practially GIVE you the car in order to make that goal. There's an excellent This American Life podcast about it.
Which has more power: the hammer, or the anvil?
There would still be factory-authorized service stations. They ride on the dealership concept today, but are essentially a separate business responsible for their own profit. No reason to think that half of the business would fail, since they have a captive market.
You are not limited by dealer's inventory.
You normally order a fully customized car, which is built specially for you.
It normally takes 2-6 weeks to manufacture and deliver it.
a third of people say doing taxes is less annoying than working with a car dealer.
The other two thirds are people who have never bought a car from a dealer.
Car dealers are useless middlemen that provide little to no value to car buyers. The only reason they still exist in the new car market is because they are protected by law. The sooner they go away the better. If they could provide actual value I wouldn't object to their existence but 99%+ of them are nothing more than a needless markup to the price of the car and add a lot of irritation to the process. Not to mention that many have a well earned reputation for being crooks.
Squeezing $120 billion of efficiency out of a $400 billion industry by largely eliminating the jobs of people who we find irritating might not be the best course of action and could put 1 million irritating people in jobs that bother us even more.
Lol, I love beating the dealers to pieces. I game the hell out of them and they can't do a thing about it.
Some people do enjoy the negotiation. Most Americans very much do not and I am one of them. And frankly for most people, car dealers are better negotiators. They do it all day every day and they are well practiced. Plus it frankly is a huge time sink and an annoying one at that. I've negotiated plenty of car buys but the experience is never painless or fun.
And honestly no matter what price you get from a dealer, there is a markup involved. They aren't selling it to you at a loss. I would rather deal directly with the manufacturer and I'd even be ok with splitting the dealer markup between us. Both the manufacturer and I would be better off. Dealers cannot go away soon enough in my opinion.
There is a dealer in Minneapolis that sells nothing but used cars, and most of them are like 1-2 years old with very low miles. My wife bought an Acura MDX that was 1 year old with like 14,000 miles on it and it looked brand new inside and out. We drove the same model and trim new and couldn't see any differences (there was no model year changes).
And the savings were great, much more than any discount we could have gotten off a new car.
The car still has an extensive manufacturer warranty, serviceable by any dealer.
I bought my Volvo S80 V8 used from a dealer, a one owner lease return. I paid HALF the sticker price (sticker found inside the car) with 20K miles on it and it was totally mint.
The other nice thing is avoiding troublesome new cars.
Indeed. Bought a jeep wrangler from a "group", they have dealerships all over the San Francisco Bay Area. Most independent dealers (with one lot) look to get bought out by these consortiums. Leaving dealer's like "Fast Bubba's quality cars" trying to sell you a pacer with mis-match panels and primer all over the body. Well, who can blame them? A big pay out for your business is a very attractive offer.
Python: 'And then suddenly you have a language which says "we're all stuck with whatever the whiniest coder wants".'
So you, an individual who buys a car once every few years, think you can negotiate a as good a deal from the manufacturer than a bunch of dealers who buy hundreds if not thousands of cars from the manufacturer each month?
If you think your negotiating skill is that great, then you should have no problem negotiating a good price from dealers. If your negotiating skills suck, then you're far more likely to be taken to the cleaners by the manufacturer than by multiple middlemen in competition with each other.
I know Tesla is everyone's darling, but they're in a unique position because of their low sales volume. In pretty much all other industries, manufacturers don't want to deal with direct sales because it introduces variables like market projections, overhead like leasing warehouse space, and the logistics of dealing with product returns. They'd rather just concentrate on making the product, and ink a deal for 10,000 units with a middleman (supermarket, department store, electronics retailer, etc) and be done with it. The middleman handles all the marketing projections (to figure out how many items their geographical area needs), advertising, inventory, and returns.
if chevy sells a car to a dealer for $16000 and the dealer after haggling and whatnot sell the car to me for $17600 then the dealer made their 10% profit. Cut out the dealer and buy from the manufacturer and they will just sell me the car direct for $17600. It is foolish to think anything else would happen.
The dealership sold you a car for $17,600, but they sold the same car (in red) to your neighbor for $16,900 and to my brother-in-law for $18,200. The dealership can spend three hours haggling to figure out just exactly how much each customer is willing to pay. In fact, they have to, because haggling is their entire profit margin.
Direct manufacturer sales will make plenty of profit without haggling. They're likely to be more interested that each customer feels fairly treated during the purchase, and a couple hundred dollars one way or the other just doesn't matter. If a customer thinks Joe's Chevy cheated them, they'll go to John's Chevy for the next purchase. If they think Chevy cheated, they'll be going to Ford.
Point is: if you take out a middleman tax, the seller gets more money, the buyer pays less money, and everyone's happy except the middleman. Sales taxes are still paid locally, property taxes are still paid locally, staff are still hired locally, so most of the 'local' money is going to stay local.
I DESPISE haggling. I won't do it under any circumstances. I find it to be a major waste of time and energy.
When I give someone a price that is the price and it is not open to negotiation. If I see a price and I think it is fair I will pay it, if not I will go somewhere else and that is the end of it.
If there is somewhere that only does haggling I would just not go there ever. If there is an item that can only be bought with haggling I will just not buy it or pay someone else to do it.
Computer modeling for biotech drug manufacturing is HARD!
#3-7 are pretty much lumped together, but here you go:
#1. The service center
#2. Car leases (dealers LOVE leases, very profitable for them. May even beat out the service center soon.)
#3. Added junk (underspray, fabric protection, accessories, etc)
#4. An extended warranty that you can never use
#5. Financing (How much per month were you looking at...)
#6. Handling/Processing
#7. Kickback from manufacturer
Then about last on the list:
#8. Price of the car / markup
Having lived in the US previously, I much prefer the Norwegian (and most of the EU) model where you go online or to a dealer and figure out exactly which car you want:
Engine, paint, transmission, seats etc, then you haggle a bit about the price and order it, with delivery a number of weeks later.
In the US it seemed dealers really needed to be able to deliver a car TODAY, not tomorrow or next week.
Personally I ordered a Tesla 4WD model a few days ago, for delivery in the beginning of March.
The main difference from my last car was in the fixed sticker price: No haggling about rebates, just a simple take it or leave it offer.
The main reason for getting a Tesla here in Norway is of course our incredibly high import duties and taxes on regular cars (a car with a V8 engine would probably cost 2.5 to 3 times as much as in the US), while a Tesla has no import duties, no sales tax, no road fees and lots of free parking & charging. In a couple of years they have stated that the relative subsidies for zero emission vehicles will get a cap, so only smaller cars will be able to take full advantage.
Terje
"almost all programming can be viewed as an exercise in caching"
4. People who aren't dependent-buyers.
The ability to walk away is important. If you are shopping for a car because your car died and you don't have super credit or savings, haggling works about as well as bluffing in poker. You may not have the stomach for that, but it isn't the fault of the haggling system.
Help fight poverty: Punch a poor person.
Most of the comments have been made by people who have never worked within the automobile industry and who hate the current process of buying a car. That's fine, but they're missing some important parts of the picture. The first unmentioned part is that the majority of deals involve a trade. As much as you think people hate buying cars, you will quickly discover that they hate selling their cars even more. Most people are entirely too lazy to prep their cars for sale, and are usually unwilling to invest in the repairs that will facilitate the sale of their vehicles. The second issue is that a huge percentage of the buying public has marginal to poor credit. The auto dealership essentially preps and polishes the credit application, and then finds a lender willing to buy marginal paper.
These two criteria eliminate about 85% of the buying public from purchasing directly from the factory. Really.
"Man is nothing without the works of man" -- Helvetius
most cars sold are sold by dealerships owned by large chains that span counties or states. you might call them regional businesses, but very few of them are small enough to be considered local.
If anything, the manufacturers are putting ever-increasing requirements on the franchised-dealers, such that many smaller dealers lose their franchises. Several years ago Chrysler ended agreements with probably a third of their dealers, many of them their oldest franchises, because those dealerships would not modernize their facilities and did not contribute much in the way of promotions. Ironically most of those dealerships were on land that was paid-off, so they didn't really have to sell many cars to keep afloat so long as the service department was successful. Not selling cars isn't good for the manufacturer though.
The only real services that dealerships offer that I value are new-car prep and warranty/recall service. I do not value their out-of-warranty or other paid-service, and I do not value the purchase process. Both are much more trouble than they're worth.
As far as corporate vs franchise, there are plenty of industries where there are both corporate end-retail locations and there are franchise end-retail locations. Restaurants immediately come to mind.
Do not look into laser with remaining eye.
Deals make their money from used cars. Always have, always will.
New car sales profit: $1000 over invoice at a 'no-haggle' (which is about the average paid when haggling).
If you are *really* good you can work it down to oh say $600 or $700 if they dealership is really hurting for sales.
You are *always* getting screwed on your trade-in, *always*. ... so YMMV.
Advice: never bring a car to trade it. But then it's a colossal PITA to do a private party car sale
Manufacturer makes the money on a lease .. they are doing the financing through their wholly owned subsidiary.
If you by-pass the new car dealerships you still have the used car dealerships so I don't see it as much of a win.
Manufacturers hide the real invoice price with incentives etc....
love is just extroverted narcissism
Negotiation is a waste of time and energy.
I have no interesting in playing games with price. You charge a fair price and I will buy. You charge an unfair price and I won't. I won't even talk to you about the price. If I think it is unfair compared to a simple internet search I will just go elsewhere.
I care about solving problems related to making drugs for curing things like cancer available. I care about figuring out new ones to optimize a problem. Talking to a human to figure out a price on something just does not make the list of anything I am interested in. If I have to talk to you to figure out a price you already cost too much.
Computer modeling for biotech drug manufacturing is HARD!
I wind up paying 20% to 50% more for a vehicle than my counterparts in the UK or Germany, and wind up with a shittier vehicle to boot.
I have relatives in the UK, and lived there for years. My rule of thumb is that most things there cost in pounds what they do in dollars in the US. Cars aren't quite that bad, but a quick search shows a Toyota Yaris starts at ~$16k in the UK, ~$14k in the US. So I'm not seeing your 20% markup in the US.
I am a bit of an aficionado so I buy a lot of cars and own a stupidly large number of vehicles. I never, ever, trade in my car. Well, okay, I've done it twice - sort of. One was an exchange where the dealer paid me money and a new car. It's a long story. I'll share it if you really want...
Anyhow, it's not hard to do a private sale. Just do it on your terms. I've moved more cars than I can think of right now. The internet really helps with this as does a cell phone. Just take it to the mechanic first (really, usually, worth it) and also get it detailed. Some cars are not worth that effort but usually they are if you're actually hoping to sell it for any real money.
You can use Craigslist, I can even do that in Maine. If you need to then set up a block of scheduled time for interested parties to view/test the car on a weekend. It does help to avoid tire kickers but that's something you learn with time. So, there's that. Another, if you really have something worth selling, is to go to a site that has a forum specifically geared towards your car. There are a lot of people who are into a whole variety of vehicles and are very dedicated to a specific model - even specific years, such as myself. (An example, as silly as this may sound to you - I own a fully restored 1982 Volvo 245 with the Canadian trim - meaning square headlights. I love that car. I paid a metric ton for that car and the restoration.)
There are sites that will let you list your car for a fee - I've actually heard good things about buying a car from eBay but I've never known anyone who sold a car with it. A buddy sold his Harley and was happy with the service, there's that - I guess. If you've taken good care of it then there's probably a market and communication is nearly free and very easy today. You can find a buyer - make the buyer do the work but try to be reasonable about it.
I dunno... I just figured that I'd throw this out there. It's not really that much work and it's worth it. If you've really got something nice then visit a car show. They're not all antiques or the likes. I don't own any vehicles that don't get driven, at least some of the time, and even I bring a new car to the weekly show that I attend at least some of the time. I've a standing offer for the above mentioned Volvo, $18,000. Sadly, I have more than that in it. Either way, it's not for sale. It's what I often take out on snowy nights - it's like a tank but rear wheel drive. Sure, 0 to 60 in three point two days but that doesn't matter in the snow. I'm pretty passionate about it and unless you're trying to unload a shitty econobox then someone may be very specifically interested in your used car.
"So long and thanks for all the fish."
If most of the cost of a car is in the distribution, then at least inside the USA, let me trade that cost for the cost of air fare to the automobile assembly plant. I would be willing to buy it there, and "distribute" it myself, driving it home.