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With all due respect you have no idea what you're talking about.
First of all "invoice" means absolutely nothing these days - dealer cost is what matters and that is not the invoice price but that's a whole separate discussion.
Secondly, lets say a manufacturer sells a Ford Fusion to a dealer for $20K. The manufacturer is out of the equation at that point and has no further costs associated with retailing the car. (Land, building, employees, insurance, benefits, floorplan costs, etc.)
Do you honestly think that if the dealers were eliminated and Ford had to open and run a bunch of dealerships themselves the price to you would still be $20K? If so, I've got some swampland in Louisiana I'd like to sell you....The manufacturer would have to raise the price of the car to cover those costs they would now incur that they didn't have before. (The previously mentioned land, building, employees, insurance, benefits, floorplan costs, etc.)
I think each manufacturer should be able to choose whether they sell with or without dealers. I am not a dealer apologist but to say that there are some ungodly middleman costs here is just a lie. Dealer margins on new cars are razor thin as it is but most people think they make huge profits on them - they don't. They make money a little at a time through volume and then pick up more on the back end. (Parts & Service.) Even with that, an average dealer return on sales is 2-4% which is much lower than most industries.
This is true...new cars are the slimmest profit. The dealer gets rich off used cars and then Service and then parts they make a little. (depends on the dealer. Some gouge on parts are some sell them down and dirty cheap usually via the web to suck in a little extra business from afar).
Ehh I don't know that I agree with this. The dealerships are essentially middlemen/brokers. That extra layer of fluff always adds unnecessary cost to the finished product or service. And nobody in their right mind can honestly say they enjoy the car buying process a dealership puts you through. It's an antiquated institution that I wouldn't be the least bit sorry to see end.
Again, please explain to me why getting rid of dealers "adds unnecessary cost to the finished product."
I understand they are technically in the middle between the manufacturer and customer. I understand some dealers suck and are difficult to deal with. No argument there. But you can't assume that taking the dealer out of the equation will actually reduce the cost of the car to the customer.
In fact, most studies would indicate the opposite will happen as that was the case when manufacturers tried to direct sell previously. Someone, whether it be the manufacturer or dealer, still has to pay for all those things required to retail and service vehicles: Land, buildings, employees, insurance, floorplan interest, etc. When the manufacturer was tagged with those expenses and they put the markup on it that they wanted, it shot the price over and above the competition and the experiments failed.
Car dealers are used to making very small profits on new car sales. They do it to pump-up their parts & service business, create a supply of used cars later, and also make some money in F&I. Manufacturers can't seem to grasp that business model...
An easy example that I can recall off the top of my head is European delivery from BMW or the other German car makers. Somehow, amazingly, they can get away with selling a car for thousands less, and ship it to the United States and pay the dealer a flat broker fee and still have that be cheaper than buying one out of the dealer's inventory or off one of their build slots.
Sure, you would need company owned service centers for final delivery, parts and warranty repairs. It would look a lot like a "normal" car dealership. Mercedes Benz of Manhattan if I am not mistaken is owned directly by Mercedes.
An easy example that I can recall off the top of my head is European delivery from BMW or the other German car makers. Somehow, amazingly, they can get away with selling a car for thousands less, and ship it to the United States and pay the dealer a flat broker fee and still have that be cheaper than buying one out of the dealer's inventory or off one of their build slots.
Sure, you would need company owned service centers for final delivery, parts and warranty repairs. It would look a lot like a "normal" car dealership. Mercedes Benz of Manhattan if I am not mistaken is owned directly by Mercedes.
I do not believe those overseas programs are "thousands" less. I know plenty of folks who have done that with Mercedes and Volvo and the costs were about the same as buying it locally. Most of these programs offer savings of 5-7% of MSRP - that would not translate to thousands of dollars of savings over someone buying it here at a real price, which would be well below MSRP.
That being said, you didn't address how the manufacturers would cover the cost of having to build those service centers, etc. Building a parts & service only location is not that much cheaper than building a full-service dealership so thats why you aren't seeing more showroom consolidation, even with dealers who own multiple stores of the same franchise. The cost for all of that will end up somewhere, you know? (Like added to the final price of the car to offset any mythical savings you get by removing dealers from the equation.)
There wouldn't need to be nearly as many of them is the most significant thing I can think of. No need for nearly as much brick and mortar infrastructure. Retailers like Walmart, JC Penney, and Sears have already learned this the hard way. But household goods retailers to my knowledge aren't protected industries like the auto dealers and have to roll with the punches.
There wouldn't need to be nearly as many of them is the most significant thing I can think of. No need for nearly as much brick and mortar infrastructure. Retailers like Walmart, JC Penney, and Sears have already learned this the hard way. But household goods retailers to my knowledge aren't protected industries like the auto dealers and have to roll with the punches.
I think if you took over Ford Motor Company, for example, you could maybe trim 10% of your rooftops at the most. (Many of those in the metro-Detroit area and some areas in the northeast where they have a lot of dealerships within miles of each other.)
That's about it, though. You still need to have a similar amount of rooftops to handle parts and service needs. If you don't have the proper coverage there then your car & truck sales plummet. Customers do not want to drive 30-45 minutes across town for service. This is proven and if you review individual dealer & brand market share numbers.
For example, in my town there are basically two dealers for each brand - on each side of town. However, Audi only had 1 dealer on the west side of town for quite a while, and the Audi market share in our town was about half the national average for them. (Meanwhile BMW and Mercedes each had higher than average market share of the luxury market.) Then about 5 years ago Audi opened a location on the other side of town, too, and if you look today they have equalized the market share numbers almost to the mean.
That also shows that most people still prefer to visit a dealership in-person when buying a car. I don't disagree that ordering online/sight unseen will grow as we move forward, but right now a vast majority of people still want to go touch & feel the car they want to buy. (In addition to the fact that they buy out of stock, too, and do not place orders as they don't want to wait 2-3 months to get the car.)
that's probably all true but I just think it is inherently wasteful and needlessly complex the way the automobile industry works here. It would be like Subway or Pizza Hut building a bunch of sandwiches or pizzas that nobody ordered and hoped for a mad rush of people to come in and buy them so they didn't go to waste. If you really need a sandwich or a pizza you go in and tell them what you want (or order it online) and wait 5 minutes for them to make it 35 minutes for them to deliver it. Cars and not much different than sandwiches or pizzas. It's a service or product that people want and need already. They sell themselves for a price the marketplace agrees is fair. It doesn't need to be any more complicated than that.
that's probably all true but I just think it is inherently wasteful and needlessly complex the way the automobile industry works here. It would be like Subway or Pizza Hut building a bunch of sandwiches or pizzas that nobody ordered and hoped for a mad rush of people to come in and buy them so they didn't go to waste. If you really need a sandwich or a pizza you go in and tell them what you want (or order it online) and wait 5 minutes for them to make it 35 minutes for them to deliver it. Cars and not much different than sandwiches or pizzas. It's a service or product that people want and need already. They sell themselves for a price the marketplace agrees is fair. It doesn't need to be any more complicated than that.
Except you can build a sub or pizza in a matter of minutes, but a car will take a couple months to build once ordered. Go work in manufacturing for an automaker and you will have an appreciation for what it takes to actually put a car together and have it start at the end of the line. It's an amazingly complex business - and I'm just talking about the manufacturing part of it.
Even the most efficient automakers will be lucky to do a build-to-order car within 30 days. With just-in-time inventory being the norm now, and the lead time required to get the parts sourced from suppliers, getting cars built in under 30 days is just not happening anytime soon.
Given that, most cars will still be sold out of stock off dealer lots for the foreseeable future in my opinion. Consumers have always had the ability to order a car just the way they want it but most people don't do that. Whether it's impulse purchase behavior, the need to get a new car ASAP because their current car is having issues, or whatever the situation is there is a reason all these dealers have these huge inventories of cars. Most customers still want to buy their car NOW...not in 30-60 days.
Dealers stock what sells for them. Inventory carrying costs are REALLY expensive. Most dealers spend A LOT of time trying to stock the right mix of product. This is not something taken lightly given the cost that goes with it. If they don't have a specific car with the options you may want, that means you want something that doesn't sell well for them most of the time. I will admit to being one of those picky people as I'm one who usually orders my cars the way I want them.
I think if you took over Ford Motor Company, for example, you could maybe trim 10% of your rooftops at the most. (Many of those in the metro-Detroit area and some areas in the northeast where they have a lot of dealerships within miles of each other.)
That's about it, though. You still need to have a similar amount of rooftops to handle parts and service needs. If you don't have the proper coverage there then your car & truck sales plummet. Customers do not want to drive 30-45 minutes across town for service. This is proven and if you review individual dealer & brand market share numbers.
For example, in my town there are basically two dealers for each brand - on each side of town. However, Audi only had 1 dealer on the west side of town for quite a while, and the Audi market share in our town was about half the national average for them. (Meanwhile BMW and Mercedes each had higher than average market share of the luxury market.) Then about 5 years ago Audi opened a location on the other side of town, too, and if you look today they have equalized the market share numbers almost to the mean.
That also shows that most people still prefer to visit a dealership in-person when buying a car. I don't disagree that ordering online/sight unseen will grow as we move forward, but right now a vast majority of people still want to go touch & feel the car they want to buy. (In addition to the fact that they buy out of stock, too, and do not place orders as they don't want to wait 2-3 months to get the car.)
I can address this... having worked in the parts and service department at dealerships years ago.
Dealers have a markup on the parts they sell. We offered 4 levels of "discounts" depending upon who the customer was.
Level 1 - 50% markup. This was for 1 time customers or those who spent very little money with us.
Level 2 - 40% markup. This was for the occasional DIY'er who spent over $2k per year with us.
Level 3 - 30% markup. This was for the independent shop who frequently used us, and spent over $8k per year with us.
Level 4 - 20% markup. This was for the independent shop who used us almost exclusively and spent over $12k per year with us.
Our service costs were our shop rate ($85/hr) plus parts. Our overhead was 40% of that cost ($34/hr). All parts bought while a vehicle was in for service were marked at level 1 pricing in 99% of scenarios.
Manufacturers could easily "certify" independent shops to perform their service/warranty work and partner with part store chains to stock/order their OEM parts. This would allow those shops to carry the overhead costs and keep the manufacturer from having to build brick and mortar stores. The manufacturer that my dealership was under already has certified independent repair shops in areas where it doesn't make financial sense to open a full fledged dealership. So it happens to an extent now.
Their brick and mortar stores that would be required to allow in person sales would be MUCH smaller when the only thing offered was vehicles. Further, the need for multiple dealerships in one city would be less when people knew the price of the vehicle was identical at every dealer and they didn't have to play games with dealers to "get the best price" which can often involve visiting 4-5 dealerships looking for the best deal.
I doubt people would mind having their service done elsewhere if they know there are now 5-6 options in each city to have the work done, instead of having to either take their vehicle to the dealership to spend 2-3 weeks getting a warranty repaired or driving to another dealership some distance away with the hopes of getting faster service.
I can address this... having worked in the parts and service department at dealerships years ago.
Dealers have a markup on the parts they sell. We offered 4 levels of "discounts" depending upon who the customer was.
Level 1 - 50% markup. This was for 1 time customers or those who spent very little money with us.
Level 2 - 40% markup. This was for the occasional DIY'er who spent over $2k per year with us.
Level 3 - 30% markup. This was for the independent shop who frequently used us, and spent over $8k per year with us.
Level 4 - 20% markup. This was for the independent shop who used us almost exclusively and spent over $12k per year with us.
Our service costs were our shop rate ($85/hr) plus parts. Our overhead was 40% of that cost ($34/hr). All parts bought while a vehicle was in for service were marked at level 1 pricing in 99% of scenarios.
Manufacturers could easily "certify" independent shops to perform their service/warranty work and partner with part store chains to stock/order their OEM parts. This would allow those shops to carry the overhead costs and keep the manufacturer from having to build brick and mortar stores. The manufacturer that my dealership was under already has certified independent repair shops in areas where it doesn't make financial sense to open a full fledged dealership. So it happens to an extent now.
Their brick and mortar stores that would be required to allow in person sales would be MUCH smaller when the only thing offered was vehicles. Further, the need for multiple dealerships in one city would be less when people knew the price of the vehicle was identical at every dealer and they didn't have to play games with dealers to "get the best price" which can often involve visiting 4-5 dealerships looking for the best deal.
I doubt people would mind having their service done elsewhere if they know there are now 5-6 options in each city to have the work done, instead of having to either take their vehicle to the dealership to spend 2-3 weeks getting a warranty repaired or driving to another dealership some distance away with the hopes of getting faster service.
Not really sure what the difference is between a "certified" independent shop and a real dealer. Manufacturers are going to require those "certified" places to meet the same requirements as a dealer so not sure what that changes in the grand scheme of things. They want more repair process consistency in dealerships, not less, so having thousands of little unique shops is just not a viable option. (Not to mention state franchise laws would probably prevent this from happening, anyway.)
With more dealer consolidation there will be opportunities to see if dealers can set up fewer sales centers but maintain the same number of local service centers in a given area. Didn't work before when the manufacturers tried it so will be interesting to see if a Penske or AutoNation can make that model work.
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